UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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

For the quarterly period ended June ~~29, 2019~~27, 2020



☐			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)

~~New York~~

~~11-1806155~~

~~(State or other jurisdiction of~~

~~(I.R.S. Employer~~

~~incorporation or organization)~~

~~Identification Number)~~

9201 East Dry Creek Road

~~80112~~

80112

Centennial

(Zip Code)

(Address of principal executive offices)



(303)			824-4000

(Registrant’s telephone number, including area code)

No Changes

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of the exchange on which registered

Common Stock, $1 par value

ARW

New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act:

Large accelerated filer

☒

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No x

There were ~~83,140,368~~77,626,656 shares of Common Stock outstanding as of July ~~25, 2019.~~23, 2020.

ARROW ELECTRONICS, INC.

INDEX

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

ARROW ELECTRONICS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands except per share data)

(Unaudited)

Quarter Ended
Six Months Ended
June 29,
2019 June 30,
2018 June 29,
2019 June 30,
2018
Sales $ 7,344,548
$ 7,392,528
$ 14,500,539
$ 14,268,141
Cost of sales 6,529,639

6,459,708
12,823,942

12,466,377
Gross profit 814,909

932,820
1,676,597

1,801,764
Operating expenses:
Selling, general, and administrative expenses 599,212
580,388
1,155,288
1,143,357
Depreciation and amortization 46,982
46,422
94,508
93,669
Loss on disposition of businesses, net —
—
866
1,562
Impairments (Notes D and E)
697,993

—

697,993

—
Restructuring, integration, and other charges 19,912
19,183
31,572
40,354
1,364,099
645,993
1,980,227
1,278,942
Operating income (loss) (549,190 )
286,827
(303,630 )
522,822
Equity in earnings (losses) of affiliated companies 382
517
(1,085 ) (156 )
Gain (loss) on investments, net 1,390
(2,563 ) 6,738
(5,015 )
Employee benefit plan expense 1,139
1,257
2,278
2,488
Interest and other financing expense, net 51,563
60,803
103,544
105,982
Income (loss) before income taxes (600,120 ) 222,721
(403,799 ) 409,181
Provision (benefit) for income taxes (52,369 ) 51,681
1,538
98,271
Consolidated net income (loss) (547,751 ) 171,040
(405,337 ) 310,910
Noncontrolling interests 1,215
1,125
2,894
1,901
Net income (loss) attributable to shareholders $ (548,966 ) $ 169,915
$ (408,231 ) $ 309,009
Net income (loss) per share:

Basic $ (6.48 ) $ 1.94
$ (4.80 ) $ 3.52
Diluted $ (6.48 ) $ 1.92
$ (4.80 ) $ 3.48
Weighted-average shares outstanding:

Basic 84,652
87,802
85,022
87,878
Diluted 84,652
88,652
85,022
88,841


	Quarter Ended						Six Months Ended
	June 27, 2020		June 29, 2019		June 27, 2020		June 29, 2019
Sales	$	6,606,494	$	7,344,548	$	12,987,911	$	14,500,539
Cost of sales	5,856,031		6,529,639		11,509,057		12,823,942
Gross profit	750,463		814,909		1,478,854		1,676,597
Operating expenses:
Selling, general, and administrative expenses	501,470		599,212		1,035,309		1,155,288
Depreciation and amortization	46,812		46,982		93,922		94,508
Loss on disposition of businesses, net	—		—		—		866
Impairments (Notes D and E)	4,918		697,993		4,918		697,993
Restructuring, integration, and other charges	650		19,912		9,788		31,572
	553,850		1,364,099		1,143,937		1,980,227
Operating income (loss)	196,613		(549,190)		334,917		(303,630)
Equity in earnings (losses) of affiliated companies	(283)		382		247		(1,085)
Gain (loss) on investments, net	10,901		1,390		(5,909)		6,738

Employee benefit plan expense	(1,173)		(1,139)		(2,282)		(2,278)
Interest and other financing expense, net	(31,867)		(51,563)		(75,135)		(103,544)
Income (loss) before income taxes	174,191		(600,120)		251,838		(403,799)
Provision (benefit) for income taxes	40,854		(52,369)		68,746		1,538
Consolidated net income (loss)	133,337		(547,751)		183,092		(405,337)
Noncontrolling interests	533		1,215		785		2,894
Net income (loss) attributable to shareholders	$	132,804	$	(548,966)	$	182,307	$	(408,231)
Net income (loss) per share:
Basic	$	1.69	$	(6.48)	$	2.29	$	(4.80)
Diluted	$	1.68	$	(6.48)	$	2.28	$	(4.80)
Weighted-average shares outstanding:
Basic	78,677		84,652		79,527		85,022
Diluted	79,226		84,652		80,113		85,022

See accompanying notes.

ARROW ELECTRONICS, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(In thousands)

(Unaudited)

Quarter Ended Six Months Ended
June 29,
2019 June 30,
2018 June 29,
2019 June 30,
2018
Consolidated net income (loss) $ (547,751 ) $ 171,040
$ (405,337 ) $ 310,910
Other comprehensive income (loss):
Foreign currency translation adjustment and other 16,021
(146,807 ) 20,463
(101,838 )
Unrealized gain (loss) on foreign exchange contracts designated as net investment hedges, net of taxes (1,427 ) —
4,106
—
Unrealized gain (loss) on interest rate swaps designated as cash flow hedges, net of taxes (6,606 ) 231
(6,366 ) 459
Employee benefit plan items, net of taxes 85
613
404
895
Other comprehensive income (loss) 8,073
(145,963 ) 18,607
(100,484 )
Comprehensive income (loss) (539,678 ) 25,077
(386,730 ) 210,426
Less: Comprehensive income (loss) attributable to noncontrolling interests 1,730
(534 ) 2,761
(11 )
Comprehensive income (loss) attributable to shareholders $ (541,408 ) $ 25,611
$ (389,491 ) $ 210,437


	Quarter Ended						Six Months Ended
	June 27, 2020		June 29, 2019		June 27, 2020		June 29, 2019
Consolidated net income (loss)	$	133,337	$	(547,751)	$	183,092	$	(405,337)
Other comprehensive income (loss):

Foreign currency translation adjustment and other	36,636		16,021		(40,707)		20,463
Unrealized gain (loss) on foreign exchange contracts designated as net investment hedges, net of taxes	(2,031)		(1,427)		13,946		4,106
Unrealized gain (loss) on interest rate swaps designated as cash flow hedges, net of taxes	15		(6,606)		(28,382)		(6,366)
Employee benefit plan items, net of taxes	(2,374)		85		(126)		404
Other comprehensive income (loss)	32,246		8,073		(55,269)		18,607
Comprehensive income (loss)	165,583		(539,678)		127,823		(386,730)
Less: Comprehensive income attributable to non-controlling interests	784		1,730		794		2,761
Comprehensive income (loss) attributable to shareholders	$	164,799	$	(541,408)	$	127,029	$	(389,491)

See accompanying notes.

ARROW ELECTRONICS, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands except par value)

(Unaudited)


	June 29, 2019			December 31, 2018				June 27, 2020		December 31, 2019
ASSETS							ASSETS
Current assets:							Current assets:
Cash and cash equivalents	$	269,989		$	509,327		Cash and cash equivalents	$	205,828	$	300,103
Accounts receivable, net	7,976,603			8,945,463			Accounts receivable, net	7,954,038		8,482,687
Inventories	3,596,613			3,878,678			Inventories	3,420,912		3,477,120
Other current assets	267,151			274,832			Other current assets	213,190		266,249
Total current assets	12,110,356			13,608,300			Total current assets	11,793,968		12,526,159
Property, plant, and equipment, at cost:							Property, plant, and equipment, at cost:
Land	7,873			7,882			Land	7,743		7,793
Buildings and improvements	156,124			158,712			Buildings and improvements	188,563		173,370
Machinery and equipment	1,443,901			1,425,933			Machinery and equipment	1,501,919		1,481,525
	1,607,898			1,592,527				1,698,225		1,662,688
Less: Accumulated depreciation and amortization	(793,981		)	(767,827		)	Less: Accumulated depreciation and amortization	(900,035)		(859,578)
Property, plant, and equipment, net	813,917			824,700			Property, plant, and equipment, net	798,190		803,110
Investments in affiliated companies	86,157			83,693			Investments in affiliated companies	80,756		86,942
Intangible assets, net	290,236			372,644			Intangible assets, net	249,528		271,903
Goodwill	2,067,499			2,624,690			Goodwill	2,052,128		2,061,322
Other assets	656,204			270,418			Other assets	629,891		651,360
Total assets	$	16,024,369		$	17,784,445		Total assets	$	15,604,461	$	16,400,796
LIABILITIES AND EQUITY							LIABILITIES AND EQUITY
Current liabilities:							Current liabilities:
Accounts payable	$	6,245,068		$	7,631,879		Accounts payable	$	6,967,180	$	7,046,221
Accrued expenses	853,735			912,292			Accrued expenses	920,929		880,507
Short-term borrowings, including current portion of long-term debt	279,158			246,257			Short-term borrowings, including current portion of long-term debt	244,323		331,431
Total current liabilities	7,377,961			8,790,428			Total current liabilities	8,132,432		8,258,159
Long-term debt	3,157,274			3,239,115			Long-term debt	2,098,369		2,640,129
Other liabilities	666,419			378,536			Other liabilities	623,712		636,115
Commitments and contingencies (Note N)
Commitments and contingencies (Note M)							Commitments and contingencies (Note M)
Equity:							Equity:
Shareholders’ equity:							Shareholders’ equity:
Common stock, par value $1:							Common stock, par value $1:
Authorized - 160,000 shares in both 2019 and 2018, respectively
Issued - 125,424 shares in both 2019 and 2018, respectively	125,424			125,424
Authorized - 160,000 shares in both 2020 and 2019, respectively							Authorized - 160,000 shares in both 2020 and 2019, respectively
Issued - 125,424 shares in both 2020 and 2019, respectively							Issued - 125,424 shares in both 2020 and 2019, respectively	125,424		125,424
Capital in excess of par value	1,136,649			1,135,934			Capital in excess of par value	1,151,895		1,150,006
Treasury stock (42,283 and 40,233 shares in 2019 and 2018, respectively), at cost	(2,139,743		)	(1,972,254		)
Treasury stock (47,806 and 44,804 shares in 2020 and 2019, respectively), at cost							Treasury stock (47,806 and 44,804 shares in 2020 and 2019, respectively), at cost	(2,542,629)		(2,332,548)
Retained earnings	5,927,104			6,335,335			Retained earnings	6,277,620		6,131,248
Accumulated other comprehensive loss	(280,709		)	(299,449		)	Accumulated other comprehensive loss	(317,489)		(262,211)
Total shareholders’ equity	4,768,725			5,324,990			Total shareholders’ equity	4,694,821		4,811,919
Noncontrolling interests	53,990			51,376			Noncontrolling interests	55,127		54,474
Total equity	4,822,715			5,376,366			Total equity	4,749,948		4,866,393
Total liabilities and equity	$	16,024,369		$	17,784,445		Total liabilities and equity	$	15,604,461	$	16,400,796

See accompanying notes.

ARROW ELECTRONICS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

Six Months Ended
June 29,
2019 June 30,
2018
Cash flows from operating activities:
Consolidated net income (loss) $ (405,337 )
$ 310,910
Adjustments to reconcile consolidated net income (loss) to net cash provided by (used for) operations:

Depreciation and amortization 94,508

93,669
Amortization of stock-based compensation 27,629

25,662
Equity in losses of affiliated companies 1,085

156
Deferred income taxes (71,846 )
12,706
Impairments 697,993

—
(Gain) loss on investments, net
(6,738 )
5,015
Other
11,956

5,605
Change in assets and liabilities, net of effects of acquired and disposed businesses:

Accounts receivable 895,553

(73,647 )
Inventories 278,142

(499,917 )
Accounts payable (1,346,176 )
(240,725 )
Accrued expenses (71,394 )
(516 )
Other assets and liabilities
(28,956 )
(123,767 )
Net cash provided by (used for) operating activities 76,419

(484,849 )
Cash flows from investing activities:

Cash consideration paid for acquired businesses, net of cash acquired —

(331,563 )
Proceeds from disposition of businesses 9,460

34,291
Acquisition of property, plant, and equipment (81,636 )
(66,551 )
Other
2,940

(8,000 )
Net cash used for investing activities (69,236 )
(371,823 )
Cash flows from financing activities:

Change in short-term and other borrowings (173,356 )
59,613
Proceeds from long-term bank borrowings, net 118,977

759,334
Redemption of notes —

(300,000 )
Proceeds from exercise of stock options 9,622

5,985
Repurchases of common stock (200,924 )
(72,551 )
Other (147 )
(156 )
Net cash provided by (used for) financing activities (245,828 )
452,225
Effect of exchange rate changes on cash (693 )
4,883
Net decrease in cash and cash equivalents (239,338 )
(399,564 )
Cash and cash equivalents at beginning of period 509,327

730,083
Cash and cash equivalents at end of period $ 269,989

$ 330,519


	Six Months Ended
	June 27, 2020		June 29, 2019
Cash flows from operating activities:
Consolidated net income (loss)	$	183,092	$	(405,337)
Adjustments to reconcile consolidated net income (loss) to net cash provided by operations:
Depreciation and amortization	93,922		94,508
Amortization of stock-based compensation	22,317		27,629
Equity in (earnings) losses of affiliated companies	(247)		1,085
Deferred income taxes	46,345		(71,846)
Impairments	4,918		697,993



(Gain) loss on investments, net	5,925		(6,738)



Other	48		11,956
Change in assets and liabilities, net of effects of acquired and disposed businesses:
Accounts receivable, net	446,168		895,553
Inventories	52,927		278,142
Accounts payable	(51,027)		(1,346,176)
Accrued expenses	71,043		(71,394)
Other assets and liabilities	9,679		(28,956)
Net cash provided by operating activities	885,110		76,419
Cash flows from investing activities:

Proceeds from disposition of businesses	—		9,460
Acquisition of property, plant, and equipment	(59,542)		(81,636)

Other	(5,466)		2,940
Net cash used for investing activities	(65,008)		(69,236)
Cash flows from financing activities:
Change in short-term and other borrowings	(7,189)		(173,356)
Proceeds from (repayments of) long-term bank borrowings, net	(411,690)		118,977

Redemption of notes	(209,366)		—
Proceeds from exercise of stock options	3,730		9,622
Repurchases of common stock	(231,739)		(200,924)
Settlement of forward-starting interest rate swap	(48,378)		—
Other	(141)		(147)
Net cash used for financing activities	(904,773)		(245,828)
Effect of exchange rate changes on cash	(9,604)		(693)
Net decrease in cash and cash equivalents	(94,275)		(239,338)
Cash and cash equivalents at beginning of period	300,103		509,327
Cash and cash equivalents at end of period	$	205,828	$	269,989

See accompanying notes.

ARROW ELECTRONICS, INC.

CONSOLIDATED STATEMENTS OF EQUITY

(In thousands)

(Unaudited)


	Common Stock at Par Value		Capital in Excess of Par Value		Treasury Stock		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Noncontrolling Interests		Total
Balance at December 31, 2019	$	125,424	$	1,150,006	$	(2,332,548)	$	6,131,248	$	(262,211)	$	54,474	$	4,866,393
Effect of new accounting principles	—		—		—		(35,935)		—		—		(35,935)
Consolidated net income	—		—		—		49,503		—		252		49,755
Other comprehensive loss	—		—		—		—		(87,273)		(242)		(87,515)
Amortization of stock-based compensation	—		13,920		—		—		—		—		13,920
Shares issued for stock-based compensation awards	—		(18,182)		20,162		—		—		—		1,980
Repurchases of common stock	—		—		(158,989)		—		—		—		(158,989)

Balance at March 28, 2020	$	125,424	$	1,145,744	$	(2,471,375)	$	6,144,816	$	(349,484)	$	54,484	$	4,649,609
Consolidated net income	—		—		—		132,804		—		533		133,337
Other comprehensive income	—		—		—		—		31,995		251		32,246
Amortization of stock-based compensation	—		8,397		—		—		—		—		8,397
Shares issued for stock-based compensation awards	—		(2,246)		3,996		—		—		—		1,750
Repurchases of common stock	—		—		(75,250)		—		—		—		(75,250)
Distributions	—		—		—		—		—		(141)		(141)
Balance at June 27, 2020	$	125,424	$	1,151,895	$	(2,542,629)	$	6,277,620	$	(317,489)	$	55,127	$	4,749,948

Common Stock at Par Value Capital in Excess of Par Value Treasury Stock Retained Earnings Accumulated Other Comprehensive Income (Loss) Noncontrolling Interests Total
Balance at December 31, 2018 $ 125,424
$ 1,135,934
$ (1,972,254 ) $ 6,335,335
$ (299,449 ) $ 51,376
$ 5,376,366
Consolidated net income —
—
—
140,735
—
1,679
142,414
Other comprehensive income (loss) —
—
—
—
11,182
(648 ) 10,534
Amortization of stock-based compensation —
19,090
—
—
—
—
19,090
Shares issued for stock-based compensation awards —
(26,267 ) 33,198
—
—
—
6,931
Repurchases of common stock —
—
(53,925 ) —
—
—
(53,925 )
Balance at March 30, 2019 $ 125,424
$ 1,128,757
$ (1,992,981 ) $ 6,476,070
$ (288,267 ) $ 52,407
$ 5,501,410
Consolidated net income (loss) —
—
—
(548,966 ) —
1,215
(547,751 )
Other comprehensive income —
—
—
—
7,558
515
8,073
Amortization of stock-based compensation —
8,539
—
—
—
—
8,539
Shares issued for stock-based compensation awards —
(647 ) 3,340
—
—
—
2,693
Repurchases of common stock —
—
(150,102 ) —
—
—
(150,102 )
Distributions —
—
—
—
—
(147 ) (147 )
Balance at June 29, 2019 $ 125,424
$ 1,136,649
$ (2,139,743 ) $ 5,927,104
$ (280,709 ) $ 53,990
$ 4,822,715

ARROW ELECTRONICS, INC.

CONSOLIDATED STATEMENTS OF EQUITY

(In thousands)

(Unaudited)

Common Stock at Par Value Capital in Excess of Par Value Treasury Stock Retained Earnings Accumulated Other Comprehensive Income (Loss) Noncontrolling Interests Total
Balance at December 31, 2017 $ 125,424
$ 1,114,167
$ (1,762,239 ) $ 5,596,786
$ (124,883 ) $ 48,685
$ 4,997,940
Effect of new accounting principles —
—
—
22,354
(22,354 ) —
—
Consolidated net income —
—
—
139,094
—
776
139,870
Other comprehensive income (loss) —
—
—
—
45,732
(255 ) 45,477
Amortization of stock-based compensation —
13,043
—
—
—
—
13,043
Shares issued for stock-based compensation awards —
(22,102 ) 27,099
—
—
—
4,997
Repurchases of common stock —
—
(52,513 ) —
—
—
(52,513 )
Balance at March 31, 2018 $ 125,424
$ 1,105,108
$ (1,787,653 ) $ 5,758,234
$ (101,505 ) $ 49,206
$ 5,148,814
Consolidated net income —
—
—
169,915
—
1,125
171,040
Other comprehensive loss —
—
—
—
(144,304 ) (1,658 ) (145,962 )
Amortization of stock-based compensation —
12,619
—
—
—
—
12,619
Shares issued for stock-based compensation awards —
(338 ) 1,329
—
—
—
991
Repurchases of common stock —
—
(20,038 ) —
—
—
(20,038 )
Distributions —
—
—
—
—
(157 ) (157 )
Balance at June 30, 2018 $ 125,424
$ 1,117,389
$ (1,806,362 ) $ 5,928,149
$ (245,809 ) $ 48,516
$ 5,167,307


	Common Stock at Par Value		Capital in Excess of Par Value		Treasury Stock		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Noncontrolling Interests		Total
Balance at December 31, 2018	$	125,424	$	1,135,934	$	(1,972,254)	$	6,335,335	$	(299,449)	$	51,376	$	5,376,366

Consolidated net income	—		—		—		140,735		—		1,679		142,414
Other comprehensive income (loss)	—		—		—		—		11,182		(648)		10,534
Amortization of stock-based compensation	—		19,090		—		—		—		—		19,090
Shares issued for stock-based compensation awards	—		(26,267)		33,198		—		—		—		6,931
Repurchases of common stock	—		—		(53,925)		—		—		—		(53,925)

Balance at March 30, 2019	$	125,424	$	1,128,757	$	(1,992,981)	$	6,476,070	$	(288,267)	$	52,407	$	5,501,410
Consolidated net income (loss)	—		—		—		(548,966)		—		1,215		(547,751)
Other comprehensive income	—		—		—		—		7,558		515		8,073
Amortization of stock-based compensation	—		8,539		—		—		—		—		8,539
Shares issued for stock-based compensation awards	—		(647)		3,340		—		—		—		2,693
Repurchases of common stock	—		—		(150,102)		—		—		—		(150,102)
Distributions	—		—		—		—		—		(147)		(147)
Balance at June 29, 2019	$	125,424	$	1,136,649	$	(2,139,743)	$	5,927,104	$	(280,709)	$	53,990	$	4,822,715

See accompanying notes.

ARROW ELECTRONICS, INC.

NOTES TO CONSOLIDATED FINANCIALSTATEMENTS

(Dollars in thousands except per share data)

(Unaudited)

Note A – Basis of Presentation

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

These consolidated financial statements do not include all of the information or notes necessary for a complete presentation and, accordingly, should be read in conjunction with the company’s audited consolidated financial statements and accompanying notes for the year ended December 31, ~~2018,~~2019, 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.~~quarter, except for the fourth quarter, which closes on December 31, 2020.

Reclassification

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

Note B – Impact of Recently Issued Accounting Standards

In ~~August 2018,~~March 2020, the Financial Accounting Standards Board ~~(“FASB”~~("FASB") issued Accounting Standards Update ("ASU") No. ~~2018-15,~~2020-04, ~~Intangibles—Goodwill~~Reference Rate Reform (Topic 848) Facilitation of the Effects of Reference Rate Reform on Financial Reporting ("ASU No. 2020-04"). ASU No. 2020-04 provides optional expedients and ~~Other— Internal-Use Software (Subtopic 350-40): Customer’s Accounting~~exceptions for ~~Implementation Costs Incurred in a Cloud Computing Arrangement~~applying GAAP to contract modifications and hedging relationships, subject to meeting certain criteria, that reference LIBOR or another rate that is ~~a Service Contract (a consensus of the FASB Emerging Issues Task Force)~~ (“ASU No. 2018-15”). ASU No. 2018-15 aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop internal-use software. ASU No. 2018-15 is effective for the company in the first quarter of 2020, with early adoption permitted, and is to be applied either retrospectively or prospectively. The company is currently evaluating the potential effects of adopting the provisions of ASU No. 2018-15. The adoption is not expected to be ~~material to~~discontinued. The amendments in the ~~consolidated financial statements.~~

~~In August 2017, the FASB issued Accounting Standards Update No. 2017-12,~~ ~~Derivatives and Hedging (Topic 815)~~ (“ASU ~~No. 2017-12”). ASU No. 2017-12 simplifies certain aspects~~are effective for all entities as of ~~hedge accounting and results in a more accurate portrayal of the economics of an entity’s risk management activities in its financial statements. On January 1, 2019, the~~March 12, 2020 through December 31, 2022. The company adopted the provisions of ASU No. ~~2017-12~~2020-04 on a ~~modified retrospective basis. The adoption of the provisions of ASU No. 2017-12 did not materially impact the company’s consolidated financial position or results of operations.~~prospective basis in March 2020.

In June 2016, the FASB issued ~~Accounting Standards Update~~ASU No. 2016-13, Financial Instruments - Credit Losses ~~(Topic 326)~~ ~~(“ASU No. 2016-13”~~("Topic 326"). ~~ASU No. 2016-13~~Topic 326 revises the methodology for measuring credit losses on financial instruments and the timing of when such losses are recorded. ~~In November 2018, the FASB issued ASU No. 2018-19,~~ ~~Codification Improvements to Topic 326, Financial Instruments-Credit Losses, in April 2019, the FASB issued ASU No. 2019-04,~~ ~~Codification Improvements to Topic 326, Financial Instruments - Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments,~~ ~~and in May 2019, the FASB issued ASU No. 2019-05,~~ ~~Financial Instruments—Credit Losses (Topic 326), Targeted Transition Relief.~~ These ASU’s provide supplemental guidance and clarification to ASU No. 2016-13 and must be adopted concurrently with the adoption of ASU No. 2016-13, cumulatively referred to as “Topic 326.” Topic 326 is effective forOn January 1, 2020, the company ~~in the first quarter of 2020, with early adoption permitted, and is to be applied~~adopted Topic 326 using a modified retrospective ~~approach. The company is currently evaluating the potential effects of adopting the provisions of Topic 326.~~

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

~~ARROW ELECTRONICS, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Dollars in thousands except per share data)~~

~~(Unaudited)~~

These ASU’s provide supplemental adoption guidance and clarification to ASU No. 2016-02, and must be adopted concurrently with the adoption of ASU No. 2016-02, cumulatively referred to as “Topic 842.”

~~On January 1, 2019, the company adopted Topic 842 applying the optional transition method, which allows an entity to apply the new standard at the adoption date~~approach with a cumulative effect adjustment to the opening balance of retained earnings, which increased the allowance for credit losses by $47,011 ($35,935 net of tax). Increases in the ~~period of adoption. In addition,~~allowance for credit losses relate to the ~~company elected a package of practical expedients~~required change from an incurred loss model to an expected loss model, and the ~~short-term lease exception outlined~~related change in ~~Topic 842. The company also implemented internal controls~~timing of loss recognition where an allowance for credit losses is now applied to all receivables, at a rate dependent on the credit characteristics of the collective pool each customer is in. Refer to Notes C and key systems to enable the preparation of financial information on adoption. As a result of adopting Topic 842, the company recognized assets and liabilities for the rights and obligations created by operating leases, refer to Note L.G.

Note C – Significant Accounting Policies

Except for the changes below, ~~and the impairments disclosed in Notes D and E,~~ no material changes have been made to the company’s significant accounting policies disclosed in Note 1, Summary of Significant Accounting Policies, in its Annual Report on Form 10-K, filed on February ~~7, 2019,~~13, 2020, for the year ended December 31, ~~2018.~~2019.

~~Leases~~Trade accounts and notes receivable

~~The company determines if a contract contains a lease~~Trade accounts and notes receivable are reported at ~~inception based on whether it conveys the right to control the use of an identified asset. Substantially all~~amortized cost, net of the company’s leases are classified as operating leases. The company has determined that operating lease right-of-use assets will be recorded to “Other assets” and lease liabilities will be recorded to “Other liabilities” and “Accrued expenses”allowance for credit losses in the consolidated balance sheets. ~~Lease expense will~~The allowance for credit losses is a valuation account that is deducted from the receivables' amortized cost basis to present the net amount expected to be ~~recorded~~collected. Receivables are written off against the allowance when management believes the receivable balance is confirmed to ~~“Selling, general,~~be uncollectible.

ARROW ELECTRONICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands except per share data)

(Unaudited)

Management estimates the allowance for credit losses using relevant available information about expected credit losses and ~~administrative expenses”~~an age-based reserve model. Inputs to the model include information about historical credit losses, customer credit ratings, past events, current conditions, and reasonable and supportable forecasts. Adjustments to historical loss information are made for differences in current receivable-specific risk characteristics such as changes in the ~~consolidated statements of operations. Operating lease payments will be recorded to “Operating cash flows” in the consolidated statements of cash flows.~~economic and industry environment, or other relevant factors.

~~Operating lease right-of-use assets and lease liabilities~~Expected credit losses are ~~recognized~~estimated on a collective (pool) basis, when similar risk characteristics exist, based on ~~the net present value of future minimum lease payments over the lease term starting~~customer credit ratings, which include both externally acquired as well as internally determined credit ratings. Receivables that do not share risk characteristics are evaluated on ~~the commencement date. The company generally is not able to determine the rate implicit in its leases and, as such, will apply~~ an incremental borrowing rate based on the company’s cost of borrowing for the relevant terms of each lease. Lease expense for minimum lease payments are recognized on a straight-line basis over the lease term. Lease terms may include an option to extend or terminate a lease if it is reasonably certain that the company will exercise such options. The company has elected the practical expedient to not separate lease components from non-lease components, and also has elected not to record a right-of-use asset or lease liability for leases which, at inception, have a term of twelve months or less. Variable lease payments are recognized in the period in which the obligation for those payments is incurred.individual basis.

Note D – Impairment of Long-Lived Assets

~~The~~During the second quarter of 2019, the company committed to a plan to close its personal computer and mobility asset disposition business within the global components business segment. In light of the plan, the company performed an impairment analysis of the long-lived assets of the personal computer and mobility asset disposition business in accordance with ~~ASC~~Accounting Standards Codification ("ASC") topic 360 and recorded a pre-tax impairment charge of $74,908 to write-down certain assets of the personal computer and mobility asset disposition business to estimated fair value in the second quarter of 2019. The company also recorded $4,918 and $6,910 in impairment charges related to various other ~~fixed~~long-lived assets in the second ~~quarter~~quarters of 2020 and 2019, respectively, unrelated to the personal computer and mobility asset disposition business.

Note E – Goodwill and Intangible Assets

Goodwill represents the excess of the cost of an acquisition over the fair value of the net assets acquired. The company tests goodwill and other indefinite-lived intangible assets for impairment annually as of the first day of the fourth quarter, or more frequently if indicators of potential impairment exist.

Goodwill of companies acquired, allocated to the company’s business segments, is as follows:


	Global Components		Global ECS		Total
Balance as of December 31, 2019 (a)	$	883,496	$	1,177,826	$	2,061,322

Foreign currency translation adjustment	(1,363)		(7,831)		(9,194)
Balance as of June 27, 2020 (a)	$	882,133	$	1,169,995	$	2,052,128

(a) The total carrying value of goodwill as of June 27, 2020 and December 31, 2019 in the table above is reflected net of $1,588,955 of accumulated impairment charges, of which $1,287,100 was recorded in the global components business segment and $301,855 was recorded in the global enterprise computing solutions ("ECS") business segment.

During the first quarter of 2020, as a result of significant declines in macroeconomic conditions and equity valuations, and the implementation of regulatory restrictions brought forth by the COVID-19 pandemic, and due to historically low head-room, the company determined that it was more likely than not that an impairment may exist within the Americas components and eInfochips reporting units. The company performed a quantitative goodwill impairment test for these reporting units and determined goodwill was not impaired. As of March 28, 2020, the fair value of the Americas components and eInfochips reporting units, within the global components business segment, exceeded their carrying values by less than 10%.

The company estimated the fair value of these reporting units using the income approach. For the purposes of the income approach, fair value was determined based on the present value of estimated future cash flows, discounted at an appropriate risk adjusted rate. The fair value conclusions as of March 28, 2020 for the Americas components and eInfochips reporting units are highly sensitive to changes in the assumptions used in the income approach which include forecasted revenues, gross profit margins, operating income margins, working capital cash flow, forecasted capital expenditures, perpetual growth rates, and long-term discount rates, among others, all of which require significant judgments by management. The company has used recent historical performance, current forecasted financial information, and broad-based industry and economic statistics as a basis to estimate the key assumptions utilized in the discounted cash flow model. These key assumptions are inherently uncertain and require a high degree of estimation and judgment and are subject to change based on future changes, industry and global economic and geo-political conditions, and the timing and success of the implementation of current strategic initiatives. The impact of the COVID-19 pandemic on estimated future cash flows is highly uncertain and will largely depend on the

ARROW ELECTRONICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands except per share data)

(Unaudited)

outcome of future events, which could result in a goodwill impairment going forward. The impacts of COVID-19 were considered in the interim impairment analysis as of March 28, 2020 through the use of probability weighted cash flow scenarios and an increase in the discount rates. The company concluded no further indicators of potential impairment existed, and as such, no interim impairment test was required at June 27, 2020.

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

~~ARROW ELECTRONICS, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Dollars~~resulted in ~~thousands except per share data)~~

~~(Unaudited)~~

~~unit resulted in~~a partial goodwill impairment charge of $509,000 ($457,806 net of tax) with ~~$601,336~~approximately $600,000 of goodwill remaining inwithin the Americas components reporting unit and a full impairment charge of $61,175 ($61,175 net of tax) within the Asia-Pacific components reporting unit.

The company estimated the fair value of these reporting units using the income approach. For the purposes of the income approach, fair value was determined based on the present value of estimated future cash flows, discounted at an appropriate risk adjusted rate. The fair value conclusion as of June 29, 2019 for the Americas components reporting unit is highly sensitive to changes in the assumptions used in the income approach which include forecasted revenues, gross profit margins, operating income margins, working capital cash flow, forecasted capital expenditures, perpetual growth rates, and long-term discount rates, among others, all of which require significant judgments by management. As the Americas components reporting unit has 0% excess fair value over the carrying value of the reporting unit, the remaining $601,336 of goodwill is susceptible to future period impairments. For example, a 100 basis point decrease in forecasted gross profit margin could result in a full impairment of the remaining $601,336 of goodwill, absent other inputs improving. The company has used recent historical performance, current forecasted financial information, and broad-based industry and economic statistics as a basis to estimate the key assumptions utilized in the discounted cash flow model. These key assumptions are inherently uncertain and require a high degree of estimation and judgment based on an evaluation of historical performance, current industry and global economic and geo-political conditions, and the timing and success of the implementation of current strategic initiatives.

~~Goodwill of companies acquired, allocated to the company’s business segments, is as follows:~~

Global
Components
Global ECS Total
Balance as of December 31, 2018 (a) $ 1,437,501
$ 1,187,189
$ 2,624,690
Impairments and dispositions (570,175 ) (1,386 ) (571,561 )
Foreign currency translation adjustment 16,823
(2,453 ) 14,370
Balance as of June 29, 2019 (b) $ 884,149
$ 1,183,350
$ 2,067,499


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


~~(b)~~	The total carrying value of goodwill as of June 29, 2019 in the table above is reflected net of $1,588,955 of accumulated impairment charges, of which $1,287,100 was recorded in the global components business segment and $301,855 was recorded in the global enterprise computing solutions (“ECS”) business segment.

Intangible assets, net, are comprised of the following as of June ~~29, 2019:~~27, 2020:


	Weighted-Average Life	Gross Carrying Amount		Accumulated Amortization		Net
Customer relationships	11 years	$	350,931	$	(162,429)	$	188,502
Amortizable trade name	8 years	74,007		(12,981)		61,026
		$	424,938	$	(175,410)	$	249,528

Weighted-Average Life Gross Carrying Amount Accumulated Amortization Net
Customer relationships 10 years $ 443,223
$ (225,446 ) $ 217,777
Developed technology 5 years 1,940
(1,035 ) 905
Amortizable trade name 8 years 76,407
(4,853 ) 71,554
$ 521,570
$ (231,334 ) $ 290,236

~~ARROW ELECTRONICS, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Dollars in thousands except per share data)~~

~~(Unaudited)~~

Intangible assets, net, are comprised of the following as of December 31, ~~2018:~~2019:


										Weighted-Average Life	Gross Carrying Amount		Accumulated Amortization		Net
	Weighted-Average Life	Gross Carrying Amount		Accumulated Amortization			Net
Non-amortizable trade names	indefinite	$	101,000	$	—		$	101,000
Customer relationships	11 years	475,050		(221,822		)	253,228		Customer relationships	12 years	$	354,305	$	(148,632)	$	205,673
Developed technology	5 years	6,340		(4,311		)	2,029
Amortizable trade name	9 years	19,940		(3,553		)	16,387		Amortizable trade name	8 years	76,407		(10,177)		66,230
		$	602,330	$	(229,686	)	$	372,644
											$	430,712	$	(158,809)	$	271,903

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

During the second quarter of ~~2019~~2020 and ~~2018,~~2019, the company recorded amortization expense related to identifiable intangible assets of ~~$11,413~~$9,734 and ~~$11,955,~~$11,413, respectively. During the first six months of ~~2019~~2020 and ~~2018,~~2019, amortization expense related to identifiable intangible assets was ~~$23,343~~$19,689 and ~~$25,475,~~$23,343, respectively.

Note F – Investments in Affiliated Companies

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

ARROW ELECTRONICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands except per share data)

(Unaudited)

The following table presents the company’s investment in affiliated companies:


	June 27, 2020		December 31, 2019
Marubun/Arrow	$	71,957	$	76,574
Other	8,799		10,368
	$	80,756	$	86,942

June 29,
2019 December 31,
2018
Marubun/Arrow $ 75,532
$ 73,253
Other 10,625
10,440
$ 86,157
$ 83,693

The equity in earnings (losses) of affiliated companies consists of the following:

Quarter Ended Six Months Ended
June 29,
2019 June 30,
2018 June 29,
2019 June 30,
2018
Marubun/Arrow $ 227
$ 1,483
$ 1,453
$ 2,574
Other 155
(966 ) (2,538 ) (2,730 )
$ 382
$ 517
$ (1,085 ) $ (156 )

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 June ~~29, 2019~~27, 2020 and December 31, ~~2018,~~2019, the company’s pro-rata share of this debt was approximately ~~$6,800~~$3,100 and ~~$2,860,~~$1,700, respectively. The company believes there is sufficient equity in each of the joint ventures to meet the obligations.

Note G – Accounts Receivable

Accounts receivable, net, consists of the following:

The company has notes receivable with certain customers, which are included in “Accounts receivable, net” in the company’s consolidated balance sheets.

Allowances for doubtful accounts consists of the following:


Balance at December 31, 2019	$	69,433
Effect of adoption of ASU No. 2016-13 (Note B)	47,011
Charged to income	19,475
Translation Adjustments	(1,817)
Writeoffs	(35,210)
Balance at June 27, 2020	$	98,892

The global economic impact from COVID-19 may adversely affect the credit condition of some of our customers. The company has considered the current credit condition of its customers in estimating the expected credit losses and has not experienced significant changes in customers’ payment trends or significant deterioration in customers’ credit risk as of June 27, 2020. The impact of COVID-19 on our customers’ credit condition is highly uncertain and will largely depend on the outcome of future events, which could cause credit losses to increase.

During the first quarter of 2020, the company entered into an EMEA (Europe, the Middle East, and Africa) asset securitization program under which it will continuously sell its interest in designated pools of trade accounts receivables of certain of its subsidiaries in the EMEA region, at a discount, to a special purpose entity, which in turn sells certain of the receivables to

ARROW ELECTRONICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands except per share data)

(Unaudited)

~~Note G – Accounts Receivable~~

~~Accounts receivable, net, consists~~unaffiliated financial institutions and conduits administered by such unaffiliated financial institutions on a monthly basis. The company may sell up to €400,000 under the EMEA asset securitization program, which matures in January 2023, subject to extension in accordance with its terms. The program is conducted through Arrow EMEA Funding Corp B.V., an entity structured to be bankruptcy remote. The company is deemed the primary beneficiary of Arrow EMEA Funding Corp B.V. as the company has both the power to direct the activities that most significantly impact the entity’s economic performance and the obligation to absorb losses or the right to receive the benefits that could potentially be significant to the entity from the transfer of the ~~following:~~trade accounts receivables into the special purpose entity. Accordingly, Arrow EMEA Funding Corp B.V. is included in the company’s consolidated financial statements.

June 29,
2019 December 31,
2018
Accounts receivable $ 8,045,924
$ 9,021,051
Allowances for doubtful accounts (69,321 ) (75,588 )
$ 7,976,603
$ 8,945,463

Receivables sold under the program are excluded from “Accounts receivable, net” on the company’s consolidated balance sheets and cash receipts are reflected as cash provided by operating activities on the consolidated statements of cash flows. The 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 timepurchase price is paid in cash when the receivables are ~~outstanding, the current business environment, and historical experience. The company also has notes~~sold. Certain unsold receivables ~~with certain customers, which~~held on Arrow EMEA Funding Corp B.V. are pledged as collateral to unaffiliated financial institutions. These unsold receivables are included in “Accounts receivable, net” in the company’s consolidated balance sheets.

The company continues servicing the receivables which were sold and in exchange receives a servicing fee under the program. The company does not record a servicing asset or liability on the company’s consolidated balance sheets as the company estimates that the fee it receives to service these receivables approximates the fair market compensation to provide the servicing activities.

During the second quarter and first six months of 2020, the company sold approximately €410,770 and €899,491, or $448,913 and $977,366, of accounts receivables to unaffiliated financial institutions under the EMEA securitization program. There were €292,403, or $324,227, of receivables sold to unaffiliated financial institutions that were uncollected as of June 27, 2020. Total collateralized accounts receivables of approximately €173,786, or $192,554, were held by Arrow EMEA Funding Corp B.V. at June 27, 2020. Any accounts receivables held by Arrow EMEA Funding Corp B.V. would likely not be available to other creditors of the company in the event of bankruptcy or insolvency proceedings if there are outstanding balances under the EMEA asset securitization program. The assets of the special purpose entity cannot be used by the company for general corporate purposes. Additionally, the financial obligations of Arrow EMEA Funding Corp B.V. to the unaffiliated financial institution under the program are limited to the assets it owns and there is no recourse to the company for receivables that are uncollectible as a result of the insolvency or inability to pay of the account debtors.

The EMEA asset securitization program includes terms and conditions that limit the incurrence of additional borrowings and require that certain financial ratios be maintained at designated levels. The company was in material compliance with all covenants as of June 27, 2020 and is currently not aware of any events that would cause non-compliance with any covenants in the future.

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


	June 27, 2020		December 31, 2019
6.00% notes, due April 2020	$	—	$	209,322
5.125% notes, due March 2021	130,764		—
Borrowings on lines of credit	75,000		60,000
Other short-term borrowings	38,559		62,109
	$	244,323	$	331,431

June 29,
2019 December 31,
2018
6.00% notes, due 2020 $ 209,234
$ —
Borrowings on lines of credit —
180,000
Other short-term borrowings 69,924
66,257
$ 279,158
$ 246,257

Other short-term borrowings are primarily utilized to support working capital requirements. The weighted-average interest rate on these borrowings was ~~3.68%~~3.27% and ~~2.49%~~2.76% at June ~~29, 2019~~27, 2020 and December 31, ~~2018,~~2019, respectively.

The company has $200,000 in uncommitted lines of credit. There were ~~no outstanding borrowings~~$75,000 and ~~$180,000~~$60,000 of outstanding borrowings under the uncommitted lines of credit at June ~~29, 2019~~27, 2020 and December 31, ~~2018,~~2019, respectively. These borrowings were provided on a short-term basis and the maturity is agreed upon between the company and the lender. The lines had a weighted-average effective interest rate of ~~3.36%~~1.55% and ~~3.39%~~2.61% at June ~~29, 2019~~27, 2020 and December 31, ~~2018,~~2019, respectively.

ARROW ELECTRONICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands except per share data)

(Unaudited)

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 no outstanding borrowings under this program at June ~~29, 2019~~27, 2020 and December 31, ~~2018.~~2019. The program had a weighted-average effective interest rate of ~~2.96%~~2.01% and ~~2.93%~~2.24% at June ~~29, 2019~~27, 2020 and December 31, ~~2018,~~2019, respectively.

~~ARROW ELECTRONICS, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Dollars in thousands except per share data)~~

~~(Unaudited)~~

Long-term debt consists of the following:

June 29,
2019 December 31,
2018
Asset securitization program $ 930,000
$ 810,000
6.00% notes, due 2020 —
209,147
5.125% notes, due 2021 130,618
130,546
3.50% notes, due 2022 347,684
347,288
4.50% notes, due 2023 297,882
297,622
3.25% notes, due 2024 494,564
494,091
4.00% notes, due 2025 346,062
345,762
7.50% senior debentures, due 2027 109,817
109,776
3.875% notes, due 2028 494,368
494,095
Other obligations with various interest rates and due dates 6,279
788
$ 3,157,274
$ 3,239,115

The 7.50% senior debentures are not redeemable prior to their maturity. All other notes may be called at the option of the company subject to “make whole” clauses.

The estimated fair market value of long-term debt, using quoted market prices, is as follows:

June 29,
2019 December 31,
2018
6.00% notes, due 2020 $ 214,500
$ 214,500
5.125% notes, due 2021 135,500
134,500
3.50% notes, due 2022 356,000
345,000
4.50% notes, due 2023 315,000
303,500
3.25% notes, due 2024 500,500
467,000
4.00% notes, due 2025 359,000
340,500
7.50% senior debentures, due 2027 133,500
128,000
3.875% notes, due 2028 495,500
458,500

The carrying amount of the company’s short-term borrowings in various countries, revolving credit facility, 5.125% notes due March 2021, North American asset securitization program, commercial paper, and other obligations approximate their fair value.

The company has a $2,000,000 revolving credit facility maturing in December 2023. 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 Eurocurrency rate plus a spread (1.18% at June ~~29, 2019)~~27, 2020), which is based on the company’s credit ratings, or an effective interest rate of ~~3.50%~~1.24% at June ~~29, 2019.~~27, 2020. The facility fee, which is based on the company’s credit ratings, was .20% of the total borrowing capacity at June ~~29, 2019.~~27, 2020. The company had no outstanding borrowings and $10,000 in outstanding borrowings under the revolving credit facility at June ~~29, 2019~~27, 2020 and December 31, ~~2018.~~2019, respectively.

The company has ana North American asset securitization program collateralized by accounts receivable of certain of its subsidiaries. The company may borrow up to $1,200,000 under the ~~asset securitization~~ program, which matures in June 2021. The ~~asset securitization~~ program is conducted through Arrow Electronics Funding Corporation (“AFC”), a wholly-owned, bankruptcy remote subsidiary. The North American asset securitization program does not qualify for ~~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 plus a spread (.40% at June 29, 2019), or an effective interest rate of 2.90% at June 29, 2019. The facility fee is .40% of the total borrowing capacity.

~~At June 29, 2019 and December 31, 2018, the company had $930,000 and $810,000, respectively, in outstanding borrowings under the asset securitization program, which was included in~~ “~~Long-term debt” in the company’s consolidated balance sheets. Total~~

ARROW ELECTRONICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands except per share data)

(Unaudited)

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 June 27, 2020), or an effective interest rate of .87% at June 27, 2020. The facility fee is .40% of the total borrowing capacity.

At June 27, 2020, the company had no outstanding borrowings under the North American asset securitization program. At December 31, 2019, the company had $400,000 in outstanding borrowings under the North American asset securitization program, which was included in “Long-term debt” in the company’s consolidated balance sheets. Total collateralized accounts receivable of approximately ~~$2,413,243~~$2,073,200 and ~~$2,754,400, respectively,~~$2,217,800 were held by AFC and were included in “Accounts receivable, net” in the company’s consolidated balance ~~sheets.~~sheets at June 27, 2020 and December 31, 2019, respectively. Any accounts receivable held by AFC would likely not be available to other creditors of the company in the event of bankruptcy or insolvency proceedings before repayment of any outstanding borrowings under the North American asset securitization program.

Both the revolving credit facility and North American asset securitization program include terms and conditions that limit the incurrence of additional borrowings and require that certain financial ratios be maintained at designated levels. The company was in material compliance with all covenants as of June ~~29, 2019~~27, 2020 and is currently not aware of any events that would cause non-compliance with any covenants in the future.

During ~~2018,~~April 2020, the company ~~redeemed $300,000~~repaid $209,366 principal amount of its ~~3.00%~~6.00% notes due ~~March 2018.~~

April 2020.

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~~net, includes interest and dividend income of $3,461 and $13,426 for the ~~company’s consolidated statements~~second quarter and first six months of ~~operations.~~

2020, respectively. Interest and other financing expense, net, includes interest and dividend income of $14,492 and $28,537 for the second quarter and first six months of 2019, respectively. ~~Interest and other financing expense, net, includes interest and dividend income of $11,303 and $20,557 for the second quarter and first six months of 2018, respectively.~~

~~ARROW ELECTRONICS, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Dollars in thousands except per share data)~~

~~(Unaudited)~~

Note I – 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.~~

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.

ARROW ELECTRONICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands except per share data)

(Unaudited)

The following table presents assets (liabilities) measured at fair value on a recurring basis at June ~~29, 2019:~~27, 2020:


	Balance Sheet Location	Level 1		Level 2		Level 3		Total
Cash equivalents (a)	Cash and cash equivalents/ other assets	$	21,480	$	—	$	—	$	21,480
Equity investments (b)	Other assets	37,903		—		—		37,903
Interest rate swaps	Other assets	—		558		—		558
Interest rate swaps	Other liabilities	—		(3,029)		—		(3,029)
Foreign exchange contracts	Other current assets/ other assets	—		47,867		—		47,867
Foreign exchange contracts	Accrued expenses	—		(2,595)		—		(2,595)


		$	59,383	$	42,801	$	—	$	102,184

Balance Sheet
Location Level 1 Level 2 Level 3 Total
Cash equivalents (a)
Cash and cash equivalents/
other assets
$ 22,120
$ —
$ —
$ 22,120
Equity investments (b) Other assets 42,637
—
—
42,637
Interest rate swaps Other liabilities —
(9,168 ) —
(9,168 )
Foreign exchange contracts
Other current assets/
other assets
—
13,122
—
13,122
Foreign exchange contracts Accrued expenses —
(2,950 ) —
(2,950 )
$ 64,757
$ 1,004
$ —
$ 65,761

The following table presents assets (liabilities) measured at fair value on a recurring basis at December 31, ~~2018:~~2019:


	Balance Sheet Location	Level 1		Level 2		Level 3		Total
Cash equivalents (a)	Cash and cash equivalents/ other assets	$	18,579	$	—	$	—	$	18,579
Equity investments (b)	Other assets	44,677		—		—		44,677

Interest rate swaps	Other liabilities	—		(11,574)		—		(11,574)
Foreign exchange contracts	Other current assets/ other assets	—		24,092		—		24,092
Foreign exchange contracts	Accrued expenses	—		(2,132)		—		(2,132)


		$	63,256	$	10,386	$	—	$	73,642

Balance Sheet
Location Level 1 Level 2 Level 3 Total
Cash equivalents (a)
Cash and cash equivalents/
other assets
$ 22,883
$ —
$ —
$ 22,883
Equity investments (b) Other assets 38,045
—
—
38,045
Interest rate swaps Other liabilities —
(589 ) —
(589 )
Foreign exchange contracts Other current assets —
4,163
—
4,163
Foreign exchange contracts Accrued expenses —
(2,384 ) —
(2,384 )
$ 60,928
$ 1,190
$ —
$ 62,118

(a) Cash equivalents include highly liquid investments with an original maturity of less than three months.

(b) The company has an 8.4% equity ownership interest in Marubun Corporation and a portfolio of mutual funds with quoted market prices. The company recorded an unrealized gain of $4,964 and an unrealized loss of $5,031 for the second quarter and first six months of 2020, respectively, on equity securities held at the end of the quarter. The company recorded an unrealized gain of $8 and $1,842 for the second quarter and first six months of 2019, respectively, on equity securities held at the end of the quarter.

Assets and liabilities that are measured at fair value on a nonrecurring basis relate primarily to goodwill, identifiable intangible assets, and long-lived assets (see Notes D and E). The company tests these assets for impairment if indicators of potential impairment exist or at least annually if indefinite lived.

~~ARROW ELECTRONICS, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Dollars in thousands except per share data)~~

~~(Unaudited)~~

Derivative Instruments

The company uses various financial instruments, including derivative instruments, for purposes other than trading. Certain derivative instruments are designated at inception as hedges and measured for effectiveness both at inception and on an ongoing basis. Derivative instruments not designated as hedges are marked-to-market each reporting period with any unrealized gains or losses recognized in earnings.

The company ~~occasionally enters~~manages the risk of variability in interest rates of future expected debt issuances by entering 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 itsvarious forward-starting interest rate swaps, designated as fair value hedges on a quarterly basis. The change in the fair value of interest rate swaps designated as fair value hedges is recorded as a change to the carrying value of the related hedged debt, and the changecash flow hedges. Changes in fair value of interest rate swaps ~~designated as cash flow hedges is~~are recorded in the shareholders’ equity section in the company’s consolidated balance sheets in “~~Accumulated~~“Accumulated other comprehensive ~~income.”~~loss” and will be reclassified into income over the life of the anticipated debt issuance or in the period the hedged forecasted cash flows are deemed no longer probable to occur. Gains and losses on interest rate swaps are recorded within the line item “Interest and other financing expense, net” in the consolidated statements of operations. The fair value of interest rate swaps are estimated using market quotes.

ARROW ELECTRONICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands except per share data)

(Unaudited)

~~As of~~At June ~~29, 2019 and December 31, 2018,~~27, 2020 the company had ~~one~~the following outstanding interest rate ~~swap~~swaps designated as ~~a fair value hedge, the terms of which are as follows:~~cash flow hedges:

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%

At December 31, 2019 the company had the following outstanding interest rate swaps designated as cash flow hedges:

Trade Date

Maturity Date

Notional Amount

Weighted Average Interest Rate

Date Range of Forecasted Transaction

May 2019

June 2020

$300,000

2.33%

Sep 2019 - Jun 2020

In May 2019, the company entered into a series of ten-year forward-starting interest rate swaps (the “2019 swaps”) ~~which locked in an average treasury rate of 2.33% on a total aggregate notional amount of $300,000.~~. The 2019 swaps were designated as cash flow hedges ~~and managed~~managing the risk ~~associated with changes~~of variability in ~~treasury~~interest rates ~~and the impact~~ of future ~~interest payments on anticipated~~expected debt ~~issuances to replace~~issuance by June 2020. In February 2020, the ~~company's 6% notes due to mature in April 2020. The fair value~~company determined that certain of the forecasted cash flows were no longer probable and de-designated the hedging relationship. In February 2020, the company re-designated the 2019 swaps in a new cash flow hedge managing the risk of variability in interest rates of future expected debt issuance by June 2023. In May 2020, the company terminated the 2019 swaps for a cash payment of $48,378, which is ~~recorded~~reported in the ~~shareholders' equity~~"cash flows from financing activities" section inof the ~~company's~~ consolidated ~~balance sheets in~~statements of cash flows. During the six months ended June 27, 2020, losses of $1,194, before taxes, were reclassified from “Accumulated other comprehensive ~~income (loss)”~~loss” ("AOCI") to “Interest and ~~will be reclassified into income over the life~~other financing expense, net” related to forecasted cash flows that were deemed no longer probable to occur. At June 27, 2020 losses of ~~the anticipated debt issuance. Losses~~$35,796, net of ~~$6,849~~taxes, remained in AOCI related to the May 2019 swaps.

During the second quarter and six months ended June 27, 2020, losses of $243 and $29,799, respectively, related to interest rate swaps were recorded in other comprehensive ~~income (loss),~~loss, net of ~~taxes, for~~taxes. During the second quarter ended June 29, 2019, losses of ~~2019.~~$6,849 related to interest rate swaps were recorded in other comprehensive loss, net of taxes.

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, Indian Rupee, Canadian Dollar, ~~Indian Rupee,~~ and British Pound. The company enters into foreign exchange forward, option, or swap contracts (collectively, the “~~foreign~~“foreign exchange contracts”) to facilitate the hedging of foreign currency exposures resulting from inventory purchases and sales and mitigate the impact of changes in foreign currency exchange rates related to these transactions. ~~These~~Foreign exchange 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 market quotes. The notional amount of the foreign exchange contracts ~~at June 29, 2019 and December 31, 2018 was $941,093 (inclusive~~inclusive of foreign exchange contracts designated as a net investment ~~hedge)~~hedge at June 27, 2020 and ~~$607,747,~~December 31, 2019 was $1,031,031 and $929,966, respectively.

Gains and losses related to non-designated foreign currency exchange contracts are recorded in “~~Cost~~“Cost of sales” in the company’s consolidated statements of operations. Gains and losses related to foreign currency exchange contracts designated as cash flow hedges are recorded in “~~Cost~~“Cost of sales,” “~~Selling,~~“Selling, general, and administrative expenses,” and “~~Interest~~“Interest and other financing expense, net” based upon the nature of the underlying hedged transaction, in the company’s consolidated statements of operations and were not material for the second quarter and first six months of ~~2019~~2020 and ~~2018.~~2019.

ARROW ELECTRONICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands except per share data)

(Unaudited)

During the first quarter of 2019, the company entered into a series of foreign exchange contracts to sell Euro and buy United States Dollars, with various maturity dates as noted in the table below:



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

The contracts above have been designated as a net investment hedge which is in place to hedge a portion of the company’s net investment in subsidiaries with euro-denominated net assets. The change in the fair value of derivatives designated as net investment hedges ~~will be~~are recorded in “foreign currency translation adjustment” (“CTA”) within “Accumulated other comprehensive loss” in the company’s consolidated balance sheets. Amounts excluded from the assessment of hedge effectiveness ~~will be~~are included in “Interest and other financing expense, net” in the company’s consolidated statements of operations.

The total gains (losses) recorded in CTA within other comprehensive ~~income (loss)~~loss related to net investment hedges were $(361) and $17,286 for the second quarter and first six months of 2020, and $224 and $6,816 for the second quarter and first six months ~~ended June 29,~~of 2019, net of taxes, respectively. ~~For~~Derivative amounts excluded from the assessment of effectiveness for the net investment hedges and recognized in other comprehensive income (net of tax) were gains (losses) of $519 and $18,513 for the second quarter and first six months ~~ended June 29,~~of 2020, $3,634 and $4,776 for the second quarter and first six months of 2019, respectively. Derivative amounts excluded from the assessment of effectiveness for the net investment hedges reclassified from CTA to "Interest and other financing expenses, net" were gains of $2,201 and $4,402 for the second quarter and first six months of 2020, and $2,192 and $3,598 for ~~outstanding~~the second quarter and first six months of 2019, respectively. The company recorded an asset of $44,504 and $21,718 as of June 27, 2020 and December 31, 2019, respectively, related to the net investment ~~hedges were reclassified from CTA to~~ “~~Interest and other financing expense, net” in the company’s consolidated statements of operations.~~hedges.

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


	Quarter Ended						Six Months Ended
	June 27, 2020		June 29, 2019		June 27, 2020		June 29, 2019
Gain (Loss) Recognized in Income
Foreign exchange contracts	$	4,128	$	774	$	8,621	$	4,263
Interest rate swaps	(338)		(322)		(1,867)		(641)
Total	$	3,790	$	452	$	6,754	$	3,622
Gain (Loss) Recognized in Other Comprehensive Income (Loss) before reclassifications, net of tax
Foreign exchange contracts	$	897	$	1,294	$	16,997	$	7,247
Interest rate swaps	(243)		(6,849)		(29,799)		(6,849)
Total	$	654	$	(5,555)	$	(12,802)	$	398

Quarter Ended Six Months Ended
June 29,
2019
June 30,
2018 June 29,
2019 June 30,
2018
Gain (Loss) Recognized in Income
Foreign exchange contracts $ 774
$ 6,260
$ 4,263
$ 518
Interest rate swaps (322 ) (308 ) (641 ) (611 )
Total $ 452
$ 5,952
$ 3,622
$ (93 )
Gain (Loss) Recognized in Other Comprehensive Income before reclassifications, net of tax
Foreign exchange contracts $ 1,294
$ (58 ) $ 7,247
$ (1,135 )
Interest rate swaps (6,849 ) —
(6,849 ) —
Total $ (5,555 ) $ (58 ) $ 398
$ (1,135 )

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.

ARROW ELECTRONICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands except per share data)

(Unaudited)

Note J – Restructuring, Integration, and Other Charges

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. The following table presents the components of the restructuring, integration, and other charges:

Restructuring and Integration Accrual Summary

The restructuring and integration accrual was ~~$13,516~~$6,937 and ~~$25,829~~$9,667 at June ~~29, 2019~~27, 2020 and December 31, ~~2018,~~2019, respectively. A transition adjustment of $9,968 was recorded on January 1, 2019 to reclassify restructuring and integration accruals for facilities costs by adjusting the related lease right-of-use assets recorded upon adoption of ASU No. 2016-02, Topic 842. During the second quarter and first six months ~~ended June 29, 2019,~~of 2020, the company made ~~$11,977~~$2,250 and $6,413 of payments related to restructuring and integration ~~accruals.~~accruals, respectively. Substantially all amounts accrued at June ~~29, 2019~~27, 2020, and all restructuring and integration charges for the first six months ~~ending June 29, 2019~~of 2020, relate to the termination of ~~personnel. All amounts accrued at June 29, 2019~~personnel and are expected to be spent in cash within two years.

Included in restructuring, integration, and other charges for the second quarter and the first six months of 2020 are other expenses of $1,420 and $5,332, respectively. The following items were included in other charges and credits recorded to restructuring, integration, and other charges for the second quarter and six months ended June 27, 2020:

•personnel charges for the second quarter and first six months of 2020 of $591 and $3,030 related to the operating expense reduction program previously disclosed on July 15, 2019. The accrual related to the operating expense reduction program was $17,314 at June 27, 2020, and all accrued amounts are expected to be paid within five years.

Included in restructuring, integration, and other charges for the second quarter and first six months of 2019 are other expenses of $13,417 and $22,131, respectively. The following items were included in other charges and credits recorded to restructuring, integration, and other charges for the second quarter and six months ended June 29, 2019:

acquisition-related charges for the second quarter and first six months of $223 and $1,245, respectively, related to professional and other fees directly related to recent acquisition activity as well as contingent consideration for acquisitions completed in prior years.

Included in restructuring, integration, and other charges for the second quarter and first six months of 2018 are other expenses of $7,454 and $15,844, respectively. The following items represent other charges and credits recorded to restructuring, integration, and other charges for the second quarter and six months ended June 30, 2018:

As previously disclosed in Item 2.02 Form 8-K filed on July 15, 2019, the company has also initiated separate and distinct actions to reduce its annual operating expenses, which are expected to generate approximately $130,000 in annualized cost savings. Substantially all of these actions will be completed by the end of 2019. The company expects to recognize approximately $45,000 in cash severance costs as well as approximately $4,000 in other non-cash asset impairments and approximately $10,000 in cash contract termination costs. Substantially all of the severance, assets impairments, and termination costs are expected to be recognized in the third quarter of 2019.

ARROW ELECTRONICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands except per share data)

(Unaudited)

Note K – Net Income (Loss) per Share

The following table presents the computation of net income (loss) per share on a basic and diluted basis (shares in thousands):

Quarter Ended Six Months Ended
June 29,
2019 June 30,
2018 June 29,
2019 June 30,
2018
Net income (loss) attributable to shareholders $ (548,966 ) $ 169,915
$ (408,231 ) $ 309,009
Weighted-average shares outstanding - basic 84,652
87,802
85,022
87,878
Net effect of various dilutive stock-based compensation awards —
850
—
963
Weighted-average shares outstanding - diluted 84,652
88,652
85,022
88,841
Net income (loss) per share:

Basic $ (6.48 ) $ 1.94
$ (4.80 ) $ 3.52
Diluted (a) $ (6.48 ) $ 1.92
$ (4.80 ) $ 3.48

~~Note L - Lease Commitments~~

The company leases certain office, distribution, and other property under non-cancelable operating leases expiring at various dates through 2033. Substantially all leases are classified as operating leases. During the second quarter and first six months of 2019, basic and diluted net loss per share attributable to shareholders are the ~~company recorded operating lease cost~~same and stock-based compensation awards for the issuance of ~~$23,264~~1,961 and ~~$49,990, respectively.~~1,810 shares, respectively, were excluded from the computation of net loss per share on a diluted basis as their effect was anti-dilutive.

Note L – Shareholders’ Equity

Accumulated Other Comprehensive Loss

The following ~~amounts were recorded~~table presents the changes in ~~the consolidated balance sheets at June 29, 2019:~~Accumulated other comprehensive loss, excluding noncontrolling interests:


	Quarter Ended						Six Months Ended
	June 27, 2020		June 29, 2019		June 27, 2020		June 29, 2019
Foreign Currency Translation Adjustment and Other:
Other comprehensive gain (loss) before reclassifications (a)	$	36,940	$	15,560	$	(40,267)	$	20,836
Amounts reclassified into income	(555)		(54)		(449)		(240)
Unrealized Gain (Loss) on Foreign Exchange Contracts Designated as Net Investment Hedges, Net:
Other comprehensive income (loss) before reclassifications	(361)		224		17,286		6,816
Amounts reclassified into income	(1,670)		(1,651)		(3,340)		(2,710)
Unrealized Loss on Interest Rate Swaps Designated as Cash Flow Hedges, Net:
Other comprehensive loss before reclassifications	(243)		(6,849)		(29,799)		(6,849)
Amounts reclassified into income	258		243		1,417		483
Employee Benefit Plan Items, Net:

Amounts reclassified into income	(2,374)		85		(126)		404


Net change in Accumulated other comprehensive income (loss)	$	31,995	$	7,558	$	(55,278)	$	18,740

June 29, 2019
Operating Leases
Right-of-use asset $ 312,975

Lease liability - current 52,792
Lease liability - non-current 311,075
Total operating lease liabilities $ 363,867

ARROW ELECTRONICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands except per share data)

(Unaudited)

(a) Includes intra-entity foreign currency transactions that are of a long-term investment nature of $(5,183) and $4,134 for the second quarter and first six months of 2020 and $(9,079) and $780 for the second quarter and first six months of 2019, respectively.

~~Maturities of operating lease liabilities at June 29, 2019 were as follows:~~

June 29, 2019
2019 $ 47,470
2020 76,683
2021 60,112
2022 47,123
2023 36,713
Thereafter 158,150
Total lease payments 426,251
Less imputed interest (62,384 )
Total $ 363,867

~~Other information pertaining to leases consists of the following:~~

June 29, 2019
Supplemental Cash Flow Information
Cash paid for amounts included in the measurement of operating lease liabilities $ 57,791
Right-of-use assets obtained in exchange for operating lease obligations 37,957

Operating Lease Term and Discount Rate
Weighted-average remaining lease term in years 8
Weighted-average discount rate 5.2 %

~~ARROW ELECTRONICS, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Dollars in thousands except per share data)~~

~~(Unaudited)~~

~~Note M – Shareholders’ Equity~~

~~Accumulated Other Comprehensive Income (Loss)~~

~~The following table presents the changes in Accumulated other comprehensive income (loss), excluding noncontrolling interests:~~

Quarter Ended Six Months Ended
June 29,
2019 June 30,
2018 June 29,
2019 June 30,
2018
Foreign Currency Translation Adjustment and Other:
Other comprehensive income (loss) before reclassifications (a) $ 15,560
$ (146,203 ) $ 20,836
$ (99,803 )
Amounts reclassified into income (54 ) 1,055
(240 ) (123 )
Unrealized Gain (Loss) on Foreign Exchange Contracts Designated as Net Investment Hedges, Net:
Other comprehensive income before reclassifications 224
—
6,816
—
Amounts reclassified into income (1,651 ) —
(2,710 ) —
Unrealized Gain (Loss) on Interest Rate Swaps Designated as Cash Flow Hedges, Net:
Other comprehensive income before reclassifications (6,849 ) —
(6,849 ) —
Amounts reclassified into income 243
231
483
459
Employee Benefit Plan Items, Net:
Amounts reclassified into income 85
613
404
895
Other:
Retained earnings adjustment (b) —
—
—
(22,354 )
Net change in Accumulated other comprehensive income (loss) $ 7,558
$ (144,304 ) $ 18,740
$ (120,926 )

Share-Repurchase Program

The following table shows the company’s Board of Directors (the “Board”) approved share-repurchase programs as of June ~~29, 2019:~~27, 2020:


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
December 2016	$	400,000	$	400,000	$	—
December 2018	600,000		486,572		113,428
Total	$	1,000,000	$	886,572	$	113,428

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
December 2016 $ 400,000
$ 400,000
$ —
December 2018 600,000
61,463
538,537
Total $ 1,000,000
$ 461,463
$ 538,537

The amounts repurchased during 2020 were pursuant to the company’s $600,000 share-repurchase program that was approved by the Board on December 11, 2018. During July 2020, the company's Board approved an additional $600,000 share-repurchase program. The 2018 and 2020 share-repurchase programs have no fixed expiration dates and are discretionary in nature. The Board has the ability to modify, suspend, or discontinue the programs at any time.

~~ARROW ELECTRONICS, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Dollars in thousands except per share data)~~

~~(Unaudited)~~

Note NM – Contingencies

Environmental Matters

In connection with the purchase of Wyle Electronics ("Wyle") in August 2000, the company acquired certain of the then outstanding obligations of Wyle, including ~~Wyle’s~~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~~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.

ARROW ELECTRONICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands except per share data)

(Unaudited)

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.

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 is complete and has been approved by ADEM. Health-risk evaluations and a Corrective Action Development Plan were approved by ADEM in 2018, opening the way for pilot testing of on-site remediation in late 2019. Pilot testing is currently underway. Approximately ~~$6,600~~$6,900 was spent to date and the company currently anticipates no additional investigative and related expenditures. The ~~nature and scope~~cost of 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 ~~$3,800~~$3,500 and $10,000.

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.

~~ARROW ELECTRONICS, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Dollars in thousands except per share data)~~

~~(Unaudited)~~

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,~~Subsequent to the decree, a Remedial Investigation Work Plan was approved by DTSC ~~that provided for site-wide characterization of known~~in April 2005, the required investigations were performed, 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 was submitted 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 (“HCS”) was installed as an interim remedial measure to capture and treat groundwater before it moves into the adjacent ~~offsite~~off-site area. In September 2013, the DTSC approved the final Remedial Action Plan (“RAP”) for actions in five on-site areas and ~~work is currently progressing under~~one off-site area. As of 2018, the ~~RAP. The approved~~remediation measures described in the RAP ~~included the potential for additional remedial action after the five year review~~had been implemented and were being monitored. A Five Year Review (“FYR”) of the HCS ~~if the review~~submitted to DTSC in December 2016 found that while significant progress was made in on-site and off-site groundwater remediation, contaminants were not sufficiently reduced in ~~the offsite area. The HCS five year review submitted to DTSC in December 2016 identified significant reductions in contaminants offsite except in~~ a key off-site area identified in the RAP. This exception triggered the need for additional ~~offsite~~off-site remediation that began in ~~2018.~~2018 and was completed in mid-2019. Routine progress monitoring of groundwater and soil gas continue on-site and off-site.

Approximately ~~$72,200~~$75,100 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 ~~$8,500~~$6,800 to ~~$19,200.~~$17,700. 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.

In 2019, the company determined that from 2015 to 2019 a limited number of non-executive employees, without first obtaining required authorization from the company or the United States government, had facilitated product shipments with an aggregate total invoiced value of approximately $4,770, to resellers for reexports to persons covered by the Iran Threat Reduction and Syria Human Rights Act of 2012 or other United States sanctions and export control laws. The company has voluntarily reported these activities to the United States Treasury Department’s Office of Foreign Assets Control (“OFAC”) and the United States Department of Commerce’s Bureau of Industry and Security (“BIS”), and conducted an internal investigation and terminated or disciplined the employees involved. BIS has closed its investigation and issued the company a warning letter without referring the matter for further proceedings. No penalties have been imposed by BIS. The company has cooperated

ARROW ELECTRONICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands except per share data)

(Unaudited)

fully and intends to continue to cooperate fully with OFAC with respect to its review, which may result in the imposition of penalties, which we are currently not able to estimate.

During the first six months of 2020, the company recorded reserves and other adjustments of approximately $32,700 primarily related to foreign tax and other loss contingencies. These reserves are principally associated with transactional taxes on activity from several prior years, not significant to any one year.

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.

~~ARROW ELECTRONICS, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Dollars in thousands except per share data)~~

~~(Unaudited)~~

Note ON – 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 and managed service providers 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, by segment by geographic area, are as follows:~~

Quarter Ended Six Months Ended
�� June 29,
2019 June 30,
2018 June 29,
2019 June 30,
2018
Components:
Americas $ 1,876,799
$ 1,937,882
$ 3,783,828
$ 3,734,580
EMEA (a) 1,415,888
1,447,972
2,919,254
2,926,358
Asia/Pacific 1,978,248
1,898,510
3,759,780
3,553,358
Global components $ 5,270,935
$ 5,284,364
$ 10,462,862
$ 10,214,296

ECS:
Americas $ 1,372,456
$ 1,387,034
$ 2,573,363
$ 2,582,445
EMEA (a) 701,157
721,130
1,464,314
1,471,400
Global ECS $ 2,073,613
$ 2,108,164
$ 4,037,677
$ 4,053,845
Consolidated (b) $ 7,344,548
$ 7,392,528
$ 14,500,539
$ 14,268,141


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


~~(b)~~	Includes sales related to the United States of $2,902,393 and $5,684,428 for the second quarter and first six months of 2019 and $2,968,469 and $5,618,137 for the second quarter and first six months of 2018, respectively.

~~Operating income (loss), by segment, are as follows:~~

Quarter Ended Six Months Ended
June 29,
2019 June 30,
2018 June 29,
2019 June 30,
2018
Operating income (loss):

Global components (c) $ (561,878 ) $ 253,840
$ (327,346 ) $ 483,386
Global ECS 98,388
109,417
185,106
193,223
Corporate (d) (85,700 ) (76,430 ) (161,390 ) (153,787 )
Consolidated $ (549,190 ) $ 286,827
$ (303,630 ) $ 522,822

~~(c)~~

Global components operating income includes impairments of $697,993 for the second quarter and first six months of 2019. Also included is a non-recurring charge of $20,114 in the second quarter of 2019 related to a subset of inventory held by its digital business and a non-recurring charge of $15,851 related to the receivables and inventory of its financing solutions business. The company has made the decision to narrow its digital inventory offerings and will no longer provide notes to its components customers.


~~(d)~~	Includes restructuring, integration, and other charges of $19,912 and $31,572 for the second quarter and first six months of 2019 and $19,183 and $40,354 for the second quarter and first six months of 2018, respectively.

ARROW ELECTRONICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands except per share data)

(Unaudited)

Sales, by segment by geographic area, are as follows:


	Quarter Ended						Six Months Ended
	June 27, 2020		June 29, 2019		June 27, 2020		June 29, 2019
Components:
Americas	$	1,488,901	$	1,876,799	$	3,041,699	$	3,783,828
EMEA (a)	1,118,417		1,415,888		2,428,407		2,919,254
Asia/Pacific	2,113,937		1,978,248		3,801,750		3,759,780
Global components	$	4,721,255	$	5,270,935	$	9,271,856	$	10,462,862

ECS:
Americas	$	1,223,256	$	1,372,456	$	2,351,944	$	2,573,363
EMEA (a)	661,983		701,157		1,364,111		1,464,314
Global ECS	$	1,885,239	$	2,073,613	$	3,716,055	$	4,037,677
Consolidated (b)	$	6,606,494	$	7,344,548	$	12,987,911	$	14,500,539

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

(b)Includes sales related to the United States of $2,463,885 and $4,875,972 for the second quarter and first six months of 2020 and $2,902,393 and $5,684,428 for the second quarter and first six months 2019, respectively.

Operating income (loss), by segment, are as follows:


	Quarter Ended						Six Months Ended
	June 27, 2020		June 29, 2019		June 27, 2020		June 29, 2019
Operating income (loss):
Global components (c)	$	181,836	$	(566,116)	$	346,603	$	(331,584)
Global ECS (d)	72,921		98,388		115,354		185,106
Corporate (e)	(58,144)		(81,462)		(127,040)		(157,152)
Consolidated	$	196,613	$	(549,190)	$	334,917	$	(303,630)

(c)Global components operating income includes impairments of $697,993 for the second quarter and first six months 2019. Also included in the second quarter of 2019 is a non-recurring charge of $20,114 related to a subset of inventory held by its digital business and a non-recurring charge of $15,851 related to the receivables and inventory of its financing solutions business. During the second quarter of 2019 the company made the decision to narrow its digital inventory offerings and will no longer provide notes to its components customers.

(d)Global ECS operating income for the first six months of 2020 includes reserves and other adjustments of approximately $29,858 primarily related to foreign tax and other loss contingencies. These reserves are principally associated with transactional taxes on activity from several prior years, not significant to any one year. Global ECS operating income for the second quarter of 2020 includes $4,918 in impairment charges related to various long-lived assets.

(e)Includes restructuring, integration, and other charges of $650 and $9,788 for the second quarter and first six months of 2020 and $19,912 and $31,572 for the second quarter and first six months 2019, respectively. Also included in the first six months of 2019 was a net loss on disposition of businesses of $866.

ARROW ELECTRONICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands except per share data)

(Unaudited)

Total assets, by segment, is as follows:


	June 27, 2020		December 31, 2019
Global components	$	10,466,895	$	10,253,006
Global ECS	4,403,385		5,479,919
Corporate	734,181		667,871
Consolidated	$	15,604,461	$	16,400,796

June 29,
2019 December 31,
2018
Global components $ 10,644,553
$ 11,425,579
Global ECS 4,571,761
5,632,102
Corporate 808,055
726,764
Consolidated $ 16,024,369
$ 17,784,445

Net property, plant, and equipment, by geographic area, is as follows:

June 29,
2019 December 31,
2018
Americas (e) $ 630,645
$ 673,228
EMEA 132,722
110,996
Asia/Pacific 50,550
40,476
Consolidated $ 813,917
$ 824,700

(f)Includes net property, plant, and equipment related to the United States of $564,435 and $591,818 at June 27, 2020 and December 31, 2019, respectively.

Note PO – Income Taxes

The principal causes of the difference between the U.S. federal statutory tax rate of 21% and effective income tax rates are as follows:


	Quarter Ended						Six Months Ended
	June 27, 2020		June 29, 2019		June 27, 2020		June 29, 2019
Provision (benefit) at statutory tax rate	$	36,580	$	(126,025)	$	52,886	$	(84,798)
State taxes, net of federal benefit	2,083		(11,533)		4,091		(7,504)
International effective tax rate differential	2,147		3,238		915		8,217
U.S. Tax on foreign earnings	30		4,953		3,166		9,880
Changes in tax accruals	1,387		902		7,595		920
Tax credits	(756)		(1,971)		(1,511)		(4,001)
Non-deductible portion of impairment of goodwill	—		76,153		—		76,153

Other	(617)		1,914		1,604		2,671
Provision (benefit) for income taxes	$	40,854	$	(52,369)	$	68,746	$	1,538

Quarter Ended Six Months Ended
June 29,
2019 June 30,
2018 June 29,
2019 June 30,
2018
Provision (benefit) at statutory tax rate $ (126,025 ) $ 46,771
$ (84,798 ) $ 85,928
State taxes, net of federal benefit (11,533 ) 3,732
(7,504 ) 7,984
International effective tax rate differential 3,238
(758 ) 8,217
2,798
U.S. Tax on foreign earnings 4,953
2,592
9,880
8,213
Changes in tax accruals 902
306
920
1,293
Tax credits (1,971 ) (1,868 ) (4,001 ) (3,737 )
Non-deductible portion of impairment of goodwill 76,153
—
76,153
—
Tax Act's impact on deferred taxes (a) —
—
—
(4,340 )
Other 1,914
906
2,671
132
Provision (benefit) for income taxes (52,369 ) 51,681
1,538
98,271


~~(a)~~	~~Tax benefit related to the net change in deferred tax liabilities stemming from the U.S. federal government enacting tax legislation reducing the U.S. federal tax rate from 35% to 21%.~~


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

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 (“OEMs”) and contract manufacturers (“CMs”) through its global components business segment and provides enterprise computing solutions to value-added resellers (“VARs”) and managed service providers (“MSPs”) through its global ECS business segment. For the ~~first six months~~second quarter of ~~2019,~~2020, approximately ~~72%~~71% of the company’s sales were from the global components business segment and approximately ~~28%~~29% 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 expand its geographic reach.

Executive Summary

Consolidated sales for the second quarter and first six months of ~~2019~~2020 decreased by ~~0.6%~~10.0% and ~~increased by 1.6%~~10.4%, respectively, compared with the year-earlier periods. The decrease for the second quarter of ~~2019~~2020 was driven by a 10.4% decrease ~~in global ECS business segment sales of 1.6%. The increase for the first six months of 2019 was driven by an increase~~ in the global components business segment sales and a 9.1% decrease in global ECS business segment sales. The decrease for the first six months of ~~2.4%.~~2020 was driven by an 11.4% decrease in the global components business segment sales and a 8.0% decrease in the global ECS business segment sales. Adjusted for the change in foreign currencies, ~~dispositions,~~ and the closure of the company's personal computer and mobility asset disposition business (referred to as “impact of wind ~~down,~~down”), consolidated sales ~~increased 1.9%~~as adjusted decreased 8.3% and ~~4.9%~~8.5% for the second quarter and first six months of ~~2019,~~2020, respectively, compared with the year-earlier periods.

The company committed to a plan to close the company’s personal computer and mobility asset disposition business, whose past results have been included as part of the global components business, in the United States and most other countries in which this business operates. The company initiated the process of making its employees aware of the decision beginning on July 15, 2019. The Company is also proposing to close this business in Sweden, Belgium, and the United Kingdom but will start the consultative process with employees’ representatives.

As a result of winding down the personal computer and mobility asset disposition business, the company expects to incur charges of approximately $115.0 million. These charges were incurred primarily in the second quarter of its fiscal year 2019, with the remaining amounts expected to be incurred throughout the second half of 2019 and first half of 2020. The charges include $74.9 million non-cash impairment of certain long-lived and intangible assets and an estimated $40.0 million future cash expenditures primarily related to personnel and other exit and disposal costs. The company expects that operations will cease and the remaining wind down of the personal computer and mobility asset disposition business will be substantially complete by the end of 2019.

The company recorded a non-cash charge of $20.1 million in the second quarter of 2019, primarily related to a subset of inventory held by its digital business within global components. The company has made the decision to narrow its digital inventory offerings and will dispose of its existing inventory of these products and does not expect to fully realize their carrying values.

The company recorded a non-cash charge of $15.9 million in the second quarter of 2019 related to the receivables and inventory of its AFS business within global components. This business provided financing in the form of notes to start-ups as a strategy to capture new business opportunities. The company has decided that it will no longer provide notes to its components customers. The company expects that this decision will adversely impact the ability of the customers to repay their notes and trade receivables. Accordingly, the company has recorded reserves on the receivables and on customer specific inventory for which the company has no alternative use.

Net income attributable to shareholders ~~decreased~~increased to ~~$(549.0)~~$132.8 million and ~~$(408.2)~~$182.3 million in the second quarter and first six months of ~~2019,~~2020, respectively, compared with a net loss attributable to ~~$169.9~~shareholders of $549.0 million and ~~$309.0~~$408.2 million in the year-earlier periods. The following items impacted the comparability of the company’s results:

Second quarters of 2020 and 2019:

•restructuring, integration, and other charges of $0.7 million in 2020 and $19.9 million in 2019 (excluding the impact of wind down);

•identifiable intangible asset amortization of $9.7 million in 2020 and ~~2018:~~$8.7 million in 2019 (excluding the impact of wind down);

•impairments of long-lived assets of $4.9 million in 2020 and goodwill and other impairments of $623.1 million in 2019;

•gains from wind down of business of $11.8 million in 2020 and losses from wind down of business of $104.2 million, inclusive of $74.9 million of impairments of long-lived assets in 2019;

•Digital inventory write-downs of $20.1 million in 2019;

•Arrow Financing Solutions (“AFS”) notes receivable reserves of $0.2 million in 2020 and AFS notes receivable reserves and inventory write-downs of $15.9 million in 2019; and

•net gain on investments of $10.9 million in 2020 and $1.4 million in 2019.

First six months of 2020 and 2019:

•restructuring, integration, and other charges of $9.8 million in 2020 and $31.0 million in 2019 (excluding the impact of wind down);

•identifiable intangible asset amortization of $19.7 million in 2020 and ~~losses~~$17.8 million in 2019 (excluding the impact of wind down);

•impairments of long-lived assets of $4.9 million in 2020 and goodwill and other impairments $623.1 million in 2019;

•gains from wind down of business of ~~$9.5~~$11.8 million in ~~2018;~~

~~Digital inventory reserve of $20.1 million in 2019;~~

~~Arrow Financing Solutions (“AFS”) notes receivables~~2020 and ~~inventory reserve of $15.9 million in 2019;~~

~~restructuring, integration, and other charges (excluding the impact of wind down) of $19.9 million in 2019 and $11.7 million in 2018;~~

~~identifiable intangible asset amortization (excluding the impact of wind down) of $8.7 million in 2019 and $9.2 million in 2018; and~~

~~net gain on investments of $1.4 million in 2019 and net loss on investments of $2.6 million in 2018.~~

~~First six months of 2019 and 2018:~~

~~goodwill and other impairments of $623.1 million in 2019;~~

losses from wind down of business of $114.4 million, inclusive of $74.9 million of impairments of long-lived assets in ~~2019, losses from of wind down of business of $14.8 million in 2018;~~2019;

•Digital inventory ~~reserve~~write-downs of $20.1 million in 2019;

•AFS notes ~~receivables~~receivable recoveries of $0.7 million in 2020 and AFS notes receivable reserves and inventory ~~reserve~~write-downs of $15.9 million in 2019;

~~restructuring, integration, and other charges (excluding the impact~~•tax expense related to legislation changes of ~~wind down) of $31.0~~$3.6 million in ~~2019~~2020 and ~~$28.6 million in 2018;~~

~~identifiable intangible asset amortization (excluding the impact of wind down) of $17.8 million in 2019 and $19.9 million in 2018;~~

~~Impact of U.S. tax reform of~~ $3.5 million in 2019;

•net loss on investments of $5.9 million in 2020 and net gain on investments of $6.7 million in ~~2019~~2019; and ~~net loss on investments of $5.0 million in 2018; and~~

•loss on disposition of businesses, net, of $0.9 million in ~~2019 and $1.6 million in 2018.~~2019.

Excluding the aforementioned items, net income attributable to shareholders for the second quarter and first six months of ~~2019~~2020 decreased to $126.1 million and $205.1 million, respectively, compared with $136.6 million and $300.3 million ~~respectively, compared with $194.1 million and $360.1 million~~ in the year-earlier periods. Net income in the first six months of 2020 also included charges of approximately $32.7 million, net of tax, primarily related to foreign tax and other loss contingencies within the Global ECS business.

Impact of the COVID-19 Pandemic

On March 10, 2020, the World Health Organization declared the outbreak of the COVID-19 coronavirus to be a pandemic. COVID-19 has caused substantial disruption to travel, business activities, and global supply chains, significant volatility in global financial markets, and has resulted in a dramatic increase in unemployment, particularly in the U.S.

To date, the company has experienced some limitations in employee resources resulting from travel restrictions and “stay at home” orders. Despite these restrictions, the company continues to efficiently manage the global supply chain requirements of our customers and suppliers. Throughout 2020, the company has experienced strong demand for solutions that enable business continuity and work from home capabilities. Management is actively monitoring the impact of the global situation on its financial condition, liquidity, operations, suppliers, industry and workforce.

The extent to which COVID-19 will continue to impact the company’s results will depend primarily on future developments, including the severity and duration of the crisis and the impact of actions taken and that will be taken to contain COVID-19 or treat its impact, among others. These future developments are highly uncertain and cannot be predicted with confidence. The global economic impact from COVID-19 may adversely affect the company's results of operations in the future and may affect the credit condition of some of our customers, which could increase delays in customer payments and credit losses.

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, gross profit, and operating expenses as adjusted for the impact of changes in foreign currencies (referred to as ~~“impact of changes~~"changes in foreign ~~currencies”~~currencies") by re-translating prior period results at current period foreign exchange rates, the impact of dispositions by adjusting the company’s operating results for businesses disposed, as if the dispositions had occurred at the beginning of the earliest period presented (referred to as ~~“impact of dispositions”~~"dispositions"), the impact of the ~~company's~~company’s personal computer and mobility asset disposition business (referred to as ~~“impact of wind down”~~"wind down"), the impact of inventory ~~reserves~~write-downs related to the digital business (referred to as ~~“impact of digital~~“digital inventory ~~reserve”~~write-downs and recoveries”), and the impact of the notes receivable reserves and inventory ~~reserve~~write-downs related to the AFS business (referred to as “AFS notes receivable ~~reserve”~~reserves and recoveries” and “AFS inventory ~~reserve,~~write-downs and recoveries,” respectively).

•Operating income as adjusted to exclude identifiable intangible asset amortization, restructuring, integration, and other charges, ~~and~~ loss on disposition of businesses, net, AFS notes receivable reserves and credits and inventory ~~reserves,~~write-downs and recoveries, digital inventory ~~reserves,~~write-downs and recoveries, the impact of non-cash charges related to goodwill, trade names, and ~~property, plant and equipment,~~long-lived assets, and the impact of wind down.

•Net income attributable to shareholders as adjusted to exclude identifiable intangible asset amortization, restructuring, integration, and other charges, ~~and~~ loss on disposition of businesses, net, AFS notes receivable reserves and credits and inventory ~~reserve,~~write-downs and recoveries, digital inventory ~~reserve,~~write-downs and recoveries, net gains and losses on investments, the impact of non-cash charges related to goodwill, trade names, and ~~property, plant~~long-lived assets, certain tax adjustments, and ~~equipment,~~ the impact of wind ~~down, and the impact of U.S. tax reform.~~down.

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.

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							Six Months Ended
	Quarter Ended								Six Months Ended									June 27, 2020		June 29, 2019		% Change	June 27, 2020		June 29, 2019		% Change
Consolidated sales, as reported																	Consolidated sales, as reported	$	6,606	$	7,345	(10.0)%	$	12,988	$	14,501	(10.4)	%
Impact of changes in foreign currencies																	Impact of changes in foreign currencies	—		(65)			—		(139)
	June 29, 2019			June 30, 2018			% Change		June 29, 2019			June 30, 2018			% Change

Consolidated sales, as reported*	$	7,345		$	7,393		(0.6	)%	$	14,501		$	14,268		1.6	%
Impact of changes in foreign currencies	—			(148		)			—			(344		)
Impact of dispositions and wind down	(78		)	(113		)			(172		)	(262		)			Impact of dispositions and wind down	—		(78)			—		(172)
Consolidated sales, as adjusted*	$	7,267		$	7,132		1.9	%	$	14,328		$	13,662		4.9	%	Consolidated sales, as adjusted*	$	6,606	$	7,201	(8.3)%	$	12,988	$	14,190	(8.5)	%

Global components sales, as reported*	$	5,271		$	5,284		(0.3	)%	$	10,463		$	10,214		2.4	%
Global components sales, as reported																	Global components sales, as reported	$	4,721	$	5,271	(10.4)%	$	9,272	$	10,463	(11.4)	%
Impact of changes in foreign currencies	—			(100		)			—			(230		)			Impact of changes in foreign currencies	—		(40)			—		(89)

Impact of wind down	(78		)	(100		)			(161		)	(208		)			Impact of wind down	—		(78)			—		(161)
Global components sales, as adjusted*	$	5,193		$	5,084		2.1	%	$	10,302		$	9,777		5.4	%
Global components sales, as adjusted																	Global components sales, as adjusted	$	4,721	$	5,153	(8.4)%	$	9,272	$	10,213	(9.2)	%

Global ECS sales, as reported*	$	2,074		$	2,108		(1.6	)%	$	4,038		$	4,054		(0.4	)%
Global ECS sales, as reported																	Global ECS sales, as reported	$	1,885	$	2,074	(9.1)%	$	3,716	$	4,038	(8.0)	%
Impact of changes in foreign currencies	—			(48		)			—			(115		)			Impact of changes in foreign currencies	—		(25)			—		(50)

Impact of dispositions	—			(13		)			(11		)	(54		)			Impact of dispositions	—		—			—		(11)
Global ECS sales, as adjusted	$	2,074		$	2,047		1.3	%	$	4,027		$	3,885		3.6	%	Global ECS sales, as adjusted	$	1,885	$	2,049	(8.0)%	$	3,716	$	3,977	(6.6)	%

Consolidated sales for the second quarter and first six months of ~~2019~~2020 decreased by ~~$48.0~~$738.1 million, or ~~0.6%~~10.0%, and ~~increased by $232.4 million,~~$1.5 billion, or ~~1.6%~~10.4%, respectively, compared with the year-earlier ~~period.~~periods. The decrease for the second quarter of ~~2019~~2020 was driven by a decrease in global components segment sales of $549.7 million, or 10.4% and a decrease in global ECS business segment sales of ~~$34.6~~$188.4 million, or ~~1.6%~~9.1%. The ~~increase~~decrease for the first six months of ~~2019~~2020 was driven by ~~an increase~~a decrease in global components segment sales of $1.2 billion, or 11.4%, and a decrease in global ECS business segment sales of ~~$248.6~~$321.6 million, or ~~2.4%~~8.0%. Adjusted for the impact of changes in foreign currencies and dispositions and wind down, consolidated sales ~~increased 1.9%~~decreased 8.3% and ~~4.9%~~8.5% for the second quarter and first six months of ~~2019,~~2020, respectively, compared with the year-earlier periods.

InCompared with the year-earlier period, global components business segment sales for the second quarter and first six months of ~~2019~~2020 decreased ~~by $13.4~~$549.7 million, or ~~0.3%~~10.4%, and ~~increased by $248.6~~$1.2 billion, or 11.4%, respectively, as reported, and decreased $431.7 million, or ~~2.4%~~8.4%, and $941.3 million, or 9.2%, respectively, ~~compared with the year-earlier periods, with growth for the six month period primarily in the Asia region. Adjusted~~as adjusted for the impact of changes in foreign currencies and the wind ~~down,~~down. Decreases were primarily due to lower sales volumes in the ~~company’s global~~Americas and EMEA regions, driven by softer demand in the automotive and aerospace industries, partially offset by stronger demand in the APAC components ~~business segment sales increased by 2.1% and 5.4% for the second quarter and first six months of 2019 compared~~region.

Compared with the year-earlier ~~periods.~~

~~In the~~period, global ECS business segment sales for the second quarter and first six months of ~~2019~~2020 decreased ~~$34.6~~$188.4 million, or ~~1.6%~~9.1%, and decreased ~~$16.2~~by $321.6 million, or ~~0.4%~~8.0%, respectively, ~~compared with the year-earlier periods. The decreases during the second quarter~~as reported, and ~~first six months of 2019 are primarily attributable to falling demand in storage~~decreased $163.3 million, or 8.0%, and ~~proprietary servers offset~~decreased by ~~growth in security and software. Adjusted~~$260.6 million, or 6.6%, respectively, as adjusted for the impact of changes in foreign currencies and ~~dispositions,~~dispositions. Decreases in sales were primarily due to lower sales volumes driven by softer demand for servers and networking solutions, offset partially by strong demand in the ~~company’s global ECS business segment sales increased 1.3%~~network security and ~~3.6% for the second quarter and first six months of 2019, respectively, compared with year-earlier periods.~~storage verticals.

Following is an analysis of gross profit (in millions):

The company recorded gross profit of ~~$814.9~~$750.5 million and ~~$1.68~~$1.5 billion in the second quarter and first six months of ~~2019, respectively,~~2020 compared with ~~$932.8~~$814.9 million and ~~$1.80~~$1.7 billion in the year-earlier periods.

Adjusted for the impact of changes in foreign currencies, dispositions and wind down, and the digital and AFS inventory ~~reserve,~~write-down, gross profit decreased ~~5.6%~~11.1% and ~~0.6%~~12.3%, in the second quarter and first six months of ~~2019~~2020, respectively, compared with the year-earlier periods. Gross profit margins in the second quarter and first six months of ~~2019,~~2020, as adjusted, decreased by approximately ~~(90)~~40 bps and ~~(70)~~50 bps, respectively, compared with the year-earlier periods primarily due to ~~a shift in customer mix.~~regional mix with APAC components contributing 45% and 41% of global components sales for the second quarter and first six months of 2020, respectively, compared with 38% and 36% of global components sales for the year-earlier periods.

Selling, General, and Administrative Expenses and Depreciation and Amortization

Following is an analysis of operating expenses (in millions):

*The sum of the components for ~~gross profit~~selling, general, and administrative expenses and depreciation and amortization as reported and as adjusted may not agree to totals, as presented, due to rounding.

Selling, general, and administrative expenses ~~increased~~decreased by ~~$18.8~~$97.7 million, or ~~3.2%~~16.3%, and ~~$11.9~~$120.0 million, or ~~1.0%~~10.4%, respectively, in the second quarter and first six months of ~~2019~~2020, respectively, on a sales decrease of ~~0.6%~~10.0% and ~~increase of 1.6%~~10.4% compared with the year-earlier periods. Selling, general, and administrative expenses as a percentage of sales were ~~8.2%~~7.6% and 8.0% for the second quarter and first six months of ~~2019, respectively,~~2020 compared with ~~7.9%~~8.2% and 8.0% in the year-earlier periods.

Depreciation and amortization expense as a percentage of operating expenses was ~~7.3%~~8.5% and ~~7.6%~~8.3% for the second quarter and first six months of ~~2019,~~2020, respectively, compared with ~~7.4%~~7.3% and 7.6% in the year-earlier periods. Included in depreciation and ~~amortization~~

amortization expense is identifiable intangible asset amortization of ~~$11.4~~$9.7 million and ~~$23.3~~$19.7 million for the second quarter and first six months of ~~2019,~~2020, respectively, compared to ~~$12.0~~$11.4 million and ~~$25.5~~$23.3 million in the year-earlier periods.

Adjusted for the impact of changes in foreign currencies, dispositions and wind down, and AFS ~~write downs of~~ notes ~~receivables,~~receivable reserves and credits, operating expenses ~~increased 2.7%~~decreased 8.3% and ~~3.3%~~3.9% for the second quarter and first six months of ~~2019~~2020 compared with the year-earlier periods. Operating expense, as adjusted, as a percentage of sales, as adjusted, was flat and increased 40 bps for the second quarter and first six months of 2020, respectively, compared with the year-earlier periods

During the second quarter of ~~fiscal year~~ 2019, the company committed to a plan to close its personal computer and mobility asset disposition business within the global components business segment. In light of the plan, the company performed an impairment analysis of the long-lived assets of the personal computer and mobility asset disposition business in accordance with ASC 360 and recorded a pre-tax impairment charge of $74.9 million to write-down certain assets to estimated fair value. The company also recorded $4.9 million and $6.9 million in impairment charges related to various other long-lived assets in the second quarters of 2020 and 2019, respectively, unrelated to the personal computer and mobility asset disposition business.

During the second quarter of 2019, as a result of the company’s downward revision of forecasted future earnings previously disclosed ~~in Item 2.02 Form 8-K filed~~ on July 15, 2019 and the decision to wind down the company’s personal computer and mobility asset disposition business, the company determined that it was more likely than not that an impairment may exist within the Americas components and Asia-Pacific components reporting units. The company evaluated its other four reporting units and concluded an interim impairment analysis was not required based on the results of those reporting units and historical levels of headroom in each of those reporting units. The interim goodwill impairment analysis related to the Americas components reporting unit resulted in partial goodwill impairment charge of $509.0 million ($457.8 million net of tax) with $601.3 million of goodwill remaining in the reporting unit and full impairment of $61.2 million ($61.2 million net of tax) within the Asia-Pacific components reporting unit.

The company estimated the fair value of these reporting units using the income approach. For the purposes of the income approach, fair value was determined based on the present value of estimated future cash flows, discounted at an appropriate risk adjusted rate. The fair value conclusion as of June 29, 2019 for the Americas components reporting unit is highly sensitive to changes in the assumptions used in the income approach which include forecasted revenues, gross profit margins, operating income margins, working capital cash flow, forecasted capital expenditures, perpetual growth rates, and long-term discount rates, among others, all of which require significant judgments by management. As the Americas components reporting unit has 0% excess fair value over the carrying value of the reporting unit, the remaining $601.3 million of goodwill is susceptible to future period impairments. For example, a 100 basis point decrease in forecasted gross profit margin could result in a full impairment of the remaining $601.3 million of goodwill, absent other inputs improving. The company has used recent historical performance, current forecasted financial information, and broad-based industry and economic statistics as a basis to estimate the key assumptions utilized in the discounted cash flow model. These key assumptions are inherently uncertain and require a high degree of estimation and judgment based on an evaluation of historical performance, current industry and global economic and geo-political conditions, and the timing and success of the implementation of current strategic initiatives.

During the second quarter of 2019, the company initiated actions to further integrate two global components businesses. These businesses held indefinite-lived trade names with a carrying value of $101.0 million. As a result of the company’s decision to integrate these brands, we determined the useful lives of the trade names were no longer indefinite. The company ~~will begin~~began amortizing these trade names over their estimated remaining useful life. The trade names were tested for impairment during the second quarter as a result of the change in estimated useful lives. The company estimated the fair value of the trade names to be $55.0 million using the relief from royalty method and recorded a non-cash impairment charge of $46.0 million ($34.7 million net of tax). The drivers of the impairment were primarily due to the shortened useful lives of the asset and a decline of the forecasted revenues attributable to the trade name as integration to the Arrow brand occurs over the estimated remaining useful life.

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.

The company recorded restructuring, integration, and other charges of $0.7 million and $9.8 million for the second quarter and first six months of 2020, which includes $1.3 million and $5.0 million related to initiatives taken by the company during 2020 to improve operating efficiencies and personnel charges of $0.6 million and $3.0 million for the second quarter and first six months of 2020 related to the operating expense reduction program previously disclosed in July 2019.

The company recorded restructuring, integration, and other charges of $19.9 million and $31.6 million for the second quarter and first six months of 2019, respectively, which includes $5.1 million and $8.1 million related to initiatives taken by the company during 2019, to improve operating efficiencies, ~~$0.2 million and $1.2 million of acquisition-related expenses,~~ and $3.2 million and $8.7 million, respectively, in charges related to relocation and other centralization efforts to maximize operating efficiencies. The restructuring and integration ~~charge~~charges of $5.1 million and $8.1 million for the second quarter and first six months of 2019, respectively, relates primarily to the termination of personnel.

The company recorded restructuring, integration, and other charges of $19.2 million and $40.4 million for the second quarter and first six months of 2018, which includes $8.8 million and $20.2 million related to initiatives taken by the company during 2018 to improve operating efficiencies and acquisition-related expenses of $1.4 million and $7.5 million, respectively. The restructuring and integration charges of $8.8 million and $20.2 million for the second quarter and first six months of 2018 include personnel costs of $6.0 million and $10.5 million, facilities costs of $2.8 million and $9.6 million, and other costs of $0.1 million and $0.2 million, respectively.

As of June ~~29, 2019,~~27, 2020, the company does not anticipate there will be any material adjustments relating to the aforementioned restructuring and integration plans. Refer to Note J, “Restructuring, Integration, and Other Charges,” of the Notes to the Consolidated Financial Statements for further discussion of the company’s restructuring and integration activities.

Following is an analysis of operating income (in millions):

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

** Amounts presented for restructuring, integration, and other charges, and identifiable intangible amortization exclude amounts related to the

personal computer and mobility asset disposition business, which are reported within the impact of wind down.

The company recorded an operating ~~loss~~income of ~~$549.2~~$196.6 million, or ~~7.5%~~3.0% of sales, and an operating ~~loss~~income of ~~$303.6~~$334.9 million, or ~~2.1%~~2.6% of sales, in the second quarter and first six months of ~~2019,~~2020, respectively, compared with operating ~~income~~loss of ~~$286.8~~$549.2 million, or ~~3.9%~~(7.5)% of sales, and ~~$522.8~~an operating loss of $303.6 million, or ~~3.7%~~(2.1)% of sales, in the year-earlier periods. ~~Excluding identifiable intangible asset amortization, restructuring, integration,~~Operating income, as adjusted, was $200.3 million, or 3.0% of sales, and ~~other charges, AFS notes receivables~~$356.8 million, or 2.7% of sales, in the second quarter and ~~inventory reserves, Digital inventory reserves, impairments~~first six months of ~~goodwill and other long-lived assets, the impact of the wind down, and loss on disposition of businesses, net,~~2020, respectively, compared with operating income, as adjusted, ~~was~~of $242.7 million, or 3.3% of sales, and $519.5 million, or 3.6% of sales, in the ~~second quarter and first six months of 2019, respectively, compared with operating income, as adjusted, of $317.1 million, or 4.3% of sales, and $587.6 million, or 4.1% of sales, in the~~ year-earlier periods. Operating income, as adjusted, decreased ~~23.5%~~17.5% and ~~11.6%~~31.3% for the second quarter and first six months of ~~2019,~~2020, respectively, compared with the year-earlier periods, on a sales decrease of ~~0.6%~~8.3% and ~~a sales increase of 1.6%~~8.5% compared with the year-earlier periods. Operating income, as adjusted as a percentage of sales, decreased ~~(100)~~30 bps and ~~(50)~~90 bps for the second quarter and first six months of ~~2019,~~2020, respectively, ~~compared with the year-earlier periods~~ primarily due to ~~a shift~~the decreases in ~~customer mix.~~

~~The company has initiated separate~~sales across both the Global Components and distinct actions to reduce its annual operating expenses, which are expected to generate approximately $130.0 million in annualized cost savings. Substantially all of the cost actions will be completed by the end of 2019. The company expects to recognize approximately $45.0 million in costsGlobal ECS businesses, and reserves and other adjustments related to ~~cash severance as well as approximately $4.0~~

~~million~~foreign tax and other loss contingencies within the Global ECS business. These reserves are principally associated with transactional taxes on activity from several prior years, not significant to any one year. These operating margin declines were partially offset by a reduction in ~~other non-cash asset impairments~~operating costs and ~~approximately $10.0 million~~corporate overhead due to the operating expense reduction program announced in ~~cash contract termination costs. Substantially all of the severance, assets impairments, and termination costs are expected to be recognized in the third quarter of~~July 2019.

Gain (Loss) on Investments, Net

~~During~~The company recorded gains of $10.9 million and losses of $5.9 million on investments during the second quarter and first six months of ~~2019, the company recorded a gain~~2020, respectively, compared to gains of $1.4 million and $6.7 million, ~~respectively, compared to a loss of $2.6 million and $5.0 million,~~ in the ~~year-earlier~~year earlier periods. ~~The changes related~~These gains and

losses are due to changes in fair value of ~~certain investments.~~assets related to the Arrow SERP pension plan, which consist primarily of life insurance policies and mutual fund assets.

Interest and Other Financing Expense, Net

The company recorded net interest and other financing expense of ~~$51.6~~$31.9 million and ~~$103.5~~$75.1 million for the second quarter and first six months of ~~2019,~~2020, respectively, compared with ~~$60.8~~$51.6 million and ~~$106.0~~$103.5 million, in the year-earlier periods. The decrease for the second quarter and first six months of ~~2019 was~~2020 primarily ~~due~~relates to lower ~~average debt outstanding, an increase in~~borrowings and interest ~~and dividend income,~~rates on short term credit facilities, offset partially by ~~an increase~~decreased interest income. The decrease in ~~variable~~ interest ~~rates. The increase in interest and dividend~~ income is attributable to ~~an increase in the~~lower average cash balances ~~with~~within the ~~company's~~company’s cash pooling arrangements.

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 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 second quarter and first six months of 2020, the company recorded a provision for income taxes of $40.9 million and $68.7 million, an effective tax rate of 23.5% and 27.3%, respectively. The company’s provision for income taxes and effective tax rate for the second quarter and first six months of 2020 were impacted by the previously discussed restructuring, integration, and other charges, identifiable intangible asset amortization, the impact of tax legislation changes, gain (loss) on investments, AFS reserves and credits, impairments of long-lived assets, and the impact of wind down. Excluding the impact of the aforementioned items, the company’s effective tax rate for the second quarter and first six months of 2020 was 24.1% and 26.3%, respectively. Included in the effective tax rate for the first six months of 2020 are approximately $7.4 million in discrete tax items related to the foreign tax and other loss contingencies.

For the second quarter and first six months of 2019, the company recorded a benefit for income taxes of $52.4 million, an effective tax rate of 8.7%, and a provision for income taxes of $1.5 million, an effective tax rate of 0.4%, respectively. The ~~company’s~~company's provision for income taxes and effective tax rate for the second quarter and first six months of 2019 were impacted by the previously discussed restructuring, integration, and other charges, identifiable intangible asset amortization, loss on disposition of businesses, the impact of U.S. tax reform, gain on investments, AFS ~~write downs,~~write-downs, digital ~~write downs,~~write-downs, impairments of goodwill and other long-lived assets, and the impact of the wind down. Excluding the impact of the aforementioned items, the company’s effective tax rate for the second quarter and first six months of 2019 was 27.5% and 26.5%, respectively.

For the second quarter and first six months of 2018, the company recorded a provision for income taxes of $51.7 million, an effective tax rate of 23.2%, and $98.3 million, an effective tax rate of 24.0%, respectively. The company’s provision for income taxes and effective tax rate for the second quarter~~and~~first six months of 2018 were impacted by the previously discussed restructuring, integration, and other charges, identifiable intangible asset amortization, loss on disposition of businesses, loss on investments, and impact of the wind down. Excluding the impact of the aforementioned items, the company’s effective tax rate for the second quarter and first six months of 2018 was 23.6% and 24.4%, respectively.

The company’s effective tax rate deviates from the statutory U.S. federal income tax rate mainly due to the mix of foreign taxing jurisdictions in which the company operates and where its foreign subsidiaries generate taxable ~~income.~~income, among other things. The ~~decrease~~increase in the effective tax rate from ~~23.2% for the second quarter of 2018 to~~ 8.7% for the second quarter of 2019 to 23.5% for the second quarter of 2020 is primarily driven by changes in the ~~impairment of intangible assets, change in~~ mix of ~~the~~ tax jurisdictions where taxable income is generated as well as discrete items such as the non-deductible portion of goodwill impairments and changes in ~~the~~ U.S. tax rules.

Net Income (Loss) Attributable to Shareholders

Following is an analysis of net income (loss) attributable to shareholders (in millions):

* Amounts presented for restructuring, integration, and other charges, and identifiable intangible amortization exclude amounts related to the

~~personal computer and mobility asset disposition business, which are reported within the impact of wind down. Identifiable intangible asset~~

~~amortization also excludes amortization related to the noncontrolling interest.~~

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

** Amounts presented for restructuring, integration, and other charges, and identifiable intangible amortization exclude amounts related to the personal computer and mobility asset disposition business, which are reported within the impact of wind down. Identifiable intangible asset amortization also excludes amortization related to the noncontrolling interest.

The company recorded net income attributable to shareholders of $132.8 million and $182.3 million in the second quarter and first six months of 2020, respectively, compared with a net loss attributable to shareholders of $549.0 million and $408.2 million in the ~~second quarter and first six months of 2019 compared with net income attributable to shareholders of $169.9 million and $309.0 million in the~~ year-earlier periods. Net income attributable to shareholders, as adjusted, was ~~$136.6~~$126.1 million and ~~$300.3~~$205.1 million for the second quarter and first six months of ~~2019,~~2020, respectively, compared with ~~$194.1~~$136.6 million and ~~$360.1~~$300.3 million in the year-earlier ~~periods primarily due to a shift in customer mix.~~periods.

Liquidity and Capital Resources

At June ~~29, 2019~~27, 2020 and December 31, ~~2018,~~2019, the company had cash and cash equivalents of ~~$270.0~~$205.8 million and ~~$509.3~~$300.1 million, respectively, of which ~~$247.4~~$183.2 million and ~~$394.4~~$277.7 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~~

To achieve greater cash management agility and to further advance business objectives, during the ~~company’s current intent~~fourth quarter of 2019, the company reversed its assertion to ~~permanently~~indefinitely reinvest ~~these funds outside~~certain of its foreign earnings, of which approximately $2.4 billion are available for distribution in future periods as of June 27, 2020. The company continues to indefinitely reinvest the ~~United States and~~residual $1.1 billion of undistributed earnings of its ~~current plans do not demonstrate a need~~foreign subsidiaries. If the indefinitely reinvested earnings were to ~~repatriate them~~be distributed to ~~fund its United States operations. If these funds were needed for the company’s operations in~~ the United States, the company would be required to pay withholding and other ~~taxes related to distribution of these funds.~~taxes. Additionally, local government regulations may restrict the company’s ability to move cash balances to meet cash needs under certain circumstances. ~~The~~However, the company currently does not expect such regulations and restrictions to impact its ability to make acquisitions or to conduct operations throughout the global organization.

During the first six months of 2020, the net amount of cash provided by the company’s operating activities was $885.1 million, the net amount of cash used for investing activities was $65.0 million, and the net amount of cash used for financing activities was $904.8 million. The effect of exchange rate changes on cash was a decrease of $9.6 million.

During the first six months of 2019, the net amount of cash provided by the company’s operating activities was $76.4 million, the net amount of cash used for investing activities was $69.2 million, and the net amount of cash used for financing activities was $245.8 million. The effect of exchange rate changes on cash was a decrease of $0.7 million.

During the first six months of 2018, the net amount of cash used for the company’s operating activities was $484.8 million, the net amount of cash used for investing activities was $371.8 million, and the net amount of cash provided by financing activities was $452.2 million. The effect of exchange rate changes on cash was an increase of $4.9 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 ~~72.2%~~72.9% at June ~~29, 2019~~27, 2020 and ~~72.1%~~72.9% at December 31, ~~2018.~~2019.

The net amount of cash provided by the company’s operating activities during the first six months of 2020 was $885.1 million and was primarily due to earnings from operations adjusted for non-cash items and sales of accounts receivables under the EMEA asset securitization program (see Note G), resulting in a $324.2 million operating net cash inflow.

The net amount of cash provided by the company’s operating activities during the first six months of 2019 was $76.4 million and was primarily due to a decrease in inventory purchased, the timing of payments and an increase in earnings from operations adjusted for non-cash items.

In response to the COVID-19 pandemic, many countries have enacted economic aid programs, including the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) in the United States. These programs include, among other things, deferrals of payroll taxes, indirect taxes, and corporate income tax. The ~~net amount of cash used for the company’s operating activities~~deferred tax payment dates vary by jurisdiction and would generally be paid during the last quarter of 2020 or the first ~~six months~~two quarters of ~~2018 was $484.8 million~~2021. Due to the expediency with which these stimulus programs have been enacted and ~~was primarily due~~the number of tax authorities involved, there is a high degree of uncertainty around their implementation. However, the company intends to ~~an increase in working capital to support the increase in sales, offset, in part,~~apply any COVID-19 related tax law changes and tax incentives made available by ~~an increase in earnings from operations adjusted for non-cash items.~~respective countries during 2020.

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 ~~18.1%~~16.7% in the second quarter of ~~2019~~2020 compared with 18.1% in the second quarter of ~~2018.~~2019.

Cash Flows from Investing Activities

The net amount of cash used for investing activities during the first six months of 2020 was $65.0 million. The primary use of cash for investing activities included $59.5 million for capital expenditures. Capital expenditures for the first six months of 2020 primarily include expenditures related to the build out of the company's distribution centers and investments in internally developed software.

The net amount of cash used for investing activities during the first six months of 2019 was $69.2 million. The uses of cash from investing activities included $81.6 million for capital expenditures and the sources of cash from investing activities included $9.5 million of proceeds from the sale of businesses. Capital expenditures for the first six months of 2019 are related to investments in internally developed software and website functionality related to the digital business and the build out of a new distribution center within the EMEA region.

Cash Flows from Financing Activities

The net amount of cash used for ~~investing~~financing activities during the first six months of ~~2018~~2020 was ~~$371.8~~$904.8 million. The uses of cash from ~~investing~~financing activities included ~~$331.6~~$7.2 million of net payments for ~~cash consideration paid~~short-term borrowings, $411.7 million of net payments for ~~acquired businesses~~long term borrowings, $48.4 million of payments upon the settlement of forward starting interest rate swaps, $209.4 million of repayments of the principal amount of the company's 6.00% notes due April 2020, and ~~$66.6~~$231.7 million ~~for capital expenditures.~~of repurchases of common stock. The ~~sources~~primary source of cash from ~~investing~~financing activities ~~included $34.3~~during the second quarter of 2020 was $3.7 million of proceeds from the ~~sale~~exercise of businesses. Capital expenditures for the first six months of 2018 are related to the company’s new enterprise resource planning (“ERP”) system, relocation and infrastructure upgrades of the company’s data centers, and continued development of online Digital and Cloud capabilities.stock options.

~~Cash Flows from Financing Activities~~

The net amount of cash used for financing activities during the first six months of 2019 was $245.8 million. The uses of cash from financing activities included $173.4 million of net payments from short-term borrowings and $200.9 million of repurchases of common stock. The sources of cash from financing activities during the first six months of 2019 were $119.0 million of net proceeds from long-term bank borrowings and $9.6 million of proceeds from the exercise of stock options.

The net amount of cash provided by financing activities during the first six months of 2018 was $452.2 million. The uses of cash from financing activities included $300.0 million of payments for the redemption of notes and $72.6 million of repurchases of common stock. The sources of cash from financing activities during the first six months of 2018 were $759.3 million of proceeds from long-term bank borrowings, $59.6 million of net proceeds from short-term borrowings, and $6.0 million of proceeds from the exercise of stock options.

The company has a $2.0 billion revolving credit facility maturing in December 2023. 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 Eurocurrency rate plus a spread (1.18% at June ~~29, 2019)~~27, 2020), which is based on the company’s credit ratings, or an effective interest rate of ~~3.50%~~1.24% at June ~~29, 2019.~~27, 2020. The facility fee, which is based on the company’s credit ratings, was .20% of the total borrowing capacity at June ~~29, 2019.~~27, 2020. The company had no outstanding borrowings and $10.0 million in outstanding borrowings under the revolving credit facility at


	June 27, 2020		December 31, 2019



3.50% notes, due 2022	$	360,000	$	358,500
4.50% notes, due 2023	319,500		316,000
3.25% notes, due 2024	528,000		515,500
4.00% notes, due 2025	375,500		367,000
7.50% senior debentures, due 2027	129,500		135,000
3.875% notes, due 2028	521,000		516,500


	June 27, 2020		December 31, 2019
Accounts receivable	$	8,052,930	$	8,552,120
Allowances for doubtful accounts	(98,892)		(69,433)
	$	7,954,038	$	8,482,687



	June 29, 2019		December 31, 2018
6.00% notes, due 2020	$	209,234	$	—
Borrowings on lines of credit	—		180,000
Other short-term borrowings	69,924		66,257
	$	279,158	$	246,257


	June 27, 2020		December 31, 2019
Revolving credit facility	$	—	$	10,000
North American asset securitization program	—		400,000
5.125% notes, due 2021	—		130,691
3.50% notes, due 2022	348,499		348,088
4.50% notes, due 2023	298,421		298,148
3.25% notes, due 2024	495,536		495,045
4.00% notes, due 2025	346,680		346,368
7.50% senior debentures, due 2027	109,898		109,857
3.875% notes, due 2028	494,933		494,648
Other obligations with various interest rates and due dates	4,402		7,284
	$	2,098,369	$	2,640,129



	June 29, 2019		December 31, 2018
Asset securitization program	$	930,000	$	810,000
6.00% notes, due 2020	—		209,147
5.125% notes, due 2021	130,618		130,546
3.50% notes, due 2022	347,684		347,288
4.50% notes, due 2023	297,882		297,622
3.25% notes, due 2024	494,564		494,091
4.00% notes, due 2025	346,062		345,762
7.50% senior debentures, due 2027	109,817		109,776
3.875% notes, due 2028	494,368		494,095
Other obligations with various interest rates and due dates	6,279		788
	$	3,157,274	$	3,239,115


~~(a)~~	~~Cash equivalents include highly liquid investments with an original maturity of less than three months.~~



	June 29, 2019
Operating Leases
Right-of-use asset	$	312,975

Lease liability - current	52,792
Lease liability - non-current	311,075
Total operating lease liabilities	$	363,867



	June 29, 2019
2019	$	47,470
2020	76,683
2021	60,112
2022	47,123
2023	36,713
Thereafter	158,150
Total lease payments	426,251
Less imputed interest	(62,384		)
Total	$	363,867



	June 29, 2019
Supplemental Cash Flow Information
Cash paid for amounts included in the measurement of operating lease liabilities	$	57,791
Right-of-use assets obtained in exchange for operating lease obligations	37,957

Operating Lease Term and Discount Rate
Weighted-average remaining lease term in years	8
Weighted-average discount rate	5.2		%


~~(a)~~	Includes intra-entity foreign currency transactions that are of a long-term investment nature of $9,079 and $780 for the second quarter and first six months of 2019 and $14,774 and $2,850 for the second quarter and first six months 2018, respectively.


~~(b)~~	Amounts relate to unrealized gains and losses on investments and stranded tax effects reclassified from “Accumulated other comprehensive income” to “Retained earnings” in accordance with ASU No. 2018-02 and ASU No. 2016-01.



		Quarter Ended				Six Months Ended
	��	June 29, 2019		June 30, 2018		June 29, 2019		June 30, 2018
Components:
Americas		$	1,876,799	$	1,937,882	$	3,783,828	$	3,734,580
EMEA (a)		1,415,888		1,447,972		2,919,254		2,926,358
Asia/Pacific		1,978,248		1,898,510		3,759,780		3,553,358
Global components		$	5,270,935	$	5,284,364	$	10,462,862	$	10,214,296

ECS:
Americas		$	1,372,456	$	1,387,034	$	2,573,363	$	2,582,445
EMEA (a)		701,157		721,130		1,464,314		1,471,400
Global ECS		$	2,073,613	$	2,108,164	$	4,037,677	$	4,053,845
Consolidated (b)		$	7,344,548	$	7,392,528	$	14,500,539	$	14,268,141


	June 27, 2020		December 31, 2019
Americas (f)	$	566,705	$	594,357
EMEA	177,158		157,550
Asia/Pacific	54,327		51,203
Consolidated	$	798,190	$	803,110



	June 29, 2019		December 31, 2018
Americas (e)	$	630,645	$	673,228
EMEA	132,722		110,996
Asia/Pacific	50,550		40,476
Consolidated	$	813,917	$	824,700


~~(e)~~	~~Includes net property, plant, and equipment related to the United States of $627,908 and $670,201 at June 29, 2019 and December 31, 2018, respectively.~~


~~Item 3.~~	~~Quantitative and Qualitative Disclosures About Market Risk~~


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


Month	Total Number of Shares Purchased (a)	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Program (b)(c)	Approximate Dollar Value of Shares that May Yet be Purchased Under the Programs
March 29 through April 25, 2020	—	$	—	—	$	188,426
April 26 through May 23, 2020	548,041	64.32		544,137	153,427
May 24 through June 27, 2020	577,789	69.23		577,789	113,428
Total	1,125,830			1,121,926


~~(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.

Exhibit

~~Exhibit~~ ~~Number~~31 (i)*		~~Exhibit~~

~~31(i)~~	Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

~~31(ii)~~31(ii)*		Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32(i)**		Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32(ii)**		Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of ~~2002.~~2002.

10(a)*†		~~Arrow Electronics, Inc. 2004 Omnibus Incentive Plan (as amended through March 12, 2019).~~Amendment No.1, dated as of May 29, 2020, to the Third Amended and Restated Credit Agreement, dated as of December 14, 2018.

~~101.SCH~~101.SCH*		Inline XBRL Taxonomy Extension Schema Document.

~~101.CAL~~101.CAL*		Inline XBRL Taxonomy Extension Calculation Linkbase Document.

~~101.LAB~~101.LAB*		Inline XBRL Taxonomy Extension Label Linkbase Document.

~~101.PRE~~101.PRE*		Inline XBRL Taxonomy Extension Presentation Linkbase Documents.

~~101.DEF~~101.DEF*		Inline XBRL Taxonomy Definition Linkbase Document.

104*		Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).

Maturity Date

Notional Amount

Interest rate due from counterparty

Interest rate due to counterparty

April 2020

6 mo. USD LIBOR + 3.896%