UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

FORM 10-Q

For the quarterly period ended September 30, 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.

Yes [X]                            No [  ]

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

Yes [X]                            No [  ]

     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: 115,859,013 shares outstanding at November 2, 2004.

ARROW ELECTRONICS, INC.

INDEX

2

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements.

ARROW ELECTRONICS, INC.

See accompanying notes.

3

ARROW ELECTRONICS, INC.

See accompanying notes.

4

ARROW ELECTRONICS, INC.

See accompanying notes.

5

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 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 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 prior quarterly reports on Form 10-Q and 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

Financial Accounting Standards Statement No. 132 (revised 2003), “Employers’ Disclosures about Pensions and Other Postretirement Benefits” (“Statement No. 132R”), effective on January 1, 2004, 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 company adopted the disclosure provisions of Statement No. 132R in the first quarter of 2004.

Note C — Acquisitions

On July 27, 2004, the company completed the previously announced acquisition of Disway AG (“Disway”), an electronic components distributor in Italy, Germany, Austria, and Switzerland. In 2003, Disway had sales of approximately $155,000. The final purchase price is subject to a full year audit. For financial reporting purposes, the Disway acquisition has been accounted for as a purchase transaction. Accordingly, Disway’s results of operations have been included in the consolidated results of the company as of the date of acquisition.

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 including $12,179 paid during the first quarter of 2004.

For financial reporting purposes, the IED acquisition has been accounted for as a purchase transaction. Accordingly, the consolidated results of the company include IED’s performance from the date of acquisition. The consolidated results of the company for the three months ended September 30, 2004 and 2003 fully reflect IED’s financial results. The company’s unaudited summary of operations for the nine months ended September 30, 2004 and 2003,

6

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

as though the acquisition of the IED business had occurred on January 1, 2003, is as follows (shares in thousands):

		For the Nine
		Months Ended
		September 30,
		2004				2003 (a)
Sales		$	8,094,395			$	6,294,489
Net income			159,781				2,765
Net income per basic share		$	1.42			$	.03
Net income per diluted share			1.36				.03
Average number of shares outstanding:
Basic			112,217				100,073
Diluted			124,500				100,814

(a) Amounts 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 unaudited summary of operations for the nine months ended September 30, 2004 reflects cost savings the company has achieved from the IED acquisition, as well as the reduction of sales resulting 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. During the first nine months of 2004, the company made a payment in the amount of $805, which was capitalized as cost in excess of net assets of companies acquired partially offset by the carrying value of the related minority interest, to increase its ownership interest in Dicopel US and Dicopel SA (collectively, “Dicopel”) from 70% to 80%. During the first nine months of 2003, the company made such payments in the amount of $2,099, which were capitalized as cost in excess of net assets of companies acquired partially offset by the carrying value of the related minority interest, to increase its ownership interest in Arrow Components (NZ) Limited to 100%; $477 to increase its ownership interest in Dicopel from 60% to 70%; and $2,800 to increase its ownership interest in Components Agent (Cayman) Limited to 100%. If the put or call options on outstanding agreements were exercised at September 30, 2004, such payments would be approximately $9,000 ($6,000 at December 31, 2003), which would be capitalized as cost in excess of net assets of companies acquired partially offset by the carrying value of the related minority interest. As these payments are based on the 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 in affiliated companies are accounted for using the equity method.

7

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

The investments in affiliated companies are as follows:

		September 30,				December 31,
		2004				2003
Marubun/Arrow		$	17,725			$	15,364
Altech Industries			21,798				21,374
		$	39,523			$	36,738

The equity in earnings of affiliated companies are as follows:

		For the Three								For the Nine
		Months Ended								Months Ended
		September 30,								September 30,
		2004				2003				2004				2003
Marubun/Arrow		$	1,361			$	1,166			$	2,998			$	2,765
Altech Industries			205				585				(86	)			371
		$	1,566			$	1,751			$	2,912			$	3,136

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 September 30, 2004 and December 31, 2003, the company’s pro-rata share of this debt was $8,500 and $7,290, respectively. The company believes there is sufficient equity in the joint ventures to cover this potential liability.

During the third quarter of 2004, the company determined that an other-than-temporary impairment occurred related to an investment and accordingly, a loss on the investment of $1,318 ($.01 per share) is recognized.

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

		September 30,				December 31,
		2004				2003
Cost basis		$	33,863			$	33,863
Net unrealized holding losses			(5,110	)			(7,241	)
Fair value		$	28,753			$	26,622

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 September 30, 2004, the cost of the company’s investment in Marubun Corporation, a Japanese company, was $23,065, the unrealized holding loss was $6,991 and the fair value was $16,074. Since December 31, 2003, the fair value of the company’s investment has increased by $3,078. 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.

8

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

While Marubun Corporation experienced the effects of the same worldwide technology cyclical downturn as the rest of the electronics distribution industry, it experienced period over period growth in sales for the quarter ended June 30, 2004, which is the most recently available public financial information. Marubun Corporation also remained profitable for the quarter ended June 30, 2004 and reported a strong balance sheet at June 30, 2004. Its stock value has fluctuated over the last twelve months, with an increase of 13.2% compared with the stock value at September 30, 2003. The company’s intent and ability is to retain this investment over a period of time sufficient to allow for 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 currently available public forecasts. Such an impairment charge would have been $6,991 ($.06 per share) for the three and nine months ended September 30, 2004.

Note E — Accounts Receivable

The company has a $550,000 asset securitization program (the “program”). At September 30, 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:

		September 30,				December 31,
		2004				2003
Accounts receivable		$	2,013,796			$	1,817,769
Allowance for doubtful accounts			(43,172	)			(47,079	)
Accounts receivable, net		$	1,970,624			$	1,770,690

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

Cost in excess of net assets of companies acquired related to the company’s electronic components business segment is as follows:

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 Financial Accounting Standards Board (“FASB”) Statement No. 142, “Goodwill and Other Intangible Assets”.

Note G — Debt

The company recorded a loss on prepayment of debt of $911 ($545 net of related taxes or $.01 per share) and $3,292 ($1,969 net of related taxes or $.02 per share), for the third quarter of 2004 and 2003, respectively. For the nine months ended September 30, 2004 and 2003, the company recorded a loss on prepayment of debt of $31,692 ($18,952 net of related taxes or $.17 and $.15 per share on a basic and diluted basis, respectively) and $6,234 ($3,728 net of related taxes or $.04 per share), respectively. These items are discussed in greater detail below.

9

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

During the third quarter of 2004, the company repurchased $19,841 accreted value of its zero coupon convertible debentures due in 2021, which could have been initially put to the company in February 2006 (“convertible debentures”). The related loss on the repurchase, including the premium paid and the write-off of related deferred financing costs, aggregated $911 ($545 net of related taxes or $.01 per share) and is recognized as a loss on prepayment of debt. As a result of this transaction, net interest expense will be reduced by approximately $930 from the date of repurchase through the 2006 put date, based on interest rates in effect at the time of the repurchase.

During the first nine months of 2004, the company repurchased, through a series of transactions, $253,422 accreted value of its convertible debentures. The related loss on the repurchase, including the premium paid and the write-off of related deferred financing costs, aggregated $12,771 ($7,637 net of related taxes or $.07 and $.06 per share on a basic and diluted basis, respectively). Also during the first nine months of 2004, the company repurchased and/or redeemed, through a series of transactions, $250,000 principal amount of its 8.7% senior notes, due in October 2005. The premium paid and the related deferred financing costs written-off upon the repurchase and/or redemption of this debt, net of the gain recognized by terminating the related interest rate swaps, aggregated $18,921 ($11,315 net of related taxes or $.10 and $.09 per share on a basic and diluted basis, respectively). The aggregate of these charges is recognized as a loss on prepayment of debt. As a result of these transactions, net interest expense will be reduced by approximately $34,330 from the dates of repurchase and/or redemption through the earliest maturity date, based on interest rates in effect at the time of the repurchases.

In February 2004, the company issued 13,800,000 shares of common stock with net proceeds of $312,789. The proceeds were used to redeem $208,500 of the company’s outstanding 8.7% senior notes due in October 2005, as described above, and for the repurchase of a portion of the company’s outstanding convertible debentures ($91,873 accreted value).

During the third quarter of 2003, the company repurchased, through a series of transactions, $154,891 accreted value of its convertible debentures. The related loss on the repurchase, including the write-off of related deferred financing costs offset, in part, by the discount on the repurchase, aggregated $3,292 ($1,969 net of related taxes or $.02 per share) and was recognized as a loss on prepayment of debt. As a result of these transactions, interest expense will be reduced by approximately $4,600 from the dates of repurchase through the 2006 put date, based on interest rates in effect at the time of the repurchases.

During the first nine months of 2003 through a series of transactions, along with the aforementioned repurchase of convertible debentures in the third quarter of 2003, the company repurchased, prior to maturity, 8.2% senior notes with a principal amount of $84,820, which matured in October 2003. The premium paid and the related deferred financing costs written-off upon the repurchase of this debt aggregated $2,942 ($1,759 net of related taxes or $.02 per share) and was recognized as a loss on prepayment of debt. As a result of these transactions, net interest expense was reduced by approximately $3,300 from the dates of the repurchases through the 2003 maturity date.

In June 2003, the company completed the sale of $350,000 principal amount of 6.875% senior notes due in 2013. The net proceeds of the offering of $346,286 were used to repay the aforementioned 8.2% senior notes and for general corporate purposes. The additional debt the company carried during the period between the sale of the 6.875% senior notes in June 2003 and the repayment of the 8.2% senior notes in October 2003 negatively impacted the third quarter loss by $4,700 ($2,900 net of related taxes).

10

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

At September 30, 2004 and December 31, 2003, the company had no outstanding borrowings under its $450,000 revolving credit facility.

In June 2004, the company entered into a series of interest rate swaps (the “2004 swaps”), with an aggregate notional amount of $300,000, in order to manage the company’s targeted mix of fixed and floating rate debt. The 2004 swaps modify the company’s interest rate exposure by effectively converting the fixed 9.15% senior notes and a portion of the fixed 6.875% senior notes to a floating rate based on the six-month U.S. dollar LIBOR plus a spread (an effective rate of 6.53% and 3.80% at September 30, 2004, respectively) through their maturities. The 2004 swaps are classified as fair value hedges and at September 30, 2004 had a fair value of $11,848.

In November 2003, the company entered into a series of interest rate swaps (the “2003 swaps”), with an aggregate notional amount of $200,000, in order to manage the company’s targeted mix of fixed and floating rate debt. 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 5.81% and 5.20% at September 30, 2004 and December 31, 2003, respectively) through their maturities. The 2003 swaps are classified as fair value hedges and at September 30, 2004 and December 31, 2003 had fair values of $147 and $1,649, respectively.

In August 2002, the company entered into a series of interest rate swaps (the “2002 swaps”), with an aggregate notional amount of $250,000, in order to manage the company’s targeted mix of fixed and floating rate debt. During the first quarter of 2004, the company, in conjunction with the aggregate repurchase and/or redemption of the outstanding $250,000 principal amount of its 8.7% senior notes, terminated the 2002 swaps and recognized a gain of $7,424. This gain was reported as a component of the aforementioned loss on prepayment of debt of $18,921.

Interest expense, net, includes interest income of $1,435 and $2,869 for the three months ended September 30, 2004 and 2003, respectively, and $6,365 and $7,542 for the nine months ended September 30, 2004 and 2003, respectively.

Note H — Restructuring, Integration, and Other Charges

Restructuring

The company recorded restructuring charges of $407 ($175 net of related taxes) and $9,100 ($6,325 net of related taxes or $.06 per share), for the third quarter of 2004 and 2003, respectively. For the nine months ended September 30, 2004 and 2003, the company recorded restructuring charges of $7,984 ($4,756 net of related taxes or $.05 and $.04 per share on a basic and diluted basis, respectively) and $30,342 ($20,732 net of related taxes or $.21 per share), respectively. These items are discussed in greater detail below.

2004 Restructuring

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 annually. The estimated restructuring charge associated with these actions totals approximately $4,500, of which $4,368 ($2,786 net of related taxes or $.03 per share) was recorded in the first nine months of 2004. The company will record the balance of the restructuring charge over the next several quarters.

11

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

The 2004 restructuring charge consisted of personnel costs relating to the elimination of approximately 90 positions, or less than 1%, 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. Approximately 80% of this total charge is expected to be spent in cash. As of September 30, 2004, after cash payments of $2,878 and non-cash usage of $310, the balance of the accrual is $1,180.

2003 Restructuring

During 2003, the company implemented actions to become more effectively organized and to improve its operating efficiencies, with annualized savings of $75,000. 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, of which $37,965 ($27,144 net of related taxes or $.27 per share) was recorded in 2003. The company recorded a restructuring charge of $618 ($343 net of related taxes) in the third quarter of 2004 and restructuring charges of $4,369 ($2,572 net of related taxes or $.02 and $.01 per share on a basic and diluted basis, respectively) for the first nine months of 2004. The charges recorded in the third quarter and first nine months of 2003 associated with these actions totaled $9,100 ($6,325 net of related taxes or $.06 per share) and $30,342 ($20,732 net of related taxes or $.21 per share), respectively, and relate primarily to personnel costs. The company will record the balance of the restructuring charge of approximately $1,000 over the next several quarters.

The 2003 restructuring charges are comprised of the following at September 30, 2004:

		Personnel								Asset				IT
		Costs				Facilities				Write-Down				and Other				Total
December 2002		$	—			$	—			$	—			$	—			$	—
Additions (a)			26,837				6,015				3,088				2,025				37,965