10-Q 1 arw-20221001.htm 10-Q arw-20221001
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.  20549

FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended October 1, 2022

OR
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 York11-1806155
(State or other jurisdiction of(I.R.S. Employer
incorporation or organization)Identification Number)
9201 East Dry Creek Road80112
CentennialCO(Zip Code)
(Address of principal executive offices)
(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)

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of the exchange on which registered
Common Stock, $1 par valueARWNew York Stock Exchange

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 every Interactive Data File required to be submitted 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 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, a smaller reporting company, or an emerging growth company.  See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act:

Large accelerated filerAccelerated filer
Non-accelerated filerSmaller reporting company
Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).     Yes    No x

There were 61,508,257 shares of Common Stock outstanding as of October 27, 2022.


ARROW ELECTRONICS, INC.

INDEX

 


 
2

PART I.  FINANCIAL INFORMATION

Item 1.     Financial Statements

ARROW ELECTRONICS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands except per share data)
(Unaudited)


 Quarter EndedNine Months Ended
  October 1,
2022
October 2,
2021
October 1,
2022
October 2,
2021
Sales$9,266,432 $8,512,391 $27,801,399 $25,460,941 
Cost of sales8,079,520 7,436,619 24,170,769 22,454,954 
Gross profit1,186,912 1,075,772 3,630,630 3,005,987 
Operating expenses:
Selling, general, and administrative expenses634,353 625,883 1,931,918 1,802,534 
Depreciation and amortization46,230 48,054 141,787 146,924 
Restructuring, integration, and other charges (credits)3,635 (3,030)11,027 11,639 
684,218 670,907 2,084,732 1,961,097 
Operating income502,694 404,865 1,545,898 1,044,890 
Equity in earnings of affiliated companies1,718 1,151 4,726 2,185 
Gain (loss) on investments, net(3,480)1,386 (11,213)10,905 
Employee benefit plan expense, net(890)(1,256)(2,614)(3,924)
Interest and other financing expense, net(50,936)(32,667)(123,427)(97,008)
Income before income taxes449,106 373,479 1,413,370 957,048 
Provision for income taxes105,500 82,929 332,273 218,068 
Consolidated net income343,606 290,550 1,081,097 738,980 
Noncontrolling interests1,207 523 3,615 1,991 
Net income attributable to shareholders$342,399 $290,027 $1,077,482 $736,989 
Net income per share:  
Basic$5.33 $4.05 $16.31 $10.04 
Diluted
$5.27 $4.00 $16.12 $9.92 
Weighted-average shares outstanding:  
Basic
64,228 71,671 66,055 73,426 
Diluted64,979 72,571 66,845 74,313 

See accompanying notes.
 
 
3

ARROW ELECTRONICS, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
(Unaudited)


Quarter EndedNine Months Ended
October 1,
2022
October 2,
2021
October 1,
2022
October 2,
2021
Consolidated net income$343,606 $290,550 $1,081,097 $738,980 
Other comprehensive income (loss):
Foreign currency translation adjustment and other, net of taxes(202,716)(47,385)(473,826)(95,607)
Unrealized gain on foreign exchange contracts designated as net investment hedges, net of taxes11,347 5,318 25,023 10,847 
Unrealized gain on interest rate swaps designated as cash flow hedges, net of taxes7,303 3,146 27,187 20,138 
Employee benefit plan items, net of taxes117 499 305 1,481 
Other comprehensive loss(183,949)(38,422)(421,311)(63,141)
Comprehensive income159,657 252,128 659,786 675,839 
Less: Comprehensive loss attributable to non-controlling interests(878)(389)(1,475)(324)
Comprehensive income attributable to shareholders$160,535 $252,517 $661,261 $676,163 

See accompanying notes.
    
4

ARROW ELECTRONICS, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands except par value)
(Unaudited)

 October 1,
2022
December 31,
2021
ASSETS  
Current assets:  
Cash and cash equivalents$333,985 $222,194 
Accounts receivable, net11,218,611 11,123,946 
Inventories5,083,378 4,201,965 
Other current assets495,145 345,218 
Total current assets17,131,119 15,893,323 
Property, plant, and equipment, at cost:  
Land5,691 5,736 
Buildings and improvements184,091 186,097 
Machinery and equipment1,544,457 1,523,919 
 1,734,239 1,715,752 
Less: Accumulated depreciation and amortization(1,138,372)(1,032,941)
Property, plant, and equipment, net595,867 682,811 
Investments in affiliated companies66,358 63,695 
Intangible assets, net166,388 195,029 
Goodwill1,979,233 2,080,371 
Other assets566,764 620,311 
Total assets$20,505,729 $19,535,540 
LIABILITIES AND EQUITY  
Current liabilities:  
Accounts payable$9,540,449 $9,617,084 
Accrued expenses1,273,097 1,326,386 
Short-term borrowings, including current portion of long-term debt604,521 382,619 
Total current liabilities11,418,067 11,326,089 
Long-term debt3,187,025 2,244,443 
Other liabilities597,951 624,162 
Commitments and contingencies (Note K)
Equity:  
Shareholders’ equity:  
Common stock, par value $1:
  
Authorized - 160,000 shares in both 2022 and 2021
  
Issued - 125,424 shares in both 2022 and 2021
125,424 125,424 
Capital in excess of par value
1,201,185 1,189,845 
Treasury stock (63,324 and 57,358 shares in 2022 and 2021, respectively), at cost
(4,338,414)(3,629,265)
Retained earnings
8,865,430 7,787,948 
Accumulated other comprehensive loss(607,878)(191,657)
Total shareholders’ equity5,245,747 5,282,295 
Noncontrolling interests56,939 58,551 
Total equity5,302,686 5,340,846 
Total liabilities and equity$20,505,729 $19,535,540 
            
 
See accompanying notes.
5

ARROW ELECTRONICS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)

 Nine Months Ended
  October 1,
2022
October 2,
2021
Cash flows from operating activities:
Consolidated net income$1,081,097 $738,980 
Adjustments to reconcile consolidated net income to net cash provided by (used for) operations:
Depreciation and amortization141,787 146,924 
Amortization of stock-based compensation35,009 29,606 
Equity in earnings of affiliated companies(4,726)(2,185)
Deferred income taxes1,468 9,354 
Loss (gain) on investments, net11,213 (10,820)
Other2,673 7,672 
Change in assets and liabilities:
Accounts receivable, net(628,974)(262,272)
Inventories(1,011,763)(581,766)
Accounts payable166,602 136,329 
Accrued expenses192,759 174,583 
Other assets and liabilities(128,909)4,685 
Net cash provided by (used for) operating activities(141,764)391,090 
Cash flows from investing activities:
Acquisition of property, plant, and equipment(54,780)(62,285)
Proceeds from sale of property, plant, and equipment 22,171 
Proceeds from collections of notes receivable20,805 373 
Net cash used for investing activities(33,975)(39,741)
Cash flows from financing activities:
Change in short-term and other borrowings276,516 (15,986)
Proceeds from long-term bank borrowings, net1,238,268 289,235 
Redemption of notes(350,000)(130,860)
Proceeds from exercise of stock options16,434 44,938 
Repurchases of common stock(725,254)(661,548)
Other(137)(159)
Net cash provided by (used for) financing activities455,827 (474,380)
Effect of exchange rate changes on cash(168,297)(34,652)
Net increase (decrease) in cash and cash equivalents111,791 (157,683)
Cash and cash equivalents at beginning of period222,194 373,615 
Cash and cash equivalents at end of period$333,985 $215,932 

See accompanying notes.
 
6

ARROW ELECTRONICS, INC.
CONSOLIDATED STATEMENTS OF EQUITY
(In thousands)
(Unaudited)


Common Stock at Par ValueCapital in Excess of Par ValueTreasury StockRetained EarningsAccumulated Other Comprehensive LossNoncontrolling InterestsTotal
Balance at December 31, 2021$125,424 $1,189,845 $(3,629,265)$7,787,948 $(191,657)$58,551 $5,340,846 
Consolidated net income   364,749  1,247 365,996 
Other comprehensive loss    (41,312)(869)(42,181)
Amortization of stock-based compensation 17,351     17,351 
Shares issued for stock-based compensation awards (20,601)31,903    11,302 
Repurchases of common stock  (264,431)   (264,431)
Balance at April 2, 2022$125,424 $1,186,595 $(3,861,793)$8,152,697 $(232,969)$58,929 $5,428,883 
Consolidated net income   370,334  1,161 371,495 
Other comprehensive loss    (193,045)(2,136)(195,181)
Amortization of stock-based compensation 13,885     13,885 
Shares issued for stock-based compensation awards (1,950)6,320    4,370 
Repurchases of common stock  (225,032)   (225,032)
Distributions     (137)(137)
Balance at July 2, 2022$125,424 $1,198,530 $(4,080,505)$8,523,031 $(426,014)$57,817 $5,398,283 
Consolidated net income   342,399  1,207 343,606 
Other comprehensive loss    (181,864)(2,085)(183,949)
Amortization of stock-based compensation 3,773     3,773 
Shares issued for stock-based compensation awards (1,118)1,880    762 
Repurchases of common stock  (259,789)   (259,789)
Balance at October 1, 2022$125,424 $1,201,185 $(4,338,414)$8,865,430 $(607,878)$56,939 $5,302,686 
7



Common Stock at Par ValueCapital in Excess of Par ValueTreasury StockRetained EarningsAccumulated Other Comprehensive LossNoncontrolling InterestsTotal
Balance at December 31, 2020$125,424 $1,165,850 $(2,776,821)$6,679,751 $(104,885)$59,633 $5,148,952 
Consolidated net income   206,321  907 207,228 
Other comprehensive loss    (18,576)(1,853)(20,429)
Amortization of stock-based compensation 13,223     13,223 
Shares issued for stock-based compensation awards (12,519)38,610    26,091 
Repurchases of common stock  (160,619)   (160,619)
Balance at April 3, 2021$125,424 $1,166,554 $(2,898,830)$6,886,072 $(123,461)$58,687 $5,214,446 
Consolidated net income   240,641  561 241,202 
Other comprehensive income (loss)    (4,740)450 (4,290)
Amortization of stock-based compensation 8,744     8,744 
Shares issued for stock-based compensation awards 172 15,054    15,226 
Repurchases of common stock  (250,708)   (250,708)
Distributions     (159)(159)
Balance at July 3, 2021$125,424 $1,175,470 $(3,134,484)$7,126,713 $(128,201)$59,539 $5,224,461 
Consolidated net income   290,027  523 290,550 
Other comprehensive loss    (37,510)(912)(38,422)
Amortization of stock-based compensation 7,639     7,639 
Shares issued for stock-based compensation awards (100)3,721    3,621 
Repurchases of common stock  (250,221)   (250,221)
Balance at October 2, 2021$125,424 $1,183,009 $(3,380,984)$7,416,740 $(165,711)$59,150 $5,237,628 

See accompanying notes.

8

ARROW ELECTRONICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(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 ("GAAP") 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, 2021, 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 fourth quarter, which closes on December 31, 2022.

Reclassification

Certain prior period amounts were reclassified to conform to the current period presentation. These reclassifications did not have a material impact on previously reported amounts.

Note B – Impact of Recently Issued Accounting Standards

In September 2022, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2022-04, Liabilities—Supplier Finance Programs (Subtopic 405-50) Disclosure of Supplier Finance Program Obligations ("ASU No. 2022-04"). ASU No. 2022-04 requires that a buyer in a supplier finance program disclose sufficient information about the program to allow a user of financial statements to understand the program’s nature, activity during the period, and potential magnitude. The amendments in this ASU will be applied retrospectively to each period in which a balance sheet is presented, with the exception of a new requirement to disclose a rollforward of program activity, which will be applied prospectively. The amendments in the ASU are effective for fiscal years beginning after December 15, 2022, with early adoption permitted. The company is currently evaluating the potential effects of adopting the provisions of ASU No. 2022-04.

Note C – Goodwill and Intangible Assets

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:
 (thousands)Global
Components
Global ECSTotal
Balance as of December 31, 2021 (a)$882,948 $1,197,423 $2,080,371 
Foreign currency translation adjustment(20,637)(80,501)(101,138)
Balance as of October 1, 2022 (a)$862,311 $1,116,922 $1,979,233 

(a)     The total carrying value of goodwill as of October 1, 2022 and December 31, 2021 in the table above is reflected net of $1.6 billion of accumulated impairment charges, of which $1.3 billion was recorded in the global components business segment and $301.9 million was recorded in the global enterprise computing solutions ("ECS") business segment.

9

ARROW ELECTRONICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Intangible assets, net, are comprised of the following as of October 1, 2022:
(thousands)Gross Carrying AmountAccumulated AmortizationNet
Customer relationships$290,823 $(162,578)$128,245 
Amortizable trade name74,000 (35,857)38,143 
$364,823 $(198,435)$166,388 

Intangible assets, net, are comprised of the following as of December 31, 2021:
(thousands)Gross Carrying AmountAccumulated AmortizationNet
Customer relationships$322,335 $(173,123)$149,212 
Amortizable trade name74,049 (28,232)45,817 
$396,384 $(201,355)$195,029 

During the third quarter of 2022 and 2021, the company recorded amortization expense related to identifiable intangible assets of $8.7 million and $9.2 million, respectively. During the first nine months of 2022 and 2021 amortization expense related to identifiable intangible assets was $26.5 million and $27.8 million, respectively.

Note D – Investments in Affiliated Companies

The company owns a 50% interest in two joint ventures with Marubun Corporation (collectively "Marubun/Arrow") and a 50% interest in one other joint venture. These investments are accounted for using the equity method.

The following table presents the company’s investment in affiliated companies:
(thousands)October 1,
2022
December 31,
2021
Marubun/Arrow$56,563 $53,415 
Other9,795 10,280 
 $66,358 $63,695 

The equity in earnings of affiliated companies consists of the following:
  Quarter EndedNine Months Ended
(thousands)October 1,
2022
October 2,
2021
October 1,
2022
October 2,
2021
Marubun/Arrow$1,374 $805 $3,914 $1,697 
Other344 346 812 488 
 $1,718 $1,151 $4,726 $2,185 

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. There were no outstanding borrowings under the third-party debt agreements of the joint ventures as of October 1, 2022 and December 31, 2021.

10

ARROW ELECTRONICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Note E – Accounts Receivable

Accounts receivable, net, consists of the following:
(thousands)October 1,
2022
December 31,
2021
Accounts receivable$11,307,836 $11,199,847 
Allowances for doubtful accounts(89,225)(75,901)
Accounts receivable, net$11,218,611 $11,123,946 

Changes in the allowance for doubtful accounts consists of the following:
Nine Months Ended
(thousands)October 1,
2022
October 2,
2021
Balance at beginning of period$75,901 $92,792 
Charged to income26,869 5,760 
Translation adjustments(3,660)(1,164)
Writeoffs(9,885)(19,173)
Balance at end of period$89,225 $78,215 

The company monitors the current credit condition of its customers in estimating the expected credit losses and has not experienced significant changes in customers’ payment trends or significant deterioration in customers’ credit risk as of October 1, 2022.

The company has an EMEA asset securitization program under which it continuously sells its interest in designated pools of trade accounts receivables of certain of its subsidiaries in Europe, the Middle East, and Africa ("EMEA"), at a discount, to a special purpose entity, which in turn sells certain of the receivables to unaffiliated financial institutions and conduits administered by such unaffiliated financial institutions ("unaffiliated financial institutions") on a monthly basis. In September 2022, the company amended its EMEA asset securitization program to increase its borrowing capacity from €400 million to €600 million and extend its maturity to December 2025, among other things. The program is conducted through Arrow EMEA Funding Corp B.V., an entity structured to be bankruptcy remote. The company is deemed the primary beneficiary of Arrow EMEA Funding Corp B.V. as the company has both the power to direct the activities that most significantly impact the entity’s economic performance and the obligation to absorb losses or the right to receive the benefits that could potentially be significant to the entity from the transfer of the trade accounts receivables into the special purpose entity. Accordingly, Arrow EMEA Funding Corp B.V. is included in the company’s consolidated financial statements.

Sales of accounts receivables to unaffiliated financial institutions under the EMEA asset securitization program:
  Quarter EndedNine Months Ended
(thousands)October 1,
2022
October 2,
2021
October 1,
2022
October 2,
2021
EMEA asset securitization, sales of accounts receivables$834,456 $546,125 $1,943,723 $1,608,388 

Receivables sold to unaffiliated financial institutions under the program are excluded from “Accounts receivable, net” on the company’s consolidated balance sheets, and cash receipts are reflected as cash provided by operating activities on the consolidated statements of cash flows. The purchase price is paid in cash when the receivables are sold. Certain unsold receivables held by Arrow EMEA Funding Corp B.V. are pledged as collateral to unaffiliated financial institutions. These unsold receivables are included in “Accounts receivable, net” in the company’s consolidated balance sheets.

The company continues servicing the receivables which were sold and in exchange receives a servicing fee under the program. The company does not record a servicing asset or liability on the company’s consolidated balance sheets as the company estimates that the fee it receives to service these receivables approximates the fair market compensation to provide the servicing activities.
11

ARROW ELECTRONICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


Other amounts related to the EMEA asset securitization program:
(thousands)October 1,
2022
December 31,
2021
Receivables sold to unaffiliated financial institutions that were uncollected$586,132 $453,292 
Collateralized accounts receivable held by Arrow EMEA funding Corp B.V.916,516 745,965 

Any accounts receivables held by Arrow EMEA Funding Corp B.V. would likely not be available to other creditors of the company in the event of bankruptcy or insolvency proceedings relating to the company if there are outstanding balances under the EMEA asset securitization program. The assets of Arrow EMEA Funding Corp B.V. cannot be used by the company for general corporate purposes. Additionally, the financial obligations of Arrow EMEA Funding Corp B.V. to the unaffiliated financial institutions under the program are limited to the assets it owns and there is no recourse to Arrow Electronics, Inc. for receivables that are uncollectible as a result of the insolvency of Arrow EMEA Funding Corp B.V. or its inability to pay the account debtors.

The EMEA asset securitization program includes terms and conditions that limit the incurrence of additional borrowings and require that certain financial ratios be maintained at designated levels. As of October 1, 2022, the company was in compliance with all such financial covenants.

Note F – Debt

Short-term borrowings, including current portion of long-term debt, consist of the following:
(thousands)October 1,
2022
December 31,
2021
3.50% notes, due April 2022
$ $349,779 
4.50% notes, due March 2023
299,739  
Commercial Paper264,577  
Other short-term borrowings40,205 32,840 
 $604,521 $382,619 

Other short-term borrowings are primarily utilized to support working capital requirements. The weighted-average interest rate on these borrowings was 1.76% and 1.41% at October 1, 2022 and December 31, 2021, respectively.

The company has $200.0 million in uncommitted lines of credit. There were no outstanding borrowings under the uncommitted lines of credit at October 1, 2022 and December 31, 2021. These borrowings were provided on a short-term basis and the maturity is agreed upon between the company and the lender. The uncommitted lines of credit had a weighted-average effective interest rate of 3.44% and 1.50% at October 1, 2022 and December 31, 2021, respectively.

The company has a commercial paper program, and the maximum aggregate balance of commercial paper outstanding may not exceed the borrowing capacity of $1.2 billion. Amounts outstanding under the commercial paper program are backstopped by available commitments under the company’s revolving credit facility. The company had $264.6 million in outstanding borrowings under this program at October 1, 2022. There were no outstanding borrowings under this program at December 31, 2021. The commercial paper program had an effective interest rate of 3.85% and 0.29% at October 1, 2022 and December 31, 2021, respectively.

12

ARROW ELECTRONICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Long-term debt consists of the following:
(thousands)October 1,
2022
Decembe