UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

FORM 10-Q

For the quarterly period ended March 31, 2004

OR

For the transition period from         to         

Commission file number 1-4482

ARROW ELECTRONICS, INC.

     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.

     Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

     Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

     Common stock, $1 par value: 115,255,250 shares outstanding at May 3, 2004.

ARROW ELECTRONICS, INC.

INDEX

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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements.

ARROW ELECTRONICS, INC.

See accompanying notes.

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ARROW ELECTRONICS, INC.

See accompanying notes.

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ARROW ELECTRONICS, INC.

See accompanying notes.

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ARROW ELECTRONICS, INC.

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, 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 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 the information or notes necessary for a complete presentation and, accordingly, should be read in conjunction with the company’s audited consolidated financial statements for the year ended December 31, 2003 as filed in the company’s Annual Report on Form 10-K.

Certain prior year amounts have been reclassified to conform with current year presentation.

Note B — Impact of Recently Issued Accounting Standards

In December 2003, the Financial Accounting Standards Board (“FASB”) issued Statement No. 132 (revised 2003), “Employers’ Disclosures about Pensions and Other Postretirement Benefits” (“Statement No. 132R”). Statement No. 132R revises employers’ disclosures about pension plans and other postretirement benefit plans and requires additional disclosures in annual financial statements about the types of plan assets, investment strategy, measurement dates, plan obligations, cash flows, and components of net periodic benefit cost of defined benefit pension plans and other postretirement benefit plans. Statement No. 132R also requires interim disclosure of the elements of net periodic benefit cost and, if significantly different from amounts previously disclosed, the total amount of contributions paid or expected to be paid during the current fiscal year. The interim disclosure requirements of this Statement are effective for interim periods beginning after December 15, 2003. The company adopted the disclosure provisions of this Statement in the current quarter.

Note C — Acquisitions

In February 2003, the company acquired substantially all of the assets of the Industrial Electronics Division (“IED”) of Agilysys, Inc. IED was an electronics distributor serving industrial original equipment manufacturers (“OEMs”) and contract manufacturers (“CMs”). The net consideration paid for this acquisition was $238,132,000, including $12,179,000 paid during the first quarter of 2004. In order to ensure the best financial returns as a result of the acquisition, the company fully integrated the IED business into its North American Components group. The full integration included, among other actions, the conversion of data onto the company’s IT platform, the transfer and combination of the acquired inventories to the company’s distribution centers, and the closing of duplicative facilities. As a result of these actions, the acquired business does not exist as a separate division or profit and loss center. As the financial performance of the acquired business is no longer separately identifiable, it is not possible to quantify the impact of the acquisition on operating income.

For financial reporting purposes, the acquisition has been accounted for as a purchase transaction. Accordingly, the consolidated results of the company for 2003 include IED’s performance from the date of acquisition.

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ARROW ELECTRONICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2004
(Unaudited)

The unaudited summary of operations for the three months ended March 31, 2004 and 2003, as though the acquisition of the IED business had occurred on January 1, 2003 is as follows (in thousands except per share data):

(a)     Amounts reported have been prepared on a pro forma basis.

The unaudited summary of operations does not purport to be indicative of the results which would have been obtained if the acquisition had been made at the beginning of 2003 or of those results which may be obtained in the future. The company has achieved cost savings from the IED acquisition for the three months ended March 31, 2004, which have been reflected in the unaudited summary of operations. In addition, the unaudited summary of operations for the three months ended March 31, 2004 reflects sales attrition, which resulted from the combination.

As a result of certain acquisitions, the company may be contractually required to purchase the shareholder interest held by others in its majority (but less than 100%) owned subsidiaries. The payments for such purchases, which are dependent upon the exercise of a put or call option by either party, are based upon a multiple of earnings over a contractually determined period and, in certain instances, capital structure. There are no expiration dates for these agreements. The terms of these agreements generally provide no limitation to the maximum potential future payments; however, in most instances the amount to be paid will not be less than the pro-rata net book value (total assets minus total liabilities) of the subsidiary. There were no such payments made in the first quarter of 2004. In the first quarter of 2003, the company made such payments in the amount of $2,099,000 to increase its ownership interest in Arrow Components (NZ) Limited to 100%. If the put or call options on outstanding agreements were exercised at March 31, 2004, such payments would be approximately $8,000,000 ($6,000,000 at December 31, 2003), which would principally be capitalized as cost in excess of net assets of companies acquired offset by the carrying value of the related minority interest. As these payments are based on the future earnings of the acquired companies, the amounts will change as the performance of these subsidiaries change.

Note D — Investments

The company has a 50% interest in several joint ventures with Marubun Corporation, collectively referred to as Marubun/Arrow, and a 50% interest in Altech Industries (Pty.) Ltd., a joint venture with Allied Technologies Limited. These investments are accounted for using the equity method. The following tables present the investments in affiliated companies at March 31, 2004 and December 31, 2003, and the equity in earnings (losses) of affiliated companies for the three months ended March 31, 2004 and 2003 (in thousands):

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ARROW ELECTRONICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2004
(Unaudited)

Under the terms of the joint venture agreements, the company would be required to pay its pro-rata share, based upon its ownership interests, of the debt of the joint ventures in the event that the joint ventures were unable to meet their obligations. At March 31, 2004 and December 31, 2003, the company’s pro-rata share of this debt was $4,450,000 and $7,290,000, respectively. The company believes there is sufficient equity in the joint ventures to cover this potential liability.

The company has a 5% interest in World Peace Industrial Co., Ltd. and an 8.4% ownership interest in Marubun Corporation. These investments are accounted for as available-for-sale securities using the fair value method.

The cost basis, net unrealized holding losses, and fair value of investments accounted for as available-for-sale are as follows (in thousands):

The fair value of these investments are included in “Other assets” and the related net unrealized holding losses are included in “Other” in the shareholders’ equity section in the accompanying consolidated balance sheet.

At March 31, 2004, the cost of the company’s investment in Marubun Corporation, a Japanese company, was $23,065,000, the fair value was $15,534,000, and the unrealized holding loss was $7,531,000. Although the fair value of the Marubun Corporation investment has been below the cost basis for more than 18 months, the company has concluded that an other-than-temporary decline has not occurred based upon its assessment of the following factors:

	-		broad worldwide and Japan specific economic factors,
	-		publicly available forecasts for sales and earnings growth for the industry and Marubun Corporation,
	-		the cyclical nature of the technology industry, and
	-		recent financial performance of Marubun Corporation.

While Marubun Corporation has experienced the effects of the same worldwide technology cyclical downturn as the rest of the electronics distribution industry, it has experienced period over period growth in sales for the nine months ended December 31, 2003 and the fiscal year ended March 31, 2003. Marubun Corporation has also remained profitable and has maintained a strong balance sheet during these periods. Its stock price has fluctuated over the last twelve months, with an increase of 69% compared with the year-earlier stock price. The company’s intent and ability is to retain this investment over a period of time sufficient to allow for any recovery in market value. The company could potentially record an impairment charge in future periods if, among other factors, Marubun Corporation’s future earnings differ from

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ARROW ELECTRONICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2004
(Unaudited)

currently available public forecasts. At March 31, 2004 and 2003, such an impairment charge would have been $7,531,000 ($.07 and $.06 per share on a basic and diluted basis, respectively) and $13,876,000 ($.14 per share), respectively.

Note E — Accounts Receivable

The company has an asset securitization program (the “program”) that in February 2004 was amended primarily to conform certain financial covenants to the existing $450,000,000 revolving credit facility. At March 31, 2004 and December 31, 2003, there were no receivables sold to and held by third parties under the program, and as such, the company had no obligations outstanding under the program. The company has not utilized the program since June 2001.

Accounts receivable consists of the following (in thousands):

Note F — Cost in Excess of Net Assets of Companies Acquired

The following table presents the carrying amount of cost in excess of net assets of companies acquired related to the electronic components segment (in thousands):

All existing and future costs in excess of net assets of companies acquired will be subject to an annual impairment test on the first day of the fourth quarter of each year, or earlier if indicators of potential impairment exist. The company does not have any other intangible assets subject to valuation under FASB Statement No. 142, “Goodwill and Other Intangible Assets.”

Note G — Debt

In February 2004, the company issued 13,800,000 shares of common stock with net proceeds of approximately $313,000,000. The proceeds were used to redeem the company’s outstanding 8.7% senior notes due in October 2005 (principal amount of $208,500,000) and to repurchase a portion of the company’s outstanding zero coupon convertible debentures due in 2021, which could have been initially put to the company in February 2006.

In January 2004, the company repurchased, through a series of transactions, $41,500,000 principal amount of its 8.7% senior notes, due in October 2005. In March 2004, the company, as noted, redeemed the remaining outstanding $208,500,000 principal amount of these same notes. The premium paid and the related deferred financing costs written-off upon the repurchase of this debt, net of the gain recognized by terminating the related interest rate swaps, aggregated $18,921,000 ($11,315,000 net of related taxes or $.10 and $.09 per share on a basic and diluted basis, respectively) and is recognized as a loss on prepayment of debt in the company’s consolidated statement of operations. As a result of these transactions, interest expense will be reduced by

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ARROW ELECTRONICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2004
(Unaudited)

approximately $20,300,000 from the dates of repurchase through the 2005 maturity date, assuming interest rates remain the same.

During the first quarter of 2004, the company repurchased, through a series of transactions, $91,873,000 accreted value of its zero coupon convertible debentures due in 2021, which could have been initially put to the company in February 2006. The company made this repurchase primarily with a portion of the proceeds from the February 2004 equity offering. The related loss on the repurchase, including the premium paid and the write-off of related deferred financing costs, aggregated $4,809,000 ($2,876,000 net of related taxes or $.03 per share), and is recognized as a loss on prepayment of debt in the company’s consolidated statement of operations. As a result of these transactions, interest expense will be reduced by approximately $5,400,000 from the dates of repurchase through the 2006 put date, assuming interest rates remain the same.

During the first quarter of 2003, the company repurchased 8.2% senior notes with a principal amount of $70,250,000, due in the fourth quarter of 2003. The premium paid and the related deferred financing costs written-off upon the repurchase of this debt aggregated $2,552,000 ($1,526,000 net of related taxes or $.01 per share) and was recognized as a loss on prepayment of debt in the company’s consolidated statement of operations. As a result of these transactions, interest expense was reduced by approximately $2,900,000 from the dates of repurchase through the 2003 maturity date.

The company has a $450,000,000 revolving credit facility which will expire in December 2006, subject to a right on the part of the banks participating in the facility to terminate, under certain conditions, the credit facility in October 2005 should a liquidity test not be met. The revolving credit facility bears interest at the applicable Eurocurrency rate plus a margin, which is based on facility utilization and other factors. The company pays the banks a facility fee of .25% per annum. At March 31, 2004 and December 31, 2003, the company had no outstanding borrowings under this facility.

In November 2003, the company entered into a series of interest rate swaps (the “2003 swaps”), with an aggregate notional amount of $200,000,000, in order to hedge the change in fair value of the company’s 7% senior notes, due in 2007, as a result of fluctuations in interest rates. These contracts are classified as fair value hedges and mature in January 2007. The 2003 swaps modify the company’s interest rate exposure by effectively converting the fixed 7% senior notes to a floating rate based on the six-month U.S. dollar LIBOR plus a spread (an effective rate of 5.12% and 5.20% at March 31, 2004 and December 31, 2003, respectively) through their maturities. The hedges were assessed as effective as the market value adjustment for the hedged notes, and the swaps directly offset each other. The fair value of the 2003 swaps at March 31, 2004 and December 31, 2003 was $2,742,000 and $1,649,000, respectively, and is included in “Other assets”. The offsetting adjustment to the carrying value of the debt hedged is included in “Long-term debt”.

In August 2002, the company entered into a series of interest rate swaps (the “2002 swaps”), with an aggregate notional amount of $250,000,000, in order to hedge the change in fair value of the company’s 8.7% senior notes, due in 2005, as a result of fluctuations in interest rates. The 2002 swaps were terminated during the first quarter of 2004 in conjunction with the aggregate repurchase of the outstanding $250,000,000 principal amount of its 8.7% senior notes. The fair value of the 2002 swaps at December 31, 2003 was $8,421,000 and was included in “Other assets”. The offsetting adjustment to the carrying value of the debt hedged was included in “Long-term debt”.

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ARROW ELECTRONICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2004
(Unaudited)

Note H — Restructuring, Integration, and Other Charges

Restructuring

2004

During the first quarter of 2004, the company announced a series of additional steps to make its organizational structure more efficient. These steps are expected to permanently reduce its cost structure by $15,000,000 annually. Approximately 50% of this annual cost savings was achieved in the first quarter of 2004, with the remaining 50% to begin late in the second quarter of 2004. The estimated restructuring charge associated with these actions total approximately $4,500,000, of which $3,426,000 ($2,185,000 net of related taxes or $.02 and $.01 per share on a basic and diluted basis, respectively) was recorded in the first quarter of 2004. The company will record the balance of approximately $1,100,000 over the next several quarters.

The 2004 restructuring charge consisted of personnel costs relating to the elimination of approximately 85 positions, or less than 1%, out of the prior year-end worldwide total of 11,200 positions. This charge resulted primarily in the elimination of certain corporate support functions across multiple locations in North America. The total charge is expected to be spent in cash, of which payments of $471,000 were made during the first quarter of 2004.

2003

During 2003, the company implemented actions to become more effectively organized and to improve its operating efficiencies, with annualized savings of $75,000,000. The company took these steps in order to make its organizational structure, systems, and processes more efficient. The restructuring charges associated with these actions total approximately $43,357,000, of which $37,965,000 ($27,144,000 net of related taxes or $.27 per share) was recorded in 2003. The remaining $5,392,000 ($4,310,000 net of related taxes or $.04 per share) was recorded in the first quarter of 2004. The charge recorded in the first quarter of 2003 associated with these actions totaled $6,690,000 ($4,673,000 net of related taxes or $.05 per share), primarily relating to personnel costs.

The company recorded a cumulative charge of $29,663,000 relating to personnel costs as part of the 2003 restructuring, of which $2,826,000 and $6,142,000 were recorded in the first quarter of 2004 and 2003, respectively. The total number of positions eliminated are included in the table below. There was no single group of employees impacted by these restructuring actions. Instead it impacted both exempt and non-exempt employees across multiple locations, segments, and functions.

The company recorded a cumulative charge of $7,426,000 in 2003 relating to the closure of certain facilities as part of the 2003 restructuring, of which $1,411,000 and $231,000 were recorded in the first quarter of 2004 and 2003, respectively. As part of the physical logistics network rationalization, two primary distribution centers in England were closed and their operations were centralized in the newer, state-of-the-art, Pan-European facility in Venlo, the Netherlands. In addition, the primary distribution center in Brookhaven, New York was closed and customers and suppliers are now being serviced out of a newer, more efficient distribution center in Reno, Nevada. Further, the company exited its Nordic commodity computer products business serving hardware integrators and resellers in Norway, Sweden, Denmark, and Finland.

The company recorded a cumulative charge of $3,841,000 in 2003 for asset write-downs, of which $753,000 and $217,000 were recorded in the first quarter of 2004 and 2003, respectively, principally for fixed assets in North America.

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ARROW ELECTRONICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2004
(Unaudited)

The company recorded a cumulative charge of $2,427,000 for IT systems and other miscellaneous items, of which $402,000 and $100,000 were recorded in the first quarter of 2004 and 2003, respectively, related to the early termination of computer equipment, logistics support, and service commitments no longer being utilized.

The 2003 restructuring charges are comprised of the following at March 31, 2004 (in thousands):

(a)		Personnel costs represent the elimination of approximately 300 positions in the first quarter of 2003 (1,085 positions for the full year 2003).
(b)		Personnel costs represent the elimination of approximately 130 positions in the first quarter of 2004.

2001 and prior

In mid-2001, the company took a number of significant steps, including a reduction in its worldwide workforce, salary freezes and furloughs, cutbacks in discretionary spending, deferral of non-strategic projects, consolidation of facilities, and other major cost containment and cost reduction actions, to mitigate, in part, the impact of significantly reduced revenues. As a result of these actions, the company recorded restructuring charges and other charges of $227,622,000 ($145,079,000 net of related taxes or $1.47 per share). These charges included costs associated with headcount reductions, the consolidation or closing of facilities, valuation adjustments to inventory and Internet investments, the termination of certain customer engagements, and various other miscellaneous items. Of the total charge, $174,622,000 reduced operating income (including $97,475,000 in cost of products sold) and $53,000,000 was recorded as a loss on investments. There were no material revisions to these actions and their related costs.

The company recorded a charge of $15,200,000 related to personnel costs as part of the mid-2001 restructuring. The total number of positions eliminated was approximately 1,200, out of the then existing worldwide total of 14,150, or approximately 9%. The reduction in headcount was principally due to reduced activity levels across all functions throughout the company. There was no single group of employees or business segment that was impacted by this restructuring.

The company also consolidated or closed 15 facilities, as part of the mid-2001 restructuring, and accordingly recorded a charge of $10,063,000 related to vacated leases, including write-offs of related leasehold improvements.

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ARROW ELECTRONICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2004
(Unaudited)

The company also terminated certain customer programs, as part of the mid-2001 restructuring, principally related to services not traditionally provided by the company because they were not profitable. The $38,800,000 provision included charges for inventory these customers no longer required, pricing disputes, non-cancelable purchase commitments, and value-added taxes.

The company recorded an inventory provision, as part of the mid-2001 restructuring, of $97,475,000 which was included in cost of products sold. The provision related to a substantial number of parts. The inventory charge was principally related to product purchased for single or limited customer engagements and in certain instances from non-traditional, non-franchised sources for which no contractual protections such as return rights, scrap allowance, or price protection exist. The inventory provision was principally for electronic components.

The company recorded a charge of $13,084,000, as part of the mid-2001 restructuring, for IT systems and other miscellaneous items related to logistics support and service commitments no longer being utilized, hardware and software not utilized by the company, professional fees related to contractual obligations of certain customer terminations, and the write-off of an investment in an IT-related service provider.

Also included in the 2001 charge was $53,000,000 to write various Internet investments down to their realizable values. This non-cash charge reflected the full write-down of various Internet investments as of December 2001.

The 2001 restructuring charges, excluding the write-down of the Internet investments, are comprised of the following as of March 31, 2004 (in thousands):