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Arrow Electronics, Inc. (NYSE:ARW) today reported fourth-quarter 2012
net income of $174.7 million, or $1.62 per share on a diluted basis,
compared with net income of $174.1 million, or $1.53 per share on a
diluted basis in the fourth quarter of 2011. Excluding certain items in
both the fourth quarters of 2012 and 2011 as described in the non-GAAP
earnings reconciliation table found below, net income of $132.4 million,
or $1.22 per share on a diluted basis, in the fourth quarter of 2012
compared with net income of $157.3 million, or $1.38 per share on a
diluted basis, in the fourth quarter of 2011.
Fourth-quarter sales of $5.40 billion declined 1 percent from sales of
$5.44 billion in the prior year. Pro forma for acquisitions and
excluding the impact of foreign currency, sales declined 3 percent year
over year.
“We delivered strong results in the fourth quarter, with non-GAAP
earnings per share of $1.22 well ahead of our expectations, and strong
cash flow from operations. Our ECS business performed especially well
with sales up 11 percent over last year’s fourth quarter,” said Michael
J. Long, chairman, president, and chief executive officer. “We had an
excellent year, balancing our short-term initiatives and our long-term
strategic priorities.”
Global components fourth-quarter sales of $3.19 billion decreased 7
percent year over year. Pro forma for acquisitions and excluding the
impact of foreign currency, sales declined 9 percent year over year.
Sales in the Asia-Pacific region increased 7 percent year over year,
driven by strong growth in China and the ASEAN region. In the Americas,
sales declined 6 percent year over year due to ongoing market weakness
amid economic uncertainty. European sales were down 20 percent year over
year in local currency, reflecting a weakening in the Euro Zone
economies during the quarter and a prospective change in the accounting
for revenue related to certain fulfillment contracts.
Global enterprise computing solutions (“ECS”) fourth-quarter sales of
$2.22 billion increased 11 percent year over year. Pro forma for
acquisitions and excluding the impact of foreign currency, sales
increased 6 percent year over year. On a global basis, ECS delivered
impressive double-digit year-over-year growth in storage, software, and
services. In the Americas sales growth was at the midpoint of normal
seasonality in the core value-added distribution business. In Europe,
sales were at the high end of normal seasonality in local currency with
strength across all regions.
FULL-YEAR
Arrow’s net income for 2012 was $506.3 million, or $4.56 per share on a
diluted basis, compared with net income of $598.8 million, or $5.17 per
share on a diluted basis in 2011. Excluding certain items in both 2012
and 2011 as described in the non-GAAP earnings reconciliation table
found below, net income of $488.4 million, or $4.40 per share on a
diluted basis, in 2012 compared with net income of $601.4 million, or
$5.19 per share on a diluted basis, in 2011.
2012 sales of $20.41 billion declined 5 percent from sales of $21.39
billion in 2011. Pro forma for acquisitions and excluding the impact of
foreign currency, sales also declined 5 percent year over year.
“Cash flow is again a great story as we generated $675 million in cash
from operations in 2012, again meaningfully exceeding our target for
cash conversion,” said Paul J. Reilly, executive vice president, finance
and operations, and chief financial officer. “In 2012, we returned over
$250 million to shareholders through our stock repurchase program,
bringing the total returned to shareholders to more than $800 million
over the past 5 years.”
GUIDANCE
Looking ahead to the first quarter of 2013, there remains economic
uncertainty in the United States due to the ongoing fiscal cliff and
budget negotiations. Fourth-quarter U.S. GDP numbers showed the first
contraction in the U.S. economy in over three years. The Euro Zone’s
economy also contracted in the fourth quarter and there are no
meaningful signs of improvement for the near term.
In light of these negative economic indicators, the company remains
cautious in the outlook for business activity in the first quarter and
would expect less than normal seasonality in the global components
business. With this economic uncertainty as a backdrop, the company is
embarking on an incremental productivity enhancement program that will
include expense reductions of $40 million on an annual basis.
“As we look to the first quarter, we believe that total sales will be
between $4.6 billion and $5.0 billion, with global components sales
between $3.05 billion and $3.25 billion and global enterprise computing
solutions sales between $1.55 billion and $1.75 billion. As a result of
this outlook, we expect earnings per share, on a diluted basis,
excluding any charges to be in the range of $.80 to $.92 per share. Our
guidance assumes an average tax rate in the range of 28 to 29 percent,
average diluted shares outstanding are expected to be 108.3 million, and
the average Euro to USD exchange rate for the first quarter is 1.35 to
1,” said Mr. Reilly.
Please refer to the CFO commentary as a supplement to the company’s
earnings release, which can be found at www.arrow.com/investor.
Arrow Electronics (www.arrow.com)
is a global provider of products, services and solutions to industrial
and commercial users of electronic components and enterprise computing
solutions. Arrow serves as a supply channel partner for more than
100,000 original equipment manufacturers, contract manufacturers and
commercial customers through a global network of more than 470 locations
in 55 countries.
Certain Non-GAAP Financial Information
In addition to disclosing results that are determined in accordance with
Generally Accepted Accounting Principles (“GAAP”), the company provides
certain non-GAAP financial information relating to operating income, net
income attributable to shareholders and net income per basic and diluted
share, each as adjusted for certain charges, credits, and gains and
losses that the company believes impact the comparability of its results
of operations. These charges, credits, and gains and losses arise out of
the company’s efficiency enhancement initiatives, acquisitions, and
settlement of certain legal and tax matters. A reconciliation of the
company’s non-GAAP financial information to GAAP is set forth in the
table below.
The company believes that such non-GAAP financial information is useful
to investors to assist in assessing and understanding the company’s
operating performance and underlying trends in the company’s business
because management considers the charges, credits, and gains and losses
referred to above to be outside the company’s core operating results.
This non-GAAP financial information is among the primary indicators
management uses as a basis for evaluating the company’s financial and
operating performance. In addition, the company’s Board of Directors may
use this non-GAAP financial information in evaluating management
performance and setting management compensation.
The presentation of this additional non-GAAP financial information is
not meant to be considered in isolation or as a substitute for, or
alternative to, operating income, net income and net income per basic
and diluted share determined in accordance with GAAP. Analysis of
results and outlook on a non-GAAP basis should be used as a complement
to, and in conjunction with, data presented in accordance with GAAP.
ARROW ELECTRONICS, INC.
EARNINGS RECONCILIATION
(In thousands except per share data)
(unaudited)
Quarter Ended December 31,
Year Ended December 31,
2012
2011
2012
2011
Operating income, as reported
$
264,168
$
232,183
$
804,123
$
908,843
Restructuring, integration, and other charges
11,285
14,135
47,437
37,811
Settlement of legal matters
(79,158
)
-
(79,158
)
5,875
Operating income, as adjusted
$
196,295
$
246,318
$
772,402
$
952,529
Net income attributable to shareholders, as reported
$
174,704
$
174,088
$
506,332
$
598,810
Restructuring, integration, and other charges
6,320
11,223
30,739
28,054
Settlement of legal matters
(48,623
)
-
(48,623
)
3,609
Gain/(adjustment) on bargain purchase
-
410
-
(668
)
Loss on prepayment of debt
-
549
-
549
Reversal of valuation allowance on deferred tax assets
-
(28,928
)
-
(28,928
)
Net income attributable to shareholders, as adjusted
$
132,401
$
157,342
$
488,448
$
601,426
Net income per basic share, as reported
$
1.64
$
1.55
$
4.64
$
5.25
Restructuring, integration, and other charges
.06
.10
.28
.25
Settlement of legal matters
(.46
)
-
(.45
)
.03
Gain/(adjustment) on bargain purchase
-
-
-
(.01
)
Loss on prepayment of debt
-
-
-
-
Reversal of valuation allowance on deferred tax assets
-
(.26
)
-
(.25
)
Net income per basic share, as adjusted
$
1.25
$
1.40
$
4.47
$
5.27
Net income per diluted share, as reported
$
1.62
$
1.53
$
4.56
$
5.17
Restructuring, integration, and other charges
.06
.10
.28
.24
Settlement of legal matters
(.45
)
-
(.44
)
.03
Gain/(adjustment) on bargain purchase
-
-
-
(.01
)
Loss on prepayment of debt
-
-
-
-
Reversal of valuation allowance on deferred tax assets
-
(.25
)
-
(.25
)
Net income per diluted share, as adjusted
$
1.22
$
1.38
$
4.40
$
5.19
The sum of the components for basic and diluted net income per
share, as adjusted, may not agree to totals, as presented, due to
rounding.
Information Relating to Forward-Looking Statements
This press release includes forward-looking statements that are subject
to numerous assumptions, risks, and uncertainties, which could cause
actual results or facts to differ materially from such statements for a
variety of reasons, including, but not limited to: industry conditions,
the company's implementation of its new enterprise resource planning
system, changes in product supply, pricing and customer demand,
competition, other vagaries in the global components and global ECS
markets, changes in relationships with key suppliers, increased profit
margin pressure, the effects of additional actions taken to become more
efficient or lower costs, risks related to the integration of acquired
businesses, changes in legal and regulatory matters, and the company’s
ability to generate additional cash flow. Forward-looking statements are
those statements, which are not statements of historical fact. These
forward-looking statements can be identified by forward-looking words
such as "expects," "anticipates," "intends," "plans," "may," "will,"
"believes," "seeks," "estimates," and similar expressions. Shareholders
and other readers are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of the date on which
they are made. The company undertakes no obligation to update publicly
or revise any of the forward-looking statements.
For a further discussion of factors to consider in connection with these
forward-looking statements, investors should refer to Item 1A Risk
Factors of the company’s Annual Report on Form 10-K for the year ended
December 31, 2012.
ARROW ELECTRONICS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands except per share data)
Quarter Ended
Year Ended
December 31,
December 31,
2012
2011
2012
2011
(unaudited)
Sales
$
5,402,705
$
5,440,473
$
20,405,128
$
21,390,264
Costs and expenses:
Cost of sales
4,695,861
4,695,664
17,667,842
18,441,661
Selling, general, and administrative expenses
480,103
469,757
1,849,534
1,892,592
Depreciation and amortization
30,446
28,734
115,350
103,482
Restructuring, integration, and other charges
11,285
14,135
47,437
37,811
Settlement of legal matters
(79,158
)
-
(79,158
)
5,875
5,138,537
5,208,290
19,601,005
20,481,421
Operating income
264,168
232,183
804,123
908,843
Equity in earnings of affiliated companies
2,346
1,936
8,112
6,736
Interest and other financing expense, net
22,233
28,443
101,876
105,971
Other
-
1,562
-
(193
)
Income before income taxes
244,281
204,114
710,359
809,801
Provision for income taxes
69,460
29,984
203,642
210,485
Consolidated net income
174,821
174,130
506,717
599,316
Noncontrolling interests
117
42
385
506
Net income attributable to shareholders
$
174,704
$
174,088
$
506,332
$
598,810
Net income per share:
Basic
$
1.64
$
1.55
$
4.64
$
5.25
Diluted
$
1.62
$
1.53
$
4.56
$
5.17
Average number of shares outstanding:
Basic
106,223
112,024
109,240
114,025
Diluted
108,105
113,878
111,077
115,932
ARROW ELECTRONICS, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands except par value)
December 31,
2012
2011
ASSETS
Current assets:
Cash and cash equivalents
$
409,684
$
396,887
Accounts receivable, net
4,923,898
4,482,117
Inventories
2,052,720
1,963,910
Other current assets
328,999
181,677
Total current assets
7,715,301
7,024,591
Property, plant and equipment, at cost:
Land
23,944
23,790
Buildings and improvements
152,008
147,215
Machinery and equipment
1,030,983
934,558
1,206,935
1,105,563
Less: Accumulated depreciation and amortization
(607,294
)
(549,334
)
Property, plant and equipment, net
599,641
556,229
Investments in affiliated companies
65,603
60,579
Intangible assets, net
414,033
392,763
Cost in excess of net assets of companies acquired
1,711,703
1,473,333
Other assets
279,406
321,584
Total assets
$
10,785,687
$
9,829,079
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable
$
3,769,268
$
3,264,088
Accrued expenses
776,586
660,996
Short-term borrowings, including current portion of long-term debt
364,357
33,843
Total current liabilities
4,910,211
3,958,927
Long-term debt
1,587,478
1,927,823
Other liabilities
300,636
267,069
Equity:
Shareholders' equity:
Common stock, par value $1:
Authorized – 160,000 shares in 2012 and 2011
Issued – 125,424 and 125,382 shares in 2012 and 2011, respectively
125,424
125,382
Capital in excess of par value
1,086,239
1,076,275
Treasury stock (19,423 and 13,568 shares in 2012 and 2011,
respectively), at cost
(652,867
)
(434,959
)
Retained earnings
3,279,289
2,772,957
Foreign currency translation adjustment
182,632
158,550
Other
(37,495
)
(29,393
)
Total shareholders' equity
3,983,222
3,668,812
Noncontrolling interests
4,140
6,448
Total equity
3,987,362
3,675,260
Total liabilities and equity
$
10,785,687
$
9,829,079
ARROW ELECTRONICS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(unaudited)
Quarter Ended December 31,
2012
2011
Cash flows from operating activities:
Consolidated net income
$
174,821
$
174,130
Adjustments to reconcile consolidated net income to net cash
provided by operations:
Depreciation and amortization
30,446
28,734
Amortization of stock-based compensation
9,685
8,945
Equity in earnings of affiliated companies
(2,346
)
(1,936
)
Deferred income taxes
(23,380
)
(10,899
)
Restructuring, integration, and other charges
6,320
11,223
Excess tax benefits from stock-based compensation arrangements
54
(435
)
Other
(1,446
)
(554
)
Change in assets and liabilities, net of effects of acquired
businesses:
Accounts receivable
(554,201
)
(329,943
)
Inventories
37,140
214,783
Accounts payable
374,959
42,788
Accrued expenses
146,052
(10,755
)
Other assets and liabilities
(10,354
)
20,423
Net cash provided by operating activities
187,750
146,504
Cash flows from investing activities:
Cash consideration paid for acquired businesses
(90,668
)
(9,238
)
Acquisition of property, plant and equipment
(36,650
)
(25,674
)
Net cash used for investing activities
(127,318
)
(34,912
)
Cash flows from financing activities:
Change in short-term and other borrowings
(17,607
)
1,984
Proceeds from (repayment of) long-term bank borrowings, net
19,600
(243,000
)
Repurchase of senior notes
-
(19,324
)
Proceeds from exercise of stock options
1,891
47
Excess tax benefits from stock-based compensation arrangements
(54
)
435
Repurchases of common stock
(38,075
)
(242
)
Net cash used for financing activities
(34,245
)
(260,100
)
Effect of exchange rate changes on cash
24,947
829
Net increase (decrease) in cash and cash equivalents
51,134
(147,679
)
Cash and cash equivalents at beginning of period
358,550
544,566
Cash and cash equivalents at end of period
$
409,684
$
396,887
ARROW ELECTRONICS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Year Ended December 31,
2012
2011
Cash flows from operating activities:
Consolidated net income
$
506,717
$
599,316
Adjustments to reconcile consolidated net income to net cash
provided by operations:
Depreciation and amortization
115,350
103,482
Amortization of stock-based compensation
34,546
39,225
Equity in earnings of affiliated companies
(8,112
)
(6,736
)
Deferred income taxes
(5,414
)
(11,377
)
Restructuring, integration, and other charges
30,739
28,054
Excess tax benefits from stock-based compensation arrangements
(5,029
)
(7,956
)
Other
(5,786
)
4,309
Change in assets and liabilities, net of effects of acquired
businesses:
Accounts receivable
(318,689
)
(193,492
)
Inventories
(62,383
)
105,150
Accounts payable
406,874
(465,603
)
Accrued expenses
38,858
(74,236
)
Other assets and liabilities
(52,638
)
747
Net cash provided by operating activities
675,033
120,883
Cash flows from investing activities:
Cash consideration paid for acquired businesses
(281,918
)
(532,568
)
Acquisition of property, plant and equipment
(112,224
)
(113,941
)
Purchase of cost method investment
(15,000
)
-
Net cash used for investing activities
(409,142
)
(646,509
)
Cash flows from financing activities:
Change in short-term and other borrowings
(9,812
)
(6,172
)
Proceeds from (repayment of) long-term bank borrowings, net
(5,400
)
354,000
Repayment of bank term loan
-
(200,000
)
Repurchase of senior notes
-
(19,324
)
Proceeds from exercise of stock options
13,372
46,665
Excess tax benefits from stock-based compensation arrangements
5,029
7,956
Repurchases of common stock
(260,870
)
(197,044
)
Net cash used for financing activities
(257,681
)
(13,919
)
Effect of exchange rate changes on cash
4,587
10,111
Net increase (decrease) in cash and cash equivalents
12,797
(529,434
)
Cash and cash equivalents at beginning of year
396,887
926,321
Cash and cash equivalents at end of year
$
409,684
$
396,887
ARROW ELECTRONICS, INC.
SEGMENT INFORMATION
(In thousands)
Quarter Ended December 31,
Year Ended December 31,
2012
2011
2012
2011
(unaudited)
Sales:
Global components
$
3,185,764
$
3,443,034
$
13,361,122
$
14,853,823
Global ECS
2,216,941
1,997,439
7,044,006
6,536,441
Consolidated
$
5,402,705
$
5,440,473
$
20,405,128
$
21,390,264
Operating income (loss):
Global components
$
122,989
$
176,680
$
619,282
$
823,774
Global ECS
114,249
106,413
290,970
262,893
Corporate (a)
26,930
(50,910
)
(106,129
)
(177,824
)
Consolidated
$
264,168
$
232,183
$
804,123
$
908,843
(a)
Includes restructuring, integration, and other charges of $11.3
million and $47.4 million for the quarter and year ended December
31, 2012 and $14.1 million and $37.8 million for the quarter and
year ended December 31, 2011, respectively. Also includes a gain
of $79.2 million for the quarter and year ended December 31, 2012
and a charge of $5.9 million for the year ended December 31, 2011,
both of which are related to the settlement of legal matters.
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