Document
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
| |
x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended October 1, 2016
OR
| |
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number 1-4482
ARROW ELECTRONICS, INC.
(Exact name of registrant as specified in its charter)
|
| |
New York | 11-1806155 |
(State or other jurisdiction of | (I.R.S. Employer |
incorporation or organization) | Identification Number) |
| |
9201 East Dry Creek Road, Centennial, Colorado | 80112 |
(Address of principal executive offices) | (Zip Code) |
(303) 824-4000
(Registrant's telephone number, including area code)
No Changes
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes x No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer," and "smaller reporting company" in Rule 12b-2 of the Exchange Act:
|
| |
Large accelerated filer x | Accelerated filer o |
Non-accelerated filer o (do not check if a smaller reporting company) | Smaller reporting company o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes o No x
There were 89,585,959 shares of Common Stock outstanding as of October 28, 2016.
ARROW ELECTRONICS, INC.
INDEX
|
| | | |
| | |
Part I. | Financial Information | |
| | | |
| Item 1. | Financial Statements | |
| | Consolidated Statements of Operations | |
| | Consolidated Statements of Comprehensive Income | |
| | Consolidated Balance Sheets | |
| | Consolidated Statements of Cash Flows | |
| | Notes to Consolidated Financial Statements | |
| | | |
| Item 2. | Management's Discussion and Analysis of Financial Condition and Results of Operations | |
| | | |
| Item 3. | Quantitative and Qualitative Disclosures about Market Risk | |
| | | |
| Item 4. | Controls and Procedures | |
| | | |
Part II. | Other Information | |
| | | |
| Item 1A. | Risk Factors | |
| | | |
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | |
| | | |
| Item 6. | Exhibits | |
| | | |
Signature | | |
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
ARROW ELECTRONICS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands except per share data)
(Unaudited)
|
| | | | | | | | | | | | | | | | |
| | Quarter Ended | | Nine Months Ended |
| | October 1, 2016 | | September 26, 2015 | | October 1, 2016 | | September 26, 2015 |
Sales | | $ | 5,936,092 |
| | $ | 5,698,304 |
| | $ | 17,382,370 |
| | $ | 16,530,678 |
|
Costs and expenses: | | |
| | |
| | | | |
Cost of sales | | 5,162,930 |
| | 4,955,937 |
| | 15,061,519 |
| | 14,334,394 |
|
Selling, general, and administrative expenses | | 510,017 |
| | 497,876 |
| | 1,534,534 |
| | 1,457,160 |
|
Depreciation and amortization | | 40,194 |
| | 40,941 |
| | 121,516 |
| | 117,854 |
|
Restructuring, integration, and other charges | | 24,267 |
| | 17,756 |
| | 61,161 |
| | 51,099 |
|
| | 5,737,408 |
| | 5,512,510 |
| | 16,778,730 |
| | 15,960,507 |
|
Operating income | | 198,684 |
| | 185,794 |
| | 603,640 |
| | 570,171 |
|
Equity in earnings of affiliated companies | | 1,311 |
| | 1,674 |
| | 5,394 |
| | 4,890 |
|
Gain on sale of investment | | — |
| | — |
| | — |
| | 2,008 |
|
Interest and other financing expense, net | | 37,229 |
| | 35,409 |
| | 111,828 |
| | 100,959 |
|
Other expense, net | | — |
| | — |
| | — |
| | 4,443 |
|
Income before income taxes | | 162,766 |
| | 152,059 |
| | 497,206 |
| | 471,667 |
|
Provision for income taxes | | 44,931 |
| | 41,755 |
| | 137,441 |
| | 130,589 |
|
Consolidated net income | | 117,835 |
| | 110,304 |
| | 359,765 |
| | 341,078 |
|
Noncontrolling interests | | 108 |
| | 1,060 |
| | 1,533 |
| | 1,844 |
|
Net income attributable to shareholders | | $ | 117,727 |
| | $ | 109,244 |
| | $ | 358,232 |
| | $ | 339,234 |
|
Net income per share: | | |
| | |
| | | | |
Basic | | $ | 1.29 |
| | $ | 1.16 |
| | $ | 3.92 |
| | $ | 3.56 |
|
Diluted | | $ | 1.28 |
| | $ | 1.15 |
| | $ | 3.87 |
| | $ | 3.52 |
|
Weighted-average shares outstanding: | | |
| | |
| | | | |
Basic | | 90,937 |
| | 94,302 |
| | 91,412 |
| | 95,277 |
|
Diluted | | 91,938 |
| | 95,363 |
| | 92,487 |
| | 96,302 |
|
See accompanying notes.
ARROW ELECTRONICS, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
(Unaudited)
|
| | | | | | | | | | | | | | | |
| Quarter Ended | | Nine Months Ended |
| October 1, 2016 | | September 26, 2015 | | October 1, 2016 | | September 26, 2015 |
Consolidated net income | $ | 117,835 |
| | $ | 110,304 |
| | $ | 359,765 |
| | $ | 341,078 |
|
Other comprehensive income: | | | | | | | |
Foreign currency translation adjustment and other | 16,336 |
| | (34,931 | ) | | 38,005 |
| | (185,591 | ) |
Unrealized gain (loss) on investment securities, net | 1,273 |
| | (2,553 | ) | | (2,408 | ) | | (260 | ) |
Unrealized gain on interest rate swaps designated as cash flow hedges, net | 94 |
| | 89 |
| | 278 |
| | 782 |
|
Employee benefit plan items, net | 814 |
| | 883 |
| | 5,578 |
| | 2,607 |
|
Other comprehensive income (loss) | 18,517 |
| | (36,512 | ) | | 41,453 |
| | (182,462 | ) |
Comprehensive income | 136,352 |
| | 73,792 |
| | 401,218 |
| | 158,616 |
|
Less: Comprehensive income attributable to noncontrolling interests | 576 |
| | 1,096 |
| | 2,791 |
| | 1,880 |
|
Comprehensive income attributable to shareholders | $ | 135,776 |
| | $ | 72,696 |
| | $ | 398,427 |
| | $ | 156,736 |
|
See accompanying notes.
ARROW ELECTRONICS, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands except par value)
|
| | | | | | | | |
| | October 1, 2016 | | December 31, 2015 |
| | (Unaudited) | | |
ASSETS | | | | |
Current assets: | | | | |
Cash and cash equivalents | | $ | 384,415 |
| | $ | 273,090 |
|
Accounts receivable, net | | 5,912,085 |
| | 6,161,418 |
|
Inventories, net | | 2,605,408 |
| | 2,466,490 |
|
Other current assets | | 289,356 |
| | 285,473 |
|
Total current assets | | 9,191,264 |
| | 9,186,471 |
|
Property, plant, and equipment, at cost: | | |
| | |
|
Land | | 23,864 |
| | 23,547 |
|
Buildings and improvements | | 174,127 |
| | 162,011 |
|
Machinery and equipment | | 1,353,862 |
| | 1,250,115 |
|
| | 1,551,853 |
| | 1,435,673 |
|
Less: Accumulated depreciation and amortization | | (801,340 | ) | | (735,495 | ) |
Property, plant, and equipment, net | | 750,513 |
| | 700,178 |
|
Investments in affiliated companies | | 89,059 |
| | 73,376 |
|
Intangible assets, net | | 355,968 |
| | 389,326 |
|
Goodwill | | 2,441,846 |
| | 2,368,832 |
|
Other assets | | 309,393 |
| | 303,747 |
|
Total assets | | $ | 13,138,043 |
| | $ | 13,021,930 |
|
LIABILITIES AND EQUITY | | |
| | |
|
Current liabilities: | | |
| | |
|
Accounts payable | | $ | 4,747,227 |
| | $ | 5,192,665 |
|
Accrued expenses | | 698,525 |
| | 819,463 |
|
Short-term borrowings, including current portion of long-term debt | | 77,348 |
| | 44,024 |
|
Total current liabilities | | 5,523,100 |
| | 6,056,152 |
|
Long-term debt | | 2,704,851 |
| | 2,380,575 |
|
Other liabilities | | 429,631 |
| | 390,392 |
|
Equity: | | |
| | |
|
Shareholders' equity: | | |
| | |
|
Common stock, par value $1: | | |
| | |
|
Authorized - 160,000 shares in both 2016 and 2015 | | |
| | |
|
Issued - 125,424 shares in both 2016 and 2015 | | 125,424 |
| | 125,424 |
|
Capital in excess of par value | | 1,102,697 |
| | 1,107,314 |
|
Treasury stock (35,838 and 34,501 shares in 2016 and 2015, respectively), at cost | | (1,590,818 | ) | | (1,480,069 | ) |
Retained earnings | | 5,032,712 |
| | 4,674,480 |
|
Accumulated other comprehensive loss | | (244,511 | ) | | (284,706 | ) |
Total shareholders' equity | | 4,425,504 |
| | 4,142,443 |
|
Noncontrolling interests | | 54,957 |
| | 52,368 |
|
Total equity | | 4,480,461 |
| | 4,194,811 |
|
Total liabilities and equity | | $ | 13,138,043 |
| | $ | 13,021,930 |
|
See accompanying notes.
ARROW ELECTRONICS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
|
| | | | | | | | |
| | Nine Months Ended |
| | October 1, 2016 | | September 26, 2015 |
Cash flows from operating activities: | | | | |
Consolidated net income | | $ | 359,765 |
| | $ | 341,078 |
|
Adjustments to reconcile consolidated net income to net cash provided by operations: | | | | |
Depreciation and amortization | | 121,516 |
| | 117,854 |
|
Amortization of stock-based compensation | | 29,783 |
| | 33,783 |
|
Equity in earnings of affiliated companies | | (5,394 | ) | | (4,890 | ) |
Deferred income taxes | | 30,191 |
| | 26,881 |
|
Gain on sale of investment | | — |
| | (2,008 | ) |
Excess tax benefits from stock-based compensation arrangements | | (4,953 | ) | | (5,863 | ) |
Other | | 4,464 |
| | 8,057 |
|
Change in assets and liabilities, net of effects of acquired businesses: | | | | |
Accounts receivable | | 335,455 |
| | 1,056,282 |
|
Inventories | | (117,674 | ) | | (44,890 | ) |
Accounts payable | | (513,365 | ) | | (1,318,702 | ) |
Accrued expenses | | (102,915 | ) | | (72,728 | ) |
Other assets and liabilities | | (1,121 | ) | | (23,910 | ) |
Net cash provided by operating activities | | 135,752 |
| | 110,944 |
|
Cash flows from investing activities: | | | | |
Cash consideration paid for acquired businesses | | (68,946 | ) | | (512,910 | ) |
Acquisition of property, plant, and equipment | | (126,341 | ) | | (113,056 | ) |
Other | | (12,000 | ) | | 2,008 |
|
Net cash used for investing activities | | (207,287 | ) | | (623,958 | ) |
Cash flows from financing activities: | | | | |
Change in short-term and other borrowings | | 31,941 |
| | (4,069 | ) |
Proceeds from long-term bank borrowings, net | | 320,000 |
| | 238,700 |
|
Net proceeds from note offering | | — |
| | 688,162 |
|
Redemption of notes | | — |
| | (254,313 | ) |
Proceeds from exercise of stock options | | 16,686 |
| | 14,722 |
|
Excess tax benefits from stock-based compensation arrangements | | 4,953 |
| | 5,863 |
|
Repurchases of common stock | | (167,178 | ) | | (206,601 | ) |
Other | | (3,000 | ) | | (5,831 | ) |
Net cash provided by financing activities | | 203,402 |
| | 476,633 |
|
Effect of exchange rate changes on cash | | (20,542 | ) | | (27,230 | ) |
Net increase (decrease) in cash and cash equivalents | | 111,325 |
| | (63,611 | ) |
Cash and cash equivalents at beginning of period | | 273,090 |
| | 400,355 |
|
Cash and cash equivalents at end of period | | $ | 384,415 |
| | $ | 336,744 |
|
See accompanying notes.
ARROW ELECTRONICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands except per share data)
(Unaudited)
Note A – Basis of Presentation
The accompanying consolidated financial statements of Arrow Electronics, Inc. (the "company") were prepared in accordance with accounting principles generally accepted in the United States and reflect all adjustments of a normal recurring nature, which are, in the opinion of management, necessary for a fair presentation of the consolidated financial position and results of operations at and for the periods presented. The consolidated results of operations for the interim periods are not necessarily indicative of results for the full year.
These consolidated financial statements do not include all of the information or notes necessary for a complete presentation and, accordingly, should be read in conjunction with the company's audited consolidated financial statements and accompanying notes for the year ended December 31, 2015, as filed in the company's Annual Report on Form 10-K.
Quarter End
The company operates on a quarterly calendar that closes on the Saturday closest to the end of the calendar quarter, except for the third quarter of 2015, which closed on September 26, 2015.
Reclassification
Certain prior period amounts were reclassified to conform to the current period presentation.
Note B – Impact of Recently Issued Accounting Standards
In October 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2016-17, Consolidation (Topic 810)("ASU No. 2016-17"). ASU No. 2016-17 amends the consolidation guidance on how variable interest entities should treat indirect interest in the entity held through related parties. ASU No. 2016-17 is effective for the company in the first quarter of 2017, with early adoption permitted, and is to be applied using a retrospective approach. The adoption of the provisions of ASU No. 2016-17 is not expected to have a material impact on the company's consolidated financial position or results of operations.
In October 2016, the FASB issued Accounting Standards Update No. 2016-16, Income Taxes - Intra-Entity Transfers of Assets Other Than Inventory (Topic 740)("ASU No. 2016-16"). ASU No. 2016-16 clarifies the accounting for the current and deferred income taxes for an intra-entity transfer of an asset other than inventory. ASU No. 2016-16 is effective for the company in the first quarter of 2018, with early adoption permitted, and is to be applied using a modified retrospective approach. The company is currently evaluating the potential effects of adopting the provisions of ASU No. 2016-16.
In August 2016, the FASB issued Accounting Standards Update No. 2016-15, Statement of Cash Flows (Topic 230) ("ASU No. 2016-15"). ASU No. 2016-15 addresses how certain cash receipts and cash payments are presented and classified in the statement of cash flows. ASU No. 2016-15 is effective for the company in the first quarter of 2018, with early adoption permitted, and is to be applied using a retrospective approach. The company is currently evaluating the potential effects of adopting the provisions of ASU No. 2016-15.
In June 2016, the FASB issued Accounting Standards Update No. 2016-13, Financial Instruments - Credit Losses (Topic 326) ("ASU No. 2016-13"). ASU No. 2016-13 revises the methodology for measuring credit losses on financial instruments and the timing of when such losses are recorded. ASU No. 2016-13 is effective for the company in the first quarter of 2020, with early adoption permitted, and is to be applied using a modified retrospective approach. The company is currently evaluating the potential effects of adopting the provisions of ASU No. 2016-13.
In March 2016, the FASB issued Accounting Standards Update No. 2016-09, Stock Compensation - Improvements to Employee Share-Based Payment Accounting (Topic 718) ("ASU No. 2016-09"). ASU No. 2016-09 revises the accounting treatment for excess tax benefits, minimum statutory tax withholding requirements, and forfeitures related to share-based awards. ASU No. 2016-09 is effective for the company in the first quarter of 2017, with early adoption permitted, and is to be applied using either a retrospective or a modified retrospective approach. The adoption of the provisions of ASU No. 2016-09 is not expected to have a material impact on the company's consolidated financial position or results of operations.
ARROW ELECTRONICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands except per share data)
(Unaudited)
In March 2016, the FASB issued Accounting Standards Update No. 2016-06, Derivatives and Hedging - Contingent Put and Call Options in Debt Instruments (Topic 815) ("ASU No. 2016-06"). ASU No. 2016-06 clarifies the steps required to assess whether a call or put option meets the criteria for bifurcation as an embedded derivative. Effective April 3, 2016, the company adopted the provisions of ASU No. 2016-06 on a prospective basis. The adoption of the provisions of ASU No. 2016-06 did not materially impact the company's consolidated financial position or results of operations.
In February 2016, the FASB issued Accounting Standards Update No. 2016-02, Leases (Topic 842) ("ASU No. 2016-02"). ASU No. 2016-02 requires the entity to recognize the assets and liabilities for the rights and obligations created by leased assets. Leases will be classified as either finance or operating, with classification affecting expense recognition in the income statement. ASU No. 2016-02 is effective for the company in the first quarter of 2019, with early adoption permitted, and is to be applied using a modified retrospective approach. The company is currently evaluating the potential effects of adopting the provisions of ASU No. 2016-02.
In January 2016, the FASB issued Accounting Standards Update No. 2016-01, Financial Instruments - Recognition and Measurement of Financial Assets and Financial Liabilities (Topic 825) ("ASU No. 2016-01"). ASU No. 2016-01 revises the classification and measurement of investments in certain equity investments and the presentation of certain fair value changes for certain financial liabilities measured at fair value. ASU No. 2016-01 requires the change in fair value of many equity investments to be recognized in net income. ASU No. 2016-01 is effective for the company in the first quarter of 2018, with early adoption permitted, and is to be applied prospectively. The company is currently evaluating the potential effects of adopting the provisions of ASU No. 2016-01.
In November 2015, the FASB issued Accounting Standards Update No. 2015-17, Income Taxes - Balance Sheet Classification of Deferred Taxes (Topic 740) ("ASU No. 2015-17"). ASU No. 2015-17 requires deferred tax liabilities and assets to be classified as noncurrent in the consolidated balance sheet. ASU No. 2015-17 is effective for the company in the first quarter of 2017, with early adoption permitted. ASU No. 2015-17 may be applied either prospectively to all deferred tax liabilities and assets or retrospectively to all periods presented. The adoption of the provisions of ASU No. 2015-17 is not expected to have a material impact on the company's consolidated financial position or results of operations.
In July 2015, the FASB issued Accounting Standards Update No. 2015-11, Inventory - Simplifying the Measurement of Inventory (Topic 330) ("ASU No. 2015-11"). ASU No. 2015-11 requires an entity to measure inventory within the scope of the update at the lower of cost and net realizable value, and defines net realizable value as the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. Effective January 1, 2016, the company adopted the provisions of ASU No. 2015-11 on a prospective basis. The adoption of the provisions of ASU No. 2015-11 did not materially impact the company's consolidated financial position or results of operations.
In May 2014, the FASB issued Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (Topic 606) ("ASU No. 2014-09"). ASU No. 2014-09 supersedes all existing revenue recognition guidance. Under ASU No. 2014-09, an entity should recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASU No. 2014-09 is effective for the company in the first quarter of 2018, with early adoption permitted in the first quarter of 2017. ASU No. 2014-09 allows for either full retrospective or modified retrospective adoption. In March, April, and May 2016, the FASB issued ASU No. 2016-08, Revenue from Contracts with Customers: Principal versus Agent Considerations (Reporting Revenue Gross versus Net) ("ASU No. 2016-08"); ASU No. 2016-10, Revenue from Contracts with Customers: Identifying Performance Obligations and Licensing ("ASU No. 2016-10"); and ASU No. 2016-12, Revenue from Contracts with Customers: Narrow-Scope Improvements and Practical Expedients ("ASU No. 2016-12"), respectively. ASU No. 2016-08, ASU No. 2016-10, and ASU No. 2016-12 provide supplemental adoption guidance and clarification to ASU No. 2014-09, and must be adopted concurrently with the adoption of ASU No. 2014-09. The company is currently evaluating the potential effects of adopting the provisions of ASU No. 2014-09, ASU No. 2016-08, ASU No. 2016-10, and ASU No. 2016-12.
Note C – Acquisitions
2016 Acquisitions
During the first nine months of 2016, the company completed three acquisitions for $68,064, net of cash acquired. The impact of these acquisitions was not material to the company's consolidated financial position or results of operations. The pro forma impact
ARROW ELECTRONICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands except per share data)
(Unaudited)
of the 2016 acquisitions on the consolidated results of operations of the company for the first nine months of 2016 and 2015 as though the acquisitions occurred on January 1 was also not material.
2015 Acquisitions
On March 31, 2015, the company acquired immixGroup, Inc. ("immixGroup"), for a purchase price of $280,454, which included $28,205 of cash acquired. immixGroup is a value-added provider supporting value-added resellers, solution providers, service providers, and other public sector channel partners with specialized resources to accelerate their government sales. immixGroup has operations in North America.
Since the date of the acquisition, immixGroup sales for the first nine months of 2016 and 2015 of $529,935 and $230,514, respectively, were included in the company's consolidated results of operations.
The following table summarizes the allocation of the net consideration paid to the fair value of the assets acquired and liabilities assumed for the immixGroup acquisition:
|
| | | |
Accounts receivable, net | $ | 145,130 |
|
Other current assets | 24,181 |
|
Property, plant, and equipment | 1,569 |
|
Other assets | 5,313 |
|
Identifiable intangible assets | 46,400 |
|
Goodwill | 183,840 |
|
Accounts payable | (136,921 | ) |
Accrued expenses | (11,736 | ) |
Other liabilities | (5,527 | ) |
Cash consideration paid, net of cash acquired | $ | 252,249 |
|
In connection with the immixGroup acquisition, the company allocated $44,000 to customer relationships with a life of 13 years and $2,400 to amortizable trade name with a life of 5 years.
The goodwill related to the immixGroup acquisition was recorded in the company's global enterprise computing solutions ("ECS") business segment. The intangible assets related to the immixGroup acquisition are deductible for income tax purposes.
During 2015, the company completed nine additional acquisitions for an aggregate purchase price of approximately $263,341, net of cash acquired, inclusive of an initial 53.7% acquisition of Data Modul AG, and an additional 3.6% acquired subsequent to the original date of acquisition. The company also assumed $84,487 in debt in connection with these acquisitions. The impact of these acquisitions was not material, individually or in the aggregate, to the company's consolidated financial position or results of operations.
The following table summarizes the company's unaudited consolidated results of operations for the third quarter and first nine months of 2015, as well as the unaudited pro forma consolidated results of operations of the company, as though the 2015 acquisitions occurred on January 1:
|
| | | | | | | | | | | | | | | |
| Quarter Ended | | Nine Months Ended |
| September 26, 2015 | | September 26, 2015 |
| As Reported | | Pro Forma | | As Reported | | Pro Forma |
Sales | $ | 5,698,304 |
| | $ | 5,704,129 |
| | $ | 16,530,678 |
| | $ | 16,933,261 |
|
Net income attributable to shareholders | 109,244 |
| | 109,187 |
| | 339,234 |
| | 341,905 |
|
Net income per share: | | | | | | | |
Basic | $ | 1.16 |
| | $ | 1.16 |
| | $ | 3.56 |
| | $ | 3.59 |
|
Diluted | $ | 1.15 |
| | $ | 1.14 |
| | $ | 3.52 |
| | $ | 3.55 |
|
ARROW ELECTRONICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands except per share data)
(Unaudited)
The unaudited pro forma consolidated results of operations do not purport to be indicative of the results obtained had these acquisitions occurred as of the beginning of 2015, or of those results that may be obtained in the future. Additionally, the above table does not reflect any anticipated cost savings or cross-selling opportunities expected to result from these acquisitions.
Note D – Goodwill
Goodwill represents the excess of the cost of an acquisition over the fair value of the net assets acquired. The company tests goodwill and other indefinite-lived intangible assets for impairment annually as of the first day of the fourth quarter, or more frequently if indicators of potential impairment exist.
Goodwill of companies acquired, allocated to the company's business segments, is as follows: |
| | | | | | | | | | | | |
| | Global Components | | Global ECS | | Total |
Balance as of December 31, 2015 (a) | | $ | 1,230,832 |
| | $ | 1,138,000 |
| | $ | 2,368,832 |
|
Acquisitions and related adjustments | | 20,740 |
| | 39,614 |
| | 60,354 |
|
Foreign currency translation adjustment | | 4,018 |
| | 8,642 |
| | 12,660 |
|
Balance as of October 1, 2016 (a) | | $ | 1,255,590 |
| | $ | 1,186,256 |
| | $ | 2,441,846 |
|
| |
(a) | The total carrying value of goodwill for all periods in the table above is reflected net of $1,018,780 of accumulated impairment charges, of which $716,925 was recorded in the global components business segment and $301,855 was recorded in the global ECS business segment. |
Intangible assets, net, are comprised of the following as of October 1, 2016:
|
| | | | | | | | | | | | | | |
| | Weighted-Average Life | | Gross Carrying Amount | | Accumulated Amortization | | Net |
Trade names | | indefinite | | $ | 101,000 |
| | $ | — |
| | $ | 101,000 |
|
Customer relationships | | 10 years | | 485,493 |
| | (238,987 | ) | | 246,506 |
|
Developed technology | | 5 years | | 16,220 |
| | (10,993 | ) | | 5,227 |
|
Other intangible assets | | (b) | | 7,015 |
| | (3,780 | ) | | 3,235 |
|
| | | | $ | 609,728 |
| | $ | (253,760 | ) | | $ | 355,968 |
|
| |
(b) | Consists of non-competition agreements, sales backlog, and an amortizable trade name with useful lives ranging from two to five years. |
Intangible assets, net, are comprised of the following as of December 31, 2015: |
| | | | | | | | | | | | | | |
| | Weighted-Average Life | | Gross Carrying Amount | | Accumulated Amortization | | Net |
Trade names | | indefinite | | $ | 101,000 |
| | $ | — |
| | $ | 101,000 |
|
Customer relationships | | 10 years | | 498,319 |
| | (215,263 | ) | | 283,056 |
|
Developed technology | | 5 years | | 13,154 |
| | (7,894 | ) | | 5,260 |
|
Other intangible assets | | (c) | | 917 |
| | (907 | ) | | 10 |
|
| | | | $ | 613,390 |
| | $ | (224,064 | ) | | $ | 389,326 |
|
| |
(c) | Consists of non-competition agreements with useful lives ranging from two to three years. |
During the third quarters of 2016 and 2015, the company recorded amortization expense related to identifiable intangible assets of $13,893 and $14,269, respectively.
ARROW ELECTRONICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands except per share data)
(Unaudited)
During the first nine months of 2016 and 2015, the company recorded amortization expense related to identifiable intangible assets of $41,252 and $39,293, respectively.
Note E – Investments in Affiliated Companies
The company owns a 50% interest in several joint ventures with Marubun Corporation (collectively "Marubun/Arrow") and several other interests in affiliated companies. These investments are accounted for using the equity method.
The following table presents the company's investment in affiliated companies:
|
| | | | | | | | |
| | October 1, 2016 | | December 31, 2015 |
Marubun/Arrow | | $ | 65,283 |
| | $ | 62,530 |
|
Other | | 23,776 |
| | 10,846 |
|
| | $ | 89,059 |
| | $ | 73,376 |
|
The equity in earnings of affiliated companies consists of the following:
|
| | | | | | | | | | | | | | | | |
| | Quarter Ended | | Nine Months Ended |
| | October 1, 2016 | | September 26, 2015 | | October 1, 2016 | | September 26, 2015 |
Marubun/Arrow | | $ | 1,549 |
| | $ | 1,494 |
| | $ | 5,059 |
| | $ | 4,247 |
|
Other | | (238 | ) | | 180 |
| | 335 |
| | 643 |
|
| | $ | 1,311 |
| | $ | 1,674 |
| | $ | 5,394 |
| | $ | 4,890 |
|
Under the terms of various joint venture agreements, the company is required to pay its pro-rata share of the third party debt of the joint ventures in the event that the joint ventures are unable to meet their obligations. At October 1, 2016, the company's pro-rata share of this debt was approximately $185. The company believes that there is sufficient equity in each of the joint ventures to meet their obligations.
Note F – Accounts Receivable
Accounts receivable, net, consists of the following:
|
| | | | | | | | |
| | October 1, 2016 | | December 31, 2015 |
Accounts receivable | | $ | 5,963,744 |
| | $ | 6,211,077 |
|
Allowances for doubtful accounts | | (51,659 | ) | | (49,659 | ) |
Accounts receivable, net | | $ | 5,912,085 |
| | $ | 6,161,418 |
|
The company maintains allowances for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments. The allowances for doubtful accounts are determined using a combination of factors, including the length of time the receivables are outstanding, the current business environment, and historical experience.
Note G – Debt
At October 1, 2016 and December 31, 2015, short-term borrowings of $77,348 and $44,024, respectively, were primarily utilized to support the working capital requirements. The weighted-average interest rate on these borrowings was 2.23% and 3.30% at October 1, 2016 and December 31, 2015, respectively.
ARROW ELECTRONICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands except per share data)
(Unaudited)
Long-term debt consists of the following:
|
| | | | | | | | |
| | October 1, 2016 | | December 31, 2015 |
Revolving credit facility | | $ | — |
| | $ | 72,000 |
|
Asset securitization program | | 467,000 |
| | 75,000 |
|
6.875% senior debentures, due 2018 | | 199,233 |
| | 198,886 |
|
3.00% notes, due 2018 | | 298,807 |
| | 298,197 |
|
6.00% notes, due 2020 | | 299,121 |
| | 298,932 |
|
5.125% notes, due 2021 | | 248,774 |
| | 248,566 |
|
3.50% notes, due 2022 | | 345,595 |
| | 345,061 |
|
4.50% notes, due 2023 | | 296,531 |
| | 296,194 |
|
4.00% notes, due 2025 | | 344,490 |
| | 344,092 |
|
7.50% senior debentures, due 2027 | | 198,477 |
| | 198,366 |
|
Interest rate swaps designated as fair value hedges | | 1,373 |
| | 711 |
|
Other obligations with various interest rates and due dates | | 5,450 |
| | 4,570 |
|
| | $ | 2,704,851 |
| | $ | 2,380,575 |
|
The 7.50% senior debentures are not redeemable prior to their maturity. The 6.875% senior debentures, 3.00% notes, 6.00% notes, 5.125% notes, 3.50% notes, 4.50% notes, and 4.00% notes may be called at the option of the company subject to "make whole" clauses.
The estimated fair market value, using quoted market prices, is as follows:
|
| | | | | | | | |
| | October 1, 2016 | | December 31, 2015 |
6.875% senior debentures, due 2018 | | $ | 214,000 |
| | $ | 218,000 |
|
3.00% notes, due 2018 | | 304,500 |
| | 303,000 |
|
6.00% notes, due 2020 | | 331,500 |
| | 330,000 |
|
5.125% notes, due 2021 | | 271,500 |
| | 267,500 |
|
3.50% notes, due 2022 | | 358,000 |
| | 343,000 |
|
4.50% notes, due 2023 | | 319,500 |
| | 309,000 |
|
4.00% notes, due 2025 | | 359,500 |
| | 336,000 |
|
7.50% senior debentures, due 2027 | | 247,000 |
| | 238,000 |
|
The carrying amount of the company's short-term borrowings in various countries, revolving credit facility, asset securitization program, and other obligations approximate their fair value.
The company has a $1,500,000 revolving credit facility maturing in December 2018. This facility may be used by the company for general corporate purposes including working capital in the ordinary course of business, letters of credit, repayment, prepayment or purchase of long-term indebtedness and acquisitions, and as support for the company's commercial paper program, as applicable. Interest on borrowings under the revolving credit facility is calculated using a base rate or a euro currency rate plus a spread (1.30% at October 1, 2016), which is based on the company's credit ratings, or an effective interest rate of 1.72% at October 1, 2016. The facility fee, which is based on the company's credit ratings, was .20% at October 1, 2016. There were no outstanding borrowings under the revolving credit facility at October 1, 2016. The company had $72,000 in outstanding borrowings under the revolving credit facility at December 31, 2015.
The company has an asset securitization program collateralized by accounts receivable of certain of its subsidiaries. In September 2016, the company amended its asset securitization program and, among other things, increased its borrowing capacity from $900,000 to $910,000 and extended its term to mature in September 2019. The asset securitization program is conducted through Arrow Electronics Funding Corporation ("AFC"), a wholly-owned, bankruptcy remote subsidiary. The asset securitization program
ARROW ELECTRONICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands except per share data)
(Unaudited)
does not qualify for true sale treatment. Accordingly, the accounts receivable and related debt obligation remain on the company's consolidated balance sheets. Interest on borrowings is calculated using a base rate or a commercial paper rate plus a spread (.40% at October 1, 2016), which is based on the company's credit ratings, or an effective interest rate of 1.07% at October 1, 2016. The facility fee is .40%.
At October 1, 2016 and December 31, 2015, the company had $467,000 and $75,000, respectively, in outstanding borrowings under the asset securitization program, which was included in "Long-term debt" in the company's consolidated balance sheets. Total collateralized accounts receivable of approximately $1,631,581 and $1,871,831, respectively, were held by AFC and were included in "Accounts receivable, net" in the company's consolidated balance sheets. Any accounts receivable held by AFC would likely not be available to other creditors of the company in the event of bankruptcy or insolvency proceedings before repayment of any outstanding borrowings under the asset securitization program.
Both the revolving credit facility and asset securitization program include terms and conditions that limit the incurrence of additional borrowings and require that certain financial ratios be maintained at designated levels. The company was in compliance with all covenants as of October 1, 2016 and is currently not aware of any events that would cause non-compliance with any covenants in the future.
During February 2015, the company completed the sale of $350,000 principal amount of 3.50% notes due in 2022 and $350,000 principal amount of 4.00% notes due in 2025. The net proceeds of the offering of $688,162 were used to refinance the company's 3.375% notes due November 2015 and for general corporate purposes.
During February 2015, the company redeemed $250,000 principal amount of its 3.375% notes due November 2015. The related loss on the redemption for 2015 was $2,943 and was recognized as a loss on prepayment of debt, which was included in "Other expense, net" in the company's consolidated statements of operations.
The company has a $100,000 uncommitted line of credit. There were no outstanding borrowings under the uncommitted line of credit at October 1, 2016 and December 31, 2015.
Interest and other financing expense, net, includes interest and dividend income of $1,874 and $5,264 for the third quarter and first nine months of 2016, respectively. Interest and other financing expense, net, includes interest and dividend income of $1,299 and $3,761 for the third quarter and first nine months of 2015, respectively.
Note H – Financial Instruments Measured at Fair Value
Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The company utilizes a fair value hierarchy, which maximizes the use of observable inputs and minimizes the use of unobservable inputs when measuring fair value. The fair value hierarchy has three levels of inputs that may be used to measure fair value:
| |
Level 1 | Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities. |
| |
Level 2 | Quoted prices in markets that are not active; or other inputs that are observable, either directly or indirectly, for substantially the full term of the asset or liability. |
| |
Level 3 | Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable. |
ARROW ELECTRONICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands except per share data)
(Unaudited)
The following table presents assets (liabilities) measured at fair value on a recurring basis at October 1, 2016:
|
| | | | | | | | | | | | | | | | | | |
| | Balance Sheet Location | | Level 1 | | Level 2 | | Level 3 | | Total |
Cash equivalents | | Other assets | | $ | 3,525 |
| | $ | — |
| | $ | — |
| | $ | 3,525 |
|
Available-for-sale securities | | Other assets | | 37,403 |
| | — |
| | — |
| | 37,403 |
|
Interest rate swaps | | Other assets | | — |
| | 1,373 |
| | — |
| | 1,373 |
|
Foreign exchange contracts | | Other current assets | | — |
| | 1,179 |
| | — |
| | 1,179 |
|
Foreign exchange contracts | | Accrued expenses | | — |
| | (2,047 | ) | | — |
| | (2,047 | ) |
Contingent consideration | | Accrued expenses | | — |
| | — |
| | (4,197 | ) | | (4,197 | ) |
| | | | $ | 40,928 |
| | $ | 505 |
| | $ | (4,197 | ) | | $ | 37,236 |
|
The following table presents assets (liabilities) measured at fair value on a recurring basis at December 31, 2015:
|
| | | | | | | | | | | | | | | | | | |
| | Balance Sheet Location | | Level 1 | | Level 2 | | Level 3 | | Total |
Cash equivalents | | Other assets | | $ | 1,559 |
| | $ | — |
| | $ | — |
| | $ | 1,559 |
|
Available-for-sale securities | | Other assets | | 41,178 |
| | — |
| | — |
| | 41,178 |
|
Interest rate swaps | | Other assets | | — |
| | 711 |
| | — |
| | 711 |
|
Foreign exchange contracts | | Other current assets | | — |
| | 2,625 |
| | — |
| | 2,625 |
|
Foreign exchange contracts | | Accrued expenses | | — |
| | (3,363 | ) | | — |
| | (3,363 | ) |
Contingent consideration | | Accrued expenses | | — |
| | — |
| | (3,889 | ) | | (3,889 | ) |
| | | | $ | 42,737 |
| | $ | (27 | ) | | $ | (3,889 | ) | | $ | 38,821 |
|
Assets and liabilities that are measured at fair value on a nonrecurring basis relate primarily to goodwill and identifiable intangible assets (see Note C and D). The company tests these assets for impairment if indicators of potential impairment exist.
During the first nine months of 2016 and 2015, there were no transfers of assets (liabilities) measured at fair value between the three levels of the fair value hierarchy.
Available-For-Sale Securities
The company has an 8.4% equity ownership interest in Marubun Corporation ("Marubun") and a portfolio of mutual funds with quoted market prices, all of which are accounted for as available-for-sale securities.
The fair value of the company's available-for-sale securities is as follows:
|
| | | | | | | | | | | | | | | | |
| | October 1, 2016 | | December 31, 2015 |
| | Marubun | | Mutual Funds | | Marubun | | Mutual Funds |
Cost basis | | $ | 10,016 |
| | $ | 17,535 |
| | $ | 10,016 |
| | $ | 17,389 |
|
Unrealized holding gain | | 3,515 |
| | 6,337 |
| | 8,708 |
| | 5,065 |
|
Fair value | | $ | 13,531 |
| | $ | 23,872 |
| | $ | 18,724 |
| | $ | 22,454 |
|
The unrealized holding gains or losses on these investments are included in "Accumulated other comprehensive loss" in the shareholders' equity section in the company's consolidated balance sheets.
Derivative Instruments
The company uses various financial instruments, including derivative instruments, for purposes other than trading. Certain derivative instruments are designated at inception as hedges and measured for effectiveness both at inception and on an ongoing basis. Derivative instruments not designated as hedges are marked-to-market each reporting period with any unrealized gains or losses recognized in earnings.
ARROW ELECTRONICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands except per share data)
(Unaudited)
Interest Rate Swaps
The company occasionally enters into interest rate swap transactions that convert certain fixed-rate debt to variable-rate debt or variable-rate debt to fixed-rate debt in order to manage its targeted mix of fixed- and floating-rate debt. The company uses the hypothetical derivative method to assess the effectiveness of its interest rate swaps designated as fair value hedges on a quarterly basis. The effective portion of the change in the fair value of designated interest rate swaps is recorded as a change to the carrying value of the related hedged debt. The ineffective portion of the interest rate swaps, if any, is recorded in "Interest and other financing expense, net" in the company's consolidated statements of operations. As of October 1, 2016 and December 31, 2015, all outstanding interest rate swaps were designated as fair value hedges.
The terms of our outstanding interest rate swap contracts at October 1, 2016 are as follows:
|
| | | | | | |
Maturity Date | | Notional Amount | | Interest rate due from counterparty | | Interest rate due to counterparty |
April 2020 | | 50,000 | | 6.000% | | 6 mo. USD LIBOR + 3.896 |
June 2018 | | 50,000 | | 6.875% | | 6 mo. USD LIBOR + 5.301 |
Foreign Exchange Contracts
The company enters into foreign exchange forward, option, or swap contracts (collectively, the "foreign exchange contracts") to mitigate the impact of changes in foreign currency exchange rates. These contracts are executed to facilitate the hedging of foreign currency exposures resulting from inventory purchases, sales, and inter-company transactions and generally have terms of no more than six months. Gains or losses on these contracts are deferred and recognized when the underlying future purchase or sale is recognized or when the corresponding asset or liability is revalued. The company does not enter into foreign exchange contracts for trading purposes. The risk of loss on a foreign exchange contract is the risk of nonperformance by the counterparties, which the company minimizes by limiting its counterparties to major financial institutions. The fair value of the foreign exchange contracts are estimated using market quotes for the applicable foreign exchange rate. The notional amount of the foreign exchange contracts at October 1, 2016 and December 31, 2015 was $372,460 and $382,025, respectively.
Gains and losses related to non-designated foreign currency exchange contracts are recorded in "Cost of sales" in the company's consolidated statements of operations. Gains and losses related to designated foreign currency exchange contracts are recorded in "Selling, general, and administrative expenses" in the company's consolidated statements of operations and were not material for the third quarter and first nine months of 2016 and 2015.
The effects of derivative instruments on the company's consolidated statements of operations and other comprehensive income are as follows:
|
| | | | | | | | | | | | | | | | |
| | Quarter Ended | | Nine Months Ended |
| | October 1, 2016 | | September 26, 2015 | | October 1, 2016 | | September 26, 2015 |
Gain (Loss) Recognized in Income | | | | | | | | |
Foreign exchange contracts | | $ | (2,394 | ) | | $ | 4,440 |
| | $ | (1,873 | ) | | $ | 3,383 |
|
Interest rate swaps | | (153 | ) | | (144 | ) | | (452 | ) | | (377 | ) |
Total | | $ | (2,547 | ) | | $ | 4,296 |
| | $ | (2,325 | ) | | $ | 3,006 |
|
Gain (Loss) Recognized in Other Comprehensive Income before reclassifications | | | | | | | | |
Foreign exchange contracts | | $ | (55 | ) | | $ | 170 |
| | $ | (588 | ) | | $ | 607 |
|
Interest rate swaps | | $ | — |
| | $ | — |
| | $ | — |
| | $ | 827 |
|
ARROW ELECTRONICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands except per share data)
(Unaudited)
Other
The carrying amount of cash and cash equivalents, accounts receivable, net, and accounts payable approximate their fair value due to the short maturities of these financial instruments.
Note I – Restructuring, Integration, and Other Charges
The following table presents the components of the restructuring, integration, and other charges:
|
| | | | | | | | | | | | | | | | |
| | Quarter Ended | | Nine Months Ended |
| | October 1, 2016 | | September 26, 2015 | | October 1, 2016 | | September 26, 2015 |
Restructuring and integration charges - current period actions | | $ | 12,028 |
| | $ | 9,378 |
| | $ | 22,131 |
| | $ | 28,563 |
|
Restructuring and integration charges (credits) - actions taken in prior periods | | (487 | ) | | 570 |
| | 3,474 |
| | 1,248 |
|
Other charges | | 12,726 |
| | 7,808 |
| | 35,556 |
| | 21,288 |
|
| | $ | 24,267 |
| | $ | 17,756 |
| | $ | 61,161 |
| | $ | 51,099 |
|
2016 Restructuring and Integration Charges
The following table presents the components of the 2016 restructuring and integration charges and activity in the related restructuring and integration accrual for the first nine months of 2016:
|
| | | | | | | | | | | | | | | | |
| | Personnel Costs | | Facilities Costs | | Other | | Total |
Restructuring and integration charges | | $ | 18,007 |
| | $ | 3,152 |
| | $ | 972 |
| | $ | 22,131 |
|
Payments | | (7,160 | ) | | (604 | ) | | (257 | ) | | (8,021 | ) |
Foreign currency translation | | (68 | ) | | (20 | ) | | 3 |
| | (85 | ) |
Balance as of October 1, 2016 | | $ | 10,779 |
| | $ | 2,528 |
| | $ | 718 |
| | $ | 14,025 |
|
These restructuring initiatives are due to the company's continued efforts to lower cost and drive operational efficiency. Integration costs are primarily related to the integration of acquired businesses within the company's pre-existing business and the consolidation of certain operations.
2015 Restructuring and Integration Charges
The following table presents the activity in the restructuring and integration accrual for the first nine months of 2016 related to the 2015 restructuring and integration:
|
| | | | | | | | | | | | | | | | |
| | Personnel Costs | | Facilities Costs | | Other | | Total |
Balance as of December 31, 2015 | | $ | 16,321 |
| | $ | 403 |
| | $ | 159 |
| | $ | 16,883 |
|
Restructuring and integration charges | | 1,724 |
| | 2,243 |
| | — |
| | 3,967 |
|
Payments | | (15,319 | ) | | (827 | ) | | (6 | ) | | (16,152 | ) |
Foreign currency translation | | 12 |
| | 1 |
| | 11 |
| | 24 |
|
Balance as of October 1, 2016 | | $ | 2,738 |
| | $ | 1,820 |
| | $ | 164 |
| | $ | 4,722 |
|
ARROW ELECTRONICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands except per share data)
(Unaudited)
Restructuring and Integration Accruals Related to Actions Taken Prior to 2015
The following table presents the activity in the restructuring and integration accruals for the first nine months of 2016 related to restructuring and integration actions taken prior to 2015:
|
| | | | | | | | | | | | | | | | |
| | Personnel Costs | | Facilities Costs | | Other | | Total |
Balance as of December 31, 2015 | | $ | 2,754 |
| | $ | 2,341 |
| | $ | — |
| | $ | 5,095 |
|
Restructuring and integration charges (credits) | | (308 | ) | | (491 | ) | | 306 |
| | (493 | ) |
Payments | | (1,185 | ) | | (1,180 | ) | | (380 | ) | | (2,745 | ) |
Foreign currency translation | | 61 |
| | (22 | ) | | 74 |
| | 113 |
|
Balance as of October 1, 2016 | | $ | 1,322 |
| | $ | 648 |
| | $ | — |
| | $ | 1,970 |
|
Restructuring and Integration Accrual Summary
In summary, the restructuring and integration accruals aggregate to $20,717 at October 1, 2016, all of which are expected to be spent in cash, and are expected to be utilized as follows:
| |
• | The accruals for personnel costs totaling $14,839 relate to the termination of personnel that have scheduled payouts of $8,413 in 2016, $6,213 in 2017, $179 in 2018, $17 in 2019, and $17 in 2020. |
| |
• | The accruals for facilities totaling $4,996 relate to vacated leased properties that have scheduled payments of $3,114 in 2016, $1,004 in 2017, $703 in 2018, and $175 in 2019. |
| |
• | Other accruals of $882 are expected to be spent within one year. |
Other Charges
Included in restructuring, integration, and other charges for the third quarter and first nine months of 2016 are fraud loss, acquisition-related, and other expenses of $12,726 and $35,556, respectively. The company determined that it was the target of criminal fraud by persons impersonating a company executive, which resulted in unauthorized transfers of cash from a company account in Europe to outside bank accounts in Asia in January 2016. Legal actions by the company and law enforcement are ongoing. The information gathered by the company indicates that this is an isolated event not associated with a security breach or loss of data. Additionally, no officers or employees of the company were involved in the fraud. During the third quarter and first nine months of 2016, the company recorded a fraud loss, net of insurance recoveries, of $507 and $4,449, respectively. Included within “Other current assets” is approximately $29,000 of cash frozen in outside bank accounts that the company believes is probable of recovery. Acquisition related charges for the third quarter and first nine months of 2016 of $2,679 and $7,645, respectively, related to contingent consideration for acquisitions completed in prior years which were conditional upon the financial performance of the acquired companies and the continued employment of the selling shareholders, as well as professional and other fees directly related to recent acquisition activity. In the third quarter and first nine months of 2016, the company released a $2,376 legal reserve related to the Tekelec Matter (see Note M) and incurred an additional expense of $11,744 to increase its accrual for the Wyle Laboratories ("Wyle") environmental obligation (see Note M). During 2016, the company adopted an amendment to its Wyle defined benefit plan and incurred a settlement expense of $12,211 during the first nine months of 2016.
Included in restructuring, integration, and other charges for the third quarter and first nine months of 2015 are acquisition-related expenses of $5,267 and $18,748, respectively, consisting of charges related to contingent consideration for acquisitions completed in prior years which were conditional upon the financial performance of the acquired companies and the continued employment of the selling shareholders, as well as professional and other fees directly related to recent acquisition activity.
ARROW ELECTRONICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands except per share data)
(Unaudited)
Note J – Net Income per Share
The following table presents the computation of net income per share on a basic and diluted basis (shares in thousands):
|
| | | | | | | | | | | | | | | | |
| | Quarter Ended | | Nine Months Ended |
| | October 1, 2016 | | September 26, 2015 | | October 1, 2016 | | September 26, 2015 |
Net income attributable to shareholders | | $ | 117,727 |
| | $ | 109,244 |
| | $ | 358,232 |
| | $ | 339,234 |
|
Weighted-average shares outstanding - basic | | 90,937 |
| | 94,302 |
| | 91,412 |
| | 95,277 |
|
Net effect of various dilutive stock-based compensation awards | | 1,001 |
| | 1,061 |
| | 1,075 |
| | 1,025 |
|
Weighted-average shares outstanding - diluted | | 91,938 |
| | 95,363 |
| | 92,487 |
| | 96,302 |
|
Net income per share: | | |
| | |
| | | | |
Basic | | $ | 1.29 |
| | $ | 1.16 |
| | $ | 3.92 |
| | $ | 3.56 |
|
Diluted (a) | | $ | 1.28 |
| | $ | 1.15 |
| | $ | 3.87 |
| | $ | 3.52 |
|
| |
(a) | Stock-based compensation awards for the issuance of 824 and 821 shares for the third quarter and first nine months of 2016 and 759 and 656 shares for the third quarter and first nine months of 2015, respectively, were excluded from the computation of net income per share on a diluted basis as their effect was anti-dilutive. |
Note K – Shareholders' Equity
Accumulated Other Comprehensive Income (Loss)
The following table presents the changes in Accumulated other comprehensive income (loss), excluding noncontrolling interests: |
| | | | | | | | | | | | | | | | |
| | Quarter Ended | | Nine Months Ended |
| | October 1, 2016 | | September 26, 2015 | | October 1, 2016 | | September 26, 2015 |
Foreign Currency Translation Adjustment and Other: | | | | | | | | |
Other comprehensive income (loss) before reclassifications (a) | | $ | 15,822 |
| | $ | (35,575 | ) | | $ | 35,610 |
| | $ | (186,913 | ) |
Amounts reclassified into income | | 46 |
| | 644 |
| | 1,137 |
| | 1,322 |
|
Unrealized Gain (Loss) on Investment Securities, Net: | | | | | | | | |
Other comprehensive income (loss) before reclassifications | | 1,273 |
| | (2,553 | ) | | (2,408 | ) | | (260 | ) |
Amounts reclassified into income | | — |
| | — |
| | — |
| | — |
|
Unrealized Gain on Interest Rate Swaps Designated as Cash Flow Hedges, Net: | | | | | | | | |
Other comprehensive income before reclassifications | | — |
| | — |
| | — |
| | 550 |
|
Amounts reclassified into income | | 94 |
| | 89 |
| | 278 |
| | 232 |
|
Employee Benefit Plan Items, Net: | | | | | | | | |
Other comprehensive income before reclassifications | | 25 |
| | 36 |
| | 97 |
| | 105 |
|
Amounts reclassified into income | | 789 |
| | 847 |
| | 5,481 |
| | 2,502 |
|
Net change in Accumulated other comprehensive income (loss) | | $ | 18,049 |
| | $ | (36,512 | ) | | $ | 40,195 |
| | $ | (182,462 | ) |
| |
(a) | Includes intra-entity foreign currency transactions that are of a long-term investment nature of $(9,273) and $(38,092) for the third quarter and first nine months of 2016 and $19,887 and $27,821 for the third quarter and first nine months of 2015, respectively. |
ARROW ELECTRONICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands except per share data)
(Unaudited)
Share-Repurchase Program
In September 2015, the company's Board approved a repurchase of up to $400,000 of the company's common stock. As of October 1, 2016, the company repurchased 3,795,439 shares under the program with a market value of $230,926 at the dates of repurchase, of which 1,812,545 shares with a market value of $117,148 were repurchased during the third quarter of 2016.
Note L – Employee Benefit Plans
In 2016, the company adopted an amendment to its Wyle defined benefit plan that provided eligible plan participants with the option to receive an early distribution of their pension benefits. Lump sum payments of $26,063 were made during June 2016 and the company incurred a settlement expense of $12,211.
The components of the net periodic benefit costs for the Wyle defined benefit plan are as follows:
|
| | | | | | | | | | | | | | | | |
| | Quarter Ended | | Nine Months Ended |
| | October 1, 2016 | | September 26, 2015 | | October 1, 2016 | | September 26, 2015 |
Components of net periodic benefit costs: | | | | | | | | |
Service cost | | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
|
Interest cost | | 914 |
| | 1,330 |
| | 3,570 |
| | 3,990 |
|
Expected return on plan assets | | (1,098 | ) | | (1,790 | ) | | (4,174 | ) | | (5,370 | ) |
Amortization of net loss | | 471 |
| | 417 |
| | 1,356 |
| | 1,251 |
|
Amortization of prior service cost | | — |
| | — |
| | — |
| | — |
|
Net periodic benefit costs | | 287 |
| | (43 | ) | | 752 |
| | (129 | ) |
Settlement charge | | — |
| | — |
| | 12,211 |
| | — |
|
Net benefit costs | | $ | 287 |
| | $ | (43 | ) | | $ | 12,963 |
| | $ | (129 | ) |
Note M – Contingencies
Environmental Matters
In connection with the purchase of Wyle in August 2000, the company acquired certain of the then outstanding obligations of Wyle, including Wyle's indemnification obligations to the purchasers of its Wyle Laboratories division for environmental clean-up costs associated with any then existing contamination or violation of environmental regulations. Under the terms of the company's purchase of Wyle from the sellers, the sellers agreed to indemnify the company for certain costs associated with the Wyle environmental obligations, among other things. In 2012, the company entered into a settlement agreement with the sellers pursuant to which the sellers paid $110,000 and the company released the sellers from their indemnification obligation. As part of the settlement agreement, the company accepted responsibility for any potential subsequent costs incurred related to the Wyle matters. The company is aware of two Wyle Laboratories facilities (in Huntsville, Alabama and Norco, California) at which contaminated groundwater was identified and will require environmental remediation. In addition, the company was named as a defendant in several lawsuits related to the Norco facility and a third site in El Segundo, California which have now been settled to the satisfaction of the parties.
The company expects these environmental liabilities to be resolved over an extended period of time. Costs are recorded for environmental matters when it is probable that a liability has been incurred and the amount of the liability can be reasonably estimated. Accruals for environmental liabilities are adjusted periodically as facts and circumstances change, assessment and remediation efforts progress, or as additional technical or legal information becomes available. Environmental liabilities are difficult to assess and estimate due to various unknown factors such as the timing and extent of remediation, improvements in remediation technologies, and the extent to which environmental laws and regulations may change in the future. Accordingly, the company cannot presently fully estimate the ultimate potential costs related to these sites until such time as a substantial portion of the investigation at the sites is completed and remedial action plans are developed and, in some instances, implemented. To the extent that future environmental costs exceed amounts currently accrued by the company, net income would be adversely impacted and such impact could be material.
ARROW ELECTRONICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands except per share data)
(Unaudited)
Accruals for environmental liabilities are included in "Accrued expenses" and "Other liabilities" in the company's consolidated balance sheets. The company has determined that there is no amount within the environmental liability range that is a better estimate than any other amount, and therefore has recorded the accruals at the minimum amount of the ranges.
As successor-in-interest to Wyle, the company is the beneficiary of various Wyle insurance policies that covered liabilities arising out of operations at Norco and Huntsville. To date, the company has recovered approximately $37,000 from certain insurance carriers relating to environmental clean-up matters at the Norco site. The company is considering the best way to pursue its potential claims against insurers regarding liabilities arising out of operations at Huntsville. The resolution of these matters will likely take several years. The company has not recorded a receivable for any potential future insurance recoveries related to the Norco and Huntsville environmental matters, as the realization of the claims for recovery are not deemed probable at this time.
The company believes the settlement amount together with potential recoveries from various insurance policies covering environmental remediation and related litigation will be sufficient to cover any potential future costs related to the Wyle acquisition; however, it is possible unexpected costs beyond those anticipated could occur.
Environmental Matters - Huntsville
In February 2015, the company and the Alabama Department of Environmental Management ("ADEM") finalized and executed a consent decree in connection with the Huntsville, Alabama site. Characterization of the extent of contaminated soil and groundwater continues at the site. Under the direction of the ADEM, approximately $5,000 was spent to date. The pace of the ongoing remedial investigations, project management, and regulatory oversight is likely to increase somewhat and, though the complete scope of the activities is not yet known, the company currently estimates additional investigative and related expenditures at the site of approximately $300 to $750. The nature and scope of both feasibility studies and subsequent remediation at the site has not yet been determined, but assuming the outcome includes source control and certain other measures, the cost is estimated to be between $3,000 and $4,000.
Despite the amount of work undertaken and planned to date, the company is unable to estimate any potential costs in addition to those discussed above because the complete scope of the work is not yet known, and, accordingly, the associated costs have yet to be determined.
Environmental Matters - Norco
In October 2003, the company entered into a consent decree with Wyle Laboratories and the California Department of Toxic Substance Control (the "DTSC") in connection with the Norco site. In April 2005, a Remedial Investigation Work Plan was approved by DTSC that provided for site-wide characterization of known and potential environmental issues. Investigations performed in connection with this work plan and a series of subsequent technical memoranda continued until the filing of a final Remedial Investigation Report early in 2008. Work is under way pertaining to the remediation of contaminated groundwater at certain areas on the Norco site and of soil gas in a limited area immediately adjacent to the site. In 2008, a hydraulic containment system was installed to capture and treat groundwater before it moves into the adjacent offsite area. In September 2013, the DTSC approved the final Remedial Action Plan ("RAP") and work is currently progressing under the RAP. The approval of the RAP includes the potential for additional remediation action after the five year review of the hydraulic containment system if the review finds that contaminants have not been sufficiently reduced in the offsite area.
Approximately $53,000 was spent to date on remediation, project management, regulatory oversight, and investigative and feasibility study activities. The company currently estimates that these activities will give rise to an additional $22,300 to $33,000. Project management and regulatory oversight include costs incurred by project consultants for project management and costs billed by DTSC to provide regulatory oversight.
Despite the amount of work undertaken and planned to date, the company is unable to estimate any potential costs in addition to those discussed above because the complete scope of the work under the RAP is not yet known, and, accordingly, the associated costs have yet to be determined.
ARROW ELECTRONICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands except per share data)
(Unaudited)
Tekelec Matter
In 2000, the company purchased Tekelec Europe SA ("Tekelec") from Tekelec Airtronic SA and certain other selling shareholders. Subsequent to the closing of the acquisition, Tekelec received a product liability claim in the amount of €11,333. The product liability claim was the subject of a French legal proceeding started by the claimant in 2002, under which separate determinations were made as to whether the products that are subject to the claim were defective and the amount of damages sustained by the purchaser. The manufacturer of the products also participated in this proceeding. The claimant commenced legal proceedings against Tekelec and its insurers to recover damages in the amount of €3,742 and expenses of €312 plus interest. In May 2012, the French court ruled in favor of Tekelec and dismissed the plaintiff's claims. In January 2015, the Court of Appeals confirmed the French court's ruling. Our counsel obtained a certificate of non-appeal in July 2016. Accordingly, the plaintiffs are precluded from appealing or bringing a new action asserting the same claims. Based upon these developments, the company has released the contingency reserve related to Tekelec during the third quarter of 2016.
Antitrust Investigation
On January 21, 2014, the company received a Civil Investigative Demand in connection with an investigation by the Federal Trade Commission ("FTC") relating generally to the use of a database program (the “database program”) that has operated for more than ten years under the auspices of the Global Technology Distribution Council ("GTDC"), a trade group of which the company is a member. Under the database program, certain members of the GTDC who participate in the program provide sales data to a third party independent contractor chosen by the GTDC. The data is aggregated by the third party and the aggregated data is made available to the program participants. The company understands that other members participating in the database program have received similar Civil Investigative Demands.
In April 2014, the company responded to the Civil Investigative Demand. The Civil Investigative Demand merely sought information, and no proceedings have been instituted against any person. The company continues to believe that there has not been any conduct by the company or its employees that would be actionable under the antitrust laws in connection with its participation in the database program. At this time, it is not possible to predict the potential impact, if any, of the Civil Investigative Demand or whether any actions may be instituted by the FTC against any person.
Other
From time to time, in the normal course of business, the company may become liable with respect to other pending and threatened litigation, environmental, regulatory, labor, product, and tax matters. While such matters are subject to inherent uncertainties, it is not currently anticipated that any such matters will materially impact the company's consolidated financial position, liquidity, or results of operations.
Note N – Segment and Geographic Information
The company is a global provider of products, services, and solutions to industrial and commercial users of electronic components and enterprise computing solutions. The company distributes electronic components to original equipment manufacturers and contract manufacturers through its global components business segment and provides enterprise computing solutions to value-added resellers through its global ECS business segment. As a result of the company's philosophy of maximizing operating efficiencies through the centralization of certain functions, selected fixed assets and related depreciation, as well as borrowings, are not directly attributable to the individual operating segments and are included in the corporate business segment.
ARROW ELECTRONICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands except per share data)
(Unaudited)
Sales and operating income (loss), by segment, are as follows:
|
| | | | | | | | | | | | | | | | |
| | Quarter Ended | | Nine Months Ended |
| | October 1, 2016 | | September 26, 2015 | | October 1, 2016 | | September 26, 2015 |
Sales: | | | | | | | | |
Global components | | $ | 3,904,447 |
| | $ | 3,692,051 |
| | $ | 11,413,348 |
| | $ | 10,736,989 |
|
Global ECS | | 2,031,645 |
| | 2,006,253 |
| | 5,969,022 |
| | 5,793,689 |
|
Consolidated | | $ | 5,936,092 |
| | $ | 5,698,304 |
| | $ | 17,382,370 |
| | $ | 16,530,678 |
|
Operating income (loss): | | |
| | |
| | | | |
Global components | | $ | 175,507 |
| | $ | 164,744 |
| | $ | 524,662 |
| | $ | 499,456 |
|
Global ECS | | 96,181 |
| | 84,233 |
| | 283,792 |
| | 250,144 |
|
Corporate (a) | | (73,004 | ) | | (63,183 | ) | | (204,814 | ) | | (179,429 | ) |
Consolidated | | $ | 198,684 |
| | $ | 185,794 |
| | $ | 603,640 |
| | $ | 570,171 |
|
| |
(a) | Includes restructuring, integration, and other charges of $24,267 and $61,161 for the third quarter and first nine months of 2016 and $17,756 and $51,099 for the third quarter and first nine months of 2015, respectively. |
Total assets, by segment, are as follows:
|
| | | | | | | | |
| | October 1, 2016 | | December 31, 2015 |
Global components | | $ | 8,153,392 |
| | $ | 7,276,143 |
|
Global ECS | | 4,241,577 |
| | 5,074,529 |
|
Corporate | | 743,074 |
| | 671,258 |
|
Consolidated | | $ | 13,138,043 |
| | $ | 13,021,930 |
|
Sales, by geographic area, are as follows:
|
| | | | | | | | | | | | | | | | |
| | Quarter Ended | | Nine Months Ended |
| | October 1, 2016 | | September 26, 2015 | | October 1, 2016 | | September 26, 2015 |
Americas (b) | | $ | 2,897,810 |
| | $ | 2,850,586 |
| | $ | 8,327,845 |
| | $ | 8,224,901 |
|
EMEA (c) | | 1,548,067 |
| | 1,591,751 |
| | 4,990,973 |
| | 4,761,688 |
|
Asia/Pacific | | 1,490,215 |
| | 1,255,967 |
| | 4,063,552 |
| | 3,544,089 |
|
Consolidated | | $ | 5,936,092 |
| | $ | 5,698,304 |
| | $ | 17,382,370 |
| | $ | 16,530,678 |
|
| |
(b) | Includes sales related to the United States of $2,677,954 and $7,665,313 for the third quarter and first nine months of 2016 and $2,603,885 and $7,557,090 for the third quarter and first nine months of 2015, respectively. |
| |
(c) | Defined as Europe, the Middle East, and Africa. |
ARROW ELECTRONICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands except per share data)
(Unaudited)
Net property, plant, and equipment, by geographic area, is as follows:
|
| | | | | | | | |
| | October 1, 2016 | | December 31, 2015 |
Americas (d) | | $ | 621,175 |
| | $ | 582,973 |
|
EMEA | | 93,318 |
| | 88,727 |
|
Asia/Pacific | | 36,020 |
| | 28,478 |
|
Consolidated | | $ | 750,513 |
| | $ | 700,178 |
|
| |
(d) | Includes net property, plant, and equipment related to the United States of $616,741 and $580,791 at October 1, 2016 and December 31, 2015, respectively. |
| |
Item 2. | Management's Discussion and Analysis of Financial Condition and Results of Operations |
Overview
Arrow Electronics, Inc. (the "company") is a global provider of products, services, and solutions to industrial and commercial users of electronic components and enterprise computing solutions. The company provides one of the broadest product offerings in the electronic components and enterprise computing solutions industries and a wide range of value-added services to help customers introduce innovative products, reduce their time to market, and enhance their overall competitiveness. The company has two business segments, the global components business segment and the global enterprise computing solutions business segment. The company provides electronic components to original equipment manufacturers and contract manufacturers through its global components business segment and provides enterprise computing solutions to value-added resellers through its global ECS business segment. For the first nine months of 2016, approximately 66% of the company's sales were from the global components business segment and approximately 34% of the company's sales were from the global ECS business segment.
The company's financial objectives are to grow sales faster than the market, increase the markets served, grow profits faster than sales, and increase return on invested capital. To achieve its objectives, the company seeks to capture significant opportunities to grow across products, markets, and geographies. To supplement its organic growth strategy, the company continually evaluates strategic acquisitions to broaden its product and value-added service offerings, increase its market penetration, and/or expand its geographic reach.
Executive Summary
Consolidated sales for the third quarter and first nine months of 2016 increased by 4.2% and 5.2%, respectively, compared with the year-earlier period. The increase for the third quarter of 2016 was driven by an increase in the global components business segment sales of 5.8% and an increase in the global ECS business segment sales of 1.3%. The increase for the first nine months of 2016 was driven by an increase in the global components business segment sales of 6.3% and an increase in the global ECS business segment sales of 3.0%. Adjusted for the change in foreign currencies and acquisitions, consolidated sales increased 3.5% and 2.3% for the third quarter and first nine months of 2016, respectively, compared with the year-earlier periods.
Net income attributable to shareholders increased to $117.7 million and $358.2 million in the third quarter and first nine months of 2016, respectively, compared to $109.2 million and $339.2 million in the year-earlier periods. The following items impacted the comparability of the company's results:
Third quarters of 2016 and 2015:
| |
• | restructuring, integration, and other charges of $24.3 million in 2016 and $17.8 million in 2015; and |
| |
• | identifiable intangible asset amortization of $13.9 million in 2016 and $14.3 million in 2015. |
First nine months of 2016 and 2015:
| |
• | restructuring, integration, and other charges of $61.2 million in 2016 and $51.1 million in 2015; |
| |
• | identifiable intangible asset amortization of $41.3 million in 2016 and $39.3 million in 2015; |
| |
• | a loss on prepayment of debt of $2.9 million in 2015; |
| |
• | a gain on sale of investment of $2.0 million in 2015; and |
| |
• | a loss on investment of $1.5 million in 2015. |
Excluding the aforementioned items, net income attributable to shareholders for the third quarter and first nine months of 2016 increased to $143.1 million and $428.1 million, respectively, compared with $133.4 million and $410.1 million in the year-earlier periods.
Certain Non-GAAP Financial Information
In addition to disclosing financial results that are determined in accordance with accounting principles generally accepted in the United States ("GAAP"), the company also discloses certain non-GAAP financial information, including:
| |
• | Sales, income, or expense items as adjusted for the impact of changes in foreign currencies (referred to as "impact of changes in foreign currencies") and the impact of acquisitions by adjusting the company's operating results for businesses acquired, including the amortization expense related to acquired intangible assets, as if the acquisitions had occurred at the beginning of the earliest period presented (referred to as "impact of acquisitions"); |
| |
• | Operating income as adjusted to exclude identifiable intangible asset amortization and restructuring, integration, and other charges; and |
| |
• | Net income attributable to shareholders as adjusted to exclude identifiable intangible asset amortization, restructuring, integration, and other charges, loss on prepayment of debt, and gain on sale of investment. |
Management believes that providing this additional information is useful to the reader to better assess and understand the company's operating performance, especially when comparing results with previous periods, primarily because management typically monitors the business adjusted for these items in addition to GAAP results. However, analysis of results on a non-GAAP basis should be used as a complement to, and in conjunction with, data presented in accordance with GAAP.
Sales
Substantially all of the company's sales are made on an order-by-order basis, rather than through long-term sales contracts. As such, the nature of the company's business does not provide for the visibility of material forward-looking information from its customers and suppliers beyond a few months.
Following is an analysis of net sales by reportable segment (in millions):
|
| | | | | | | | | | | | | | | | | | | | | |
| Quarter Ended | | | | Nine Months Ended | | |
| October 1, 2016 | | September 26, 2015 | | % Change | | October 1, 2016 | | September 26, 2015 | | % Change |
Consolidated sales, as reported | $ | 5,936 |
| | $ | 5,698 |
| | 4.2 | % | | $ | 17,382 |
| | $ | 16,531 |
| | 5.2 | % |
Impact of changes in foreign currencies | — |
| | (33 | ) | | | | — |
| | (111 | ) | | |
Impact of acquisitions | 1 |
| | 73 |
| | | | 48 |
| | 614 |
| | |
Consolidated sales, as adjusted* | $ | 5,937 |
| | $ | 5,739 |
| | 3.5 | % | | $ | 17,431 |
| | $ | 17,033 |
| | 2.3 | % |
| | | | | | | | | | | |
Global components sales, as reported | $ | 3,904 |
| | $ | 3,692 |
| | 5.8 | % | | $ | 11,413 |
| | $ | 10,737 |
| | 6.3 | % |
Impact of changes in foreign currencies | — |
| | (8 | ) | | | | — |
| | (52 | ) | | |
Impact of acquisitions | 1 |
| | 11 |
| | | | 10 |
| | 334 |
| | |
Global components sales, as adjusted* | $ | 3,906 |
| | $ | 3,694 |
| | 5.7 | % | | $ | 11,423 |
| | $ | 11,018 |
| | 3.7 | % |
| | | | | | | | | | | |
Global ECS sales, as reported | $ | 2,032 |
| | $ | 2,006 |
| | 1.3 | % | | $ | 5,969 |
| | $ | 5,794 |
| | 3.0 | % |
Impact of changes in foreign currencies | — |
| | (25 | ) | | | | — |
| | (59 | ) | | |
Impact of acquisitions | — |
| | 63 |
| | | | 38 |
| | 280 |
| | |
Global ECS sales, as adjusted* | $ | 2,032 |
| | $ | 2,044 |
| | (0.6 | )% | | $ | 6,007 |
| | $ | 6,015 |
| | (0.1 | )% |
* The sum of the components for consolidated sales, as adjusted, may not agree to totals, as presented, due to rounding.
Consolidated sales for the third quarter and first nine months of 2016 increased by $237.8 million, or 4.2%, and $851.7 million, or 5.2%, respectively, compared with the year-earlier periods. The increase for the third quarter of 2016 was driven by an increase in global components business segment sales of $212.4 million, or 5.8%, and an increase in global ECS business segment sales of $25.4 million, or 1.3%. The increase for the first nine months of 2016 was driven by an increase in global components business segment sales of $676.4 million, or 6.3%, and an increase in global ECS business segment sales of $175.3 million, or 3.0%, compared with the year-earlier period. Adjusted for the impact of changes in foreign currencies and acquisitions, consolidated sales increased 3.5% and 2.3% for the third quarter and first nine months of 2016, respectively, compared with the year-earlier periods.
In the global components business segment, sales for the third quarter and first nine months of 2016 increased 5.8% and 6.3%, respectively, compared with the year-earlier periods, primarily due to increased demand in the Asia and EMEA regions, and the impact of recently acquired businesses. Adjusted for the impact of changes in foreign currencies and acquisitions, the company's global components business segment sales increased by 5.7% and 3.7% for the third quarter and first nine months of 2016, respectively, compared with the year-earlier periods.
In the global ECS business segment, sales for the third quarter and first nine months of 2016 increased 1.3% and 3.0%, respectively, compared with the year-earlier periods, due to the impact of recently acquired businesses partially offset by changes in foreign currencies. Adjusted for the impact of changes in foreign currencies and acquisitions, the company's global ECS business segment sales decreased by 0.6% and 0.1% for the third quarter and first nine months of 2016, respectively, compared with year-earlier periods.
Gross Profit
Following is an analysis of gross profit (in millions): |
| | | | | | | | | | | | | | | | | | | | | |
| Quarter Ended | | | | Nine Months Ended | | |
| October 1, 2016 | | September 26, 2015 | | % Change | | October 1, 2016 | | September 26, 2015 | | % Change |
Consolidated gross profit, as reported | $ | 773 |
| | $ | 742 |
| | 4.1 | % | | $ | 2,321 |
| | $ | 2,196 |
| | 5.7 | % |
Impact of changes in foreign currencies | — |
| | (4 | ) | | | | — |
| | (15 | ) | |
|
Impact of acquisitions | 1 |
| | 12 |
| | | | 13 |
| | 85 |
| |
|
Consolidated gross profit, as adjusted | $ | 774 |
| | $ | 750 |
| | 3.2 | % | | $ | 2,334 |
| | $ | 2,266 |
| | 3.0 | % |
Consolidated gross profit as a percentage of sales, as reported | 13.0 | % | | 13.0 | % | | flat |
| | 13.4 | % | | 13.3 | % | | |