NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands except per share data)
1.Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of the company and its majority-owned subsidiaries. All significant intercompany transactions are eliminated.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires the company to make significant estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates.
Cash and Cash Equivalents
Cash equivalents consist of highly liquid investments, which are readily convertible into cash, with original maturities of three months or less.
Inventories
Inventories are stated at the lower of cost or net realizable value. Cost is determined on a moving average cost basis, which approximates the first-in, first-out method. Substantially all inventories represent finished goods held for sale.
Property, Plant, and Equipment
Property, plant, and equipment are stated at cost. Depreciation is computed on the straight-line method over the estimated useful lives of the assets. The estimated useful lives for depreciation of buildings is generally 20 to 30 years, and the estimated useful lives of machinery and equipment is generally three to ten years. Leasehold improvements are amortized over the shorter of the term of the related lease or the life of the improvement. Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amounts may not be recoverable. If the carrying value of the asset cannot be recovered from estimated future cash flows, undiscounted and without interest, the fair value of the asset is calculated using the present value of estimated net future cash flows. If the fair value is less than the carrying amount of the asset, a loss is recognized for the difference, subject to the limitation of individual asset fair values within the group.
Software Development Costs
The company capitalizes certain internal and external costs incurred to acquire or create internal-use software. Capitalized software costs are amortized on a straight-line basis over the estimated useful life of the software, which is generally three to twelve years. At December 31, 2019 and 2018, the company had unamortized software development costs of $501,190 and $539,398, respectively, which are included in "Machinery and equipment" in the company's consolidated balance sheets.
Identifiable Intangible Assets
Amortization of definite-lived intangible assets is computed on the straight-line method over the estimated useful lives of the assets. Identifiable intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amounts may not be recoverable.
Investments
Investments are accounted for using the equity method if the investment provides the company the ability to exercise significant influence, but not control, over an investee. Significant influence is generally deemed to exist if the company has an ownership interest in the voting stock of the investee between 20% and 50%, although other factors, such as representation on the investee's Board of Directors, are considered in determining whether the equity method is appropriate. The company records its investments in equity method investees meeting these characteristics as "Investments in affiliated companies" in the company's consolidated balance sheets.
Equity investments which the company does not possess the ability to exercise significant influence, are measured at fair value, using quoted market prices, and are included in “Other assets” in the company's consolidated balance sheets. Changes in fair value are recorded in “Gain (Loss) on investments, net” in the company's consolidated statements of operations. During the year-ended December 31, 2019, the company recorded a net gain on investments of $11,831.
The company records equity investments that do not have readily determinable fair values at cost minus impairment, if any, plus or minus changes resulting from observable price changes.
Goodwill
Goodwill represents the excess of the cost of an acquisition over the fair value of the net assets acquired. The company tests goodwill for impairment annually as of the first day of the fourth quarter and/or when an event occurs or circumstances change such that it is more likely than not that an impairment may exist. Examples of such events and circumstances that the company would consider include the following:
|
|
•
|
macroeconomic conditions such as deterioration in general economic conditions, limitations on accessing capital, fluctuations in foreign exchange rates, or other developments in equity and credit markets;
|
|
|
•
|
industry and market considerations such as a deterioration in the environment in which the company operates, an increased competitive environment, a decline in market-dependent multiples or metrics (considered in both absolute terms and relative to peers), a change in the market for the company's products or services, or a regulatory or political development;
|
|
|
•
|
cost factors such as increases in inventory, labor, or other costs that have a negative effect on earnings and cash flows;
|
|
|
•
|
overall financial performance such as negative or declining cash flows or a decline in actual or planned revenue or earnings compared with actual and projected results of relevant prior periods;
|
|
|
•
|
other relevant entity-specific events such as changes in management, key personnel, strategy, or customers, contemplation of bankruptcy, or litigation;
|
|
|
•
|
events affecting a reporting unit such as a change in the composition or carrying amount of its net assets, a more likely than not expectation of selling or disposing all, or a portion, of a reporting unit, the testing for recoverability of a significant asset group within a reporting unit, or recognition of a goodwill impairment loss in the financial statements of a subsidiary that is a component of a reporting unit; and
|
|
|
•
|
a sustained decrease in share price (considered in both absolute terms and relative to peers).
|
Goodwill is tested at a level of reporting referred to as “the reporting unit.” The company's reporting units are defined as each of the three regional businesses within the global components business segment, which are the Americas; Europe, the Middle East, and Africa (“EMEA”); and Asia-Pacific, each of the two regional businesses within the global ECS business segment, which are North America and EMEA, and eInfochips which was acquired in 2018 and is part of the global components business segment.
An entity has the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not (that is, a likelihood of more than 50%) that the fair value of a reporting unit is less than its carrying amount. If, after assessing the totality of events or circumstances, an entity determines it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, then the quantitative goodwill impairment test is unnecessary. The company has elected not to perform the qualitative assessment and performed the quantitative goodwill impairment test. The quantitative goodwill impairment test, used to identify both the existence of impairment and the amount of impairment loss, compares the fair value of a reporting unit with its carrying amount, including goodwill. If the carrying amount of the reporting unit is less than its fair value, no impairment exists. If the carrying amount of a reporting unit exceeds its fair value, an impairment loss shall be recognized in an amount equal to that excess, limited to the total amount of goodwill allocated to that reporting unit.
The company estimates the fair value of a reporting unit using the income approach. For the purposes of the income approach, fair value is determined based on the present value of estimated future cash flows, discounted at an appropriate risk-adjusted rate. The assumptions included in the income approach 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. Actual results may differ from those assumed in the company's forecasts. The company also reconciles its discounted cash flow analysis to its current market capitalization allowing for a reasonable control premium. During the second quarter of 2019, the company recorded a goodwill impairment charge of $509,000 and $61,175 within the Americas components and Asia-Pacific reporting units, respectively (see Note 4). As of the first day of the fourth quarters of
2019, 2018, and 2017, the company's annual impairment testing did not indicate additional impairment at any of the company's reporting units.
A decline in general economic conditions or global equity valuations could impact the judgments and assumptions about the fair value of the company's businesses, and the company could be required to record an impairment charge in the future, which could impact the company's consolidated balance sheet, as well as the company's consolidated statement of operations. If the company was required to recognize an impairment charge in the future, the charge would not impact the company's consolidated cash flows, current liquidity, capital resources, and covenants under its existing revolving credit facility, North American asset securitization program, and other outstanding borrowings.
As of December 31, 2019, the company has $2.1 billion of goodwill, of which approximately $603.5 million and $82.8 million was allocated to the Americas and EMEA reporting units within the global components business segment, respectively, $787.4 million and $390.4 million was allocated to the North America and EMEA reporting units within the global ECS business segment, respectively, and $197.2 million was allocated to the eInfochips reporting unit. As of the date of the company's latest impairment test, the fair value of the Americas and EMEA reporting units within the global components business segment, the fair value of the North America and EMEA reporting units within the global ECS business segment, and the fair value of the eInfochips reporting unit exceeded their carrying values by approximately 3%, 110%, 509%, 221%, and 6% respectively.
Leases
The company determines if a contract contains a lease at inception based on whether it conveys the right to control the use of an identified asset. Substantially all of the company's leases are classified as operating leases. The company records operating lease right-of-use assets within “Other assets” and lease liabilities are recorded within “Other liabilities” and “Accrued expenses” in the consolidated balance sheets. Lease expenses are recorded within “Selling, general, and administrative expenses” in the consolidated statements of operations. Operating lease payments are presented within “Operating cash flows” in the consolidated statements of cash flows.
Operating lease right-of-use assets and lease liabilities are recognized based on the net present value of future minimum lease payments over the lease term starting on the commencement date. The company generally is not able to determine the rate implicit in its leases and, as such, applies 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 is 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.
Foreign Currency Translation and Remeasurement
The assets and liabilities of international operations are translated at the exchange rates in effect at the balance sheet date. Revenue and expense accounts are translated at the monthly average exchange rates. Adjustments arising from the translation of the foreign currency financial statements of the company's international operations are reported as a component of “Accumulated other comprehensive loss” in the company's consolidated balance sheets.
For foreign currency remeasurement from each local currency into the appropriate functional currency, monetary assets and liabilities are remeasured to functional currencies using current exchange rates in effect at the balance sheet date. Gains or losses from these remeasurements were not significant and have been included in the company's consolidated statements of operations. Non-monetary assets and liabilities are recorded at historical exchange rates.
Income Taxes
Income taxes are accounted for under the liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements. Under this method, deferred tax assets and liabilities are determined on the basis of differences between the tax bases of assets and liabilities and their financial reporting amounts using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date.
The carrying value of the company's deferred tax assets is dependent upon the company's ability to generate sufficient future taxable income in certain tax jurisdictions. Should the company determine that it is more likely than not that some portion or all of its deferred tax assets will not be realized, a valuation allowance to reduce the deferred tax assets is established in the period such determination is made. The assessment of the need for a valuation allowance requires considerable judgment on the part of management with respect to the benefits that could be realized from future taxable income, as well as other positive and negative factors.
It is also the company's policy to provide for uncertain tax positions and the related interest and penalties based upon management's assessment of whether a tax benefit is more likely than not to be sustained upon examination by tax authorities. To the extent the company prevails in matters for which a liability for an unrecognized tax benefit is established, or is required to pay amounts in excess of the liability, or when other facts and circumstances change, the company's effective tax rate in a given financial statement period may be materially affected.
Net Income (Loss) Per Share
Basic net income (loss) per share is computed by dividing net income (loss) attributable to shareholders by the weighted-average number of common shares outstanding for the period. Diluted net income (loss) per share reflects the potential dilution that would occur if securities or other contracts to issue common stock were exercised or converted into common stock.
Comprehensive Income (Loss)
Comprehensive income (loss) consists of consolidated net income (loss), foreign currency translation adjustment, unrealized gains or losses on post-retirement benefit plans, unrealized gains on foreign exchange contracts designated as net investment hedges, and unrealized gains and losses on interest rate swaps designated as cash flow hedges. Unrealized gains or losses on interest rate swaps, and foreign exchange contracts are net of any reclassification adjustments for realized gains or losses included in consolidated net income. Amounts related to net investment hedges that are excluded from the assessment of hedge effectiveness are amortized to “interest and other financing expenses, net” on a straight-line basis over the life of the hedging instrument. Foreign currency translation adjustments included in comprehensive income (loss) were not tax effected as investments in international affiliates are deemed to be permanent. All other comprehensive income (loss) items are net of related income taxes.
Stock-Based Compensation
The company records share-based payment awards exchanged for employee services at fair value on the date of grant and expenses the awards in the consolidated statements of operations over the requisite employee service period. Stock-based compensation expense includes an estimate for forfeitures. Stock-based compensation expense related to awards with a market or performance condition which cliff vest, are recognized over the vesting period on a straight-line basis. Stock-based compensation awards with service conditions only are also recognized on a straight-line basis.
Segment Reporting
Operating segments are defined as components of an enterprise for which separate financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance. The company's operations are classified into two reportable business segments: global components and global ECS.
Revenue Recognition
The company recognizes revenue as control of products is transferred to customers, which generally happens at the point of shipment. Sales are recorded net of discounts, rebates, and returns, which historically have not been material. The company allows its customers to return product for exchange or credit in limited circumstances. A liability is recorded at the time of sale for estimated product returns based upon historical experience. The company also provides volume rebates and other discounts to certain customers which are considered variable consideration. A provision for customer rebates and other discounts is recorded as a reduction of revenue at the time of sale based on an evaluation of the contract terms and historical experience. Tariffs are included in sales as the company has enforceable rights to additional consideration to cover the cost of tariffs. Other taxes imposed by governmental authorities on the company's revenue producing activities with customers, such as sales taxes and value added taxes, are excluded from net sales.
Products sold by the company are generally delivered via shipment from the company's facilities, drop shipment directly from the vendor, or by electronic delivery of keys for software products. A portion of the company's business involves shipments directly from its suppliers to its customers, in these transactions, the company is generally responsible for negotiating price both with the supplier and customer, payment to the supplier, establishing payment terms with the customer, product returns, and has risk of loss if the customer does not make payment. As the principal with the customer, the company recognizes revenue upon receiving notification from the supplier that the product was shipped.
The company has contracts with certain customers where the company's performance obligation is to arrange for the products or services to be provided by another party. In these arrangements, as the company assumes an agency relationship in the transaction, revenue is recognized in the amount of the net fee associated with serving as an agent. These arrangements relate to the sale of supplier service contracts to customers where the company has no future obligation to perform under these contracts or the rendering of logistics services for the delivery of inventory for which the company does not assume the risks and rewards of ownership.
Shipping and Handling Costs
The company reports shipping and handling costs, primarily related to outbound freight, in the consolidated statements of operations as a component of selling, general, and administrative expenses. Shipping and handling costs included in selling, general, and administrative expenses totaled $97,227, $103,553, and $90,709 in 2019, 2018, and 2017, respectively.
Vendor Programs
The company participates in supplier programs that provide for price protection, product rebates, marketing/promotional allowances, and other incentives. The consideration received under these programs is recorded in the consolidated statements of operations as an adjustment to cost of goods sold or selling, general, and administrative expenses, according to the nature of the activity and terms of the vendor program. Incentives are accrued as they are earned based on sales of qualifying products or as services are provided in accordance with the terms of the related program.
Impact of Recently Issued Accounting Standards
In December 2019, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2019-12, Income Taxes (Topic 740) (“ASU No. 2019-12”). ASU No. 2019-12 simplifies the accounting for income taxes by removing certain exceptions to the general principles in Topic 740. The amendments also improve consistent application of and simplify GAAP for other areas of Topic 740 by clarifying and amending existing guidance. Topic 740 is effective for the company in the first quarter of 2021, with early adoption permitted, and is to be applied on a prospective basis. The company is currently evaluating the potential effects of adopting the provision of ASU No. 2019-12.
In August 2018, the FASB issued Accounting Standards Update No. 2018-15, Intangibles—Goodwill and Other— Internal-Use Software (Subtopic 350-40): Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement 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. Effective September 29, 2019 the company adopted the provisions of ASU 2018-15 on a prospective basis, and the impact was not material to our financial position, results of operations or cash flows.
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 of hedge accounting and results in a more accurate portrayal of the economics of an entity's risk management activities in its financial statements. Effective January 1, 2019, the company adopted the provisions of ASU No. 2017-12 on a modified retrospective basis, and the impact was not material to our financial position, results of operations or cash flows.
In June 2016, the FASB issued Accounting Standards Update No. 2016-13, Financial Instruments - Credit Losses (“Topic 326”). Topic 326 revises the methodology for measuring credit losses on financial instruments and the timing of when such losses are recorded. Effective January 1, 2020, the company will adopt the update using a modified retrospective approach with a cumulative-effect adjustment to retained earnings. The new credit loss standard is not expected to have a material effect on our financial position, results of operations or cash flows.
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. 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 with a cumulative effect adjustment to the opening balance of retained earnings in the period of adoption. In addition, the company elected a package of practical expedients and the short-term lease exception outlined in Topic 842. 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 15.
2. Acquisitions
The company accounts for acquisitions using the acquisition method of accounting. The results of operations of acquisitions are included in the company's consolidated results from their respective dates of acquisition. The company allocates the purchase price of each acquisition to the tangible assets, liabilities, and identifiable intangible assets acquired based on their estimated fair values. In certain circumstances, a portion of purchase price may be contingent upon the achievement of certain operating results. The fair values assigned to identifiable intangible assets acquired and contingent consideration were determined primarily by using an income approach which was based on assumptions and estimates made by management. Significant assumptions utilized in the income approach were based on company specific information and projections, which are not observable in the market and are thus considered Level 3 measurements by authoritative guidance (see Note 8). The excess of the purchase price over the fair value of the identified assets and liabilities has been recorded as goodwill.
2018 Acquisitions
On January 8, 2018, the company acquired eInfochips for a purchase price of $327,628, which included $14,769 of cash acquired. eInfochips services customers at every phase of technology deployment, including custom hardware and software, and new Internet of Things based business models. eInfochips is recorded in the company's global components business segment.
During 2018, eInfochips sales of $89,139 were included in the company's consolidated results of operations.
The following table summarizes the allocation of the net consideration paid to the fair value of the assets acquired and liabilities assumed for the eInfochips acquisition:
|
|
|
|
|
Accounts receivable, net
|
$
|
13,670
|
|
Inventories
|
1,512
|
|
Property, plant, and equipment
|
3,485
|
|
Other assets
|
46,488
|
|
Identifiable intangible assets
|
128,000
|
|
Goodwill
|
197,126
|
|
Accounts payable
|
(520
|
)
|
Accrued expenses
|
(33,836
|
)
|
Deferred tax liability
|
(41,474
|
)
|
Other liabilities
|
(1,592
|
)
|
Cash consideration paid, net of cash acquired
|
$
|
312,859
|
|
In connection with the eInfochips acquisition, the company allocated $109,000 and $19,000 to customer relationships and trade name with a life of 15 years and 10 years, respectively.
The goodwill related to the eInfochips acquisition represents the expected synergies from combining operations and is not tax deductible.
During 2018, the company completed one additional acquisition with a purchase price of approximately $18,704, net of cash acquired. The impact of this acquisition was not material to the company's consolidated financial position or results of operations.
The following table summarizes the company's consolidated results of operations for 2017, as well as the unaudited pro forma consolidated results of operations of the company, as though the 2018 acquisitions occurred on January 1, 2017:
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31, 2017
|
|
As Reported
|
|
Pro Forma
|
Sales
|
$
|
26,554,563
|
|
|
$
|
26,712,335
|
|
Net income attributable to shareholders
|
402,176
|
|
|
405,966
|
|
Net income per share:
|
|
|
|
Basic
|
$
|
4.54
|
|
|
$
|
4.58
|
|
Diluted
|
$
|
4.48
|
|
|
$
|
4.52
|
|
2017 Acquisitions
During 2017, the company acquired an additional 11.9% of the noncontrolling interest common shares of Data Modul AG for $23,350, increasing the company's ownership interest in Data Modul to 69.2%. The impact of this acquisition was not material to the company's consolidated financial position or results of operations.
During 2017, the company completed two acquisitions for $3,628, net of cash acquired. The impact of these acquisitions was not material to the company's consolidated financial position or results of operations. The pro forma impact of the 2017 acquisitions on the consolidated results of operations of the company for 2017, as though the acquisitions occurred on January 1, 2017, was also not material.
3. Impairment of Long-Lived Assets and Loss on Disposition of Businesses
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 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. During 2019, the company recorded $7,163 in impairment charges related to various other fixed assets, unrelated to the personal computer and mobility asset disposition business.
During 2019, the company completed the disposition of three foreign subsidiaries related to the personal computer and mobility asset disposition business, and recognized a loss on disposition of business, net of $19,384, primarily related to the reclassification of cumulative translation adjustment to earnings upon the sales. Also during 2019, the company recorded a $1,868 net loss on the disposition of two non-strategic businesses, unrelated to the personal computer and mobility asset disposition business.
During 2018 and 2017, the company recorded a loss on disposition of businesses, net of $3,604 and $21,000, respectively, related to the sale of two non-strategic businesses.
4. 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.
During the second quarter of 2019, as a result of the company's downward revision of forecasted future earnings 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 resulted in a partial goodwill impairment charge of $509,000 ($457,806 net of tax) with approximately $600,000 of goodwill remaining within the Americas components reporting unit and a full impairment charge of $61,175 ($61,175 net of tax) within the Asia-Pacific reporting unit.
As of the first day of the fourth quarters of 2019, 2018, and 2017, the company's annual impairment testing did not result in any additional impairment of goodwill of companies acquired.
Goodwill of companies acquired, allocated to the company's business segments, is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Global
Components
|
|
Global ECS
|
|
Total
|
Balance as of December 31, 2017 (a)
|
|
$
|
1,264,869
|
|
|
$
|
1,205,178
|
|
|
$
|
2,470,047
|
|
Acquisitions
|
|
197,126
|
|
|
14,175
|
|
|
211,301
|
|
Foreign currency translation adjustment
|
|
(24,494
|
)
|
|
(32,164
|
)
|
|
(56,658
|
)
|
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
|
|
16,170
|
|
|
(7,977
|
)
|
|
8,193
|
|
Balance as of December 31, 2019 (b)
|
|
$
|
883,496
|
|
|
$
|
1,177,826
|
|
|
$
|
2,061,322
|
|
|
|
(a)
|
The total carrying value of goodwill of companies acquired as of December 31, 2018 and December 31, 2017 in the table above is reflected net of $1,018,780 of accumulated impairment charges, of which $716,925 was recorded in the global components business segment and $301,855 was recorded in the global ECS business segment.
|
|
|
(b)
|
The total carrying value of goodwill of companies acquired as of 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 ECS business segment.
|
Intangible assets, net, are comprised of the following as of December 31, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-Average Life
|
|
Gross Carrying Amount
|
|
Accumulated Amortization
|
|
Net
|
Customer relationships
|
12 years
|
|
$
|
354,305
|
|
|
$
|
(148,632
|
)
|
|
$
|
205,673
|
|
Amortizable trade name
|
8 years
|
|
76,407
|
|
|
(10,177
|
)
|
|
66,230
|
|
|
|
|
$
|
430,712
|
|
|
$
|
(158,809
|
)
|
|
$
|
271,903
|
|
Intangible assets, net, are comprised of the following as of December 31, 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
Developed technology
|
5 years
|
|
6,340
|
|
|
(4,311
|
)
|
|
2,029
|
|
Amortizable trade name
|
9 years
|
|
19,940
|
|
|
(3,553
|
)
|
|
16,387
|
|
|
|
|
$
|
602,330
|
|
|
$
|
(229,686
|
)
|
|
$
|
372,644
|
|
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 as of June 29, 2019, and began amortizing these trade names over their estimated remaining useful lives. The trade names were tested for impairment 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) during the second quarter of 2019. 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.
In December 2018, the company completed an asset acquisition of a $20,000 customer relationship intangible asset with an assigned useful life of 10 years. The intangible asset is included in the company's global components segment.
Amortization expense related to identifiable intangible assets was $48,097, $49,356, and $50,071 for the years ended December 31, 2019, 2018, and 2017, respectively. Amortization expense for each of the years 2020 through 2024 is estimated to be approximately $38,537, $37,383, $35,994, $31,875, and $29,629, respectively.
5. Investments in Affiliated Companies
The company owns a 50% interest in two joint ventures with Marubun Corporation (collectively “Marubun/Arrow”) and a 50% interest in one other joint venture. These investments are accounted for using the equity method.
One investment previously accounted for under the equity method no longer qualifies for equity method accounting as a result of the company's ownership percentage decreasing in 2019 as well as the company relinquishing its board representation. This investment will now be accounted for as an equity investment measured at cost, less any impairment, adjusted for changes resulting from observable price changes. Changes in the carrying value of this investment will be recorded in “Gain (loss) on investments, net” in the company’s consolidated statements of operations.
The following table presents the company's investment in the following joint ventures at December 31:
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
2018
|
Marubun/Arrow
|
|
$
|
76,574
|
|
|
$
|
73,253
|
|
Other
|
|
10,368
|
|
|
10,440
|
|
|
|
$
|
86,942
|
|
|
$
|
83,693
|
|
The equity in earnings (losses) of affiliated companies for the years ended December 31 consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
2018
|
|
2017
|
Marubun/Arrow
|
|
$
|
3,066
|
|
|
$
|
5,543
|
|
|
$
|
6,842
|
|
Other
|
|
(5,831
|
)
|
|
(7,875
|
)
|
|
(3,418
|
)
|
|
|
$
|
(2,765
|
)
|
|
$
|
(2,332
|
)
|
|
$
|
3,424
|
|
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 December 31, 2019 and December 31, 2018, the company's pro-rata share of this debt was approximately $1,700 and $2,860, respectively. The company believes there is sufficient equity in each of the joint ventures to meet the obligations.
6. Accounts Receivable
Accounts receivable, net, consists of the following at December 31:
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
2018
|
Accounts receivable
|
|
$
|
8,549,422
|
|
|
$
|
9,021,051
|
|
Allowances for doubtful accounts
|
|
(66,735
|
)
|
|
(75,588
|
)
|
Accounts receivable, net
|
|
$
|
8,482,687
|
|
|
$
|
8,945,463
|
|
The company maintains allowances for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments. The allowances for doubtful accounts are determined using a combination of factors, including the length of time the receivables are outstanding, the current business environment, and historical experience. The company also has notes receivables with certain customers, which are included in “Accounts Receivable, net” in the company's consolidated balance sheets.
7. Debt
Short-term borrowings, including current portion of long-term debt, consists of the following at December 31:
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
2018
|
6.00% note, due 2020
|
|
$
|
209,322
|
|
|
$
|
—
|
|
Borrowings on lines of credit
|
|
60,000
|
|
|
180,000
|
|
Other short-term borrowings
|
|
62,109
|
|
|
66,257
|
|
|
|
$
|
331,431
|
|
|
$
|
246,257
|
|
Other short-term borrowings are primarily utilized to support working capital requirements. The weighted-average interest rate on these borrowings was 2.76% and 2.49% at December 31, 2019 and 2018, respectively.
The company has $200,000 in uncommitted lines of credit. There were $60,000 and $180,000 of outstanding borrowings under the uncommitted lines of credit at December 31, 2019 and December 31, 2018, 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 2.61% and 3.39% at December 31, 2019, and December 31, 2018, respectively.
The company has a commercial paper program and the maximum aggregate balance of commercial paper notes outstanding may not exceed the borrowing capacity of $1,200,000. The company had no outstanding borrowings under this program as of December 31, 2019 and 2018. The commercial paper program had a weighted-average effective interest rate of 2.24% and 2.93% at December 31, 2019, and December 31, 2018, respectively.
Long-term debt consists of the following at December 31:
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
2018
|
Revolving credit facility
|
|
$
|
10,000
|
|
|
$
|
—
|
|
North America asset securitization program
|
|
400,000
|
|
|
810,000
|
|
6.00% notes, due 2020
|
|
—
|
|
|
209,147
|
|
5.125% notes, due 2021
|
|
130,691
|
|
|
130,546
|
|
3.50% notes, due 2022
|
|
348,088
|
|
|
347,288
|
|
4.50% notes, due 2023
|
|
298,148
|
|
|
297,622
|
|
3.25% notes, due 2024
|
|
495,045
|
|
|
494,091
|
|
4.00% notes, due 2025
|
|
346,368
|
|
|
345,762
|
|
7.50% senior debentures, due 2027
|
|
109,857
|
|
|
109,776
|
|
3.875% notes, due 2028
|
|
494,648
|
|
|
494,095
|
|
Other obligations with various interest rates and due dates
|
|
7,284
|
|
|
788
|
|
|
|
$
|
2,640,129
|
|
|
$
|
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 at December 31, using quoted market prices, is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
2018
|
5.125% notes, due 2021
|
|
$
|
134,500
|
|
|
$
|
134,500
|
|
3.50% notes, due 2022
|
|
358,500
|
|
|
345,000
|
|
4.50% notes, due 2023
|
|
316,000
|
|
|
303,500
|
|
3.25% notes, due 2024
|
|
515,500
|
|
|
467,000
|
|
4.00% notes, due 2025
|
|
367,000
|
|
|
340,500
|
|
7.50% senior debentures, due 2027
|
|
135,000
|
|
|
128,000
|
|
3.875% notes, due 2028
|
|
516,500
|
|
|
458,500
|
|
The carrying amount of the company's short-term borrowings in various countries, 6.00% notes due 2020, revolving credit facility, North American asset securitization program, commercial paper program, 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 December 31, 2019), which is based on the company's credit ratings, or an effective interest rate of 2.72% at December 31, 2019. The facility fee, which is based on the company's credit ratings, was .20% of the total borrowing capacity at December 31, 2019. The company had $10,000 in outstanding borrowings under the revolving credit facility at December 31, 2019 and no outstanding borrowings under the revolving credit facility at December 31, 2018.
The company has a North America asset securitization program collateralized by accounts receivable of certain of its subsidiaries. The company may borrow up to $1,200,000 under the program, which matures in June 2021. The program is conducted through Arrow Electronics Funding Corporation (“AFC”), a wholly-owned, bankruptcy remote subsidiary. The 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 December 31, 2019), or an effective interest rate of 2.18% at December 31, 2019. The facility fee is .40% of the total borrowing capacity.
At December 31, 2019 and 2018, the company had $400,000 and $810,000, respectively, 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 $2,217,800 and $2,754,400, respectively, were held by AFC and were included in “Accounts receivable, net” in the company's consolidated balance sheets. Any accounts receivable held by AFC would likely not be available to other creditors of the company in the event of bankruptcy or insolvency proceedings before repayment of any outstanding borrowings under the 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 compliance with all covenants as of December 31, 2019 and is currently not aware of any events that would cause non-compliance with any covenants in the future.
During March 2018, the company redeemed $300,000 principal amount of its 3.00% notes due March 2018.
During 2017, the company completed the sale of $500,000 principal amount of 3.875% notes due in 2028. The net proceeds of the offering of $494,625 were used to redeem the company's 6.875% senior debenture due June 2018 and refinance a portion of the company's 6.00% notes due April 2020, 5.125% notes due March 2021, and 7.50% senior debentures due January 2027. The company recorded a loss on extinguishment of debt of $59,545 for 2017.
During 2017, the company completed the sale of $500,000 principal amount of 3.25% notes due in 2024. The net proceeds of the offering of $493,810 are expected to be used to redeem the company's debt obligations and for general corporate purposes.
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 are included in “Interest and other financing expense, net” in the company's consolidated statements of operations.
Annual payments of borrowings during each of the years 2020 through 2024 are $331,431, $536,881, $349,115, $308,207, and $495,053, respectively, and $950,873 for all years thereafter.
Interest and other financing expense, net, includes interest and dividend income of $54,815, $47,860, and $31,156 in 2019, 2018, and 2017, respectively. Interest paid, net of interest and dividend income, amounted to $209,512, $213,913, and $156,974 in 2019, 2018, and 2017, respectively.
8. Financial Instruments Measured at Fair Value
Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The company utilizes a fair value hierarchy, which maximizes the use of observable inputs and minimizes the use of unobservable inputs when measuring fair value. The fair value hierarchy has three levels of inputs that may be used to measure fair value:
|
|
Level 1
|
Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.
|
|
|
Level 2
|
Quoted prices in markets that are not active; or other inputs that are observable, either directly or indirectly, for substantially the full term of the asset or liability.
|
|
|
Level 3
|
Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable.
|
The following table presents assets (liabilities) measured at fair value on a recurring basis at December 31, 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
|
|
The following table presents assets (liabilities) measured at fair value on a recurring basis at December 31, 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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. During 2019, 2018, and 2017 the company recorded unrealized gains (losses) of $4,204, $(13,854), and $14,596, respectively, on equity securities held at the end of each year.
|
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 2, 3, and 4). The company tests these assets for impairment if indicators of potential impairment exist or at least annually if indefinite lived.
Derivative Instruments
The company uses various financial instruments, including derivative instruments, for purposes other than trading. Certain derivative instruments are designated at inception as hedges and measured for effectiveness both at inception and on an ongoing basis. Derivative instruments not designated as hedges are marked-to-market each reporting period with any unrealized gains or losses recognized in earnings.
Interest Rate Swaps
The company occasionally enters into interest rate swap transactions that convert certain fixed-rate debt to variable-rate debt or variable-rate debt to fixed-rate debt in order to manage its targeted mix of fixed- and floating-rate debt. The company uses the hypothetical derivative method to assess the effectiveness of its interest rate swaps designated as fair value hedges on a quarterly basis. The 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 change in fair value of interest rate swaps designated as cash flow hedges is recorded in the shareholders' equity section in the company's consolidated balance sheets in “Accumulated other comprehensive loss.”
As of December 31, 2019 and 2018, the company had one outstanding interest rate swap designated as a fair value hedge, the terms of which are as follows:
|
|
|
|
|
|
|
|
Maturity Date
|
|
Notional Amount
|
|
Interest Rate due from Counterparty
|
|
Interest Rate due to Counterparty
|
April 2020
|
|
50,000
|
|
6.000%
|
|
6 mo. USD LIBOR + 3.896%
|
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 the risk associated with changes in treasury rates and the impact of future interest payments on anticipated debt issuances to replace the company's 6.00% notes due to mature in April 2020. The changes in fair value of the 2019 swaps is recorded in the shareholders' equity section in the company's consolidated balance sheets in “Accumulated other comprehensive loss” and will be reclassified into income over the life of the anticipated debt issuance. A loss of $8,767 related to the 2019 swaps was recorded in other comprehensive loss, net of taxes, for the year ended December 31, 2019. The 2019 swaps had a fair value of $(11,563) at December 31, 2019.
Foreign Exchange Contracts
The company's foreign currency exposure relates primarily to international transactions where the currency collected from customers can be different from the currency used to purchase the product. The company's transactions in its foreign operations are denominated primarily in the following currencies: Euro, Indian Rupee, Canadian Dollar, Chinese Renminbi, and British Pound. The company enters into foreign exchange forward, option, or swap contracts (collectively, the “foreign exchange contracts”) to facilitate the hedging of foreign currency exposures resulting from inventory purchases and sales and mitigate the impact of changes in foreign currency exchange rates related to these transactions. Foreign exchange contracts generally have terms of no more than six months. Gains or losses on these contracts are deferred and recognized when the underlying future purchase or sale is recognized or when the corresponding asset or liability is revalued. The company does not enter into foreign exchange contracts for trading purposes. The risk of loss on a foreign exchange contract is the risk of nonperformance by the counterparties, which the company minimizes by limiting its counterparties to major financial institutions. The fair value of the foreign exchange contracts are estimated using market quotes. The notional amount of the foreign exchange contracts at December 31, 2019 and 2018 was $929,966 (inclusive of foreign exchange contracts designated as a net investment hedge) and $607,747, respectively.
Gains and losses related to non-designated foreign currency exchange contracts are recorded in “Cost of sales” in the company's consolidated statements of operations. Gains and losses related to foreign currency exchange contracts designated as cash flow hedges are recorded in “Cost of sales,” “Selling, general, and administrative expenses,” and “Interest and other financing expense,
net” based upon the nature of the underlying hedged transaction, in the company's consolidated statements of operations and were not material for 2019, 2018, and 2017.
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 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 included in “Interest and other financing expense, net” in the company's consolidated statements of operations.
During 2019, gains of $16,489, net of taxes, related to the net investment hedges were recorded in CTA within other comprehensive loss. During 2019, gains of $8,068 for outstanding net investment hedges were reclassified from CTA to “Interest and other financing expense, net” in the company's consolidated statements of operations. The net investment hedges had a fair value of $21,718 at December 31, 2019.
The effects of derivative instruments on the company's consolidated statements of operations and other comprehensive income are as follows for the years ended December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
2018
|
|
2017
|
Gain (loss) recognized in income
|
|
|
|
|
|
|
Foreign exchange contracts
|
|
$
|
12,171
|
|
|
$
|
6,940
|
|
|
$
|
(20,877
|
)
|
Interest rate swaps
|
|
(1,298
|
)
|
|
(1,236
|
)
|
|
(831
|
)
|
Total
|
|
$
|
10,873
|
|
|
$
|
5,704
|
|
|
$
|
(21,708
|
)
|
Gain (loss) recognized in other comprehensive income (loss) before reclassifications, net of tax
|
|
|
|
|
|
|
Foreign exchange contracts
|
|
$
|
16,985
|
|
|
$
|
(409
|
)
|
|
$
|
(2,022
|
)
|
Interest rate swaps
|
|
(8,767
|
)
|
|
—
|
|
|
(4,672
|
)
|
Total
|
|
$
|
8,218
|
|
|
$
|
(409
|
)
|
|
$
|
(6,694
|
)
|
Other
The carrying amount of cash and cash equivalents, accounts receivable, net, and accounts payable approximate their fair value due to the short maturities of these financial instruments.
9. Income Taxes
The provision for income taxes for the years ended December 31 consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
2018
|
|
2017
|
Current:
|
|
|
|
|
|
Federal
|
$
|
3,887
|
|
|
$
|
(12,345
|
)
|
|
$
|
119,298
|
|
State
|
(69
|
)
|
|
20,141
|
|
|
(6,156
|
)
|
International
|
134,808
|
|
|
178,767
|
|
|
134,987
|
|
|
$
|
138,626
|
|
|
$
|
186,563
|
|
|
$
|
248,129
|
|
Deferred:
|
|
|
|
|
|
Federal
|
$
|
(54,356
|
)
|
|
$
|
19,207
|
|
|
$
|
31,167
|
|
State
|
(2,710
|
)
|
|
312
|
|
|
13,535
|
|
International
|
6,778
|
|
|
(18,283
|
)
|
|
(6,290
|
)
|
|
(50,288
|
)
|
|
1,236
|
|
|
38,412
|
|
|
$
|
88,338
|
|
|
$
|
187,799
|
|
|
$
|
286,541
|
|
The principal causes of the difference between the U.S. federal statutory tax rate of 21% and effective income tax rates for the years ended December 31 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
2018
|
|
2017
|
United States
|
$
|
(557,592
|
)
|
|
$
|
186,677
|
|
|
$
|
115,664
|
|
International
|
445,762
|
|
|
722,696
|
|
|
578,253
|
|
Income (loss) before income taxes
|
$
|
(111,830
|
)
|
|
$
|
909,373
|
|
|
$
|
693,917
|
|
|
|
|
|
|
|
Provision (benefit) at statutory tax rate
|
$
|
(23,484
|
)
|
|
$
|
190,968
|
|
|
$
|
242,415
|
|
State taxes, net of federal benefit
|
(2,051
|
)
|
|
18,888
|
|
|
5,184
|
|
International effective tax rate differential
|
17,474
|
|
|
7,480
|
|
|
(88,444
|
)
|
U.S. tax (benefit) on foreign earnings
|
26,013
|
|
|
—
|
|
|
—
|
|
Deductible loss on wind down of business (c)
|
(11,311
|
)
|
|
—
|
|
|
—
|
|
Capital loss
|
—
|
|
|
60,757
|
|
|
—
|
|
Change in valuation allowance
|
1,305
|
|
|
(66,557
|
)
|
|
1,408
|
|
Other non-deductible expenses
|
1,585
|
|
|
14,128
|
|
|
12,700
|
|
Changes in tax accruals
|
10,418
|
|
|
(3,968
|
)
|
|
(7,973
|
)
|
Tax credits
|
(3,034
|
)
|
|
(7,884
|
)
|
|
(8,170
|
)
|
Non-deductible portion of impairment of goodwill
|
75,900
|
|
|
—
|
|
|
—
|
|
Tax Act's transition tax (a)
|
—
|
|
|
(28,323
|
)
|
|
196,010
|
|
Tax Act's impact on deferred taxes (b)
|
—
|
|
|
—
|
|
|
(71,261
|
)
|
Other
|
(4,477
|
)
|
|
2,310
|
|
|
4,672
|
|
Provision for income taxes
|
$
|
88,338
|
|
|
$
|
187,799
|
|
|
$
|
286,541
|
|
|
|
(a)
|
For the year ended December 31, 2017, the company accrued a provisional estimate of $196,010 of tax expense for the Tax Act's one-time transition tax on the foreign subsidiaries' accumulated, unremitted earnings in accordance with U.S. Securities and Exchange Commission's Staff Accounting Bulletin (“SAB 118”). Additionally, during the fourth quarter of 2018 the company recorded a $28,323 benefit upon finalizing its analysis of the impact from the Tax Act.
|
|
|
(b)
|
For the year ended December 31, 2017, the company accrued $71,261 in provisional tax benefit related to the net change in deferred tax liabilities stemming from the Tax Act's reduction of the U.S. federal tax rate from 35% to 21%, and disallowance of certain incentive based compensation tax deductibility under Internal Revenue Code Section 162(m).
|
|
|
(c)
|
The wind of down of the company’s personal computer and mobility asset disposition business resulted in the net tax benefit of $11,311 for the year ended December 31, 2019.
|
With the effective date of January 1, 2018, the Tax Act also introduced a provision to tax global intangible low-taxed income (“GILTI”) of foreign subsidiaries and a measure to tax certain intercompany payments under base erosion anti-abuse tax (“BEAT”) regime. For the period ended December 31, 2019, the company did not generate intercompany transactions that met BEAT threshold, but did generate federal GILTI tax in the amount of $31,042 for the year ended December 31, 2019, which was adversely affected by losses from the wind down of the personal computer and mobility asset disposition business. The company elected to account for GILTI tax as a current period cost.
After considering the impact of taxable losses, tax payments, tax credits, and other tax accruals, as of December 31, 2019, the company's remaining cash tax payable for the transition tax on foreign unremitted earnings is $30,857, which is reported as a long-term tax payable due to the company's intent to pay this federal transition tax over a period of eight years as permitted by the Tax Act.
At December 31, 2019, the company had a liability for unrecognized tax position of $52,986. The timing of the resolution of these uncertain tax positions is dependent on the tax authorities' income tax examination processes. Material changes are not expected, however, it is possible that the amount of unrecognized tax benefits with respect to uncertain tax positions could increase or decrease during 2020. Currently, the company is unable to make a reasonable estimate of when tax cash settlement would occur and how it would impact the effective tax rate.
A reconciliation of the beginning and ending amount of unrecognized tax benefits for the years ended December 31 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
2018
|
|
2017
|
Balance at beginning of year
|
$
|
35,879
|
|
|
$
|
24,361
|
|
|
$
|
31,534
|
|
Additions based on tax positions taken during a prior period
|
13,018
|
|
|
583
|
|
|
2,342
|
|
Reductions based on tax positions taken during a prior period
|
(86
|
)
|
|
(1,248
|
)
|
|
(1,242
|
)
|
Additions related to positions taken upon finalization of Tax Act during the current period
|
—
|
|
|
16,506
|
|
|
—
|
|
Additions based on tax positions taken during the current period
|
8,926
|
|
|
3,133
|
|
|
6,543
|
|
Reductions based on tax positions taken during the current period
|
(259
|
)
|
|
(233
|
)
|
|
—
|
|
Reductions related to settlement of tax matters
|
—
|
|
|
(136
|
)
|
|
(2,921
|
)
|
Reductions related to a lapse of applicable statute of limitations
|
(4,492
|
)
|
|
(7,087
|
)
|
|
(11,895
|
)
|
Balance at end of year
|
$
|
52,986
|
|
|
$
|
35,879
|
|
|
$
|
24,361
|
|
Interest costs related to unrecognized tax benefits are classified as a component of “Interest and other financing expense, net” in the company's consolidated statements of operations. In 2019, 2018, and 2017, the company recognized $1,469, $945, and $(2,792), respectively, of interest expense (benefit) related to unrecognized tax benefits. At December 31, 2019 and 2018, the company had accrued a liability of $5,639 and $4,189, respectively, for the payment of interest related to unrecognized tax benefits.
In many cases the company's uncertain tax positions are related to tax years that remain subject to examination by tax authorities. The following describes the open tax years, by major tax jurisdiction, as of December 31, 2019:
|
|
|
|
United States - Federal
|
|
2016 - present
|
United States - States
|
|
2013 - present
|
Germany (d)
|
|
2013 - present
|
Hong Kong
|
|
2013 - present
|
Italy (d)
|
|
2013 - present
|
Sweden
|
|
2014 - present
|
United Kingdom
|
|
2018 - present
|
(d) Includes federal as well as local jurisdictions.
Deferred income taxes are provided for the effects of temporary differences between the tax basis of an asset or liability and its reported amount in the consolidated balance sheets. These temporary differences result in taxable or deductible amounts in future years.
The deferred tax assets and liabilities consist of the following at December 31:
|
|
|
|
|
|
|
|
|
|
2019
|
|
2018
|
Deferred tax assets:
|
|
|
|
Net operating loss carryforwards
|
$
|
96,605
|
|
|
$
|
129,641
|
|
Capital loss carryforwards
|
57,031
|
|
|
60,606
|
|
Inventory adjustments
|
54,500
|
|
|
52,094
|
|
Allowance for doubtful accounts
|
12,797
|
|
|
17,016
|
|
Accrued expenses
|
27,998
|
|
|
27,088
|
|
Interest carryforward
|
13,059
|
|
|
5,008
|
|
Stock-based compensation awards
|
11,006
|
|
|
12,824
|
|
Other comprehensive income items
|
984
|
|
|
—
|
|
Integration and restructuring
|
788
|
|
|
2,547
|
|
Lease liability
|
74,935
|
|
|
—
|
|
Intangible assets
|
4,266
|
|
|
—
|
|
Other
|
13,913
|
|
|
—
|
|
|
367,882
|
|
|
306,824
|
|
Valuation allowance
|
(81,037
|
)
|
|
(80,471
|
)
|
Total deferred tax assets
|
$
|
286,845
|
|
|
$
|
226,353
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
Goodwill
|
$
|
(109,131
|
)
|
|
$
|
(121,346
|
)
|
Depreciation
|
(115,459
|
)
|
|
(131,848
|
)
|
Intangible assets
|
—
|
|
|
(18,754
|
)
|
Lease right-of-use assets
|
(69,491
|
)
|
|
—
|
|
Other comprehensive income items
|
—
|
|
|
(8,301
|
)
|
Other
|
—
|
|
|
(6,634
|
)
|
Total deferred tax liabilities
|
$
|
(294,081
|
)
|
|
$
|
(286,883
|
)
|
Total net deferred tax assets (liabilities)
|
$
|
(7,236
|
)
|
|
$
|
(60,530
|
)
|
At December 31, 2019, the company had international tax loss carryforwards of approximately $352,336, of which $11,010 have expiration dates ranging from 2020 to 2039, and the remaining $341,327 have no expiration date. Deferred tax assets related to these international tax loss carryforwards were $89,130 with a corresponding valuation allowance of $6,037. At December 31, 2019, the company had a valuation allowance of $4,835 related to other deferred tax assets.
At December 31, 2019, the company also had deferred tax assets of $485 related to U.S. Federal net operating loss carryforwards from acquired subsidiaries. These U.S. Federal net operating losses expire in various years beginning after 2028. Additionally, as of December 31, 2019, the company had U.S. state net operating loss carryforwards related to deferred tax assets of approximately $6,990 with a corresponding valuation allowance of $6,500. Valuation allowances are needed when deferred tax assets may not be realized due to the uncertainty of the timing and the ability of the company to generate sufficient future taxable income in certain tax jurisdictions.
The company historically considered the undistributed earnings of its foreign subsidiaries to be indefinitely reinvested and as a result had not provided for taxes on foreign earnings. However, to achieve greater cash management agility and to further advance business objectives, during the fourth quarter of 2019, the company reversed its assertion to indefinitely reinvest $3,300,000 of its foreign earnings, of which $761,000 was distributed to the U.S. by December 31, 2019. As a result, the company is no longer indefinitely reinvesting the residual identified $2,500,000 equivalent of foreign earnings as of December 31, 2019. Due to the change in the indefinite reinvestment assertion on $3,300,000 in foreign earnings, the company recorded a net tax benefit of $1,800 in 2019, caused by the fluctuation in foreign exchange rates used to convert these foreign earnings to U.S. dollars.
The company continues to indefinitely reinvest the remaining $1,100,000 of undistributed earnings of its foreign subsidiaries and recognizes that it may be subject to additional foreign withholding taxes and U.S. state income taxes, if it reverses its indefinite reinvestment assertion on these foreign earnings.
Income taxes paid, net of income taxes refunded, amounted to $188,601, $226,422, and $231,183 in 2019, 2018, and 2017, respectively.
10. 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 for the years ended December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
2018
|
|
2017
|
Restructuring and integration charges - current period actions
|
|
$
|
22,256
|
|
|
$
|
23,698
|
|
|
$
|
46,816
|
|
Restructuring and integration charges - actions taken in prior periods
|
|
636
|
|
|
7,517
|
|
|
6,191
|
|
Other charges
|
|
66,893
|
|
|
29,146
|
|
|
21,581
|
|
|
|
$
|
89,785
|
|
|
$
|
60,361
|
|
|
$
|
74,588
|
|
Restructuring and Integration Accrual Summary
The restructuring and integration accrual was $9,667 and $25,829 at December 31, 2019 and December 31, 2018, 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 year ended December 31, 2019, the company made $28,936 of payments related to restructuring and integration accruals. Substantially all amounts accrued at December 31, 2019 and all restructuring and integration charges for the year ending December 31, 2019 relate to the termination of personnel. Substantially all amounts accrued at December 31, 2019 are expected to be spent in cash within two years.
Other Charges
Included in restructuring, integration, and other charges for 2019 are other expenses of $66,893. The following items represent other charges and credits recorded to restructuring, integration, and other charges for the year ended December 31, 2019:
|
|
•
|
acquisition-related charges of $1,790 for professional and other fees directly related to recent acquisition activity as well as contingent consideration for acquisitions completed in prior years; and
|
|
|
•
|
relocation and other charges associated with centralization efforts to maximize operating efficiencies of $8,959; and
|
|
|
•
|
personnel charges of $45,951 related to the operating expense reduction program previously disclosed in July 2019. The accrual related to the operating expense reduction program was $24,252 at December 31, 2019, and all accrued amounts are expected to be paid within one year.
|
Included in restructuring, integration, and other charges for 2018 are other expenses of $29,146. The following items represent other charges and credits recorded to restructuring, integration, and other charges for the year ended December 31, 2018:
|
|
•
|
acquisition-related charges of $10,236 related to professional and other fees directly related to recent acquisition activity as well as contingent consideration for acquisitions completed in prior years; and
|
|
|
•
|
$11,188 in charges related to relocation and infrastructure upgrades of the company's data centers, and other centralization efforts to maximize operating efficiencies.
|
Included in restructuring, integration, and other charges for 2017 are other expenses of $21,581. The following items represent other charges and credits recorded to restructuring, integration, and other charges for the year ended December 31, 2017:
|
|
•
|
an additional expense of $2,071 to increase its accrual for the Wyle environmental obligation (see Note 16);
|
|
|
•
|
acquisition-related charges for 2017 of $7,658 related to contingent consideration for acquisitions completed in prior years, which were conditional upon the financial performance of the acquired companies and the continued employment of the selling shareholders, as well as professional and other fees directly related to recent acquisition activity; and
|
|
|
•
|
a net loss on real estate transaction of $3,144.
|
11. Shareholders' Equity
Accumulated Other Comprehensive Income (Loss)
The following table presents the changes in Accumulated other comprehensive income (loss), excluding noncontrolling interests:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign Currency Translation Adjustment and Other, Net
|
|
Unrealized
Gain (loss) on
Investment
Securities,
Net
|
|
Unrealized Gain (Loss) on Foreign Exchange Contracts Designated as Net Investment Hedges, Net
|
|
Unrealized Gain (Loss) on Interest Rate Swaps Designated as Cash Flow Hedges, Net
|
|
Employee Benefit Plan Items, Net
|
|
Total
|
Balance as of December 31, 2017
|
|
$
|
(104,931
|
)
|
|
$
|
14,946
|
|
|
$
|
—
|
|
|
$
|
(5,306
|
)
|
|
$
|
(29,592
|
)
|
|
$
|
(124,883
|
)
|
Reclassification to retained earnings (b)
|
|
—
|
|
|
(14,946
|
)
|
|
—
|
|
|
(1,185
|
)
|
|
(6,223
|
)
|
|
(22,354
|
)
|
Other comprehensive income (loss) before reclassifications (a)
|
|
(161,359
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
4,939
|
|
|
(156,420
|
)
|
Amounts reclassified into income (loss)
|
|
(37
|
)
|
|
—
|
|
|
—
|
|
|
931
|
|
|
3,314
|
|
|
4,208
|
|
Net change in accumulated other comprehensive income (loss) for the year ended December 31, 2018
|
|
(161,396
|
)
|
|
(14,946
|
)
|
|
—
|
|
|
(254
|
)
|
|
2,030
|
|
|
(174,566
|
)
|
Balance as of December 31, 2018
|
|
(266,327
|
)
|
|
—
|
|
|
—
|
|
|
(5,560
|
)
|
|
(27,562
|
)
|
|
(299,449
|
)
|
Other comprehensive income (loss) before reclassifications (a)
|
|
7,658
|
|
|
—
|
|
|
16,489
|
|
|
(8,767
|
)
|
|
(3,079
|
)
|
|
12,301
|
|
Amounts reclassified into income (loss) (c)
|
|
12,964
|
|
|
—
|
|
|
(6,121
|
)
|
|
980
|
|
|
17,114
|
|
|
24,937
|
|
Net change in accumulated other comprehensive income (loss) for the year ended December 31, 2019
|
|
20,622
|
|
|
—
|
|
|
10,368
|
|
|
(7,787
|
)
|
|
14,035
|
|
|
37,238
|
|
Balance as of December 31, 2019
|
|
$
|
(245,705
|
)
|
|
$
|
—
|
|
|
$
|
10,368
|
|
|
$
|
(13,347
|
)
|
|
$
|
(13,527
|
)
|
|
$
|
(262,211
|
)
|
|
|
(a)
|
Foreign currency translation adjustment includes intra-entity foreign currency transactions that are of a long-term investment nature of $(10,630) and $11,712 for 2019 and 2018, respectively.
|
|
|
(b)
|
Amount relates 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.
|
|
|
(c)
|
Foreign currency translation adjustment includes a reclassification of cumulative translation adjustments to earnings upon the sale of three foreign subsidiaries during 2019 of $19,602 (Note 3). Employee Benefit Plan items, net includes a pre-tax pension settlement expense of $20,111 ($15,257 net of tax) for 2019 (Note 14).
|
Common Stock Outstanding Activity
The following table sets forth the activity in the number of shares outstanding (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock Issued
|
|
Treasury Stock
|
|
Common Stock Outstanding
|
Common stock outstanding at December 31, 2016
|
|
125,424
|
|
|
36,511
|
|
|
88,913
|
|
Shares issued for stock-based compensation awards
|
|
—
|
|
|
(1,097
|
)
|
|
1,097
|
|
Repurchases of common stock
|
|
—
|
|
|
2,319
|
|
|
(2,319
|
)
|
Common stock outstanding at December 31, 2017
|
|
125,424
|
|
|
37,733
|
|
|
87,691
|
|
Shares issued for stock-based compensation awards
|
|
—
|
|
|
(709
|
)
|
|
709
|
|
Repurchases of common stock
|
|
—
|
|
|
3,209
|
|
|
(3,209
|
)
|
Common stock outstanding at December 31, 2018
|
|
125,424
|
|
|
40,233
|
|
|
85,191
|
|
Shares issued for stock-based compensation awards
|
|
—
|
|
|
(886
|
)
|
|
886
|
|
Repurchases of common stock
|
|
—
|
|
|
5,457
|
|
|
(5,457
|
)
|
Common stock outstanding at December 31, 2019
|
|
125,424
|
|
|
44,804
|
|
|
80,620
|
|
The company has 2,000,000 authorized shares of serial preferred stock with a par value of one dollar. There were no shares of serial preferred stock outstanding at December 31, 2019 and 2018.
Share-Repurchase Programs
The following table shows the company's Board of Directors (the “Board”) approved share-repurchase programs as of December 31, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
261,463
|
|
|
338,537
|
|
Total
|
|
$
|
1,000,000
|
|
|
$
|
661,463
|
|
|
$
|
338,537
|
|
12. Net Income Per Share
The following table presents the computation of net income per share on a basic and diluted basis for the years ended December 31 (shares in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
2018
|
|
2017
|
Net income (loss) attributable to shareholders
|
|
$
|
(204,087
|
)
|
|
$
|
716,195
|
|
|
$
|
402,176
|
|
Weighted-average shares outstanding - basic
|
|
83,568
|
|
|
87,476
|
|
|
88,681
|
|
Net effect of various dilutive stock-based compensation awards
|
|
—
|
|
|
968
|
|
|
1,085
|
|
Weighted-average shares outstanding - diluted
|
|
83,568
|
|
|
88,444
|
|
|
89,766
|
|
Net income (loss) per share:
|
|
|
|
|
|
|
Basic
|
|
$
|
(2.44
|
)
|
|
$
|
8.19
|
|
|
$
|
4.54
|
|
Diluted (a)
|
|
$
|
(2.44
|
)
|
|
$
|
8.10
|
|
|
$
|
4.48
|
|
|
|
(a)
|
As the company reported a net loss attributable to shareholders for 2019, basic and diluted net loss per share attributable to shareholders are the same and stock-based compensation awards for the issuance of 1,614 shares were excluded from the computation of net income per share on a diluted basis as their effect was anti-dilutive. Stock-based compensation awards for the issuance of 651 shares, and 380 shares for the years ended December 31, 2018, and 2017, respectively, were excluded from the computation of net income per share on a diluted basis as their effect was anti-dilutive.
|
13. Employee Stock Plans
Omnibus Plan
The company maintains the Arrow Electronics, Inc. 2004 Omnibus Incentive Plan (the “Omnibus Plan”), which provides an array of equity alternatives available to the company when designing compensation incentives. The Omnibus Plan permits the grant of cash-based awards, non-qualified stock options, incentive stock options (“ISOs”), stock appreciation rights, restricted stock, restricted stock units, performance shares, performance units, covered employee annual incentive awards, and other stock-based awards. The Compensation Committee of the company's Board of Directors (the “Compensation Committee”) determines the vesting requirements, termination provision, and the terms of the award for any awards under the Omnibus Plan when such awards are issued.
Under the terms of the Omnibus Plan, a maximum of 24,000,000 shares of common stock may be awarded. During August 2019, the company registered an additional 4,900,000 shares of common stock reserved for issuance pursuant to the Omnibus Plan. There were 7,622,287 and 3,885,282 shares available for grant under the Omnibus Plan as of December 31, 2019 and 2018, respectively. Generally, shares are counted against the authorization only to the extent that they are issued. Restricted stock, restricted stock units, performance shares, and performance units count against the authorization at a rate of 1.69 to 1.
The company recorded, as a component of “Selling, general, and administrative expenses,” amortization of stock-based compensation of $41,070, $46,238, and $39,122 in 2019, 2018, and 2017, respectively. The actual tax benefit realized from share-based payment awards during 2019, 2018, and 2017 was $7,308, $7,517, and $18,846, respectively.
Stock Options
Under the Omnibus Plan, the company may grant both ISOs and non-qualified stock options. ISOs may only be granted to employees of the company, its subsidiaries, and its affiliates. The exercise price for options cannot be less than the fair market value of Arrow's common stock on the date of grant. Options generally vest in equal installments over a four-year period. Options currently outstanding have contractual terms of ten years.
The following information relates to the stock option activity for the year ended December 31, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
Weighted- Average Exercise Price
|
|
Weighted- Average Remaining Contractual Life
|
|
Aggregate Intrinsic Value
|
Outstanding at December 31, 2018
|
1,631,977
|
|
|
$
|
63.69
|
|
|
|
|
|
|
|
Granted
|
365,273
|
|
|
|
81.05
|
|
|
|
|
|
|
|
Exercised
|
(330,750
|
)
|
|
|
51.13
|
|
|
|
|
|
|
|
Forfeited
|
(35,483
|
)
|
|
|
77.17
|
|
|
|
|
|
|
|
Outstanding at December 31, 2019
|
1,631,017
|
|
|
|
69.83
|
|
|
83
|
months
|
|
$
|
24,316
|
|
Exercisable at December 31, 2019
|
789,844
|
|
|
$
|
61.99
|
|
|
67
|
months
|
|
$
|
17,970
|
|
The aggregate intrinsic value in the table above represents the total pre-tax intrinsic value (the difference between the company's closing stock price on the last trading day of 2019 and the exercise price, multiplied by the number of in-the-money options) received by the option holders had all option holders exercised their options on December 31, 2019. This amount changes based on the market value of the company's stock.
The total intrinsic value of options exercised during 2019, 2018, and 2017 was $9,346, $5,368, and $15,320, respectively.
Cash received from option exercises during 2019, 2018, and 2017 was $16,911, $8,819, and $22,195, respectively, and is included within the financing activities section in the company's consolidated statements of cash flows.
The fair value of stock options was estimated using the Black-Scholes valuation model with the following weighted-average assumptions for the years ended December 31:
|
|
|
|
|
|
|
|
2019
|
|
2018
|
|
2017
|
Volatility (percent) (a)
|
24
|
|
24
|
|
26
|
Expected term (in years) (b)
|
5.6
|
|
5.5
|
|
5.1
|
Risk-free interest rate (percent) (c)
|
2.5
|
|
2.7
|
|
1.9
|
|
|
(a)
|
Volatility is measured using historical daily price changes of the company's common stock over the expected term of the option.
|
|
|
(b)
|
The expected term represents the weighted-average period the option is expected to be outstanding and is based primarily on the historical exercise behavior of employees.
|
|
|
(c)
|
The risk-free interest rate is based on the U.S. Treasury zero-coupon yield with a maturity that approximates the expected term of the option.
|
There is no expected dividend yield.
The weighted-average fair value per option granted was $22.68, $23.12, and $20.01 during 2019, 2018, and 2017, respectively.
Performance Awards
The Compensation Committee, subject to the terms and conditions of the Omnibus Plan, may grant performance share and/or performance unit awards (collectively “performance awards”). The fair value of a performance award is the fair market value of the company's common stock on the date of grant. Such awards will be earned only if performance goals over performance periods established by or under the direction of the Compensation Committee are met. The performance goals and periods may vary from participant-to-participant, group-to-group, and time-to-time. The performance awards will be delivered in common stock at the end of the service period based on the company's actual performance compared to the target metric and may be from 0% to 185%
of the initial award. Compensation expense is recognized using the graded vesting method over the three-year service period and is adjusted each period based on the current estimate of performance compared to the target metric.
Restricted Stock
Subject to the terms and conditions of the Omnibus Plan, the Compensation Committee may grant shares of restricted stock and/or restricted stock units. Restricted stock units are similar to restricted stock except that no shares are actually awarded to the participant on the date of grant. Shares of restricted stock and/or restricted stock units awarded under the Omnibus Plan may not be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated until the end of the applicable period of restriction established by the Compensation Committee and specified in the award agreement (and in the case of restricted stock units until the date of delivery or other payment). Compensation expense is recognized on a straight-line basis as shares become free of forfeiture restrictions (i.e. vest) generally over a four-year period.
Non-Employee Director Awards
The company's Board shall set the amounts and types of equity awards that shall be granted to all non-employee directors on a periodic, nondiscriminatory basis pursuant to the Omnibus Plan, as well as any additional amounts, if any, to be awarded, also on a periodic, nondiscriminatory basis, based on each of the following: the number of committees of the Board on which a non-employee director serves, service of a non-employee director as the chair of a Committee of the Board, service of a non-employee director as Chairman of the Board or Lead Director, or the first selection or appointment of an individual to the Board as a non-employee director. Non-employee directors currently receive annual awards of fully-vested restricted stock units valued at $175. All restricted stock units are settled in common stock following the director's separation from the Board.
Unless a non-employee director gives notice setting forth a different percentage, 50% of each director's annual retainer fee is deferred and converted into units based on the fair market value of the company's stock as of the date it was payable. A non-employee director can choose between one-year cliff vesting or keep the deferral until separation from the Board. After separation from the board, the deferral will be converted into a share of company stock and distributed to the non-employee director as soon as practicable following such date.
Summary of Non-Vested Shares
The following information summarizes the changes in non-vested performance shares, performance units, restricted stock, and restricted stock units for 2019:
|
|
|
|
|
|
|
|
|
Shares
|
|
Weighted- Average Grant Date Fair Value
|
Non-vested shares at December 31, 2018
|
1,092,865
|
|
|
$
|
69.87
|
|
Granted
|
534,898
|
|
|
|
72.92
|
|
Vested
|
(575,394
|
)
|
|
|
60.46
|
|
Forfeited
|
(41,877
|
)
|
|
|
77.11
|
|
Non-vested shares at December 31, 2019
|
1,010,492
|
|
|
$
|
76.55
|
|
The total fair value of shares vested during 2019, 2018, and 2017 was $46,676, $42,381, and $42,470, respectively.
As of December 31, 2019, there was $34,872 of total unrecognized compensation cost related to non-vested shares and stock options which is expected to be recognized over a weighted-average period of 2.2 years.
14. Employee Benefit Plans
The company maintains an unfunded Arrow supplemental executive retirement plan (“SERP”) under which the company will pay supplemental pension benefits to certain employees upon retirement. As of December 31, 2019, there were 9 current and 23 former corporate officers participating in this plan. The Board determines those employees who are eligible to participate in the Arrow SERP.
The Arrow SERP, as amended, provides for the pension benefits to be based on a percentage of average final compensation, based on years of participation in the Arrow SERP. The Arrow SERP permits early retirement, with payments at a reduced rate, based on age and years of service subject to a minimum retirement age of 55. Participants whose accrued rights under the Arrow SERP, prior to the 2002 amendment, which were adversely affected by the amendment, will continue to be entitled to such greater rights.
Additionally, as part of the company's acquisition of Wyle in 2000, Wyle provided retirement benefits for certain employees under a defined benefit plan. Benefits under this plan were frozen as of December 31, 2000.
In 2019, the company entered into a settlement for the remaining portion of its Wyle defined benefit plan under which participants received benefits through lump sum payments and an insurance annuity contract. The settlement of $59,311 was completed during October 2019, and the company recorded settlement expense of $20,111, which is recorded in the “Employee benefit plan expense, net” line item in the company's consolidated statements of operations. Prior to terminating the plan, the company adopted an amendment to the plan that provided eligible plan participants with the option to receive an early distribution of their pension benefits. The company has decided to terminate the plan to reduce administrative burdens.
In 2017, the company entered into a settlement for a portion of its Wyle defined benefit plan. Participants will receive benefits through an insurance annuity contract. The settlement of $42,985 was completed during October 2017, and the company incurred a settlement expense of $16,706, which is recorded in the “Employee benefit plan expense, net” line item in the company's consolidated statements of operations.
The company uses a December 31 measurement date for the Arrow SERP and the Wyle defined benefit plan. Pension information for the years ended December 31 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Arrow SERP
|
|
Wyle Defined Benefit Plan
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
Accumulated benefit obligation
|
$
|
93,385
|
|
|
$
|
82,951
|
|
|
$
|
—
|
|
|
$
|
59,399
|
|
Changes in projected benefit obligation:
|
|
|
|
|
|
|
|
Projected benefit obligation at beginning of year
|
90,578
|
|
|
97,607
|
|
|
59,399
|
|
|
60,374
|
|
Service cost
|
2,874
|
|
|
3,103
|
|
|
—
|
|
|
—
|
|
Interest cost
|
3,710
|
|
|
3,338
|
|
|
1,130
|
|
|
2,114
|
|
Actuarial loss (gain)
|
9,210
|
|
|
(8,874
|
)
|
|
1,500
|
|
|
(322
|
)
|
Benefits paid
|
(4,555
|
)
|
|
(4,596
|
)
|
|
(2,718
|
)
|
|
(2,767
|
)
|
Settlement
|
—
|
|
|
—
|
|
|
(59,311
|
)
|
|
—
|
|
Projected benefit obligation at end of year
|
101,817
|
|
|
90,578
|
|
|
—
|
|
|
59,399
|
|
Changes in plan assets:
|
|
|
|
|
|
|
|
Fair value of plan assets at beginning of year
|
—
|
|
|
—
|
|
|
54,925
|
|
|
46,663
|
|
Actual return on plan assets
|
—
|
|
|
—
|
|
|
7,606
|
|
|
29
|
|
Company contributions
|
—
|
|
|
—
|
|
|
—
|
|
|
11,000
|
|
Benefits paid
|
—
|
|
|
—
|
|
|
(2,718
|
)
|
|
(2,767
|
)
|
Settlement
|
—
|
|
|
—
|
|
|
(59,311
|
)
|
|
—
|
|
Fair value of plan assets at end of year
|
—
|
|
|
—
|
|
|
502
|
|
|
54,925
|
|
Funded status
|
$
|
(101,817
|
)
|
|
$
|
(90,578
|
)
|
|
$
|
502
|
|
|
$
|
(4,474
|
)
|
Amounts recognized in the company's consolidated balance sheets:
|
|
|
|
|
|
|
|
Current assets
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
502
|
|
|
$
|
—
|
|
Current liabilities
|
(4,535
|
)
|
|
(4,532
|
)
|
|
—
|
|
|
(4,474
|
)
|
Noncurrent liabilities
|
(97,282
|
)
|
|
(86,046
|
)
|
|
—
|
|
|
—
|
|
Net asset (liability) at end of year
|
(101,817
|
)
|
|
(90,578
|
)
|
|
502
|
|
|
(4,474
|
)
|
Components of net periodic pension cost:
|
|
|
|
|
|
|
|
Service cost
|
2,874
|
|
|
3,103
|
|
|
—
|
|
|
—
|
|
Interest cost
|
3,710
|
|
|
3,338
|
|
|
1,130
|
|
|
2,114
|
|
Expected return on plan assets
|
—
|
|
|
—
|
|
|
(954
|
)
|
|
(2,648
|
)
|
Amortization of net loss
|
100
|
|
|
1,531
|
|
|
820
|
|
|
702
|
|
Settlement charge
|
—
|
|
|
—
|
|
|
20,111
|
|
|
—
|
|
Net periodic pension cost
|
$
|
6,684
|
|
|
$
|
7,972
|
|
|
$
|
21,107
|
|
|
$
|
168
|
|
Weighted-average assumptions used to determine benefit obligation:
|
|
|
|
|
|
|
|
Discount rate
|
3.10
|
%
|
|
4.20
|
%
|
|
N/A
|
|
|
2.60
|
%
|
Rate of compensation increase
|
5.00
|
%
|
|
5.00
|
%
|
|
N/A
|
|
|
N/A
|
|
Expected return on plan assets
|
N/A
|
|
|
N/A
|
|
|
N/A
|
|
|
2.25
|
%
|
Weighted-average assumptions used to determine net periodic pension cost:
|
|
|
|
|
|
|
|
Discount rate
|
4.20
|
%
|
|
3.50
|
%
|
|
2.60
|
%
|
|
3.60
|
%
|
Rate of compensation increase
|
5.00
|
%
|
|
5.00
|
%
|
|
N/A
|
|
|
N/A
|
|
Expected return on plan assets
|
N/A
|
|
|
N/A
|
|
|
N/A
|
|
|
5.25
|
%
|
The amounts reported for net periodic pension cost and the respective benefit obligation amounts are dependent upon the actuarial assumptions used. The company reviews historical trends, future expectations, current market conditions, and external data to determine the assumptions. The discount rate represents the market rate for a high-quality corporate bond. The rate of compensation increase is determined by the company, based upon its long-term plans for such increases. The expected return on plan assets is based on current and expected asset allocations, historical trends, and projected returns on those assets. The actuarial assumptions used to determine the net periodic pension cost are based upon the prior year's assumptions used to determine the benefit obligation.
Benefit payments are expected to be paid as follows:
|
|
|
|
|
|
Arrow SERP
|
2020
|
$
|
4,535
|
|
2021
|
5,882
|
|
2022
|
6,037
|
|
2023
|
6,426
|
|
2024
|
6,611
|
|
2025-2029
|
34,043
|
|
The company has funded $94,255 of the Arrow SERP obligation for the former corporate officers in a rabbi trust comprised primarily of life insurance policies and mutual fund assets. Contributions to the rabbi trust are irrevocable by the company. In the event of bankruptcy by the company, the assets held by the rabbi trust are subject to claims made by the company's creditors.
Comprehensive Income Items
In 2019, 2018, and 2017, actuarial (gains) losses of $2,922, $(6,339), and $3,795, respectively, were recognized in comprehensive income, net of related taxes, related to the company's defined benefit plans. In 2019, 2018, and 2017, a reclassification adjustment of comprehensive income was recognized, net of related taxes, as a result of being recognized in net periodic pension cost for an actuarial loss of $15,797, $1,758, and $12,070, respectively.
Accumulated other comprehensive income (loss) at December 31, 2019 and 2018 includes unrecognized actuarial losses, net of related taxes, of $14,253 and $26,939, respectively, that have not yet been recognized in net periodic pension cost.
The actuarial loss included in accumulated other comprehensive income (loss), net of related taxes, which is expected to be recognized in net periodic pension cost during the year ended December 31, 2020 is $1,218.
Defined Contribution Plan
The company has defined contribution plans for eligible employees, which qualify under Section 401(k) of the Internal Revenue Code. The company's contribution to the plans, which are based on a specified percentage of employee contributions, amounted to $19,655, $20,523, and $13,627 in 2019, 2018, and 2017, respectively. The company made discretionary contributions to the company's defined contribution 401(k) plan during 2018, and 2017, which amounted to $7,503, and $7,574, respectively. Certain international subsidiaries maintain separate defined contribution plans for their employees and made contributions thereunder, which amounted to $21,025, $18,996, and $18,815 in 2019, 2018, and 2017, respectively.
15. 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. The company recorded operating lease cost of $101,729, $88,988, and $83,636 in 2019, 2018, and 2017, respectively.
The following amounts were recorded in the consolidated balance sheets at December 31, 2019:
|
|
|
|
|
|
|
|
|
Operating Leases
|
|
|
Right-of-use asset
|
|
$
|
277,953
|
|
|
|
|
Lease liability - current
|
|
56,268
|
|
Lease liability - non-current
|
|
251,672
|
|
Total operating lease liabilities
|
|
$
|
307,940
|
|
Maturities of operating lease liabilities at December 31, 2019 were as follows:
|
|
|
|
|
|
|
|
|
2020
|
|
$
|
75,841
|
|
2021
|
|
61,681
|
|
2022
|
|
47,903
|
|
2023
|
|
36,743
|
|
2024
|
|
29,399
|
|
Thereafter
|
|
129,834
|
|
Total lease payments
|
|
381,401
|
|
Less: imputed interest
|
|
(73,461
|
)
|
Total
|
|
$
|
307,940
|
|
|
|
|
As of December 31, 2018, the scheduled future minimum rental payments under operating leases with non-cancelable terms of a year or more were substantially consistent with those presented above.
Other information pertaining to leases consists of the following for the year ended December 31, 2019:
|
|
|
|
|
|
|
|
|
Supplemental Cash Flow Information
|
|
|
Cash paid for amounts included in the measurement of operating lease liabilities
|
|
$
|
98,171
|
|
Right-of-use assets obtained in exchange for operating lease obligations
|
|
40,860
|
|
|
|
|
Operating Lease Term and Discount Rate
|
|
|
Weighted-average remaining lease term in years
|
|
7
|
|
Weighted-average discount rate
|
|
5.0
|
%
|
16. Contingencies
Environmental Matters
In connection with the purchase of Wyle in August 2000, the company acquired certain of the then outstanding obligations of Wyle, including Wyle's indemnification obligations to the purchasers of its Wyle Laboratories division for environmental clean-up costs associated with any then existing contamination or violation of environmental regulations. Under the terms of the company's purchase of Wyle from the sellers, the sellers agreed to indemnify the company for certain costs associated with the Wyle environmental obligations, among other things. In 2012, the company entered into a settlement agreement with the sellers pursuant to which the sellers paid $110,000 and the company released the sellers from their indemnification obligation. As part of the settlement agreement the company accepted responsibility for any potential subsequent costs incurred related to the Wyle matters. The company is aware of two Wyle Laboratories facilities (in Huntsville, Alabama and Norco, California) at which contaminated groundwater was identified and will require environmental remediation. In addition, the company was named as a defendant in
several lawsuits related to the Norco facility and a third site in El Segundo, California which have now been settled to the satisfaction of the parties.
The company expects these environmental liabilities to be resolved over an extended period of time. Costs are recorded for environmental matters when it is probable that a liability has been incurred and the amount of the liability can be reasonably estimated. Accruals for environmental liabilities are adjusted periodically as facts and circumstances change, assessment and remediation efforts progress, or as additional technical or legal information becomes available. Environmental liabilities are difficult to assess and estimate due to various unknown factors such as the timing and extent of remediation, improvements in remediation technologies, and the extent to which environmental laws and regulations may change in the future. Accordingly, the company cannot presently fully estimate the ultimate potential costs related to these sites until such time as a substantial portion of the investigation at the sites is completed and remedial action plans are developed and, in some instances, implemented. To the extent that future environmental costs exceed amounts currently accrued by the company, net income would be adversely impacted and such impact could be material.
Accruals for environmental liabilities are included in “Accrued expenses” and “Other liabilities” in the company's consolidated balance sheets. The company has determined that there is no amount within the environmental liability range that is a better estimate than any other amount, and therefore has recorded the accruals at the minimum amount of the ranges.
As successor-in-interest to Wyle, the company is the beneficiary of various Wyle insurance policies that covered liabilities arising out of operations at Norco and Huntsville. To date, the company has recovered approximately $37,000 from certain insurance carriers relating to environmental clean-up matters at the Norco site. The company is considering the best way to pursue its potential claims against insurers regarding liabilities arising out of operations at Huntsville. The resolution of these matters will likely take several years. The company has not recorded a receivable for any potential future insurance recoveries related to the Norco and Huntsville environmental matters, as the realization of the claims for recovery are not deemed probable at this time.
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 $6,800 was spent to date and the company currently anticipates no additional investigative and related expenditures. The cost of subsequent remediation at the site is estimated to be between $3,600 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.
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. Subsequent to the decree, a Remedial Investigation Work Plan was approved by DTSC in April 2005, the required investigations were performed, and a final Remedial Investigation Report was submitted early in 2008. 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 off-site area. In September 2013, the DTSC approved the final Remedial Action Plan (“RAP”) for actions in five on-site areas and one off-site area. As of 2018, the remediation measures described in the RAP had been implemented and were being monitored. A Five Year Review (“FYR”) of the HCS 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 a key off-site area identified in the RAP. This exception triggered the need for additional off-site remediation that began in 2018 and was completed in mid-2019. Routine progress monitoring of groundwater and soil gas continue on-site and off-site.
Approximately $73,800 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 $7,700 to $18,400. 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.
Other
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”), conducted an internal investigation and terminated or disciplined the employees involved. The company has cooperated fully and intends to continue to cooperate fully with OFAC and BIS with respect to their review, which may result in the imposition of penalties, which we are currently not able to estimate.
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.
17. 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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
2018
|
|
2017
|
Components:
|
|
|
|
|
|
|
Americas
|
|
$
|
7,167,295
|
|
|
$
|
7,816,533
|
|
|
$
|
7,010,385
|
|
EMEA (a)
|
|
5,412,379
|
|
|
5,733,222
|
|
|
4,868,862
|
|
Asia-Pacific
|
|
7,671,061
|
|
|
7,307,096
|
|
|
6,451,209
|
|
Global components
|
|
$
|
20,250,735
|
|
|
$
|
20,856,851
|
|
|
$
|
18,330,456
|
|
|
|
|
|
|
|
|
ECS:
|
|
|
|
|
|
|
Americas
|
|
$
|
5,632,025
|
|
|
$
|
5,742,526
|
|
|
$
|
5,388,888
|
|
EMEA (a)
|
|
3,034,087
|
|
|
3,077,391
|
|
|
2,835,219
|
|
Global ECS
|
|
$
|
8,666,112
|
|
|
$
|
8,819,917
|
|
|
$
|
8,224,107
|
|
Consolidated (b)
|
|
$
|
28,916,847
|
|
|
$
|
29,676,768
|
|
|
$
|
26,554,563
|
|
(a) Defined as Europe, the Middle East, and Africa.
|
|
(b)
|
Includes sales related to the United States of $11,511,611, $12,157,306, and $11,038,930 for 2019, 2018, and 2017, respectively.
|
Operating income (loss), by segment, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
2018
|
|
2017
|
Operating income (loss):
|
|
|
|
|
|
Global components (c)
|
$
|
(10,199
|
)
|
|
$
|
1,007,638
|
|
|
$
|
801,027
|
|
Global ECS
|
426,192
|
|
|
427,605
|
|
|
444,710
|
|
Corporate (d)
|
(308,297
|
)
|
|
(287,731
|
)
|
|
(300,001
|
)
|
Consolidated
|
$
|
107,696
|
|
|
$
|
1,147,512
|
|
|
$
|
945,736
|
|
|
|
(c)
|
Global components operating income for 2019 includes impairments of $698,246, charges of $22,332 related to a subset of inventory held by its digital business, and a charge $18,037 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. Also included are restructuring, integration, and other charges of $10,778 and a loss on disposition of businesses, net, of $19,384 for 2019.
|
|
|
(d)
|
Includes restructuring, integration, and other charges of $79,007, $60,361, and $74,588 in 2019, 2018, and 2017, respectively. Also included in 2019, 2018, and 2017 was a net loss on the disposition of businesses, net of $1,868, $3,604, and $21,000, respectively.
|
Total assets, by segment, at December 31 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
2018
|
Global components
|
|
$
|
10,253,006
|
|
|
$
|
11,425,579
|
|
Global ECS
|
|
5,479,919
|
|
|
5,632,102
|
|
Corporate
|
|
667,871
|
|
|
726,764
|
|
Consolidated
|
|
$
|
16,400,796
|
|
|
$
|
17,784,445
|
|
Net property, plant, and equipment, by geographic area, is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
2018
|
Americas (e)
|
|
$
|
594,357
|
|
|
$
|
673,228
|
|
EMEA
|
|
157,550
|
|
|
110,996
|
|
Asia-Pacific
|
|
51,203
|
|
|
40,476
|
|
Consolidated
|
|
$
|
803,110
|
|
|
$
|
824,700
|
|
|
|
(e)
|
Includes net property, plant, and equipment related to the United States of $591,818 and $670,201 at December 31, 2019 and 2018, respectively.
|
18. Quarterly Financial Data (Unaudited)
The company operates on a quarterly calendar that closes on the Saturday closest to the end of the calendar quarter.
A summary of the company's consolidated quarterly results of operations is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter
|
|
Second Quarter (b)
|
|
Third Quarter (c)
|
|
Fourth Quarter (d)
|
2019
|
|
|
|
|
|
|
|
|
Sales
|
|
$
|
7,155,991
|
|
|
$
|
7,344,548
|
|
|
$
|
7,078,118
|
|
|
$
|
7,338,190
|
|
Gross profit
|
|
861,688
|
|
|
814,909
|
|
|
798,841
|
|
|
822,943
|
|
Operating income (loss)
|
|
245,560
|
|
|
(549,190
|
)
|
|
173,218
|
|
|
238,108
|
|
Net income (loss) attributable to shareholders
|
|
140,735
|
|
|
(548,966
|
)
|
|
92,131
|
|
|
112,013
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share (a):
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
1.65
|
|
|
$
|
(6.48
|
)
|
|
$
|
1.11
|
|
|
$
|
1.37
|
|
Diluted
|
|
$
|
1.63
|
|
|
$
|
(6.48
|
)
|
|
$
|
1.10
|
|
|
$
|
1.36
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
|
|
|
|
|
|
|
Sales
|
|
$
|
6,875,613
|
|
|
$
|
7,392,528
|
|
|
$
|
7,490,445
|
|
|
$
|
7,918,182
|
|
Gross profit
|
|
868,944
|
|
|
932,820
|
|
|
923,778
|
|
|
975,370
|
|
Operating income
|
|
235,995
|
|
|
286,827
|
|
|
290,310
|
|
|
334,380
|
|
Net income attributable to shareholders
|
|
139,094
|
|
|
169,915
|
|
|
176,533
|
|
|
230,653
|
|
|
|
|
|
|
|
|
|
|
Net income per share (a):
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
1.58
|
|
|
$
|
1.94
|
|
|
$
|
2.02
|
|
|
$
|
2.66
|
|
Diluted
|
|
$
|
1.56
|
|
|
$
|
1.92
|
|
|
$
|
1.99
|
|
|
$
|
2.63
|
|
Amounts discussed below are before tax except for amounts related to the effects of the Tax Act.
|
|
(a)
|
Quarterly net income per share is calculated using the weighted-average shares outstanding during each quarterly period, while net income per share for the full year is calculated using the weighted-average shares outstanding during the year. Therefore, the sum of the net income per share for each of the four quarters may not equal the net income per share for the full year. As the company reported a net loss attributable to shareholders for the second quarter of 2019, basic and diluted net loss per share attributable to shareholders are the same.
|
|
|
(b)
|
Net income attributable to shareholders includes impairments of $697,993, a charge of $20,114 related to a subset of inventory held by its digital business, and a charge of $15,851 related to the receivables and inventory of its financing solutions business during the second quarter of 2019.
|
|
|
(c)
|
Net income attributable to shareholders includes a loss on disposition of businesses, net, of $14,573 and personnel charges of $30,906 related to the operating expense reduction program, previously disclosed in July 2019, during the third quarter of 2019.
|
|
|
(d)
|
Net income attributable to shareholders includes a U.S. Tax Act benefit of $28,323 during the fourth quarter of 2018. Net income attributable to shareholders includes a pension settlement of $20,111 and loss on disposition of businesses, net of $5,813, and tax expense of $18,193 during the fourth quarter of 2019 related to the repatriation of foreign earnings and the wind down of the personal computer and mobility asset disposition business.
|
19. Subsequent Events
During the first quarter of 2020, the company entered into an EMEA asset securitization program under which it will continuously sell its interest in designated pools of trade accounts receivable 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 an unaffiliated financial institution and a conduit administered by an unaffiliated financial institution on a monthly basis. The company may sell up to €400,000 under the EMEA asset securitization program, which matures in January 2023. The program is conducted through Arrow EMEA Funding Corp B.V., a bankruptcy remote entity. The company is deemed the primary beneficiary of Arrow EMEA Funding Corp B.V. as the company has both the power to direct the activities that most significantly impact the entity’s economic performance and the obligation to absorb losses or the right to receive the benefits that could potentially be significant to the entity from the transfer of the trade accounts receivable into the special purpose entity. Accordingly, Arrow EMEA Funding Corp B.V. is included in the company’s consolidated financial statements.
Receivables sold under the programs 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 entire purchase price is paid in cash when the receivables are sold. Certain unsold receivables held on Arrow EMEA Funding Corp B.V. are pledged as collateral to the unaffiliated financial institution.
The company continues servicing the receivables sold and in exchange receives a servicing fee under the program. Servicing fees related to the EMEA securitization program are not expected to be material. 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.