Arrow Electronics(ARW) - 2023 Q3 - Quarterly Report

Cover Page - This is a Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2023, filed by Arrow Electronics, Inc.[2] - As of October 26, 2023, there were 54,159,399 shares of Common Stock outstanding[5] Part I. Financial Information Financial Statements The company's Q3 2023 financial statements show sales and net income declines, increased inventories, and improved operating cash flow Consolidated Statements of Operations For Q3 2023, Arrow Electronics reported a 13.6% decrease in sales to $8.01 billion and a 42.0% drop in net income to $198.7 million, with diluted EPS falling to $3.53 Consolidated Statements of Operations Highlights (Q3 & Nine Months) | Metric (In thousands, except per share data) | Q3 2023 | Q3 2022 | % Change | Nine Months 2023 | Nine Months 2022 | % Change | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Sales | $8,007,019 | $9,266,432 | -13.6% | $25,257,963 | $27,801,399 | -9.1% | | Gross Profit | $979,597 | $1,186,912 | -17.5% | $3,159,468 | $3,630,630 | -13.0% | | Operating Income | $340,083 | $502,694 | -32.3% | $1,154,485 | $1,545,898 | -25.3% | | Net Income Attributable to Shareholders | $198,659 | $342,399 | -42.0% | $708,968 | $1,077,482 | -34.2% | | Diluted EPS | $3.53 | $5.27 | -33.0% | $12.28 | $16.12 | -23.8% | Consolidated Balance Sheets As of September 30, 2023, total assets were $20.64 billion, driven by reduced accounts receivable and increased inventories, with total debt at $4.20 billion Balance Sheet Key Figures (In thousands) | Account | Sep 30, 2023 | Dec 31, 2022 | | :--- | :--- | :--- | | Total Current Assets | $17,305,960 | $18,340,340 | | Accounts receivable, net | $10,663,164 | $12,322,717 | | Inventories | $5,805,520 | $5,319,369 | | Total Assets | $20,638,360 | $21,763,182 | | Total Current Liabilities | $11,936,031 | $12,389,604 | | Accounts payable | $9,090,554 | $10,460,419 | | Short-term borrowings | $1,588,662 | $589,883 | | Long-term debt | $2,615,001 | $3,182,964 | | Total Shareholders' Equity | $5,485,261 | $5,546,357 | Consolidated Statements of Cash Flows For the first nine months of 2023, the company generated $418.7 million in cash from operating activities, a significant turnaround from the $141.8 million used in 2022, primarily due to decreased accounts receivable Cash Flow Summary (Nine Months Ended, In thousands) | Cash Flow Activity | Sep 30, 2023 | Oct 1, 2022 | | :--- | :--- | :--- | | Net cash provided by (used for) operating activities | $418,707 | $(141,764) | | Net cash used for investing activities | $(46,813) | $(33,975) | | Net cash (used for) provided by financing activities | $(214,749) | $455,827 | | Net increase in cash and cash equivalents | $156,379 | $111,791 | Notes to Consolidated Financial Statements Key notes detail accounting policies, segment performance, debt structure, and contingencies, highlighting sales declines and a significant legal settlement - Goodwill totaled $2.02 billion as of September 30, 2023, with $869.1 million allocated to Global Components and $1.15 billion to Global ECS[25] - The company has an EMEA asset securitization program with a capacity of up to €600.0 million, under which it sells interests in trade accounts receivable[31] - In Q1 2023, the company issued $500.0 million of 6.125% notes due 2026 and repaid $300.0 million of 4.50% notes due March 2023[49] - During Q3 2023, the company received $62.2 million in settlement funds related to a capacitor price-fixing lawsuit, recorded as a reduction to SG&A expenses[93] Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes the 13.6% consolidated sales decrease in Q3 2023 to declines in both segments, while maintaining strong liquidity Consolidated Sales by Segment (Q3 2023 vs Q3 2022, in millions) | Segment | Q3 2023 Sales | Q3 2022 Sales | % Change | | :--- | :--- | :--- | :--- | | Global components | $6,245 | $7,300 | (14.5)% | | Global ECS | $1,762 | $1,966 | (10.4)% | | Consolidated | $8,007 | $9,266 | (13.6)% | - Global components sales declined due to softer demand in the Americas and Asia/Pacific, while the EMEA region saw growth, with the Americas decline linked to decreased shortage market activity and softer demand in transportation, communications, and computing verticals[117][120] - Global ECS sales decreased due to a product mix shift from hardware to more software and cloud solutions, where a higher proportion of revenue is recognized on a net fee (agency) basis[117] - Operating expenses decreased, partly due to a $62.2 million legal settlement, partially offset by a $36.8 million increase in the allowance for credit losses in Q3 2023 compared to the prior year[122][115] - The company believes its current cash, borrowing capacity, and future operating cash flows are sufficient to meet its needs for the next 12 months, with over $1.9 billion in committed and undrawn liquidity[138] - The company repurchased 5.7 million shares for $700.9 million in the first nine months of 2023, with approximately $621.6 million remaining available under the share-repurchase program as of September 30, 2023[154][84] Quantitative and Qualitative Disclosures about Market Risk The company states that there were no material changes in its market risk exposures compared to its 2022 Annual Report on Form 10-K - There were no material changes in market risk for changes in foreign currency exchange rates and interest rates from the information provided in the company's Annual Report on Form 10-K for the year ended December 31, 2022[160] Controls and Procedures Management concluded the company's disclosure controls and procedures were effective as of September 30, 2023, with no material changes to internal control over financial reporting - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of September 30, 2023[162] - There were no changes in the company's internal control over financial reporting during the quarter that materially affected, or are reasonably likely to materially affect, these controls[163] Part II. Other Information Legal Proceedings This section incorporates by reference information on contingencies and legal matters detailed in Note K of the financial statements - Information regarding legal proceedings is set forth in Note K, "Contingencies," in the Notes to Consolidated Financial Statements[166] Risk Factors The company reports no material changes to its risk factors from those disclosed in its 2022 Annual Report on Form 10-K - There have been no material changes to the company's risk factors from those discussed in the Annual Report on Form 10-K for the year ended December 31, 2022[167] Unregistered Sales of Equity Securities and Use of Proceeds During Q3 2023, the company repurchased approximately 1.55 million shares, with $621.6 million remaining available under its $1.0 billion authorized program Share Repurchase Activity (Q3 2023) | Period | Total Shares Purchased (thousands) | Average Price Paid per Share | | :--- | :--- | :--- | | July 30 - Aug 26, 2023 | 660,594 | $128.67 | | Aug 27 - Sep 30, 2023 | 892,440 | $128.86 | | Total | 1,553,034 | N/A | - On January 31, 2023, the Board of Directors approved a $1.0 billion increase to the share-repurchase program, with $621.6 million remaining available for repurchase as of September 30, 2023[169] Other Information The company reports that no directors or officers adopted, amended, or terminated a Rule 10b5-1 or non-Rule 10b5-1 trading arrangement during Q3 2023 - During the quarter ended September 30, 2023, no directors or officers adopted, amended, or terminated a Rule 10b5-1 trading arrangement or non-Rule 10b5-1 trading arrangement[170] Exhibits This section lists the exhibits filed with the 10-Q report, including amendments to credit agreements, executive compensation plans, and required certifications - Exhibits filed include an amendment to the EMEA Funding Corp B.V. agreement, forms of executive retention and severance agreements, and CEO/CFO certifications pursuant to Sarbanes-Oxley Sections 302 and 906[172] Signature - The report was signed on November 2, 2023, by Rajesh K. Agrawal, Senior Vice President and Chief Financial Officer, and Richard A. Seidlitz, Vice President, Corporate Controller, and Principal Accounting Officer[178]