10-Q 1 arw-20220402.htm 10-Q arw-20220402
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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 April 2, 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 66,036,987 shares of Common Stock outstanding as of April 28, 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 Ended
  April 2,
2022
April 3,
2021
Sales$9,074,125 $8,385,919 
Cost of sales7,866,621 7,455,809 
Gross profit1,207,504 930,110 
Operating expenses:
Selling, general, and administrative expenses643,925 574,567 
Depreciation and amortization48,305 50,331 
Restructuring, integration, and other charges4,898 5,709 
697,128 630,607 
Operating income510,376 299,503 
Equity in earnings of affiliated companies843 844 
Gain on investments, net2,011 2,793 
Employee benefit plan expense, net(889)(1,230)
Interest and other financing expense, net(33,985)(33,656)
Income before income taxes478,356 268,254 
Provision for income taxes112,360 61,026 
Consolidated net income365,996 207,228 
Noncontrolling interests1,247 907 
Net income attributable to shareholders$364,749 $206,321 
Net income per share:  
Basic$5.38 $2.76 
Diluted
$5.31 $2.72 
Weighted-average shares outstanding:  
Basic
67,840 74,882 
Diluted68,749 75,794 

See accompanying notes.
 
 
3

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


Quarter Ended
April 2,
2022
April 3,
2021
Consolidated net income$365,996 $207,228 
Other comprehensive loss:
Foreign currency translation adjustment and other, net of taxes(49,910)(61,921)
Unrealized gain (loss) on foreign exchange contracts designated as net investment hedges, net of taxes(575)5,306 
Unrealized gain on interest rate swaps designated as cash flow hedges, net of taxes8,205 36,352 
Employee benefit plan items, net of taxes99 (166)
Other comprehensive loss(42,181)(20,429)
Comprehensive income323,815 186,799 
Less: Comprehensive income (loss) attributable to non-controlling interests378 (946)
Comprehensive income attributable to shareholders$323,437 $187,745 

See accompanying notes.
    
4

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

 April 2,
2022
December 31,
2021
ASSETS  
Current assets:  
Cash and cash equivalents$242,791 $222,194 
Accounts receivable, net10,621,942 11,123,946 
Inventories4,645,116 4,201,965 
Other current assets431,635 345,218 
Total current assets15,941,484 15,893,323 
Property, plant, and equipment, at cost:  
Land5,691 5,736 
Buildings and improvements185,000 186,097 
Machinery and equipment1,533,688 1,523,919 
 1,724,379 1,715,752 
Less: Accumulated depreciation and amortization(1,066,180)(1,032,941)
Property, plant, and equipment, net658,199 682,811 
Investments in affiliated companies65,239 63,695 
Intangible assets, net185,753 195,029 
Goodwill2,067,249 2,080,371 
Other assets594,929 620,311 
Total assets$19,512,853 $19,535,540 
LIABILITIES AND EQUITY  
Current liabilities:  
Accounts payable$9,110,391 $9,617,084 
Accrued expenses1,243,853 1,326,386 
Short-term borrowings, including current portion of long-term debt317,399 382,619 
Total current liabilities10,671,643 11,326,089 
Long-term debt2,790,819 2,244,443 
Other liabilities621,508 624,162 
Commitments and contingencies (Note J)
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
1,186,595 1,189,845 
Treasury stock (58,987 and 57,358 shares in 2022 and 2021, respectively), at cost
(3,861,793)(3,629,265)
Retained earnings
8,152,697 7,787,948 
Accumulated other comprehensive loss(232,969)(191,657)
Total shareholders’ equity5,369,954 5,282,295 
Noncontrolling interests58,929 58,551 
Total equity5,428,883 5,340,846 
Total liabilities and equity$19,512,853 $19,535,540 
                
 
See accompanying notes.
5

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

 Quarter Ended
  April 2,
2022
April 3,
2021
Cash flows from operating activities:
Consolidated net income$365,996 $207,228 
Adjustments to reconcile consolidated net income to net cash used for operations:
Depreciation and amortization48,305 50,331 
Amortization of stock-based compensation17,351 13,223 
Equity in earnings of affiliated companies(843)(844)
Deferred income taxes1,352 13,663 
Gain on investments, net(2,011)(2,793)
Other686 1,374 
Change in assets and liabilities:
Accounts receivable, net430,710 596,777 
Inventories(460,902)(13,147)
Accounts payable(477,825)(840,124)
Accrued expenses(43,641)3,643 
Other assets and liabilities(79,426)(33,867)
Net cash used for operating activities(200,248)(4,536)
Cash flows from investing activities:
Acquisition of property, plant, and equipment(19,270)(20,180)
Proceeds from sale of property, plant, and equipment 22,171 
Proceeds from collections of notes receivable20,169  
Net cash provided by investing activities899 1,991 
Cash flows from financing activities:
Change in short-term and other borrowings(14,293)(12,452)
Proceeds from long-term bank borrowings, net845,000 154,674 
Redemption of notes(350,000)(130,860)
Proceeds from exercise of stock options11,302 26,091 
Repurchases of common stock(264,431)(160,619)
Net cash provided by (used for) financing activities227,578 (123,166)
Effect of exchange rate changes on cash(7,632)(20,203)
Net increase (decrease) in cash and cash equivalents20,597 (145,914)
Cash and cash equivalents at beginning of period222,194 373,615 
Cash and cash equivalents at end of period$242,791 $227,701 

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 


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 

See accompanying notes.

7

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, 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.

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, 2021 (a)$882,948 $1,197,423 $2,080,371 
Foreign currency translation adjustment(4,089)(9,033)(13,122)
Balance as of April 2, 2022 (a)$878,859 $1,188,390 $2,067,249 

(a)     The total carrying value of goodwill as of April 2, 2022 and December 31, 2021 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 April 2, 2022:
Gross Carrying AmountAccumulated AmortizationNet
Customer relationships$305,988 $(163,461)$142,527 
Amortizable trade name74,000 (30,774)43,226 
$379,988 $(194,235)$185,753 

Intangible assets, net, are comprised of the following as of December 31, 2021:
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 first quarter of 2022 and 2021, the company recorded amortization expense related to identifiable intangible assets of $9,018 and $9,326, respectively.
8

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

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:
  April 2,
2022
December 31,
2021
Marubun/Arrow$54,179 $53,415 
Other11,060 10,280 
 $65,239 $63,695 

The equity in earnings (losses) of affiliated companies consists of the following:
  Quarter Ended
  April 2,
2022
April 3,
2021
Marubun/Arrow$794 $857 
Other49 (13)
 $843 $844 

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 April 2, 2022 and December 31, 2021.

Note D – Accounts Receivable

Accounts receivable, net, consists of the following:
 April 2,
2022
December 31,
2021
Accounts receivable$10,709,125 $11,199,847 
Allowances for doubtful accounts(87,183)(75,901)
Accounts receivable, net$10,621,942 $11,123,946 

Changes in the allowance for doubtful accounts consists of the following:
Quarter Ended
April 2,
2022
April 3,
2021
Balance at beginning of period$75,901 $92,792 
Charged to income13,768 1,137 
Translation adjustments190 (1,117)
Writeoffs(2,676)(4,379)
Balance at end of period$87,183 $88,433 

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 April 2, 2022. 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.

9

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

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. 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 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 Ended
  April 2,
2022
April 3,
2021
EMEA asset securitization, sales of accounts receivables$569,216 $517,042 

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:
April 2,
2022
December 31,
2021
Receivables sold to unaffiliated financial institutions that were uncollected$443,209 $453,292 
Collateralized accounts receivable held by Arrow EMEA funding Corp B.V.877,218 745,965 

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 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 Arrow Electronics, Inc. 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 April 2, 2022, the company was in compliance with all such financial covenants.

10

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

Note E – Debt

Short-term borrowings, including current portion of long-term debt, consists of the following:
 April 2,
2022
December 31,
2021
3.50% notes, due April 2022
$ $349,779 
4.50% notes, due March 2023
299,433  
Other short-term borrowings17,966 32,840 
 $317,399 $382,619 

Other short-term borrowings are primarily utilized to support working capital requirements. The weighted-average interest rate on these borrowings was 1.47% and 1.41% at April 2, 2022 and December 31, 2021, respectively.

The company has $200,000 in uncommitted lines of credit. There were no outstanding borrowings under the uncommitted lines of credit at April 2, 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 1.46% and 1.50% at April 2, 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 $1,200,000. Amounts outstanding under the commercial paper program are backstopped by available commitments under the company’s revolving credit facility. The company had no outstanding borrowings under this program at April 2, 2022 and December 31, 2021. The commercial paper program had a weighted-average effective interest rate of .54% and .29% at April 2, 2022 and December 31, 2021, respectively.

Long-term debt consists of the following:
 April 2,
2022
December 31,
2021
Revolving credit facility$45,000 $ 
North American asset securitization program800,000  
4.50% notes, due 2023
 299,283 
3.25% notes, due 2024
497,322 497,060 
4.00% notes, due 2025
347,827 347,657 
7.50% senior debentures, due 2027
110,041 110,021 
3.875% notes, due 2028
495,977 495,823 
2.95% notes, due 2032
494,145 494,022 
Other obligations with various interest rates and due dates507 577 
 $2,790,819 $2,244,443 

The 7.50% senior debentures are not redeemable prior to their maturity. All other notes may be called at the option of the company subject to “make whole” clauses.

11

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

The estimated fair market value of long-term debt, using quoted market prices, is as follows:
 April 2,
2022
December 31,
2021
4.50% notes, due 2023
$ $309,000 
3.25% notes, due 2024
499,500 522,000 
4.00% notes, due 2025
354,000 374,000 
7.50% senior debentures, due 2027
127,000 136,000 
3.875% notes, due 2028
503,000 542,500 
2.95% notes, due 2032
458,500 504,500 

The carrying amount of the company’s other short-term borrowings, revolving credit facility, 4.50% notes due in 2023, North American asset securitization program, commercial paper, and other obligations approximate their fair value.

The company has a $2,000,000 revolving credit facility maturing in September 2026. The 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, 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 Eurocurrency rate plus a spread (1.08% at April 2, 2022), which is based on the company’s credit ratings, or an effective interest rate of 1.40% at April 2, 2022. The facility fee, which is based on the company’s credit ratings, was .175% of the total borrowing capacity at April 2, 2022. The company had $45,000 in outstanding borrowings under the revolving credit facility at April 2, 2022. There were no outstanding borrowings under the revolving credit facility at December 31, 2021.

The company has a North American asset securitization program collateralized by accounts receivable of certain of its subsidiaries. The company may borrow up to $1,250,000 under the program which matures in March 2024. The program is conducted through Arrow Electronics Funding Corporation (“AFC”), a wholly-owned, bankruptcy remote subsidiary. The North American asset securitization program does not qualify for 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 (.45% at April 2, 2022), or an effective interest rate of .89% at April 2, 2022. The facility fee is .40% of the total borrowing capacity.

The company had $800,000 in outstanding borrowings under the North American asset securitization program at April 2, 2022, which was included in Long-term debt” in the company’s consolidated balance sheets. There were no outstanding borrowings under the North American asset securitization program at December 31, 2021. Total collateralized accounts receivable of approximately $2,348,637 and $2,735,145 were held by AFC and were included in Accounts receivable, net” in the company’s consolidated balance sheets at April 2, 2022 and December 31, 2021, respectively. 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 North American asset securitization program.

Both the revolving credit facility and North American 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. As of April 2, 2022, the company was in compliance with all such financial covenants.

During February 2022, the company repaid $350,000 principal amount of its 3.50% notes due April 2022.

During the fourth quarter of 2021, the company completed the sale of $500,000 principal amount of 2.95% notes due in February 2032. The net proceeds of the offering of $495,134 were used to repay the 3.50% notes due April 2022 and for general corporate purposes.

During March 2021, the company repaid $130,860 principal amount of its 5.125% notes due March 2021.

In the normal course of business, certain of the company’s subsidiaries have agreements to sell, without recourse, selected trade receivables to financial institutions. The company does not retain financial or legal interests in these receivables, and, accordingly they are accounted for as sales of the related receivables, and the receivables are removed from the company’s consolidated balance sheets.
12

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


Interest and other financing expense, net, includes interest and dividend income of $4,508 and $4,106 for the first quarter of 2022 and 2021, respectively.

Note F – 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.

The following table presents assets measured at fair value on a recurring basis at April 2, 2022:
 Balance Sheet
Location
Level 1Level 2Level 3Total
Cash equivalents (a)Cash and cash equivalents$7,720 $ $ $7,720 
Equity investments (b)Other assets52,267   52,267 
Interest rate swaps designated as cash flow hedgesOther assets 31,783  31,783 
Foreign exchange contracts designated as net investment hedgesOther assets/ other current assets 42,055  42,055 
  $59,987 $73,838 $ $133,825 

The following table presents assets measured at fair value on a recurring basis at December 31, 2021:
 Balance Sheet
Location
Level 1Level 2Level 3Total
Cash equivalents (a)Cash and cash equivalents/
other assets
$4,812 $ $ $4,812 
Equity investments (b)Other assets56,985   56,985 
Interest rate swaps designated as cash flow hedgesOther assets 21,831  21,831 
Foreign exchange contracts designated as net investment hedgesOther assets 40,612  40,612 
 $61,797 $62,443 $ $124,240 

(a)    Cash equivalents include highly liquid investments with an original maturity of less than three months.
(b)    The company has an 8.4% equity ownership interest in Marubun Corporation and a portfolio of mutual funds with quoted market prices. The company recorded an unrealized gain (loss) of $(5,685) and $1,402 for the first quarter of 2022 and 2021, respectively, on equity securities held at the end of the quarter.

Assets and liabilities that are measured at fair value on a nonrecurring basis relate primarily to goodwill and identifiable intangible assets (see Note B). The company tests these assets for impairment if indicators of potential impairment exist or at least annually if indefinite-lived.

13

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

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.

Interest Rate Swaps

The company manages the risk of variability in interest rates of future expected debt issuances by entering into various forward-starting interest rate swaps, designated as cash flow hedges. Changes in fair value of interest rate swaps are recorded in the shareholders’ equity section in the company’s consolidated balance sheets in “Accumulated other comprehensive loss” and will be reclassified into income over the life of the anticipated debt issuance or in the period the hedged forecasted cash flows are deemed no longer probable to occur. Gains and losses on interest rate swaps are recorded within the line item “Interest and other financing expense, net” in the consolidated statements of operations. The fair value of interest rate swaps is estimated using a discounted cash flow analysis on the expected cash flows of each derivative based on observable inputs, including interest rate curves and credit spreads.

At April 2, 2022 and December 31, 2021, the company had the following outstanding interest rate swaps designated as cash flow hedges:
Trade DateMaturity DateNotional AmountWeighted-Average Interest RateDate Range of Forecasted Transaction
April 2020December 2024$300,0000.97%Jan 2023 - Dec 2025

Foreign Exchange Contracts

The company’s foreign currency exposure relates primarily to international transactions where the currency collected from customers can be different from the currency used to purchase the product. The company’s transactions in its foreign operations are denominated primarily in the following currencies: Euro, Indian Rupee, Chinese Renminbi, and British Pound. The company enters into foreign exchange forward, option, or swap contracts (collectively, the “foreign exchange contracts”) to facilitate the hedging of foreign currency exposures resulting from inventory purchases and sales and mitigate the impact of changes in foreign currency exchange rates related to these transactions. Foreign exchange contracts 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 is estimated using foreign currency spot rates and forward rates quotes by third-party financial institutions. The notional amount of the foreign exchange contracts inclusive of foreign exchange contracts designated as a net investment hedge at April 2, 2022 and December 31, 2021 was $1,228,684 and $1,125,997, 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 foreign currency exchange contracts designated as cash flow hedges are recorded in "Cost of sales," "Selling, general, and administrative expenses," and "Interest and other financing expense, net" based upon the nature of the underlying hedged transaction, in the company’s consolidated statements of operations.

At April 2, 2022 and December 31, 2021 the following foreign exchange contracts were designated as net investment hedges:
Maturity DateNotional Amount
March 202350,000 
September 202450,000 
April 2025100,000 
January 2028100,000 
Total300,000 
14

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


The contracts above have been designated as a net investment hedge which is in place to hedge a portion of the company’s net investment in subsidiaries with euro-denominated net assets. The change in the fair value of derivatives designated as net investment hedges are recorded in “foreign currency translation adjustment” (“CTA”) within “Accumulated other comprehensive loss” in the company’s consolidated balance sheets. Amounts excluded from the assessment of hedge effectiveness are included in “Interest and other financing expense, net” in the company’s consolidated statements of operations.

The effects of derivative instruments on the company’s consolidated statements of operations and other comprehensive income are as follows:
  Income Statement LineQuarter Ended
April 2,
2022
April 3,
2021
Gain (Loss) Recognized in Income
Foreign exchange contracts, net investment hedge (a)Interest Expense$2,201 $2,201 
Interest rate swaps, cash flow hedge
Interest Expense(868)(351)
Total$1,333 $1,850 
Gain (Loss) Recognized in Other Comprehensive Income (Loss) before reclassifications, net of tax
Foreign exchange contracts, net investment hedge (b)$1,094 $6,978 
Interest rate swaps, cash flow hedge
7,547 36,085 
Total$8,641 $43,063 

(a)Represents derivative amounts excluded from the assessment of effectiveness for the net investment hedges reclassified from CTA to Interest and other financing expenses, net.
(b)Includes derivative losses of $5,009 and $5,091 for the first quarter of 2022 and 2021, respectively, which were excluded from the assessment of effectiveness for the net investment hedges and recognized in other comprehensive income (loss), net of tax.

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 G – Restructuring, Integration, and Other Charges

Restructuring initiatives and integration costs are due to the company's continued efforts to lower costs, drive operational efficiency, integrate any acquired businesses, and the consolidation of certain operations, as necessary. The following table presents the components of the restructuring, integration, and other charges:
 Quarter Ended
 April 2,
2022
April 3,
2021
Restructuring and integration charges - current period actions
$2,725 $4,850 
Restructuring and integration charges - actions taken in prior periods1,332 1,400 
Other charges (credits)841 (541)
 $4,898 $5,709 
Restructuring and Integration Accrual Summary

The restructuring and integration accrual was $10,617 and $11,201 at April 2, 2022 and December 31, 2021, respectively. During the first quarter of 2022, the company made $6,955 of payments related to restructuring and integration accruals, and recorded $4,057 in restructuring and integration charges. The remaining changes to the accrual related to changes in foreign
15

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

exchange rates during the year. Substantially all amounts accrued at April 2, 2022, and all restructuring and integration charges for the first quarter of 2022, relate to the termination of personnel and are expected to be spent in cash within one year.

Note H – 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
 April 2,
2022
April 3,
2021
Net income attributable to shareholders$364,749 $206,321 
Weighted-average shares outstanding - basic67,840 74,882 
Net effect of various dilutive stock-based compensation awards909 912 
Weighted-average shares outstanding - diluted68,749 75,794 
Net income per share:  
Basic$5.38 $2.76 
Diluted (a)$5.31 $2.72 

(a)Stock-based compensation awards for the issuance of 86 and 103 shares for the first quarter of 2022 and 2021, respectively, were excluded from the computation of net income per share on a diluted basis as their effect was anti-dilutive.

Note I – Shareholders’ Equity

Accumulated Other Comprehensive Loss

The following table presents the changes in Accumulated other comprehensive loss, excluding noncontrolling interests:
Quarter Ended
April 2,
2022
April 3,
2021
Foreign Currency Translation Adjustment and Other:
Other comprehensive loss before reclassifications (a)$(48,700)$(59,548)
Amounts reclassified into income(341)(520)
Unrealized Gain on Foreign Exchange Contracts Designated as Net Investment Hedges, Net:
Other comprehensive income before reclassifications1,094 6,978 
Amounts reclassified into income(1,669)(1,672)
Unrealized Gain on Interest Rate Swaps Designated as Cash Flow Hedges, Net:
Other comprehensive income before reclassifications7,547 36,085 
Amounts reclassified into income658 267 
Employee Benefit Plan Items, Net:
Amounts reclassified into income99 (166)
Net change in Accumulated other comprehensive loss$(41,312)$(18,576)

(a)     Foreign currency translation adjustment includes intra-entity foreign currency transactions that are of a long-term investment nature of $(8,258) and $(2,597) for the first quarter of 2022 and 2021, respectively.

16

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


Share-Repurchase Program

The following table shows the company’s Board of Directors (the “Board”) approved share-repurchase programs as of April 2, 2022:
Month of Board ApprovalDollar Value Approved for RepurchaseDollar Value of Shares RepurchasedApproximate
Dollar Value of
Shares that May
Yet be
Purchased
Under the
Program
July 2020$600,000 $600,000 $ 
July 2021600,000 600,000  
December 2021600,000 86,532 513,468 
Total$1,800,000 $1,286,532 $513,468 

The company repurchased 2,015 shares of common stock for $250,000 and 1,444 shares of common stock for $149,990 in the first quarter of 2022 and 2021, respectively, under the company's share-repurchase programs. As of April 2, 2022, approximately $513,468 remained available for repurchase under the program.

Note J – Contingencies

Environmental Matters

In connection with the purchase of Wyle Electronics ("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 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.

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 $47,000 from certain
17

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

insurance carriers relating to environmental clean-up matters at the Norco and Huntsville sites. The company filed suit against two insurers regarding liabilities arising out of operations at Huntsville and reached a confidential settlement with one of the insurers in 2020. The resolution of this matter against the remaining insurer 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.

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 is complete and has been approved by ADEM. Health-risk evaluations and a Corrective Action Development Plan were approved by ADEM in 2018, opening the way for pilot testing of on-site remediation in late 2019. Pilot testing is currently underway. Approximately $7,800 was spent to date and the company currently anticipates no additional investigative and related expenditures. The cost of subsequent remediation at the site is estimated to be between $2,600 and $10,000.

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 (“DTSC”) in connection with the Norco site. Subsequent to the decree, a Remedial Investigation Work Plan was approved by DTSC in April 2005, the required investigations were performed, and a final Remedial Investigation Report was submitted early in 2008. In 2008, a hydraulic containment system (“HCS”) was installed as an interim remedial measure to capture and treat groundwater before it moves into the adjacent off-site area. In September 2013, the DTSC approved the final Remedial Action Plan (“RAP”) for actions in five on-site areas and one off-site area. As of 2018, the remediation measures described in the RAP had been implemented and were being monitored. A Five Year Review (“FYR”) of the HCS submitted to DTSC in December 2016 found that while significant progress was made in on-site and off-site groundwater remediation, contaminants were not sufficiently reduced in a key off-site area identified in the RAP. This exception triggered the need for additional off-site remediation that began in 2018 and was completed in mid-2019. Routine progress monitoring of groundwater and soil gas continue on-site and off-site.

Approximately $78,000 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 $3,000 to $17,000. 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.

Other

During the first quarter of 2021, the company received $4,311 in settlement funds in connection with claims filed against certain manufacturers of aluminum, tantalum, and film capacitors who allegedly colluded to fix the price of capacitors from 2001 through 2014. These amounts were recorded as a reduction to “Selling, general, and administrative expenses” in the company’s consolidated statements of operations. The company has related on-going disputes with other manufacturers and may receive additional funds in the future. The company is unable to estimate additional amounts that may be received in the future and as such has not recorded a receivable at this time.

In 2019, the company determined that from 2015 to 2019 a limited number of non-executive employees, without first obtaining required authorization from the company or the United States government, had facilitated product shipments with an aggregate total invoiced value of approximately $4,770, to resellers for reexports to persons covered by the Iran Threat Reduction and Syria Human Rights Act of 2012 or other United States sanctions and export control laws. The company has voluntarily reported these activities to the United States Treasury Department’s Office of Foreign Assets Control (“OFAC”) and the United
18

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

States Department of Commerce’s Bureau of Industry and Security (“BIS”), and conducted an internal investigation and terminated or disciplined the employees involved. BIS has closed its investigation and issued the company a warning letter without referring the matter for further proceedings. No penalties have been imposed by BIS. The company has cooperated fully and intends to continue to cooperate fully with OFAC with respect to its review, which may result in the imposition of penalties, which the company is currently not able to estimate.

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 K – 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 and managed service providers 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.

19

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