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EX-32.LL - EXHIBIT 32.II - ARROW ELECTRONICS INCarwexhibit32iiq117.htm
EX-32.L - EXHIBIT 32.I - ARROW ELECTRONICS INCarwexhibit32iq117.htm
EX-31.LL - EXHIBIT 31.II - ARROW ELECTRONICS INCarwexhibit31iiq117.htm
EX-31.I - EXHIBIT 31.I - ARROW ELECTRONICS INCarwexhibit31iq117.htm
EX-10.C - EXHIBIT 10.C - ARROW ELECTRONICS INCarwexhibit10c.htm
EX-10.B - EXHIBIT 10.B - ARROW ELECTRONICS INCarwexhibit10b.htm
EX-10.A - EXHIBIT 10.A - ARROW ELECTRONICS INCarwexhibit10a.htm
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.  20549

FORM 10-Q

x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended April 1, 2017

OR

o
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, Centennial, Colorado
80112
(Address of principal executive offices)
(Zip Code)

(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)

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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post 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, 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 x
Accelerated filer o
Non-accelerated filer o  (do not check if a smaller reporting company)
Smaller reporting company o
 
Emerging growth company o

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 o   No x

There were 88,842,730 shares of Common Stock outstanding as of May 1, 2017.



ARROW ELECTRONICS, INC.

INDEX


 


 

2


PART I.  FINANCIAL INFORMATION

Item 1.     Financial Statements

ARROW ELECTRONICS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands except per share data)
(Unaudited)

 
 
Quarter Ended
  
 
April 1,
2017
 
April 2,
2016
Sales
 
$
5,759,552

 
$
5,474,177

Costs and expenses:
 
 

 
 

Cost of sales
 
4,999,665

 
4,725,279

Selling, general, and administrative expenses
 
515,519

 
505,813

Depreciation and amortization
 
37,141

 
40,933

Restructuring, integration, and other charges
 
15,505

 
20,788

 
 
5,567,830

 
5,292,813

Operating income
 
191,722

 
181,364

Equity in earnings of affiliated companies
 
925

 
1,856

Interest and other financing expense, net
 
38,073

 
35,575

Income before income taxes
 
154,574

 
147,645

Provision for income taxes
 
39,224

 
41,053

Consolidated net income
 
115,350

 
106,592

Noncontrolling interests
 
1,582

 
357

Net income attributable to shareholders
 
$
113,768

 
$
106,235

Net income per share:
 
 

 
 

Basic
 
$
1.27

 
$
1.16

Diluted
 
$
1.26

 
$
1.14

Weighted-average shares outstanding:
 
 

 
 

Basic
 
89,262

 
91,514

Diluted
 
90,541

 
92,787


See accompanying notes.
 
 

3


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

 
Quarter Ended
 
April 1,
2017
 
April 2,
2016
Consolidated net income
$
115,350

 
$
106,592

Other comprehensive income:
 
 
 
Foreign currency translation adjustment and other
36,855

 
73,179

Unrealized gain (loss) on investment securities, net
1,728

 
(1,651
)
Unrealized gain on interest rate swaps designated as cash flow hedges, net
97

 
91

Employee benefit plan items, net
406

 
920

Other comprehensive income
39,086

 
72,539

Comprehensive income
154,436

 
179,131

Less: Comprehensive income attributable to noncontrolling interests
2,169

 
2,365

Comprehensive income attributable to shareholders
$
152,267

 
$
176,766


See accompanying notes.
    

4


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

 
 
April 1,
2017
 
December 31,
2016
 
 
(Unaudited)
 
 
ASSETS
 
 
 
 
Current assets:
 
 
 
 
Cash and cash equivalents
 
$
521,562

 
$
534,320

Accounts receivable, net
 
5,867,182

 
6,746,687

Inventories, net
 
2,905,502

 
2,855,645

Other current assets
 
190,257

 
180,069

Total current assets
 
9,484,503

 
10,316,721

Property, plant, and equipment, at cost:
 
 

 
 

Land
 
15,359

 
23,456

Buildings and improvements
 
190,179

 
175,141

Machinery and equipment
 
1,345,427

 
1,297,657

 
 
1,550,965

 
1,496,254

Less: Accumulated depreciation and amortization
 
(764,369
)
 
(739,955
)
Property, plant, and equipment, net
 
786,596

 
756,299

Investments in affiliated companies
 
88,376

 
88,401

Intangible assets, net
 
325,920

 
336,882

Goodwill
 
2,405,160

 
2,392,220

Other assets
 
328,820

 
315,843

Total assets
 
$
13,419,375

 
$
14,206,366

LIABILITIES AND EQUITY
 
 

 
 

Current liabilities:
 
 

 
 

Accounts payable
 
$
4,820,086

 
$
5,774,151

Accrued expenses
 
741,449

 
821,244

Short-term borrowings, including current portion of long-term debt
 
471,753

 
93,827

Total current liabilities
 
6,033,288

 
6,689,222

Long-term debt
 
2,459,849

 
2,696,334

Other liabilities
 
369,431

 
355,190

Commitments and contingencies (Note L)
 
 
 
 
Equity:
 
 

 
 

Shareholders' equity:
 
 

 
 

Common stock, par value $1:
 
 

 
 

Authorized - 160,000 shares in both 2017 and 2016
 
 

 
 

Issued - 125,424 shares in both 2017 and 2016
 
125,424

 
125,424

Capital in excess of par value
 
1,089,724

 
1,112,114

Treasury stock (36,519 and 36,511 shares in 2017 and 2016, respectively), at cost
 
(1,664,779
)
 
(1,637,476
)
Retained earnings
 
5,310,998

 
5,197,230

Accumulated other comprehensive loss
 
(345,355
)
 
(383,854
)
Total shareholders' equity
 
4,516,012

 
4,413,438

Noncontrolling interests
 
40,795

 
52,182

Total equity
 
4,556,807

 
4,465,620

Total liabilities and equity
 
$
13,419,375

 
$
14,206,366

 
See accompanying notes.


5


ARROW ELECTRONICS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
 
 
 
Quarter Ended
  
 
April 1,
2017
 
April 2,
2016
Cash flows from operating activities:
 
 
 
 
Consolidated net income
 
$
115,350

 
$
106,592

Adjustments to reconcile consolidated net income to net cash used for operations:
 
 
 
 
Depreciation and amortization
 
37,141

 
40,933

Amortization of stock-based compensation
 
11,575

 
8,877

Equity in earnings of affiliated companies
 
(925
)
 
(1,856
)
Deferred income taxes
 
13,938

 
22,555

Other
 
3,251

 
1,462

Change in assets and liabilities, net of effects of acquired businesses:
 
 
 
 
Accounts receivable
 
926,901

 
996,738

Inventories
 
(38,185
)
 
44,611

Accounts payable
 
(982,355
)
 
(1,036,094
)
Accrued expenses
 
(93,619
)
 
(160,693
)
Other assets and liabilities
 
(13,962
)
 
(56,768
)
Net cash used for operating activities
 
(20,890
)
 
(33,643
)
Cash flows from investing activities:
 
 
 
 
Cash consideration paid for acquired businesses
 

 
(46,490
)
Acquisition of property, plant, and equipment
 
(62,118
)
 
(49,261
)
Proceeds from sale of property, plant, and equipment
 
7,886

 

Net cash used for investing activities
 
(54,232
)
 
(95,751
)
Cash flows from financing activities:
 
 
 
 
Change in short-term and other borrowings
 
76,402

 
470

Proceeds from long-term bank borrowings, net
 
62,500

 
265,000

Proceeds from exercise of stock options
 
17,259

 
5,705

Repurchases of common stock
 
(68,847
)
 
(18,684
)
Purchase of shares from noncontrolling interest
 
(23,350
)
 

Other
 

 
(1,817
)
Net cash provided by financing activities
 
63,964

 
250,674

Effect of exchange rate changes on cash
 
(1,600
)
 
285

Net increase (decrease) in cash and cash equivalents
 
(12,758
)
 
121,565

Cash and cash equivalents at beginning of period
 
534,320

 
273,090

Cash and cash equivalents at end of period
 
$
521,562

 
$
394,655


See accompanying notes.
 

6


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

Note A – Basis of Presentation

The accompanying consolidated financial statements of Arrow Electronics, Inc. (the "company") were prepared in accordance with accounting principles generally accepted in the United States and reflect all adjustments of a normal recurring nature, which are, in the opinion of management, necessary for a fair presentation of the consolidated financial position and results of operations at and for the periods presented.  The consolidated results of operations for the interim periods are not necessarily indicative of results for the full year.

These consolidated financial statements do not include all of the information or notes necessary for a complete presentation and, accordingly, should be read in conjunction with the company's audited consolidated financial statements and accompanying notes for the year ended December 31, 2016, as filed in the company's Annual Report on Form 10-K.

Quarter End

The company operates on a quarterly calendar that closes on the Saturday closest to the end of the calendar quarter.

Reclassification

Certain prior period amounts were reclassified to conform to the current period presentation. These reclassifications did not have a material impact on previously reported amounts.

Note B – Impact of Recently Issued Accounting Standards

In March 2017, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2017-07, Compensation - Retirement Benefits (Topic 715) ("ASU No. 2017-07"). ASU No. 2017-07 requires that the service cost component of pension expense be included in the same line item as other compensation costs arising from services rendered by employees, with the other components of pension expense being classified outside of a subtotal of income from operations. ASU No. 2017-07 is effective for the company in the first quarter of 2018, with early adoption permitted, and is to be applied retrospectively for the presentation requirements and prospectively for the capitalization of the service cost component requirements. The adoption of the provisions of ASU No. 2017-07 is not expected to have a material impact on the company's consolidated financial position or results of operations.

In January 2017, the FASB issued Accounting Standards Update No. 2017-04, Intangibles - Goodwill and Other (Topic 350) ("ASU No. 2017-04").  ASU No. 2017-04 eliminates step 2 from the annual goodwill impairment test. Effective January 1, 2017, the company adopted the provisions of ASU No. 2017-04 on a prospective basis. The adoption of the provisions of ASU No. 2017-04 would not materially impact the company's consolidated financial position or results of operations unless step 1 of the annual goodwill impairment test fails.

In October 2016, the FASB issued Accounting Standards Update No. 2016-16, Income Taxes - Intra-Entity Transfers of Assets Other Than Inventory (Topic 740) ("ASU No. 2016-16").  ASU No. 2016-16 clarifies the accounting for the current and deferred income taxes for an intra-entity transfer of an asset other than inventory. ASU No. 2016-16 is effective for the company in the first quarter of 2018, with early adoption permitted, and is to be applied using a modified retrospective approach. The company is currently evaluating the potential effects of adopting the provisions of ASU No. 2016-16.

In August 2016, the FASB issued Accounting Standards Update No. 2016-15, Statement of Cash Flows (Topic 230) ("ASU No. 2016-15").  ASU No. 2016-15 addresses how certain cash receipts and cash payments are presented and classified in the statement of cash flows.  Effective January 1, 2017, the company adopted the provisions of ASU No. 2016-15 on a retrospective basis. The adoption of the provisions of ASU No. 2016-15 did not materially impact the company's consolidated financial position or results of operations.

In June 2016, the FASB issued Accounting Standards Update No. 2016-13, Financial Instruments - Credit Losses (Topic 326) ("ASU No. 2016-13"). ASU No. 2016-13 revises the methodology for measuring credit losses on financial instruments and the timing of when such losses are recorded. ASU No. 2016-13 is effective for the company in the first quarter of 2020, with early

7

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

adoption permitted, and is to be applied using a modified retrospective approach. The company is currently evaluating the potential effects of adopting the provisions of ASU No. 2016-13.

In March 2016, the FASB issued Accounting Standards Update No. 2016-09, Stock Compensation - Improvements to Employee Share-Based Payment Accounting (Topic 718) ("ASU No. 2016-09"). ASU No. 2016-09 revises the accounting treatment for excess tax benefits, minimum statutory tax withholding requirements, and forfeitures related to share-based awards. Effective January 1, 2017, the company adopted the recognition of excess tax benefits and tax deficiencies on a prospective basis and reclassified excess tax benefits in the consolidated statements of cash flows on a retrospective basis. The company elected to continue to estimate forfeitures expected to occur to determine the amount of compensation cost to be recognized in each period. The adoption of the provisions of ASU No. 2016-09 did not materially impact the company's consolidated financial position or results of operations.

In February 2016, the FASB issued Accounting Standards Update No. 2016-02, Leases (Topic 842) ("ASU No. 2016-02"). ASU No. 2016-02 requires the entity to recognize the assets and liabilities for the rights and obligations created by leased assets. Leases will be classified as either finance or operating, with classification affecting expense recognition in the income statement. ASU No. 2016-02 is effective for the company in the first quarter of 2019, with early adoption permitted, and is to be applied using a modified retrospective approach. While the company continues to evaluate the effects of adopting the provisions of ASU No. 2016-02, the company expects most existing operating lease commitments will be recognized as operating lease liabilities and right-of-use assets upon adoption.

In January 2016, the FASB issued Accounting Standards Update No. 2016-01, Financial Instruments - Recognition and Measurement of Financial Assets and Financial Liabilities (Topic 825) ("ASU No. 2016-01"). ASU No. 2016-01 revises the classification and measurement of investments in certain equity investments and the presentation of certain fair value changes for certain financial liabilities measured at fair value. ASU No. 2016-01 requires the change in fair value of many equity investments to be recognized in net income. ASU No. 2016-01 is effective for the company in the first quarter of 2018, with early adoption permitted, and is to be applied prospectively. The company is currently evaluating the potential effects of adopting the provisions of ASU No. 2016-01.

In May 2014, the FASB issued Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (Topic 606) ("ASU No. 2014-09"). ASU No. 2014-09 supersedes all existing revenue recognition guidance. Under ASU No. 2014-09, an entity should recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASU No. 2014-09 is effective for the company in the first quarter of 2018, with early adoption permitted in the first quarter of 2017. ASU No. 2014-09 allows for either full retrospective or modified retrospective adoption. In March, April, May, and December 2016, the FASB issued ASU No. 2016-08, Revenue from Contracts with Customers: Principal versus Agent Considerations (Reporting Revenue Gross versus Net) ("ASU No. 2016-08"); ASU No. 2016-10, Revenue from Contracts with Customers: Identifying Performance Obligations and Licensing ("ASU No. 2016-10"); ASU No. 2016-12, Revenue from Contracts with Customers: Narrow-Scope Improvements and Practical Expedients ("ASU No. 2016-12"); and ASU No. 2016-19, Technical Corrections and Improvements ("ASU No. 2016-19"), respectively. ASU No. 2016-08, ASU No. 2016-10, ASU No. 2016-12, and ASU No. 2016-19 provide supplemental adoption guidance and clarification to ASU No. 2014-09, and must be adopted concurrently with the adoption of ASU No. 2014-09. The company is currently evaluating the potential effects of adopting the provisions of ASU No. 2014-09, ASU No. 2016-08, ASU No. 2016-10, ASU No. 2016-12, and ASU No. 2016-19.

In 2014, the company established an implementation team (“team”) and engaged external advisers to develop a multi-phase plan to assess the company’s business and contracts, as well as any changes to processes or systems to adopt the requirements of the new standard. The team has updated the assessment for new ASU updates and for newly acquired businesses. The team is in the process of developing its conclusions on several aspects of the standard including principal versus agent considerations, identification of performance obligations and the determination of when control of goods and services transfers to the company’s customers.



8

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

Note C – Acquisitions

2017 Acquisitions

During the first quarter of 2017, the company acquired an additional 11.9% of the common shares of Data Modul AG for $23,350, increasing the company's ownership interest in Data Modul to 69.2%. The impact of this acquisition was not material to the company's consolidated financial position or results of operations.

2016 Acquisitions

During 2016, the company completed three acquisitions for $63,869, net of cash acquired. The impact of these acquisitions was not material to the company's consolidated financial position or results of operations. The pro forma impact of the 2016 acquisitions on the consolidated results of operations of the company for the first three months of 2016, as though the acquisitions occurred on January 1, 2016, was also not material.

Note D – 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, 2016 (a)
 
$
1,239,741

 
$
1,152,479

 
$
2,392,220

Acquisitions and related adjustments
 
(102
)
 

 
(102
)
Foreign currency translation adjustment
 
4,050

 
8,992

 
13,042

Balance as of April 1, 2017 (a)
 
$
1,243,689

 
$
1,161,471

 
$
2,405,160


(a)
The total carrying value of goodwill for all periods in the table above is reflected net of $1,018,780 of accumulated impairment charges, of which $716,925 was recorded in the global components business segment and $301,855 was recorded in the global ECS business segment.

Intangible assets, net, are comprised of the following as of April 1, 2017:
 
 
Weighted-Average Life
 
Gross Carrying Amount
 
Accumulated Amortization
 
Net
Trade names
 
indefinite
 
$
101,000

 
$

 
$
101,000

Customer relationships
 
10 years
 
465,655

 
(246,521
)
 
219,134

Developed technology
 
5 years
 
6,340

 
(2,092
)
 
4,248

Other intangible assets
 
(b)
 
6,776

 
(5,238
)
 
1,538

 
 
 
 
$
579,771

 
$
(253,851
)
 
$
325,920


(b)
Consists of sales backlog and an amortizable trade name with useful lives ranging from two to five years.


9

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

Intangible assets, net, are comprised of the following as of December 31, 2016:
 
 
Weighted-Average Life
 
Gross Carrying Amount
 
Accumulated Amortization
 
Net
Trade names
 
indefinite
 
$
101,000

 
$

 
$
101,000

Customer relationships
 
10 years
 
476,176

 
(247,206
)
 
228,970

Developed technology
 
5 years
 
9,140

 
(4,435
)
 
4,705

Other intangible assets
 
(c)
 
6,721

 
(4,514
)
 
2,207

 
 
 
 
$
593,037

 
$
(256,155
)
 
$
336,882


(c)
Consists of non-competition agreements, sales backlog, and an amortizable trade name with useful lives ranging from two to five years.

During the first quarter of 2017 and 2016, the company recorded amortization expense related to identifiable intangible assets of $12,900 and $12,913, respectively.

Note E – Investments in Affiliated Companies

The company owns a 50% interest in several joint ventures with Marubun Corporation (collectively "Marubun/Arrow") and several interests ranging from 43% to 50% in other joint ventures and equity method investments.  These investments are accounted for using the equity method.

The following table presents the company's investment in affiliated companies:
  
 
April 1,
2017
 
December 31,
2016
Marubun/Arrow
 
$
65,708

 
$
65,237

Other
 
22,668

 
23,164

 
 
$
88,376

 
$
88,401


The equity in earnings of affiliated companies consists of the following:
  
 
Quarter Ended
  
 
April 1,
2017
 
April 2,
2016
Marubun/Arrow
 
$
1,665

 
$
1,664

Other
 
(740
)
 
192

 
 
$
925

 
$
1,856


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. At April 1, 2017, the company's pro-rata share of this debt was approximately $740. The company believes that there is sufficient equity in each of the joint ventures to meet their obligations. 

Note F – Accounts Receivable

Accounts receivable, net, consists of the following:
 
 
April 1,
2017
 
December 31,
2016
Accounts receivable
 
$
5,920,140

 
$
6,798,943

Allowances for doubtful accounts
 
(52,958
)
 
(52,256
)
Accounts receivable, net
 
$
5,867,182

 
$
6,746,687


10

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

The company maintains allowances for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments.  The allowances for doubtful accounts are determined using a combination of factors, including the length of time the receivables are outstanding, the current business environment, and historical experience. The company also has notes receivables with certain customers.  As of April 1, 2017,  the company has one customer with a combined note and accounts receivable balance of approximately $19,500.  The customer became delinquent on its repayment of the note during the fourth quarter of 2016. The company believes that it will recover all amounts due; however, it is possible that it could incur a loss.

Note G – Debt

Short-term borrowings, including current portion of long-term debt, consists of the following:

 
 
April 1,
2017
 
December 31,
2016
3.00% notes, due 2018
 
$
299,222

 
$

Commercial paper
 
85,239

 

Other short-term borrowings
 
87,292

 
93,827

 
 
$
471,753

 
$
93,827


Other short-term borrowings are primarily utilized to support working capital requirements. The weighted-average interest rate on these borrowings was 2.6% and 2.4% at April 1, 2017 and December 31, 2016, respectively.

Long-term debt consists of the following:
 
 
April 1,
2017
 
December 31,
2016
Revolving credit facility
 
$
42,500

 
$

Asset securitization program
 
480,000

 
460,000

6.875% senior debentures, due 2018
 
199,464

 
199,348

3.00% notes, due 2018
 

 
299,013

6.00% notes, due 2020
 
299,246

 
299,183

5.125% notes, due 2021
 
248,913

 
248,843

3.50% notes, due 2022
 
345,959

 
345,776

4.50% notes, due 2023
 
296,763

 
296,646

4.00% notes, due 2025
 
344,762

 
344,625

7.50% senior debentures, due 2027
 
198,551

 
198,514

Interest rate swaps designated as fair value hedges
 
56

 
152

Other obligations with various interest rates and due dates
 
3,635

 
4,234

 
 
$
2,459,849

 
$
2,696,334


The 7.50% senior debentures are not redeemable prior to their maturity.  The 6.875% senior debentures, 3.00% notes, 6.00% notes, 5.125% notes, 3.50% notes, 4.50% notes, and 4.00% notes may be called at the option of the company subject to "make whole" clauses.


11

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

The estimated fair market value, using quoted market prices, is as follows:
 
 
April 1,
2017
 
December 31,
2016
6.875% senior debentures, due 2018
 
$
210,500

 
$
212,500

3.00% notes, due 2018
 
303,000

 
303,500

6.00% notes, due 2020
 
326,500

 
325,500

5.125% notes, due 2021
 
268,500

 
265,500

3.50% notes, due 2022
 
352,500

 
349,500

4.50% notes, due 2023
 
312,500

 
305,500

4.00% notes, due 2025
 
354,000

 
345,000

7.50% senior debentures, due 2027
 
243,500

 
238,000


The carrying amount of the company's short-term borrowings in various countries, revolving credit facility, asset securitization program, and other obligations approximate their fair value.

The company has a $1,800,000 revolving credit facility maturing in December 2021. This 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 euro currency rate plus a spread (1.18% at April 1, 2017), which is based on the company's credit ratings, or an effective interest rate of 2.10% at April 1, 2017. The facility fee, which is based on the company's credit ratings, was .20% at April 1, 2017.  The company has $42,500 in outstanding borrowings under the revolving credit facility at April 1, 2017. There were no outstanding borrowings under the revolving credit facility at December 31, 2016.

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. The company had $85,239 in outstanding borrowings under the commercial paper program at April 1, 2017 with a weighted average interest rate of 1.40%. The company had no outstanding borrowings under this program at December 31, 2016.

The company has an asset securitization program collateralized by accounts receivable of certain of its subsidiaries. The company may borrow up to $910,000 under the asset securitization program, which matures in September 2019. The asset securitization program is conducted through Arrow Electronics Funding Corporation ("AFC"), a wholly-owned, bankruptcy remote subsidiary. The asset securitization program does not qualify for true 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 (.40% at April 1, 2017), which is based on the company's credit ratings, or an effective interest rate of 1.45% at April 1, 2017. The facility fee is .40%.

At April 1, 2017 and December 31, 2016, the company had $480,000 and $460,000, respectively, in outstanding borrowings under the asset securitization program, which was included in "Long-term debt" in the company's consolidated balance sheets. Total collateralized accounts receivable of approximately $1,681,144 and $2,045,464, respectively, were held by AFC and were included in "Accounts receivable, net" in the company's consolidated balance sheets. 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 asset securitization program.

Both the revolving credit facility and 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. The company was in compliance with all covenants as of April 1, 2017 and is currently not aware of any events that would cause non-compliance with any covenants in the future.  

The company has a $100,000 uncommitted line of credit. There were no outstanding borrowings under the uncommitted line of credit at April 1, 2017 and December 31, 2016.


12

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

Interest and other financing expense, net, includes interest and dividend income of $7,926 and $4,667for the first quarters of 2017 and 2016, respectively.

Note H – 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 (liabilities) measured at fair value on a recurring basis at April 1, 2017:
 
 
Balance Sheet
Location
 
Level 1
 
Level 2
 
Level 3
 
Total
Cash equivalents
 
Other assets
 
$
1,776

 
$

 
$

 
$
1,776

Available-for-sale securities
 
Other assets
 
40,777

 

 

 
40,777

Interest rate swaps
 
Other assets
 

 
56

 

 
56

Foreign exchange contracts
 
Other current assets
 

 
1,467

 

 
1,467

Foreign exchange contracts
 
Accrued expenses
 

 
(4,751
)
 

 
(4,751
)
Contingent consideration
 
Accrued expenses
/ Other liabilities
 

 

 
(6,150
)
 
(6,150
)
 
 
 
 
$
42,553

 
$
(3,228
)
 
$
(6,150
)
 
$
33,175


The following table presents assets (liabilities) measured at fair value on a recurring basis at December 31, 2016:
 
 
Balance Sheet
Location
 
Level 1
 
Level 2
 
Level 3
 
Total
Cash equivalents
 
Other assets
 
$
2,660

 
$

 
$

 
$
2,660

Available-for-sale securities
 
Other assets
 
37,915

 

 

 
37,915

Interest rate swaps
 
Other assets
 

 
152

 

 
152

Foreign exchange contracts
 
Other current assets
 

 
4,685

 

 
4,685

Foreign exchange contracts
 
Accrued expenses
 

 
(3,444
)
 

 
(3,444
)
Contingent consideration
 
Accrued expenses
/ Other liabilities
 

 

 
(4,027
)
 
(4,027
)
 
 
 
 
$
40,575

 
$
1,393

 
$
(4,027
)
 
$
37,941


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

During the first quarter of 2017 and 2016, there were no transfers of assets (liabilities) measured at fair value between the three levels of the fair value hierarchy.




13

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

Available-For-Sale Securities

The company has an 8.4% equity ownership interest in Marubun Corporation ("Marubun") and a portfolio of mutual funds with quoted market prices, all of which are accounted for as available-for-sale securities.

The fair value of the company's available-for-sale securities is as follows:
 
 
April 1, 2017
 
December 31, 2016
  
 
Marubun
 
Mutual Funds
 
Marubun
 
Mutual Funds
Cost basis
 
$
10,016

 
$
18,147

 
$
10,016

 
$
18,097

Unrealized holding gain
 
5,059

 
7,555

 
3,806

 
5,996

Fair value
 
$
15,075

 
$
25,702

 
$
13,822

 
$
24,093


The unrealized holding gains or losses on these investments are included in "Accumulated other comprehensive loss" in the shareholders' equity section in the company's consolidated balance sheets.

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 occasionally enters into interest rate swap transactions that convert certain fixed-rate debt to variable-rate debt or variable-rate debt to fixed-rate debt in order to manage its targeted mix of fixed- and floating-rate debt. The company uses the hypothetical derivative method to assess the effectiveness of its interest rate swaps designated as fair value hedges on a quarterly basis. The effective portion of the change in the fair value of designated interest rate swaps is recorded as a change to the carrying value of the related hedged debt. The ineffective portion of the interest rate swaps, if any, is recorded in "Interest and other financing expense, net" in the company's consolidated statements of operations. As of April 1, 2017 and December 31, 2016, all outstanding interest rate swaps were designated as fair value hedges.

The terms of our outstanding interest rate swap contracts at April 1, 2017 are as follows:
Maturity Date
 
Notional Amount
 
Interest rate due from counterparty
 
Interest rate due to counterparty
April 2020
 
50,000
 
6.000%
 
6 mo. USD LIBOR + 3.896
June 2018
 
50,000
 
6.875%
 
6 mo. USD LIBOR + 5.301

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, Chinese Renminbi, British pound, Taiwan Dollar, and Australian Dollar. The company enters into foreign exchange forward, option, or swap contracts (collectively, the "foreign exchange contracts") to mitigate the impact of changes in foreign currency exchange rates.  These contracts are executed to facilitate the hedging of foreign currency exposures resulting from inventory purchases and sales and 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 are estimated using

14

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

market quotes. The notional amount of the foreign exchange contracts at April 1, 2017 and December 31, 2016 was $601,068 and $460,233, 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 designated foreign currency exchange contracts are recorded in "Selling, general, and administrative expenses" and "Interest and other financing expense, net" in the company's consolidated statements of operations and were not material for the first quarters of 2017 and 2016.

The effects of derivative instruments on the company's consolidated statements of operations and other comprehensive income are as follows:

  
 
Quarter Ended
 
 
April 1,
2017
 
April 2,
2016
Loss Recognized in Income
 
 
 
 
Foreign exchange contracts
 
$
(8,939
)
 
$
(3,439
)
Interest rate swaps
 
(158
)
 
(149
)
Total
 
$
(9,097
)
 
$
(3,588
)
Gain (Loss) Recognized in Other Comprehensive Income before reclassifications
 
 
 
 
Foreign exchange contracts
 
$
176

 
$
(846
)
Interest rate swaps
 
$

 
$


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 I – Restructuring, Integration, and Other Charges

The following table presents the components of the restructuring, integration, and other charges:
 
 
Quarter Ended
 
 
April 1,
2017
 
April 2,
2016
Restructuring and integration charges - current period actions
 
$
7,983

 
$
2,451

Restructuring and integration charges - actions taken in prior periods
 
2,102

 
2,123

Other charges
 
5,420

 
16,214

 
 
$
15,505

 
$
20,788


2017 Restructuring and Integration Charges

The following table presents the components of the 2017 restructuring and integration charges and activity in the related restructuring and integration accrual for the first quarter of 2017:
 
 
Personnel
Costs
 
Facilities Costs
 
Other
 
Total
Restructuring and integration charges
 
$
4,779

 
$
2,674

 
$
530

 
$
7,983

Payments
 
(2,330
)
 
(1,259
)
 

 
(3,589
)
Foreign currency translation
 

 
13

 

 
13

Balance as of April 1, 2017
 
$
2,449

 
$
1,428

 
$
530

 
$
4,407



15

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

These restructuring initiatives are due to the company's continued efforts to lower cost and drive operational efficiency. Integration costs are primarily related to the integration of acquired businesses within the company's pre-existing business and the consolidation of certain operations.

2016 Restructuring and Integration Charges

The following table presents the activity in the restructuring and integration accrual for the first quarter of 2017 related to restructuring and integration actions taken in 2016:
 
 
Personnel 
Costs
 
Facilities Costs
 
Other
 
Total
Balance as of December 31, 2016
 
$
11,694

 
$
3,793

 
$
316

 
$
15,803

Restructuring and integration charges (credits)
 
2,423

 
(396
)
 
(5
)
 
2,022

Payments
 
(5,126
)
 
(373
)
 
(123
)
 
(5,622
)
Foreign currency translation
 
104

 
35

 
4

 
143

Balance as of April 1, 2017
 
$
9,095

 
$
3,059

 
$
192

 
$
12,346


Restructuring and Integration Accruals Related to Actions Taken Prior to 2016

Included in restructuring, integration, and other charges for first quarter of 2017 are restructuring and integration charges of $80 related to restructuring and integration actions taken prior to 2016. The restructuring and integration charge (credits) includes adjustments to personnel costs of $143, facilities costs of $(44), and other costs of $(19). The restructuring and integration accruals at April 1, 2017 related to actions taken prior to 2016 of $4,019 include accruals for personnel costs of $1,557 and accruals for facilities costs of $2,462.

Restructuring and Integration Accrual Summary

The restructuring and integration accruals aggregate to $20,772 at April 1, 2017, all of which are expected to be spent in cash, and are expected to be utilized as follows:

The accruals for personnel costs totaling $13,101 relate to the termination of personnel that have scheduled payouts of $10,740 in 2017, $661 in 2018, $1,289 in 2019, $400 in 2020, and $11 in 2021.
The accruals for facilities totaling $6,949 relate to vacated leased properties that have scheduled payments of $5,350 in 2017, $353 in 2018, $239 in 2019, $450 in 2020, $281 in 2021, and $276 thereafter.
Other accruals of $722 are expected to be spent within one year.

Other Charges

Included in restructuring, integration, and other charges for the first quarter of 2017 are other expenses of $5,420. Included in these expenses are acquisition-related expenses of $2,679 consisting of charges related to contingent consideration for acquisitions completed in prior years which were conditional upon the financial performance of the acquired companies and the continued employment of the selling shareholders, as well as professional and other fees directly related to recent acquisition activity.

Included in restructuring, integration, and other charges for the first quarter of 2016 are other expenses of $16,214. Included in these expenses is a fraud loss of $13,195 and acquisition-related expenses of $1,624 related to contingent consideration for acquisitions completed in prior years which were conditional upon the financial performance of the acquired companies and the continued employment of the selling shareholders, as well as professional and other fees directly related to recent acquisition activity.

In January 2016, the company determined that it was the target of criminal fraud by persons impersonating a company executive, which resulted in unauthorized transfers of cash from a company account in Europe to outside bank accounts in Asia. Legal actions by the company and law enforcement are ongoing. The information gathered by the company indicates that this was an isolated event not associated with a security breach or loss of data. Additionally, no officers or employees of the company were involved in the fraud.

16

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


Note J – 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 1,
2017
 
April 2,
2016
Net income attributable to shareholders
 
$
113,768

 
$
106,235

Weighted-average shares outstanding - basic
 
89,262

 
91,514

Net effect of various dilutive stock-based compensation awards
 
1,279

 
1,273

Weighted-average shares outstanding - diluted
 
90,541

 
92,787

Net income per share:
 
 

 
 

Basic
 
$
1.27

 
$
1.16

Diluted (a)
 
$
1.26

 
$
1.14


(a)
Stock-based compensation awards for the issuance of 244 and 1,039 shares for the first quarter of 2017 and 2016, respectively, were excluded from the computation of net income per share on a diluted basis as their effect was anti-dilutive.

Note K – Shareholders' Equity

Accumulated Other Comprehensive Income (Loss)

The following table presents the changes in Accumulated other comprehensive income (loss), excluding noncontrolling interests:
 
 
Quarter Ended
 
 
April 1, 2017
 
April 2, 2016
Foreign Currency Translation Adjustment and Other:
 
 
 
 
Other comprehensive income before reclassifications (a)
 
$
37,603

 
$
69,969

Amounts reclassified into income
 
(1,335
)
 
1,202

Unrealized Gain (Loss) on Investment Securities, Net:
 
 
 
 
Other comprehensive income (loss) before reclassifications
 
1,728

 
(1,651
)
Amounts reclassified into income
 

 

Unrealized Gain on Interest Rate Swaps Designated as Cash Flow Hedges, Net:
 
 
 
 
Other comprehensive income before reclassifications
 

 

Amounts reclassified into income
 
97

 
91

Employee Benefit Plan Items, Net:
 
 
 
 
Other comprehensive income before reclassifications
 
5

 
41

Amounts reclassified into income
 
401

 
879

Net change in Accumulated other comprehensive income (loss)
 
$
38,499

 
$
70,531


(a)
Includes intra-entity foreign currency transactions that are of a long-term investment nature of $7,290 and $(32,801) for the first quarter of 2017 and 2016, respectively.


17

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 1, 2017:
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
September 2015
 
$
400,000

 
$
336,310

 
$
63,690

December 2016
 
400,000

 

 
400,000

Total
 
$
800,000

 
$
336,310

 
$
463,690


Note L – Contingencies

Environmental Matters

In connection with the purchase of 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 fully 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 $37,000 from certain insurance carriers relating to environmental clean-up matters at the Norco site. The company is considering the best way to pursue its potential claims against insurers regarding liabilities arising out of operations at Huntsville. The resolution of these matters will likely take several years. The company has not recorded a receivable for any potential future insurance recoveries related to the Norco and Huntsville environmental matters, as the realization of the claims for recovery are not deemed probable at this time.

18

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

The company believes the settlement amount together with potential recoveries from various insurance policies covering environmental remediation and related litigation will be sufficient to cover any potential future costs related to the Wyle acquisition; however, it is possible unexpected costs beyond those anticipated could occur.

Environmental Matters - Huntsville

In February 2015, the company and the Alabama Department of Environmental Management ("ADEM") finalized and executed a consent decree in connection with the Huntsville, Alabama site. Characterization of the extent of contaminated soil and groundwater continues at the site. Under the direction of the ADEM, approximately $5,500 was spent to date. The pace of the ongoing remedial investigations, project management, and regulatory oversight is likely to increase somewhat and, though the complete scope of the activities is not yet known, the company currently estimates additional investigative and related expenditures at the site of approximately $300 to $600. The nature and scope of both feasibility studies and subsequent remediation at the site has not yet been determined, but assuming the outcome includes source control and certain other measures, the cost is estimated to be between $3,000 and $4,000.

Despite the amount of work undertaken and planned to date, the company is unable to estimate any potential costs in addition to those discussed above because the complete scope of the work is not yet known, and, accordingly, the associated costs have yet to be determined.

Environmental Matters - Norco

In October 2003, the company entered into a consent decree with Wyle Laboratories and the California Department of Toxic Substance Control (the "DTSC") in connection with the Norco site. In April 2005, a Remedial Investigation Work Plan was approved by DTSC that provided for site-wide characterization of known and potential environmental issues. Investigations performed in connection with this work plan and a series of subsequent technical memoranda continued until the filing of a final Remedial Investigation Report early in 2008. Work is under way pertaining to the remediation of contaminated groundwater at certain areas on the Norco site and of soil gas in a limited area immediately adjacent to the site. In 2008, a hydraulic containment system was installed to capture and treat groundwater before it moves into the adjacent offsite area. In September 2013, the DTSC approved the final Remedial Action Plan ("RAP") and work is currently progressing under the RAP. The approval of the RAP includes the potential for additional remediation action after the five year review of the hydraulic containment system if the review finds that contaminants have not been sufficiently reduced in the offsite area.

Approximately $54,500 was spent to date on remediation, project management, regulatory oversight, and investigative and feasibility study activities. The company currently estimates that these activities will give rise to an additional $20,600 to $31,300. Project management and regulatory oversight include costs incurred by project consultants for project management and costs billed by DTSC to provide regulatory oversight.

Despite the amount of work undertaken and planned to date, the company is unable to estimate any potential costs in addition to those discussed above because the complete scope of the work under the RAP is not yet known, and, accordingly, the associated costs have yet to be determined.

Antitrust Investigation
On January 21, 2014, the company received a Civil Investigative Demand in connection with an investigation by the Federal Trade Commission ("FTC") relating generally to the use of a database program (the “database program”) that has operated for more than ten years under the auspices of the Global Technology Distribution Council ("GTDC"), a trade group of which the company is a member. Under the database program, certain members of the GTDC who participate in the program provide sales data to a third party independent contractor chosen by the GTDC. The data is aggregated by the third party and the aggregated data is made available to the program participants. The company understands that other members participating in the database program have received similar Civil Investigative Demands.

In April 2014, the company responded to the Civil Investigative Demand. The Civil Investigative Demand merely sought information, and no proceedings have been instituted against any person. The company continues to believe that there has not been any conduct by the company or its employees that would be actionable under the antitrust laws in connection with its participation in the database program. At this time, it is not possible to predict the potential impact, if any, of the Civil Investigative Demand or whether any actions may be instituted by the FTC against any person.

19

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


Other

From time to time, in the normal course of business, the company may become liable with respect to other pending and threatened litigation, environmental, regulatory, labor, product, and tax matters. While such matters are subject to inherent uncertainties, it is not currently anticipated that any such matters will materially impact the company's consolidated financial position, liquidity, or results of operations.

Note M – Segment and Geographic Information

The company is a global provider of products, services, and solutions to industrial and commercial users of electronic components and enterprise computing solutions.  The company distributes electronic components to original equipment manufacturers and contract manufacturers through its global components business segment and provides enterprise computing solutions to value-added resellers through its global ECS business segment.  As a result of the company's philosophy of maximizing operating efficiencies through the centralization of certain functions, selected fixed assets and related depreciation, as well as borrowings, are not directly attributable to the individual operating segments and are included in the corporate business segment.

Sales and operating income (loss), by segment, are as follows:
 
 
Quarter Ended
 
 
April 1,
2017
 
April 2,
2016
Sales:
 
 
 
 
Global components
 
$
4,058,803

 
$
3,675,929

Global ECS
 
1,700,749

 
1,798,248

Consolidated
 
$
5,759,552

 
$
5,474,177

Operating income (loss):
 
 

 
 

Global components
 
$
173,533

 
$
170,770

Global ECS
 
80,879

 
78,212

Corporate (a)
 
(62,690
)
 
(67,618
)
Consolidated
 
$
191,722

 
$
181,364


(a)
Includes restructuring, integration, and other charges of $15,505 and $20,788 for the first quarters of 2017 and 2016, respectively.

Total assets, by segment, are as follows:
 
 
April 1,
2017
 
December 31,
2016
Global components
 
$
8,561,728

 
$
8,360,926

Global ECS
 
4,096,249

 
5,053,172

Corporate
 
761,398

 
792,268

Consolidated
 
$
13,419,375

 
$
14,206,366



20

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

Sales, by geographic area, are as follows:
 
 
Quarter Ended
 
 
April 1,
2017
 
April 2,
2016
Americas (b)
 
$
2,642,988

 
$
2,620,477

EMEA (c)
 
1,685,841

 
1,665,880

Asia/Pacific
 
1,430,723

 
1,187,820

Consolidated
 
$
5,759,552

 
$
5,474,177


(b)
Includes sales related to the United States of $2,378,480 and $2,396,063 for the first quarter of 2017 and 2016, respectively.

(c)
Defined as Europe, the Middle East, and Africa.

Net property, plant, and equipment, by geographic area, is as follows:
 
 
April 1,
2017
 
December 31,
2016
Americas (d)
 
$
658,135

 
$
631,386

EMEA
 
92,333

 
90,834

Asia/Pacific
 
36,128

 
34,079

Consolidated
 
$
786,596

 
$
756,299


(d)
Includes net property, plant, and equipment related to the United States of $653,648 and $626,964 at April 1, 2017 and December 31, 2016, respectively.

21


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

Overview

Arrow Electronics, Inc. (the "company") is a global provider of products, services, and solutions to industrial and commercial users of electronic components and enterprise computing solutions. The company has one of the world’s broadest portfolios of product offerings available from leading electronic components and enterprise computing solutions suppliers, coupled with a range of services, solutions and tools that help industrial and commercial customers introduce innovative products, reduce their time to market, and enhance their overall competitiveness. The company has two business segments, the global components business segment and the global enterprise computing solutions ("ECS") business segment. The company distributes electronic components to original equipment manufacturers and contract manufacturers through its global components business segment and provides enterprise computing solutions to value-added resellers through its global ECS business segment. For the first quarter of 2017, approximately 70% of the company's sales were from the global components business segment and approximately 30% of the company's sales were from the global ECS business segment.


The company's financial objectives are to grow sales faster than the market, increase the markets served, grow profits faster than sales, and increase return on invested capital. To achieve its objectives, the company seeks to capture significant opportunities to grow across products, markets, and geographies. To supplement its organic growth strategy, the company continually evaluates strategic acquisitions to broaden its product and value-added service offerings, increase its market penetration, and/or expand its geographic reach.

Executive Summary

Consolidated sales for the first quarter of 2017 increased by 5.2% compared with the year-earlier period. The increase for the first quarter of 2017 was driven by an increase in the global components business segment sales of 10.4% offset partially by a decrease in the global ECS business segment sales of 5.4%. Adjusted for the change in foreign currencies and acquisitions, consolidated sales increased 5.8% for the first quarter of 2017 compared with the year-earlier period.

Net income attributable to shareholders increased to $113.8 million in the first quarter of 2017 compared to $106.2 million in the year-earlier period. The following items impacted the comparability of the company's results:

restructuring, integration, and other charges of $15.5 million in 2017 and $20.8 million in 2016; and
identifiable intangible asset amortization of $12.9 million in both 2017 and 2016.

Excluding the aforementioned items, net income attributable to shareholders for the first quarter of 2017 increased to $132.4 million compared with $132.2 million in the year-earlier period.

Certain Non-GAAP Financial Information

In addition to disclosing financial results that are determined in accordance with accounting principles generally accepted in the United States ("GAAP"), the company also discloses certain non-GAAP financial information, including:

Sales, income, or expense items as adjusted for the impact of changes in foreign currencies (referred to as "impact of changes in foreign currencies") and the impact of acquisitions by adjusting the company's operating results for businesses acquired, including the amortization expense related to acquired intangible assets, as if the acquisitions had occurred at the beginning of the earliest period presented (referred to as "impact of acquisitions");
Operating income as adjusted to exclude identifiable intangible asset amortization and restructuring, integration, and other charges; and
Net income attributable to shareholders as adjusted to exclude identifiable intangible asset amortization and restructuring, integration, and other charges.

Management believes that providing this additional information is useful to the reader to better assess and understand the company's operating performance, especially when comparing results with previous periods, primarily because management typically monitors the business adjusted for these items in addition to GAAP results. However, analysis of results on a non-GAAP basis should be used as a complement to, and in conjunction with, data presented in accordance with GAAP.




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Sales

Substantially all of the company's sales are made on an order-by-order basis, rather than through long-term sales contracts.  As such, the nature of the company's business does not provide for the visibility of material forward-looking information from its customers and suppliers beyond a few months.

Following is an analysis of net sales by reportable segment (in millions):
 
Quarter Ended
 
 
 
April 1,
2017
 
April 2,
2016
 
Change
Consolidated sales, as reported
$
5,760

 
$
5,474

 
5.2
 %
Impact of changes in foreign currencies

 
(73
)
 
 
Impact of acquisitions

 
43

 
 
Consolidated sales, as adjusted
$
5,760

 
$
5,444

 
5.8
 %
 
 
 
 
 
 
Global components sales, as reported
$
4,059

 
$
3,676

 
10.4
 %
Impact of changes in foreign currencies

 
(40
)
 
 
Impact of acquisitions

 
4

 
 
Global components sales, as adjusted
$
4,059

 
$
3,640

 
11.5
 %
 
 
 
 
 
 
Global ECS sales, as reported
$
1,701

 
$
1,798

 
(5.4
)%
Impact of changes in foreign currencies

 
(33
)
 
 
Impact of acquisitions

 
38

 
 
Global ECS sales, as adjusted*
$
1,701

 
$
1,804

 
(5.7
)%

* The sum of the components for consolidated sales, as adjusted, may not agree to totals, as presented, due to rounding.

Consolidated sales for the first quarter of 2017 increased by $285.4 million, or 5.2%, compared with the year-earlier period. The increase for the first quarter of 2017 was driven by an increase in global components business segment sales, offset partially by a decrease in global ECS business segment sales. Adjusted for the impact of changes in foreign currencies and acquisitions, consolidated sales increased 5.8% for the first quarter of 2017 compared with the year-earlier period.

In the global components business segment, sales for the first quarter of 2017 increased $382.9 million, or 10.4%, compared with the year-earlier period, with double digit sales growth in both the Asia and EMEA regions, adjusted for the impact of foreign currencies. The Americas region also had strong results with the Sustainable Technology Solutions and Digital businesses driving sales growth for the period. Adjusted for the impact of changes in foreign currencies and acquisitions, the company's global components business segment sales increased by 11.5% for the first quarter of 2017 compared with the year-earlier period.

In the global ECS business segment, sales for the first quarter of 2017 decreased $97.5 million, or 5.4%, compared with the year-earlier period, primarily due to decreases in demand for servers and virtualization software, and the impact of changes in foreign currencies. The decreases were partially offset by an increase in infrastructure software sales and the impact of recently acquired businesses. Adjusted for the impact of changes in foreign currencies and acquisitions, the company's global ECS business segment sales decreased by 5.7% for the first quarter of 2017 compared with year-earlier period.











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Gross Profit

Following is an analysis of gross profit (in millions):
 
Quarter Ended
 
 
 
 
April 1,
2017
 
April 2,
2016
 
% Change
Consolidated gross profit, as reported
$
760

 
$
749

 
1.5
%
 
Impact of changes in foreign currencies

 
(11
)
 
 
 
Impact of acquisitions

 
8

 
 
 
Consolidated gross profit, as adjusted
$
760

 
$
746

 
1.9
%
 
Consolidated gross profit as a percentage of sales, as reported
13.2
%
 
13.7
%
 
(50
)
bps
Consolidated gross profit as a percentage of sales, as adjusted
13.2
%
 
13.7
%
 
(50
)
bps

The company recorded gross profit of $759.9 million in the first quarter of 2017 compared with $748.9 million in the year-earlier period. The increase in gross profit was primarily due to increased demand in the components business. Gross profit margins in the first quarter of 2017 decreased by approximately 50 basis points compared with the year-earlier period primarily due to changes in business mix as well as the regional mix of sales across the global components business.

Gross profit from the global components business increased 2.3% on a sales increase of 10.4%, with a decrease in gross margins partially offsetting the increase in sales.

Gross profit from the global ECS business decreased 0.5% on a sales decrease of 5.4%, with increased margins largely offsetting the decrease in sales.

Selling, General, and Administrative Expenses and Depreciation and Amortization

Following is an analysis of operating expenses (in millions):
 
Quarter Ended
 
 
 
April 1,
2017

April 2,
2016
 
Change
Selling, general, and administrative expenses, as reported
$
516

 
$
506

 
1.9
 %
Depreciation and amortization, as reported
37

 
41

 
(9.3
)%
Operating expenses, as reported
553


547

 
1.1
 %
Impact of changes in foreign currencies

 
(7
)
 
 
Impact of acquisitions

 
6

 
 
Operating expenses, as adjusted
$
553

 
$
546

 
1.3
 %
Operating expenses as a percentage of sales, as reported
9.6
%
 
10.0
%
 
(40) bps

Operating expenses as a percentage of sales, as adjusted
9.6
%
 
10.0
%
 
(40) bps


Selling, general, and administrative expenses increased by $9.7 million, or 1.9%, in the first quarter of 2017 on a sales increase of 5.2% compared with the year-earlier period. Selling, general, and administrative expenses as a percentage of sales were 9.0% for the first quarter of 2017 compared with 9.2% in the year-earlier period.

Depreciation and amortization expense as a percentage of operating expenses was 6.7% for the first quarter of 2017, compared with 7.5% in the year-earlier period. Included in depreciation and amortization expense is identifiable intangible asset amortization of $12.9 million for both the first quarter of 2017 and the first quarter of 2016.

Adjusted for the impact of changes in foreign currencies and acquisitions, operating expenses increased 1.3% for the first quarter of 2017.

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Restructuring, Integration, and Other Charges

Restructuring initiatives relate to the company's continued efforts to lower cost and drive operational efficiency.  Integration costs are primarily related to the integration of acquired businesses within the company's pre-existing business and the consolidation of certain operations.

2017 Charges

The restructuring, integration, and other charges of $15.5 million for the first quarter of 2017 includes $8.0 million related to initiatives taken by the company during 2017 to improve operating efficiencies and $2.7 million of acquisition-related expenses. The restructuring and integration charge of $8.0 million for the first quarter of 2017 consists of $4.8 million of personnel costs, $2.7 million of facilities costs, and $0.5 million of other costs.

2016 Charges

The restructuring, integration, and other charges of $20.8 million for the first quarter of 2016 includes restructuring and integration charges of $2.5 million related to initiatives taken by the company to improve operating efficiencies, a fraud loss of $13.2 million, and acquisition-related expenses of $1.6 million. The restructuring and integration charge of $2.5 million for the first quarter of 2016 consists solely of personnel costs.

As of April 1, 2017, the company does not anticipate there will be any material adjustments relating to the aforementioned restructuring and integration plans. Refer to Note I, "Restructuring, Integration, and Other Charges," of the Notes to the Consolidated Financial Statements for further discussion of the company's restructuring and integration activities.

Operating Income

Following is an analysis of operating income (in millions):
 
Quarter Ended
 
 
 
April 1,
2017

April 2,
2016
 
Change
Consolidated operating income, as reported
$
192

 
$
181

 
5.7
%
Identifiable intangible asset amortization
13

 
13

 
 
Restructuring, integration, and other charges
16

 
21

 
 
Consolidated operating income, as adjusted*
$
220

 
$
215

 
2.4
%
Consolidated operating income as a percentage of sales, as reported
3.3
%
 
3.3
%
 
flat

Consolidated operating income, as adjusted, as a percentage of sales, as reported
3.8
%
 
3.9
%
 
(10) bps


* The sum of the components for consolidated operating income, as adjusted, may not agree to totals, as presented, due to rounding.

The company recorded operating income of $191.7 million, or 3.3% of sales in the first quarter of 2017 compared with operating income of $181.4 million, or 3.3% of sales in the year-earlier period. Excluding identifiable intangible asset amortization and restructuring, integration, and other charges, operating income, as adjusted, was $220.1 million, or 3.8% of sales in the first quarter of 2017 compared with operating income, as adjusted, of $215.1 million, or 3.9% of sales in the year-earlier period.

Interest and Other Financing Expense, Net

The company recorded net interest and other financing expense of $38.1 million for the first quarter of 2017 compared with $35.6 million in the year-earlier period. The increase for the first quarter of 2017 was primarily due to higher average debt outstanding and an increase in variable interest rates.

Income Taxes

Income taxes for the interim periods presented have been included in the accompanying consolidated financial statements on the basis of an estimated annual effective tax rate. The determination of the consolidated provision for income taxes requires management to make certain judgments and estimates. Changes in the estimated level of annual pre-tax earnings, tax laws and changes resulting

25


from tax audits can affect the overall effective income tax rate, which impacts the level of income tax expense and net income. Judgments and estimates related to the company’s projections and assumptions are inherently uncertain; therefore, actual results could differ from projections.

For the first quarter of 2017, the company recorded a provision for income taxes of $39.2 million, an effective tax rate of 25.4%. The company's provision for income taxes and effective tax rate for the first quarter of 2017 were impacted by the previously discussed restructuring, integration, and other charges and identifiable intangible asset amortization. Excluding the impact of the aforementioned items, the company's effective tax rate for the first quarter of 2017 was 26.7%

For the first quarter of 2016, the company recorded a provision for income taxes of $41.1 million, an effective tax rate of 27.8%.  The company's provision for income taxes and effective tax rate for the first quarter of 2016 were impacted by the previously discussed restructuring, integration, and other charges and identifiable intangible asset amortization. Excluding the impact of the aforementioned items, the company's effective tax rate for the first quarter of 2016 was 26.9%.

The effective tax rate deviates from the statutory U.S. federal income tax rate mainly due to the taxing jurisdictions in which the company and its foreign subsidiaries generate taxable income. The decrease in the effective tax rate from 27.8% for the first quarter of 2016 to 25.4% for the first quarter of 2017 is primarily driven by discrete items including the adoption of ASU 2016-09 related to stock-based compensation and closure of certain foreign income tax audits as well as an increase in the taxable income in lower tax jurisdictions.

Net Income Attributable to Shareholders

Following is an analysis of net income attributable to shareholders (in millions):
 
Quarter Ended
 
April 1,
2017
 
April 2,
2016
Net income attributable to shareholders, as reported
$
114

 
$
106

Identifiable intangible asset amortization**
13

 
13

Restructuring, integration, and other charges
16

 
21

Tax effect of adjustments above
(9
)
 
(8
)
Net income attributable to shareholders, as adjusted*
$
132

 
$
132


* The sum of the components for net income attributable to shareholders, as adjusted, may not agree to totals, as presented, due to rounding.
** Identifiable intangible asset amortization does not include amortization related to the noncontrolling interest.

The company recorded net income attributable to shareholders of $113.8 million in the first quarter of 2017 compared with $106.2 million in the year-earlier period. Net income attributable to shareholders, as adjusted, was $132.4 million for the first quarter of 2017 compared with $132.2 million in the year-earlier period.

Liquidity and Capital Resources

At April 1, 2017 and December 31, 2016, the company had cash and cash equivalents of $521.6 million and $534.3 million, respectively, of which $423.7 million and $367.3 million, respectively, were held outside the United States.  Liquidity is affected by many factors, some of which are based on normal ongoing operations of the company's business and some of which arise from fluctuations related to global economics and markets. Cash balances are generated and held in many locations throughout the world. It is the company's current intent to permanently reinvest these funds outside the United States and its current plans do not demonstrate a need to repatriate them to fund its United States operations. If these funds were needed for the company's operations in the United States, it would be required to record and pay significant United States income taxes to repatriate these funds. Additionally, local government regulations may restrict the company's ability to move cash balances to meet cash needs under certain circumstances. The company currently does not expect such regulations and restrictions to impact its ability to make acquisitions or to pay vendors and conduct operations throughout the global organization.

During the first quarter of 2017, the net amount of cash used for the company's operating activities was $20.9 million, the net amount of cash used for investing activities was $54.2 million, and the net amount of cash provided by financing activities was $64.0 million.  The effect of exchange rate changes on cash was a decrease of $1.6 million.


26


During the first quarter of 2016, the net amount of cash used for the company's operating activities was $33.6 million, the net amount of cash used for investing activities was $95.8 million, and the net amount of cash provided by financing activities was $250.7 million.  The effect of exchange rate changes on cash was an increase of $0.3 million.

Cash Flows from Operating Activities

The company maintains a significant investment in accounts receivable and inventories.  As a percentage of total assets, accounts receivable and inventories were approximately 65.4% at April 1, 2017 and 67.6% at December 31, 2016.

The net amount of cash used for the company's operating activities during the first quarter of 2017 was $20.9 million and was primarily due to an increase in working capital to support the increase in sales, offset, in part, by an increase in earnings from operations adjusted for non-cash items.

The net amount of cash used for the company's operating activities during the first quarter of 2016 was $33.6 million and was primarily due to an increase in net working capital to support the increase is sales, offset, in part, by earnings from operations, adjusted for non-cash items.

Working capital as a percentage of sales, which the company defines as accounts receivable, net, plus inventory, net, less accounts payable, divided by annualized sales, was 17.2% in the first quarter of 2017 compared with 15.9% in the first quarter of 2016.

Cash Flows from Investing Activities

The net amount of cash used for investing activities during the first quarter of 2017 was $54.2 million. The use of cash from investing activities included $62.1 million for capital expenditures. The sources of cash from investing activities included $7.9 million of proceeds from the sale of buildings. Included in capital expenditures for the first quarter of 2017 is $14.6 million related to the company's global enterprise resource planning ("ERP") initiative.

The net amount of cash used for investing activities during the first quarter of 2016 was $95.8 million. The uses of cash from investing activities included $46.5 million of cash consideration paid, net of cash acquired, for the acquisition of two businesses and $49.3 million for capital expenditures. Included in capital expenditures for the first quarter of 2016 is $16.6 million related to the company's global ERP initiative.

Cash Flows from Financing Activities

The net amount of cash provided by financing activities during the first quarter of 2017 was $64.0 million. The uses of cash from financing activities included $68.8 million of repurchases of common stock and $23.4 million of payments to acquire additional shares of Data Modul AG. The sources of cash from financing activities during the first quarter of 2017 were $76.4 million and $62.5 million of net proceeds from short-term and long-term bank borrowings, respectively, and $17.3 million of proceeds from the exercise of stock options and other benefits related to stock-based compensation arrangements.

The net amount of cash provided by financing activities during the first quarter of 2016 was $250.7 million. The uses of cash from financing activities included $18.7 million of repurchases of common stock and $1.8 million of other acquisition related payments. The sources of cash from financing activities during the first quarter of 2016 were $0.5 million and $265.0 million of net proceeds from short-term and long-term bank borrowings, respectively, and $5.7 million of proceeds from the exercise of stock options and other benefits related to stock-based compensation arrangements.

The company has a $1.8 billion revolving credit facility, maturing in December 2021. This 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 euro currency rate plus a spread (1.18% at April 1, 2017), which is based on the company's credit ratings, or an effective interest rate of 2.10% at April 1, 2017. The facility fee is .20%.  The company had $42.5 million in outstanding borrowings under the revolving credit facility at April 1, 2017. There were no outstanding borrowings under the revolving credit facility at December 31, 2016. During the first quarter of 2017 and 2016, the average daily balance outstanding under the revolving credit facility was $10.7 million and $1.1 million, respectively.

The company has a commercial paper program and the maximum aggregate balance of commercial paper outstanding may not exceed the borrowing capacity of $1.2 billion. The company had $85.2 million in outstanding borrowings under the commercial paper program at April 1, 2017 with a weighted average interest rate of 1.40%. The company had no outstanding borrowings under this

27


program at December 31, 2016. During the first quarter of 2017 and 2016, the average daily balance outstanding under the commercial paper program was $503.1 million and $156.5 million, respectively.

The company has an asset securitization program collateralized by accounts receivable of certain of its subsidiaries. The company may borrow up to $910.0 million under the asset securitization program, which matures in September 2019. The asset securitization program is conducted through Arrow Electronics Funding Corporation, a wholly-owned, bankruptcy remote subsidiary. The 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 (.40% at April 1, 2017), which is based on the company's credit ratings, or an effective interest rate of 1.45% at April 1, 2017.  The facility fee is .40%. The company had $480.0 million and $460.0 million in outstanding borrowings under the asset securitization program at April 1, 2017 and December 31, 2016, respectively.  During the first quarter of 2017 and 2016, the average daily balance outstanding under the asset securitization program was $689.3 million and $621.2 million, respectively.

Both the revolving credit facility and 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. The company was in compliance with all covenants as of April 1, 2017 and is currently not aware of any events that would cause non-compliance with any covenants in the future.

The company has a $100.0 million uncommitted line of credit. There were no outstanding borrowings under the uncommitted line of credit at April 1, 2017 and December 31, 2016. During the first quarter of 2017 and 2016, the average daily balance outstanding under the uncommitted line of credit was $20.1 million and $18.0 million, respectively.

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. Financing costs related to these transactions were not material and are included in "Interest and other financing expense, net" in the company’s consolidated statements of operations.

The company filed a shelf registration statement with the Securities and Exchange Commission in September 2015 registering debt securities, preferred stock, common stock, and warrants of Arrow Electronics, Inc. that may be issued by the company from time to time. As set forth in the shelf registration statement, the net proceeds from the sale of the offered securities may be used by the company for general corporate purposes, including repayment of borrowings, working capital, capital expenditures, acquisitions, and stock repurchases, or for such other purposes as may be specified in the applicable prospectus supplement.

Management believes that the company's current cash availability, its current borrowing capacity under its revolving credit facility and asset securitization program, its expected ability to generate future operating cash flows, and the company's access to capital markets are sufficient to meet its projected cash flow needs for the foreseeable future. The company continually evaluates its liquidity requirements and would seek to amend its existing borrowing capacity or access the financial markets as deemed necessary.

Contractual Obligations

The company has contractual obligations for short-term and long-term debt, interest on short-term and long-term debt, capital leases, operating leases, purchase obligations, and certain other long-term liabilities that were summarized in a table of Contractual Obligations in the company's Annual Report on Form 10-K for the year ended December 31, 2016.  Since December 31, 2016, there were no material changes to the contractual obligations of the company outside the ordinary course of the company’s business.


28


Share-Repurchase Programs

The following table shows the company's Board approved share-repurchase programs as of April 1, 2017 (in thousands):
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
September 2015
 
$
400,000

 
$
336,310

 
$
63,690

December 2016
 
400,000

 

 
400,000

Total
 
$
800,000

 
$
336,310

 
$
463,690


Off-Balance Sheet Arrangements

The company has no off-balance sheet financing or unconsolidated special purpose entities.

Critical Accounting Policies and Estimates

The company's consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States.  The preparation of these financial statements requires the company to make significant estimates and judgments that affect the reported amounts of assets, liabilities, revenues, and expenses and related disclosure of contingent assets and liabilities.  The company evaluates its estimates on an ongoing basis.  The company bases its estimates on historical experience and on various other assumptions that are believed reasonable under the circumstances; the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.  Actual results may differ from these estimates under different assumptions or conditions.

There were no significant changes during the first quarter of 2017 to the items disclosed as Critical Accounting Policies and Estimates in Management's Discussion and Analysis of Financial Condition and Results of Operations in the company's Annual Report on Form 10-K for the year ended December 31, 2016.

Impact of Recently Issued Accounting Standards
See Note B of the Notes to Consolidated Financial Statements for a full description of recent accounting pronouncements, including the anticipated dates of adoption and the effects on the company's consolidated financial position and results of operations.
 
Information Relating to Forward-Looking Statements

This report includes forward-looking statements that are subject to numerous assumptions, risks, and uncertainties, which could cause actual results or facts to differ materially from such statements for a variety of reasons, including, but not limited to: industry conditions, the company's implementation of its new enterprise resource planning system, changes in product supply, pricing and customer demand, competition, other vagaries in the global components and global ECS markets, changes in relationships with key suppliers, increased profit margin pressure, the effects of additional actions taken to become more efficient or lower costs, risks related to the integration of acquired businesses, changes in legal and regulatory matters, and the company’s ability to generate additional cash flow.  Forward-looking statements are those statements which are not statements of historical fact.  These forward-looking statements can be identified by forward-looking words such as "expects," "anticipates," "intends," "plans," "may," "will," "believes," "seeks," "estimates," and similar expressions.  Shareholders and other readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date on which they are made.  The company undertakes no obligation to update publicly or revise any of the forward-looking statements. 

29


Item 3.
Quantitative and Qualitative Disclosures About Market Risk

There were no material changes in market risk for changes in foreign currency exchange rates and interest rates from the information provided in Item 7A – Quantitative and Qualitative Disclosures About Market Risk in the company's Annual Report on Form 10-K for the year ended December 31, 2016.




30


Item 4.
Controls and Procedures

Evaluation of Disclosure Controls and Procedures

The company’s management, under the supervision and with the participation of the company’s Chief Executive Officer and Chief Financial Officer, carried out an evaluation of the effectiveness of the design and operation of the company’s disclosure controls and procedures as of April 1, 2017 (the "Evaluation"). Based upon the Evaluation, the company’s Chief Executive Officer and Chief Financial Officer concluded that the company’s disclosure controls and procedures (as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934) are effective.

Changes in Internal Control over Financial Reporting

There was no change in the company's internal control over financial reporting that occurred during the company's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the company's internal control over financial reporting.








31


PART II.  OTHER INFORMATION

Item 1A.
Risk Factors

There were no material changes to the company's risk factors as discussed in Item 1A - Risk Factors in the company's Annual Report on Form 10-K for the year ended December 31, 2016.

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

In December 2016, the company's Board approved a repurchase of up to $400 million of the company's common stock.

The following table shows the share-repurchase activity for the quarter ended April 1, 2017:
Month
 
Total
Number of
Shares
Purchased (a)
 
Average
Price Paid
per Share
 
Total Number of
Shares
Purchased as
Part of Publicly
Announced
Program (b)
 
Approximate
Dollar Value of
Shares that May
Yet be
Purchased
Under the
Programs
January 1 through January 28, 2017
 

 
$

 

 
$
519,912,418

January 29 through February 25, 2017
 
307,053

 
73.68

 
135,849

 
509,912,604

February 26 through April 1, 2017
 
626,224

 
73.81

 
626,224

 
463,689,919

Total
 
933,277

 
 

 
762,073

 
 


(a)
Includes share repurchases under the Share-Repurchase Program and those associated with shares withheld from employees for stock-based awards, as permitted by the Omnibus Incentive Plan, in order to satisfy the required tax withholding obligations.

(b)
The difference between the "total number of shares purchased" and the "total number of shares purchased as part of publicly announced program" for the quarter ended April 1, 2017 is 171,204 shares, which relate to shares withheld from employees for stock-based awards, as permitted by the Omnibus Incentive Plan, in order to satisfy the required tax withholding obligations.  The purchase of these shares were not made pursuant to any publicly announced repurchase plan.

 


32


Item 6.
Exhibits

Exhibit
Number
 
Exhibit
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
101.INS
 
XBRL Instance Document.
 
 
 
101.SCH
 
XBRL Taxonomy Extension Schema Document.
 
 
 
101.CAL
 
XBRL Taxonomy Extension Calculation Linkbase Document.
 
 
 
101.LAB
 
XBRL Taxonomy Extension Label Linkbase Document.
 
 
 
101.PRE
 
XBRL Taxonomy Extension Presentation Linkbase Documents.
 
 
 
101.DEF
 
XBRL Taxonomy Definition Linkbase Document.


 

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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 
 
 
ARROW ELECTRONICS, INC.
 
 
 
 
Date: 
May 4, 2017
 
By:
/s/ Chris D. Stansbury
 
 
 
 
Chris D. Stansbury
 
 
 
 
Senior Vice President and Chief Financial Officer

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