Form 10-Q ARROW ELECTRONICS INC For: Apr 02

Article Stock Quotes (1)

FREE Breaking News Alerts from StreetInsider.com!

StreetInsider.com Top Tickers, 8/19/2022

1. BILL
2. AMAT
3. BBBY
4. FL
5. ROST

6. BJ
7. MSGE
8. SPY
9. EL
10. GLOB

Top News Most Read Special Reports

May 5, 2022 8:07 AM EDT

E-mail

News and research before you hear about it on CNBC and others. Claim your 1-week free trial to StreetInsider Premium here.

arw-20220402

Index

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


☐			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

(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 66,036,987 shares of Common Stock outstanding as of April 28, 2022.

Index

ARROW ELECTRONICS, INC.

INDEX



Part I.	Financial Information

	Item 1.	Financial Statements
		Consolidated Statements of Operations	3
		Consolidated Statements of Comprehensive Income	4
		Consolidated Balance Sheets	5
		Consolidated Statements of Cash Flows	6
		Consolidated Statements of Equity	7
		Notes to Consolidated Financial Statements	8

	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	21

	Item 3.	Quantitative and Qualitative Disclosures about Market Risk	30

	Item 4.	Controls and Procedures	30

Part II.	Other Information

	Item 1A.	Risk Factors	31

	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	31



	Item 6.	Exhibits	32

Signature			33

Index

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 sales	7,866,621		7,455,809
Gross profit	1,207,504		930,110
Operating expenses:
Selling, general, and administrative expenses	643,925		574,567
Depreciation and amortization	48,305		50,331


Restructuring, integration, and other charges	4,898		5,709
	697,128		630,607
Operating income	510,376		299,503
Equity in earnings of affiliated companies	843		844
Gain on investments, net	2,011		2,793

Employee benefit plan expense, net	(889)		(1,230)
Interest and other financing expense, net	(33,985)		(33,656)
Income before income taxes	478,356		268,254
Provision for income taxes	112,360		61,026
Consolidated net income	365,996		207,228
Noncontrolling interests	1,247		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
Diluted	68,749		75,794

See accompanying notes.

Index

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 taxes	8,205		36,352
Employee benefit plan items, net of taxes	99		(166)
Other comprehensive loss	(42,181)		(20,429)
Comprehensive income	323,815		186,799
Less: Comprehensive income (loss) attributable to non-controlling interests	378		(946)
Comprehensive income attributable to shareholders	$	323,437	$	187,745

See accompanying notes.

Index

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, net	10,621,942		11,123,946
Inventories	4,645,116		4,201,965
Other current assets	431,635		345,218
Total current assets	15,941,484		15,893,323
Property, plant, and equipment, at cost:
Land	5,691		5,736
Buildings and improvements	185,000		186,097
Machinery and equipment	1,533,688		1,523,919
	1,724,379		1,715,752
Less: Accumulated depreciation and amortization	(1,066,180)		(1,032,941)
Property, plant, and equipment, net	658,199		682,811
Investments in affiliated companies	65,239		63,695
Intangible assets, net	185,753		195,029
Goodwill	2,067,249		2,080,371
Other assets	594,929		620,311
Total assets	$	19,512,853	$	19,535,540
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable	$	9,110,391	$	9,617,084
Accrued expenses	1,243,853		1,326,386
Short-term borrowings, including current portion of long-term debt	317,399		382,619
Total current liabilities	10,671,643		11,326,089
Long-term debt	2,790,819		2,244,443
Other liabilities	621,508		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’ equity	5,369,954		5,282,295
Noncontrolling interests	58,929		58,551
Total equity	5,428,883		5,340,846
Total liabilities and equity	$	19,512,853	$	19,535,540

See accompanying notes.

Index

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 amortization	48,305		50,331
Amortization of stock-based compensation	17,351		13,223
Equity in earnings of affiliated companies	(843)		(844)
Deferred income taxes	1,352		13,663




Gain on investments, net	(2,011)		(2,793)
Other	686		1,374
Change in assets and liabilities:
Accounts receivable, net	430,710		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 receivable	20,169		—

Net cash provided by investing activities	899		1,991
Cash flows from financing activities:
Change in short-term and other borrowings	(14,293)		(12,452)
Proceeds from long-term bank borrowings, net	845,000		154,674

Redemption of notes	(350,000)		(130,860)
Proceeds from exercise of stock options	11,302		26,091
Repurchases of common stock	(264,431)		(160,619)


Net cash provided by (used for) financing activities	227,578		(123,166)
Effect of exchange rate changes on cash	(7,632)		(20,203)
Net increase (decrease) in cash and cash equivalents	20,597		(145,914)
Cash and cash equivalents at beginning of period	222,194		373,615
Cash and cash equivalents at end of period	$	242,791	$	227,701

See accompanying notes.

Index

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 Loss		Noncontrolling Interests		Total
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 Value		Capital in Excess of Par Value		Treasury Stock		Retained Earnings		Accumulated Other Comprehensive Loss		Noncontrolling Interests		Total
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.

Index

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 ECS		Total
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 Amount		Accumulated Amortization		Net
Customer relationships	$	305,988	$	(163,461)	$	142,527
Amortizable trade name	74,000		(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 Amount		Accumulated Amortization		Net

Customer relationships	$	322,335	$	(173,123)	$	149,212
Amortizable trade name	74,049		(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.

Index

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
Other	11,060		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
Other	49		(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 income	13,768		1,137
Translation adjustments	190		(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.

Index

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.

Index

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 borrowings	17,966		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 program	800,000		—

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 dates	507		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.

Index

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.

Index

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 1		Level 2		Level 3		Total
Cash equivalents (a)	Cash and cash equivalents	$	7,720	$	—	$	—	$	7,720
Equity investments (b)	Other assets	52,267		—		—		52,267
Interest rate swaps designated as cash flow hedges	Other assets	—		31,783		—		31,783

Foreign exchange contracts designated as net investment hedges	Other 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 1		Level 2		Level 3		Total
Cash equivalents (a)	Cash and cash equivalents/ other assets	$	4,812	$	—	$	—	$	4,812
Equity investments (b)	Other assets	56,985		—		—		56,985

Interest rate swaps designated as cash flow hedges	Other assets	—		21,831		—		21,831
Foreign exchange contracts designated as net investment hedges	Other 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.

Index

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 Date

Maturity Date

Notional Amount

Weighted-Average Interest Rate

Date Range of Forecasted Transaction

April 2020

December 2024

$300,000

0.97%

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 Date	Notional Amount
March 2023	€	50,000
September 2024	50,000
April 2025	100,000
January 2028	100,000
Total	€	300,000

Index

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 Line	Quarter 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 periods	1,332		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

Index

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 - basic	67,840		74,882
Net effect of various dilutive stock-based compensation awards	909		912
Weighted-average shares outstanding - diluted	68,749		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 reclassifications	1,094		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 reclassifications	7,547		36,085
Amounts reclassified into income	658		267
Employee Benefit Plan Items, Net:

Amounts reclassified into income	99		(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.

Index

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 Approval	Dollar Value Approved for Repurchase		Dollar Value of Shares Repurchased		Approximate Dollar Value of Shares that May Yet be Purchased Under the Program
July 2020	$	600,000	$	600,000	$	—
July 2021	600,000		600,000		—
December 2021	600,000		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