10-Q 1 arw-20211002.htm 10-Q arw-20211002
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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 2, 2021

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 69,629,192 shares of Common Stock outstanding as of October 28, 2021.




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 2,
2021
September 26,
2020
October 2,
2021
September 26,
2020
Sales$8,512,391 $7,231,260 $25,460,941 $20,219,171 
Cost of sales7,436,619 6,442,670 22,454,954 17,951,727 
Gross profit1,075,772 788,590 3,005,987 2,267,444 
Operating expenses:
Selling, general, and administrative expenses
625,883 504,211 1,802,534 1,539,520 
Depreciation and amortization
48,054 46,732 146,924 140,654 
Impairments 2,305 4,482 7,223 
Restructuring, integration, and other charges (credits)(3,030)(2,840)7,157 6,948 
670,907 550,408 1,961,097 1,694,345 
Operating income404,865 238,182 1,044,890 573,099 
Equity in earnings of affiliated companies1,151 61 2,185 308 
Gain (loss) on investments, net1,386 2,726 10,905 (3,183)
Employee benefit plan (expense) credit, net(1,256)595 (3,924)(1,687)
Interest and other financing expense, net(32,667)(30,461)(97,008)(105,596)
Income before income taxes373,479 211,103 957,048 462,941 
Provision for income taxes82,929 44,707 218,068 113,453 
Consolidated net income290,550 166,396 738,980 349,488 
Noncontrolling interests523 336 1,991 1,121 
Net income attributable to shareholders$290,027 $166,060 $736,989 $348,367 
Net income per share:  
Basic$4.05 $2.15 $10.04 $4.42 
Diluted
$4.00 $2.13 $9.92 $4.39 
Weighted-average shares outstanding:  
Basic
71,671 77,390 73,426 78,807 
Diluted72,571 78,086 74,313 79,404 

See accompanying notes.
 
 
3


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


Quarter EndedNine Months Ended
October 2,
2021
September 26,
2020
October 2,
2021
September 26,
2020
Consolidated net income$290,550 $166,396 $738,980 $349,488 
Other comprehensive income (loss):
Foreign currency translation adjustment and other, net of taxes(47,385)66,625 (95,607)25,918 
Unrealized gain (loss) on foreign exchange contracts designated as net investment hedges, net of taxes5,318 (10,021)10,847 3,925 
Unrealized gain (loss) on interest rate swaps designated as cash flow hedges, net of taxes3,146 6,472 20,138 (21,910)
Employee benefit plan items, net of taxes499 345 1,481 219 
Other comprehensive income (loss)(38,422)63,421 (63,141)8,152 
Comprehensive income252,128 229,817 675,839 357,640 
Less: Comprehensive income (loss) attributable to non-controlling interests(389)1,581 (324)2,375 
Comprehensive income attributable to shareholders$252,517 $228,236 $676,163 $355,265 

See accompanying notes.
    
4


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

 October 2,
2021
December 31,
2020
ASSETS  
Current assets:  
Cash and cash equivalents$215,932 $373,615 
Accounts receivable, net9,329,427 9,205,343 
Inventories3,834,988 3,287,308 
Other current assets345,317 286,633 
Total current assets13,725,664 13,152,899 
Property, plant, and equipment, at cost:  
Land5,691 7,940 
Buildings and improvements188,205 207,614 
Machinery and equipment1,537,671 1,553,371 
 1,731,567 1,768,925 
Less: Accumulated depreciation and amortization(1,026,172)(969,320)
Property, plant, and equipment, net705,395 799,605 
Investments in affiliated companies69,022 76,358 
Intangible assets, net204,458 233,819 
Goodwill2,090,248 2,115,469 
Other assets635,673 675,761 
Total assets$17,430,460 $17,053,911 
LIABILITIES AND EQUITY  
Current liabilities:  
Accounts payable$8,005,207 $7,937,889 
Accrued expenses1,142,753 1,034,361 
Short-term borrowings, including current portion of long-term debt353,915 158,633 
Total current liabilities9,501,875 9,130,883 
Long-term debt2,039,761 2,097,940 
Other liabilities651,196 676,136 
Commitments and contingencies (Note J)
Equity:  
Shareholders’ equity:  
Common stock, par value $1:
  
Authorized - 160,000 shares in both 2021 and 2020
  
Issued - 125,424 shares in both 2021 and 2020
125,424 125,424 
Capital in excess of par value
1,183,009 1,165,850 
Treasury stock (55,370 and 50,581 shares in 2021 and 2020, respectively), at cost
(3,380,984)(2,776,821)
Retained earnings
7,416,740 6,679,751 
Accumulated other comprehensive loss(165,711)(104,885)
Total shareholders’ equity5,178,478 5,089,319 
Noncontrolling interests59,150 59,633 
Total equity5,237,628 5,148,952 
Total liabilities and equity$17,430,460 $17,053,911 
 
See accompanying notes.
5


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

 Nine Months Ended
  October 2,
2021
September 26,
2020
Cash flows from operating activities:
Consolidated net income$738,980 $349,488 
Adjustments to reconcile consolidated net income to net cash provided by operations:
Depreciation and amortization146,924 140,654 
Amortization of stock-based compensation29,606 28,602 
Equity in earnings of affiliated companies(2,185)(308)
Deferred income taxes9,354 38,976 
Impairments4,482 7,223 
Loss (gain) on investments, net(10,820)3,198 
Other3,190 4,043 
Change in assets and liabilities, net of effects of acquired and disposed businesses:
Accounts receivable, net(262,272)533,570 
Inventories(581,766)260,573 
Accounts payable136,329 (228,000)
Accrued expenses174,583 29,154 
Other assets and liabilities4,685 (7,336)
Net cash provided by operating activities391,090 1,159,837 
Cash flows from investing activities:
Acquisition of property, plant, and equipment(62,285)(89,555)
Proceeds from sale of property, plant, and equipment22,171  
Other373 (14,582)
Net cash used for investing activities(39,741)(104,137)
Cash flows from financing activities:
Change in short-term and other borrowings(15,986)(86,155)
Proceeds from (repayments of) long-term bank borrowings, net289,235 (411,362)
Redemption of notes(130,860)(209,366)
Proceeds from exercise of stock options44,938 5,963 
Repurchases of common stock(661,548)(384,750)
Settlement of forward-starting interest rate swap (48,378)
Other(159)(141)
Net cash used for financing activities(474,380)(1,134,189)
Effect of exchange rate changes on cash(34,652)5,405 
Net decrease in cash and cash equivalents(157,683)(73,084)
Cash and cash equivalents at beginning of period373,615 300,103 
Cash and cash equivalents at end of period$215,932 $227,019 

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 Income (Loss)Noncontrolling 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 
7


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


Common Stock at Par ValueCapital in Excess of Par ValueTreasury StockRetained EarningsAccumulated Other Comprehensive Income (Loss)Noncontrolling InterestsTotal
Balance at December 31, 2019$125,424 $1,150,006 $(2,332,548)$6,131,248 $(262,211)$54,474 $4,866,393 
Effect of new accounting principles— — — (35,935)— — (35,935)
Consolidated net income   49,503  252 49,755 
Other comprehensive loss    (87,273)(242)(87,515)
Amortization of stock-based compensation 13,920     13,920 
Shares issued for stock-based compensation awards (18,182)20,162    1,980 
Repurchases of common stock  (158,989)   (158,989)
Balance at March 28, 2020$125,424 $1,145,744 $(2,471,375)$6,144,816 $(349,484)$54,484 $4,649,609 
Consolidated net income   132,804  533 133,337 
Other comprehensive income    31,995 251 32,246 
Amortization of stock-based compensation 8,397     8,397 
Shares issued for stock-based compensation awards (2,246)3,996    1,750 
Repurchases of common stock  (75,250)   (75,250)
Distributions     (141)(141)
Balance at June 27, 2020$125,424 $1,151,895 $(2,542,629)$6,277,620 $(317,489)$55,127 $4,749,948 
Consolidated net income   166,060  336 166,396 
Other comprehensive income    62,176 1,245 63,421 
Amortization of stock-based compensation 6,285     6,285 
Shares issued for stock-based compensation awards (1,031)3,264    2,233 
Repurchases of common stock  (150,511)   (150,511)
Balance at September 26, 2020$125,424 $1,157,149 $(2,689,876)$6,443,680 $(255,313)$56,708 $4,837,772 

See accompanying notes.

8

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 ("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, 2020, 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, 2021.

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 – 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:
 Global
Components
Global ECSTotal
Balance as of December 31, 2020 (a)$894,975 $1,220,494 $2,115,469 
Foreign currency translation adjustment(8,621)(16,600)(25,221)
Balance as of October 2, 2021 (a)$886,354 $1,203,894 $2,090,248 

(a)     The total carrying value of goodwill as of October 2, 2021 and December 31, 2020 in the table above is reflected net of $1,588,955 of accumulated impairment charges, of which $1,287,100 was recorded in the global components business segment and $301,855 was recorded in the global enterprise computing solutions ("ECS") business segment.

Intangible assets, net, are comprised of the following as of October 2, 2021:
Weighted-Average LifeGross Carrying AmountAccumulated AmortizationNet
Customer relationships12 years$324,837 $(168,689)$156,148 
Amortizable trade name8 years74,000 (25,690)48,310 
$398,837 $(194,379)$204,458 
9

ARROW ELECTRONICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands except per share data)
(Unaudited)
Intangible assets, net, are comprised of the following as of December 31, 2020:
Weighted-Average LifeGross Carrying AmountAccumulated AmortizationNet
Customer relationships12 years$335,027 $(157,151)$177,876 
Amortizable trade name8 years74,008 (18,065)55,943 
$409,035 $(175,216)$233,819 

During the third quarter of 2021 and 2020, the company recorded amortization expense related to identifiable intangible assets of $9,202 and $9,352, respectively. During the first nine months of 2021 and 2020, amortization expense related to identifiable intangible assets was $27,844 and $29,041, respectively.

Note C – Investments in Affiliated Companies

The company owns a 50% interest in each of the 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:
  October 2,
2021
December 31,
2020
Marubun/Arrow$58,348 $65,943 
Other10,674 10,415 
 $69,022 $76,358 

The equity in earnings (losses) of affiliated companies consists of the following:
  Quarter EndedNine Months Ended
  October 2,
2021
September 26,
2020
October 2,
2021
September 26,
2020
Marubun/Arrow$805 $96 $1,697 $324 
Other346 (35)488 (16)
 $1,151 $61 $2,185 $308 

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 2, 2021 and December 31, 2020.

Note D – Accounts Receivable

Accounts receivable, net, consists of the following:
 October 2,
2021
December 31,
2020
Accounts receivable$9,407,642 $9,298,135 
Allowances for doubtful accounts(78,215)(92,792)
Accounts receivable, net$9,329,427 $9,205,343 






10

ARROW ELECTRONICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands except per share data)
(Unaudited)
Changes in the allowance for doubtful accounts consists of the following:
Nine Months Ended
October 2,
2021
September 26,
2020
Balance at beginning of period$92,792 $69,433 
Effect of adoption of ASU No. 2016-13 47,011 
Charged to income5,760 22,139 
Translation Adjustments(1,164)(1,215)
Writeoffs(19,173)(42,224)
Balance at end of period$78,215 $95,144 

The company has considered 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 2, 2021. The global economic impact from COVID-19 may adversely affect the credit condition of some customers. The impact of COVID-19 on customers’ credit condition is highly uncertain and will largely depend on the outcome of future events, which could cause credit losses to increase.

During 2020, the company entered into an EMEA (Europe, the Middle East, and Africa) asset securitization program under which it will continuously sell its interest in designated pools of trade accounts receivables of certain of its subsidiaries in the EMEA region, 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. The company may sell up to €400,000 under the EMEA asset securitization program, which matures in January 2023, subject to extension in accordance with its terms. 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 (i) the power to direct the activities that most significantly impact the entity’s economic performance and (ii) 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
  October 2,
2021
September 26,
2020
October 2,
2021
September 26,
2020
EMEA asset securitization, sales of accounts receivables$546,125 $447,958 $1,608,388 $1,425,324 

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.

Other amounts related to the EMEA asset securitization program:
October 2,
2021
December 31,
2020
Receivables sold to unaffiliated financial institutions that were uncollected$418,696 $397,914 
Collateralized accounts receivable held by Arrow EMEA funding Corp B.V.754,564 551,843 
11

ARROW ELECTRONICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands except per share data)
(Unaudited)

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 if there are outstanding balances under the EMEA asset securitization program. The assets of the special purpose entity 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 institution under the program are limited to the assets it owns and there is no recourse to the company for receivables that are uncollectible as a result of the insolvency or inability to pay of 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 2, 2021, the company was in compliance with all such financial covenants.

Note E – Debt

Short-term borrowings, including current portion of long-term debt, consists of the following:
 October 2,
2021
December 31,
2020
5.125% notes, due March 2021
$ $130,836 
3.50% notes, due April 2022
349,561  
Other short-term borrowings4,354 27,797 
 $353,915 $158,633 

Other short-term borrowings are primarily utilized to support working capital requirements. The weighted-average interest rate on these borrowings was 1.17% and 1.73% at October 2, 2021 and December 31, 2020, respectively.

The company has $200,000 in uncommitted lines of credit. There were no outstanding borrowings under the uncommitted lines of credit at October 2, 2021 and December 31, 2020. These borrowings are provided on a short-term basis and the maturity is agreed upon between the company and the lender. The lines had a weighted-average effective interest rate of 1.50% and 1.53% at October 2, 2021 and December 31, 2020, respectively.

The company has a commercial paper program and the maximum aggregate balance of commercial paper outstanding may not exceed the borrowing capacity of $1,200,000. The company had no outstanding borrowings under this program at October 2, 2021 and December 31, 2020. The program had a weighted-average effective interest rate of .28% and .30% at October 2, 2021 and December 31, 2020, respectively.

Long-term debt consists of the following: