Company Quick10K Filing
Quick10K
Arrow Electronics
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$67.76 85 $5,741
10-Q 2019-09-28 Quarter: 2019-09-28
10-Q 2019-06-29 Quarter: 2019-06-29
10-Q 2019-03-30 Quarter: 2019-03-30
10-K 2018-12-31 Annual: 2018-12-31
10-Q 2018-09-29 Quarter: 2018-09-29
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-K 2017-12-31 Annual: 2017-12-31
10-Q 2017-09-30 Quarter: 2017-09-30
10-Q 2017-07-01 Quarter: 2017-07-01
10-Q 2017-04-01 Quarter: 2017-04-01
10-K 2016-12-31 Annual: 2016-12-31
10-Q 2016-10-01 Quarter: 2016-10-01
10-Q 2016-07-02 Quarter: 2016-07-02
10-Q 2016-04-02 Quarter: 2016-04-02
10-K 2015-12-31 Annual: 2015-12-31
10-Q 2015-09-26 Quarter: 2015-09-26
10-Q 2015-06-27 Quarter: 2015-06-27
10-Q 2015-03-28 Quarter: 2015-03-28
10-K 2014-12-31 Annual: 2014-12-31
10-Q 2014-09-27 Quarter: 2014-09-27
10-Q 2014-06-28 Quarter: 2014-06-28
10-Q 2014-03-29 Quarter: 2014-03-29
10-K 2013-12-31 Annual: 2013-12-31
8-K 2019-10-31 Earnings, Exhibits
8-K 2019-08-01 Earnings, Exhibits
8-K 2019-07-15 Earnings, Exit Costs, Impairments, Exhibits
8-K 2019-07-01 Officers, Exhibits
8-K 2019-05-09 Shareholder Vote
8-K 2019-05-02 Earnings, Exhibits
8-K 2019-02-07 Earnings, Exhibits
8-K 2018-12-31 Leave Agreement
8-K 2018-12-14 Off-BS Arrangement, Other Events, Exhibits
8-K 2018-12-11 Other Events, Exhibits
8-K 2018-11-01 Earnings, Exhibits
8-K 2018-11-01 Officers, Exhibits
8-K 2018-08-02 Earnings, Exhibits
8-K 2018-06-20 Enter Agreement, Off-BS Arrangement, Regulation FD, Exhibits
8-K 2018-05-10 Shareholder Vote
8-K 2018-05-09 Officers
TEL TE Connectivity 30,203
KLAC KLA Tencor 23,656
WDC Western Digital 16,009
STX Seagate Technology 13,031
PSTG Pure Storage 4,060
IIVI II-VI 2,322
CAMT Camtek 329
PRCP Perceptron 47
QBAK Qualstar 9
RELL Richardson Electronics 0
ARW 2019-09-28
Part I. Financial Information
Item 1. Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II. Other Information
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 5. Other Information
Item 6. Exhibits
EX-31.I arwexhibit31iq319.htm
EX-31.II arwexhibit31iiq319.htm
EX-32.I arwexhibit32iq319.htm
EX-32.II arwexhibit32iiq319.htm

Arrow Electronics Earnings 2019-09-28

ARW 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

Document
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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 September 28, 2019

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 York
 
11-1806155
 
 
(State or other jurisdiction of
 
(I.R.S. Employer
 
 
incorporation or organization)
 
Identification Number)
 
 
 
 
 
 
 
 
9201 East Dry Creek Road
 
80112
 
 
Centennial
CO
 
(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 class
 
Trading Symbol(s)
 
Name of the exchange on which registered
Common Stock, $1 par value
 
ARW
 
New 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 filer
 
Accelerated filer
Non-accelerated filer
 
Smaller 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 81,448,606 shares of Common Stock outstanding as of October 31, 2019.



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

Nine Months Ended
  
 
September 28,
2019
 
September 29,
2018
 
September 28,
2019
 
September 29,
2018
Sales
 
$
7,078,118

 
$
7,490,445

 
$
21,578,657

 
$
21,758,586

Cost of sales
 
6,279,277


6,566,667

 
19,103,219


19,033,044

Gross profit
 
798,841


923,778

 
2,475,438


2,725,542

Operating expenses:
 
 
 
 
 
 
 
 
Selling, general, and administrative expenses
 
522,446

 
575,751

 
1,677,734

 
1,719,108

Depreciation and amortization
 
45,231

 
45,532

 
139,739

 
139,201

Loss on disposition of businesses, net (Note D)
 
14,573

 
2,042

 
15,439

 
3,604

Impairments (Notes D and E)

253




698,246



Restructuring, integration, and other charges
 
43,120

 
10,143

 
74,692

 
50,497

 
 
625,623

 
633,468

 
2,605,850

 
1,912,410

Operating income (loss)
 
173,218


290,310

 
(130,412
)

813,132

Equity in losses of affiliated companies
 
(1,070
)
 
(652
)
 
(2,155
)
 
(808
)
Gain (loss) on investments, net
 
1,126

 
1,070

 
7,864

 
(3,945
)
Employee benefit plan expense
 
(1,071
)
 
(1,296
)
 
(3,349
)
 
(3,784
)
Interest and other financing expense, net
 
(49,882
)
 
(54,205
)
 
(153,426
)
 
(160,187
)
Income (loss) before income taxes
 
122,321

 
235,227

 
(281,478
)
 
644,408

Provision for income taxes
 
29,340

 
57,054

 
30,878

 
155,325

Consolidated net income (loss)
 
92,981

 
178,173

 
(312,356
)
 
489,083

Noncontrolling interests
 
850

 
1,640

 
3,744

 
3,541

Net income (loss) attributable to shareholders
 
$
92,131

 
$
176,533

 
$
(316,100
)
 
$
485,542

Net income (loss) per share:
 
 

 
 

 
 
 
 
Basic
 
$
1.11

 
$
2.02

 
$
(3.75
)
 
$
5.53

Diluted
 
$
1.10

 
$
1.99

 
$
(3.75
)
 
$
5.47

Weighted-average shares outstanding:
 
 

 
 

 
 
 
 
Basic
 
82,711

 
87,602

 
84,246

 
87,785

Diluted
 
83,397

 
88,608

 
84,246

 
88,759


See accompanying notes.
 
 

3


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

 
 
Quarter Ended
 
Nine Months Ended
 
 
September 28,
2019
 
September 29,
2018
 
September 28,
2019
 
September 29,
2018
Consolidated net income (loss)
 
$
92,981

 
$
178,173

 
$
(312,356
)
 
$
489,083

Other comprehensive income (loss):
 
 
 
 
 
 
 
 
Foreign currency translation adjustment and other
 
(82,809
)
 
(38,008
)
 
(62,346
)
 
(139,846
)
Unrealized gain on foreign exchange contracts designated as net investment hedges, net of taxes
 
11,389

 

 
15,495

 

Unrealized gain (loss) on interest rate swaps designated as cash flow hedges, net of taxes
 
(9,114
)
 
234

 
(15,480
)
 
693

Employee benefit plan items, net of taxes
 
45

 
389

 
449

 
1,284

Other comprehensive loss
 
(80,489
)
 
(37,385
)
 
(61,882
)
 
(137,869
)
Comprehensive income (loss)
 
12,492

 
140,788

 
(374,238
)
 
351,214

Less: Comprehensive income (loss) attributable to noncontrolling interests
 
(562
)
 
1,497

 
2,199

 
1,486

Comprehensive income (loss) attributable to shareholders
 
$
13,054

 
$
139,291

 
$
(376,437
)
 
$
349,728


See accompanying notes.
    

4


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

 
 
September 28,
2019
 
December 31,
2018
ASSETS
 
 
 
 
Current assets:
 
 
 
 
Cash and cash equivalents
 
$
262,254


$
509,327

Accounts receivable, net
 
7,841,851


8,945,463

Inventories
 
3,503,481


3,878,678

Other current assets
 
232,062


274,832

Total current assets
 
11,839,648


13,608,300

Property, plant, and equipment, at cost:
 
 


 

Land
 
7,746


7,882

Buildings and improvements
 
164,544


158,712

Machinery and equipment
 
1,438,600


1,425,933

 
 
1,610,890


1,592,527

Less: Accumulated depreciation and amortization
 
(805,626
)

(767,827
)
Property, plant, and equipment, net
 
805,264


824,700

Investments in affiliated companies
 
85,399


83,693

Intangible assets, net
 
277,720


372,644

Goodwill
 
2,041,073


2,624,690

Other assets
 
640,607


270,418

Total assets
 
$
15,689,711


$
17,784,445

LIABILITIES AND EQUITY
 
 


 

Current liabilities:
 
 


 

Accounts payable
 
$
6,181,408


$
7,631,879

Accrued expenses
 
833,390


912,292

Short-term borrowings, including current portion of long-term debt
 
356,843


246,257

Total current liabilities
 
7,371,641


8,790,428

Long-term debt
 
2,942,293


3,239,115

Other liabilities
 
631,530


378,536

Commitments and contingencies (Note N)
 





Equity:
 
 


 

Shareholders’ equity:
 
 


 

Common stock, par value $1:
 
 


 

Authorized - 160,000 shares in both 2019 and 2018, respectively
 
 


 

Issued - 125,424 shares in both 2019 and 2018, respectively
 
125,424


125,424

Capital in excess of par value
 
1,143,830


1,135,934

Treasury stock (43,660 and 40,233 shares in 2019 and 2018, respectively), at cost
 
(2,237,884
)

(1,972,254
)
Retained earnings
 
6,019,235


6,335,335

Accumulated other comprehensive loss
 
(359,786
)

(299,449
)
Total shareholders’ equity
 
4,690,819


5,324,990

Noncontrolling interests
 
53,428


51,376

Total equity
 
4,744,247


5,376,366

Total liabilities and equity
 
$
15,689,711


$
17,784,445

 
See accompanying notes.

5


ARROW ELECTRONICS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
 
 
Nine Months Ended
  
 
September 28,
2019
 
September 29,
2018
Cash flows from operating activities:
 
 
 
 
Consolidated net income (loss)
 
$
(312,356
)

$
489,083

Adjustments to reconcile consolidated net income (loss) to net cash provided by operations:
 



Depreciation and amortization
 
139,739


139,201

Amortization of stock-based compensation
 
34,749


38,104

Equity in losses of affiliated companies
 
2,155


808

Deferred income taxes
 
(65,484
)

17,769

Impairments
 
698,246



Loss on disposition of businesses, net
 
15,439


3,604

(Gain) loss on investments, net

(7,622
)

3,945

Other

10,814


6,056

Change in assets and liabilities, net of effects of acquired and disposed businesses:
 



Accounts receivable
 
916,908


(254,417
)
Inventories
 
342,610


(456,050
)
Accounts payable
 
(1,349,189
)

171,697

Accrued expenses
 
(71,124
)

15,177

Other assets and liabilities

8,308


(165,421
)
Net cash provided by operating activities
 
363,193


9,556

Cash flows from investing activities:
 





Cash consideration paid for acquired businesses, net of cash acquired
 


(331,563
)
Proceeds from (cash paid on) disposition of a businesses
 
(1,325
)

32,013

Acquisition of property, plant, and equipment
 
(113,080
)

(104,897
)
Other

(5,555
)

(11,000
)
Net cash used for investing activities
 
(119,960
)

(415,447
)
Cash flows from financing activities:
 



Change in short-term and other borrowings
 
(93,129
)

104,158

Proceeds from (repayments of) long-term bank borrowings, net
 
(96,960
)

420,755

Redemption of notes
 


(300,000
)
Proceeds from exercise of stock options
 
11,710


7,919

Repurchases of common stock
 
(304,194
)

(93,173
)
Other
 
(147
)

(1,174
)
Net cash provided by (used for) financing activities
 
(482,720
)

138,485

Effect of exchange rate changes on cash
 
(7,586
)

11,514

Net decrease in cash and cash equivalents
 
(247,073
)

(255,892
)
Cash and cash equivalents at beginning of period
 
509,327


730,083

Cash and cash equivalents at end of period
 
$
262,254


$
474,191


See accompanying notes.
 

6


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

 
Common Stock at Par Value
 
Capital in Excess of Par Value
 
Treasury Stock
 
Retained Earnings
 
Accumulated Other Comprehensive Income (Loss)
 
Noncontrolling Interests
 
Total
Balance at December 31, 2018
$
125,424

 
$
1,135,934

 
$
(1,972,254
)
 
$
6,335,335

 
$
(299,449
)
 
$
51,376

 
$
5,376,366

Consolidated net income

 

 

 
140,735

 

 
1,679

 
142,414

Other comprehensive income (loss)

 

 

 

 
11,182

 
(648
)
 
10,534

Amortization of stock-based compensation

 
19,090

 

 

 

 

 
19,090

Shares issued for stock-based compensation awards

 
(26,267
)
 
33,198

 

 

 

 
6,931

Repurchases of common stock

 

 
(53,925
)
 

 

 

 
(53,925
)
Balance at March 30, 2019
$
125,424

 
$
1,128,757

 
$
(1,992,981
)
 
$
6,476,070

 
$
(288,267
)
 
$
52,407

 
$
5,501,410

Consolidated net income (loss)

 

 

 
(548,966
)
 

 
1,215

 
(547,751
)
Other comprehensive income

 

 

 

 
7,558

 
515

 
8,073

Amortization of stock-based compensation

 
8,539

 

 

 

 

 
8,539

Shares issued for stock-based compensation awards

 
(647
)
 
3,340

 

 

 

 
2,693

Repurchases of common stock

 

 
(150,102
)
 

 

 

 
(150,102
)
Distributions

 

 

 

 

 
(147
)
 
(147
)
Balance at June 29, 2019
$
125,424

 
$
1,136,649

 
$
(2,139,743
)
 
$
5,927,104

 
$
(280,709
)
 
$
53,990

 
$
4,822,715

Consolidated net income

 

 

 
92,131

 

 
850

 
92,981

Other comprehensive loss

 

 

 

 
(79,077
)
 
(1,412
)
 
(80,489
)
Amortization of stock-based compensation

 
7,120

 

 

 

 

 
7,120

Shares issued for stock-based compensation awards

 
61

 
2,026

 

 

 

 
2,087

Repurchases of common stock

 

 
(100,167
)
 

 

 

 
(100,167
)
Balance at September 28, 2019
$
125,424

 
$
1,143,830

 
$
(2,237,884
)
 
$
6,019,235

 
$
(359,786
)
 
$
53,428

 
$
4,744,247


7


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

 
Common Stock at Par Value
 
Capital in Excess of Par Value
 
Treasury Stock
 
Retained Earnings
 
Accumulated Other Comprehensive Income (Loss)
 
Noncontrolling Interests
 
Total
Balance at December 31, 2017
$
125,424

 
$
1,114,167

 
$
(1,762,239
)
 
$
5,596,786

 
$
(124,883
)
 
$
48,685

 
$
4,997,940

Effect of new accounting principles

 

 

 
22,354

 
(22,354
)
 

 

Consolidated net income

 

 

 
139,094

 

 
776

 
139,870

Other comprehensive income (loss)

 

 

 

 
45,732

 
(255
)
 
45,477

Amortization of stock-based compensation

 
13,043

 

 

 

 

 
13,043

Shares issued for stock-based compensation awards

 
(22,102
)
 
27,099

 

 

 

 
4,997

Repurchases of common stock

 

 
(52,513
)
 

 

 

 
(52,513
)
Balance at March 31, 2018
$
125,424

 
$
1,105,108

 
$
(1,787,653
)
 
$
5,758,234

 
$
(101,505
)
 
$
49,206

 
$
5,148,814

Consolidated net income

 

 

 
169,915

 

 
1,125

 
171,040

Other comprehensive loss

 

 

 

 
(144,304
)
 
(1,658
)
 
(145,962
)
Amortization of stock-based compensation

 
12,619

 

 

 

 

 
12,619

Shares issued for stock-based compensation awards

 
(338
)
 
1,329

 

 

 

 
991

Repurchases of common stock

 

 
(20,038
)
 

 

 

 
(20,038
)
Distributions

 

 

 

 

 
(157
)
 
(157
)
Balance at June 30, 2018
$
125,424

 
$
1,117,389

 
$
(1,806,362
)
 
$
5,928,149

 
$
(245,809
)
 
$
48,516

 
$
5,167,307

Consolidated net income

 

 

 
176,533

 

 
1,640

 
178,173

Other comprehensive loss

 

 

 

 
(37,242
)
 
(141
)
 
(37,383
)
Amortization of stock-based compensation

 
12,632

 

 

 

 

 
12,632

Shares issued for stock-based compensation awards

 
(676
)
 
2,611

 

 

 

 
1,935

Repurchases of common stock

 

 
(20,622
)
 

 

 

 
(20,622
)
Balance at September 29, 2018
$
125,424

 
$
1,129,345

 
$
(1,824,373
)
 
$
6,104,682

 
$
(283,051
)
 
$
50,015

 
$
5,302,042


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 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, 2018, 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.

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 August 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2018-15, Intangibles—Goodwill and Other— Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract (a consensus of the FASB Emerging Issues Task Force) (“ASU No. 2018-15”). ASU No. 2018-15 aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop internal-use software. ASU No. 2018-15 is effective for the company in the first quarter of 2020, with early adoption permitted, and is to be applied either retrospectively or prospectively. The company is currently evaluating the potential effects of adopting the provisions of ASU No. 2018-15. The adoption is not expected to be material to the consolidated financial statements.

In August 2017, the FASB issued Accounting Standards Update No. 2017-12, Derivatives and Hedging (Topic 815) (“ASU No. 2017-12”). ASU No. 2017-12 simplifies certain aspects of hedge accounting and results in a more accurate portrayal of the economics of an entity’s risk management activities in its financial statements. On January 1, 2019, the company adopted the provisions of ASU No. 2017-12 on a modified retrospective basis. The adoption of the provisions of ASU No. 2017-12 did not materially impact the company’s consolidated financial position or results of operations.

In June 2016, the FASB issued Accounting Standards Update No. 2016-13, Financial Instruments - Credit Losses (“Topic 326”). Topic 326 revises the methodology for measuring credit losses on financial instruments and the timing of when such losses are recorded. Effective January 1, 2020, the company will adopt the update using a modified retrospective approach with a cumulative-effect adjustment to retained earnings. The company is currently evaluating the potential effects of adopting the provisions of Topic 326.

In February 2016, the FASB issued Accounting Standards Update No. 2016-02, Leases (Topic 842) (“ASU No. 2016-02”). ASU No. 2016-02 requires the entity to recognize the assets and liabilities for the rights and obligations created by leased assets. Leases will be classified as either finance or operating, with classification affecting expense recognition in the income statement. In July 2018, the FASB issued ASU No. 2018-10, Codification Improvements to Topic 842, Leases, and ASU No. 2018-11, Leases (Topic 842) Targeted Improvements. In March 2019, the FASB issued ASU No. 2019-01, Codification Improvements to Topic 842, Leases. These ASU’s provide supplemental adoption guidance and clarification to ASU No. 2016-02, and must be adopted concurrently with the adoption of ASU No. 2016-02, cumulatively referred to as “Topic 842.”

On January 1, 2019, the company adopted Topic 842 applying the optional transition method, which allows an entity to apply the new standard at the adoption date with a cumulative effect adjustment to the opening balance of retained earnings in the period of

9

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

adoption. In addition, the company elected a package of practical expedients and the short-term lease exception outlined in Topic 842. The company also implemented internal controls and systems to enable the preparation of financial information on adoption. As a result of adopting Topic 842, the company recognized assets and liabilities for the rights and obligations created by operating leases, refer to Note C & L.

Note C – Significant Accounting Policies

Except for the changes below and the impairments disclosed in Notes D and E, no material changes have been made to the company’s significant accounting policies disclosed in Note 1, Summary of Significant Accounting Policies, in its Annual Report on Form 10-K, filed on February 7, 2019, for the year ended December 31, 2018.

Leases

The company determines if a contract contains a lease at inception based on whether it conveys the right to control the use of an identified asset. Substantially all of the company’s leases are classified as operating leases. The company has determined that operating lease right-of-use assets will be recorded to “Other assets” and lease liabilities will be recorded to “Other liabilities” and “Accrued expenses” in the consolidated balance sheets. Lease expense will be recorded to “Selling, general, and administrative expenses” in the consolidated statements of operations. Operating lease payments will be recorded to “Operating cash flows” in the consolidated statements of cash flows.

Operating lease right-of-use assets and lease liabilities are recognized based on the net present value of future minimum lease payments over the lease term starting on the commencement date. The company generally is not able to determine the rate implicit in its leases and, as such, will apply an incremental borrowing rate based on the company’s cost of borrowing for the relevant terms of each lease. Lease expense for minimum lease payments are recognized on a straight-line basis over the lease term. Lease terms may include an option to extend or terminate a lease if it is reasonably certain that the company will exercise such options. The company has elected the practical expedient to not separate lease components from non-lease components, and also has elected not to record a right-of-use asset or lease liability for leases which, at inception, have a term of twelve months or less. Variable lease payments are recognized in the period in which the obligation for those payments is incurred.

Note D – Impairment of Long-Lived Assets and Loss on Disposition of Businesses

During the second quarter of 2019, the company committed to a plan to close its personal computer and mobility asset disposition business within the global components business segment. In light of the plan, the company performed an impairment analysis of the long-lived assets of the personal computer and mobility asset disposition business in accordance with ASC 360 and recorded a pre-tax impairment charge of $74,908 to write-down certain assets of the personal computer and mobility asset disposition business to estimated fair value in the second quarter of 2019. During the third quarter and first nine months of 2019, the company also recorded $253 and $7,163, respectively, in impairment charges related to various other fixed assets, unrelated to the personal computer and mobility asset disposition business.

During the third quarter of 2019, the company completed the disposition of two foreign subsidiaries related to the personal computer and mobility asset disposition business. As a result of the disposition, the company recognized a net loss of $14,573, primarily related to the reclassification of cumulative translation adjustment to earnings upon the sale.


Note E – 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.

During the second quarter of 2019, as a result of the company’s downward revision of forecasted future earnings previously disclosed in Item 2.02 Form 8-K filed on July 15, 2019 and the decision to wind down the company’s personal computer and mobility asset disposition business, the company determined that it was more likely than not that an impairment may exist within the Americas components and Asia-Pacific components reporting units. The company evaluated its other four reporting units and concluded an interim impairment analysis was not required based on the results of those reporting units and historical levels of headroom in each of those reporting units. The interim goodwill impairment analysis related to the Americas components reporting

10

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

unit resulted in partial goodwill impairment charge of $509,000 ($457,806 net of tax) with approximately $600,000 of goodwill remaining in the reporting unit and full impairment of $61,175 ($61,175 net of tax) within the Asia-Pacific reporting unit.
The company estimated the fair value of these reporting units using the income approach. For the purposes of the income approach, fair value was determined based on the present value of estimated future cash flows, discounted at an appropriate risk adjusted rate. The fair value conclusion as of June 29, 2019 for the Americas components reporting unit is highly sensitive to changes in the assumptions used in the income approach which include forecasted revenues, gross profit margins, operating income margins, working capital cash flow, forecasted capital expenditures, perpetual growth rates, and long-term discount rates, among others, all of which require significant judgments by management. As the Americas components reporting unit had 0% excess fair value over the carrying value of the reporting unit as of June 29, 2019, the remaining approximately $600,000 of goodwill is susceptible to future period impairments. For example, a 100 basis point decrease in forecasted gross profit margin could result in a full impairment of the remaining approximately $600,000 of goodwill, absent other inputs improving. The company has used recent historical performance, current forecasted financial information, and broad-based industry and economic statistics as a basis to estimate the key assumptions utilized in the discounted cash flow model. These key assumptions are inherently uncertain and require a high degree of estimation and judgment based on an evaluation of historical performance, current industry and global economic and geo-political conditions, and the timing and success of the implementation of current strategic initiatives. The company concluded no further indicators of potential impairment existed, and as such, no interim impairment test was required at September 28, 2019. The company tests goodwill for impairment annually as of the first day of the fourth quarter.

Goodwill of companies acquired, allocated to the company’s business segments, is as follows:
 
 
Global
Components
 
Global ECS
 
Total
Balance as of December 31, 2018 (a)
 
$
1,437,501

 
$
1,187,189

 
$
2,624,690

Impairments and dispositions
 
(570,175
)
 
(1,386
)
 
(571,561
)
Foreign currency translation adjustment
 
10,673

 
(22,729
)
 
(12,056
)
Balance as of September 28, 2019 (b)
 
$
877,999

 
$
1,163,074

 
$
2,041,073



(a)
The total carrying value of goodwill as of December 31, 2018 in the table above is reflected net of $1,018,780 of accumulated impairment charges, of which $716,925 was recorded in the global components business segment and $301,855 was recorded in the global enterprise computing solutions (“ECS”) business segment.

(b)
The total carrying value of goodwill as of September 28, 2019 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 ECS business segment.


Intangible assets, net, are comprised of the following as of September 28, 2019:
 
 
Weighted-Average Life
 
Gross Carrying Amount
 
Accumulated Amortization
 
Net
Customer relationships
 
10 years
 
$
426,564

 
$
(217,736
)
 
$
208,828

Amortizable trade name
 
8 years
 
76,407

 
(7,515
)
 
68,892

 
 
 
 
$
502,971

 
$
(225,251
)
 
$
277,720




11

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, 2018:
 
 
Weighted-Average Life
 
Gross Carrying Amount
 
Accumulated Amortization
 
Net
Non-amortizable trade names
 
indefinite
 
$
101,000

 
$

 
$
101,000

Customer relationships
 
11 years
 
475,050

 
(221,822
)
 
253,228

Developed technology
 
5 years
 
6,340

 
(4,311
)
 
2,029

Amortizable trade name
 
9 years
 
19,940

 
(3,553
)
 
16,387

 
 
 
 
$
602,330

 
$
(229,686
)
 
$
372,644



During the second quarter of 2019, the company initiated actions to further integrate two global components businesses. These businesses held indefinite-lived trade names with a carrying value of $101,000. As a result of the company’s decision to integrate these brands, we determined the useful lives of the trade names were no longer indefinite as of June 29, 2019, and began amortizing these trade names over their estimated remaining useful lives. The trade names were tested for impairment as a result of the change in estimated useful lives. The company estimated the fair value of the trade names to be $55,000 using the relief from royalty method and recorded a non-cash impairment charge of $46,000 ($34,653 net of tax) during the second quarter of 2019. The drivers of the impairment were primarily due to the shortened useful lives of the asset and a decline of the forecasted revenues attributable to the trade names as integration to the Arrow brand occurs over the estimated remaining useful lives.

During the third quarter and first nine months of 2019, the company recorded amortization expense related to identifiable intangible assets of $10,443 and $33,786, respectively. During the third quarter and first nine months of 2018, amortization expense related to identifiable intangible assets was $11,620 and $37,095, respectively.

Note F – Investments in Affiliated Companies

The company owns a 50% interest in several joint ventures with Marubun Corporation (collectively “Marubun/Arrow”) and several interests ranging from 19% to 50% in other joint ventures and equity method investments. These investments are accounted for using the equity method.

The following table presents the company’s investment in affiliated companies:
  
 
September 28,
2019
 
December 31,
2018
Marubun/Arrow
 
$
75,455

 
$