Unassociated Document

UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.  20549

FORM 10-Q

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

For the quarterly period ended July 3, 2010

OR

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

For the transition period from            to           

Commission file number 1-4482

ARROW ELECTRONICS, INC.
(Exact name of registrant as specified in its charter)

New York
  
11-1806155
(State or other jurisdiction of
  
(I.R.S. Employer
incorporation or organization)
  
Identification Number)

50 Marcus Drive, Melville, New York
  
11747
(Address of principal executive offices)
  
(Zip Code)

(631) 847-2000
(Registrant's telephone number, including area code)

No Changes
(Former name, former address and former fiscal year, if changed since last report)

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes x   No ¨
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of "large accelerated filer," "accelerated filer," and "smaller reporting company" in Rule 12b-2 of the Exchange Act:  
 
Large accelerated filer x
Accelerated filer ¨
   
Non-accelerated filer ¨  (do not check if a smaller reporting company)
Smaller reporting company ¨

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

There were 117,817,045 shares of Common Stock outstanding as of July 23, 2010.

 
 
 

ARROW ELECTRONICS, INC.

INDEX

   
Page
Part I.
Financial Information
  
       
 
Item 1.
Financial Statements
  
   
Consolidated Statements of Operations
3
   
Consolidated Balance Sheets
4
   
Consolidated Statements of Cash Flows
5
   
Notes to Consolidated Financial Statements
6
       
 
Item 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations
23
       
 
Item 3.
Quantitative and Qualitative Disclosures about Market Risk
31
       
 
Item 4.
Controls and Procedures
32
       
Part II.
Other Information
  
       
 
Item 1A.
Risk Factors
33
       
 
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
33
       
 
Item 6.
Exhibits
34
       
Signature
  
35
 
 
2
 

PART I.  FINANCIAL INFORMATION

Item 1.Financial Statements.

ARROW ELECTRONICS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands except per share data)
(Unaudited)
 
   
Quarter Ended
    
Six Months Ended
  
   
July 3,
2010
    
July 4,
2009
    
July 3,
2010
    
July 4,
2009
  
                         
Sales
   $ 4,613,307     $ 3,391,823     $ 8,848,673     $ 6,809,251  
Costs and expenses:
                                
Cost of sales
     4,024,831       2,989,629       7,722,264       5,976,061  
Selling, general and administrative expenses
     375,876       315,028       742,625       644,142  
Depreciation and amortization
     17,760       16,716       36,237       33,343  
Restructuring, integration, and other charges
     5,649       19,252       13,086       43,270  
      4,424,116       3,340,625       8,514,212       6,696,816  
Operating income
     189,191       51,198       334,461       112,435  
Equity in earnings of affiliated companies
     1,785       1,027       2,933       1,350  
Loss on prepayment of debt
     1,570       -       1,570       -  
Interest and other financing expense, net
     19,355       17,082       38,441       40,117  
Income before income taxes
     170,051       35,143       297,383       73,668  
Provision for income taxes
     53,858       14,061       94,149       25,850  
Consolidated net income
     116,193       21,082       203,234       47,818  
Noncontrolling interests
     -       (15 )     (5 )     (20 )
Net income attributable to shareholders
   $ 116,193     $ 21,097     $ 203,239     $ 47,838  
Net income per share:
                                
Basic
   $ .97     $ .18     $ 1.70     $ .40  
Diluted
   $ .96     $ .18     $ 1.68     $ .40  
Average number of shares outstanding:
                                
Basic
     119,228       119,783       119,731       119,675  
Diluted
     120,585       120,317       121,270       120,042  
 
See accompanying notes.

 
3
 

ARROW ELECTRONICS, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands except par value)
 
July 3,
2010
  
December 31,
2009
  
 
(Unaudited)
          
ASSETS
                
Current assets:
                
Cash and cash equivalents
  
$
576,664
    
$
1,137,007
  
Accounts receivable, net
    
3,372,945
      
3,136,141
  
Inventories
    
1,805,779
      
1,397,668
  
Other current assets
    
215,168
      
168,812
  
  Total current assets
    
5,970,556
      
5,839,628
  
                 
Property, plant and equipment, at cost:
                
Land
    
23,192
      
23,584
  
Buildings and improvements
    
128,605
      
137,539
  
Machinery and equipment
    
806,936
      
779,105
  
     
958,733
      
940,228
  
Less: Accumulated depreciation and amortization
    
(482,923
)
    
(479,522
)
Property, plant and equipment, net
    
475,810
      
460,706
  
                 
Investments in affiliated companies
    
53,875
      
53,010
  
Cost in excess of net assets of companies acquired
    
1,019,292
      
926,296
  
Other assets
    
468,477
      
482,726
  
Total assets
  
$
7,988,010
    
$
7,762,366
  
                 
LIABILITIES AND EQUITY
                
Current liabilities:
                
Accounts payable
  
$
3,028,403
    
$
2,763,237
  
Accrued expenses
    
496,667
      
445,914
  
Short-term borrowings, including current portion of long-term debt
    
77,344
      
123,095
  
Total current liabilities
    
3,602,414
      
3,332,246
  
Long-term debt
    
1,262,865
      
1,276,138
  
Other liabilities
    
196,604
      
236,685
  
                 
Equity:
                
Shareholders' equity:
                
Common stock, par value $1:
                
Authorized – 160,000 shares in 2010 and 2009
                
Issued – 125,337 and 125,287 shares in 2010 and 2009, respectively
    
125,337
      
125,287
  
Capital in excess of par value
    
1,048,253
      
1,056,704
  
Treasury stock (7,520 and 5,459 shares in 2010 and 2009, respectively), at cost
    
(233,458
)
    
(179,152
)
Retained earnings
    
1,897,756
      
1,694,517
  
Foreign currency translation adjustment
    
97,574
      
229,019
  
Other
    
(9,335
)
    
(9,415
)
Total shareholders' equity
    
2,926,127
      
2,916,960
  
Noncontrolling interests
    
-
      
337
  
Total equity
    
2,926,127
      
2,917,297
  
Total liabilities and equity
  
$
7,988,010
    
$
7,762,366
  
 
See accompanying notes.

 
4
 

ARROW ELECTRONICS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
   
Six Months Ended
  
   
July 3,
2010
    
July 4,
 2009
  
                 
Cash flows from operating activities:
                
Consolidated net income
  
$
203,234
    
$
47,818
  
Adjustments to reconcile consolidated net income to net cash provided by (used for) operations:
                
Depreciation and amortization
    
36,237
      
33,343
  
Amortization of stock-based compensation
    
17,053
      
13,047
  
Amortization of deferred financing costs and discount on notes
    
1,104
      
1,110
  
Equity in earnings of affiliated companies
    
(2,933
)
    
(1,350
)
Deferred income taxes
    
24,976
      
17,667
  
Restructuring, integration, and other charges
    
9,640
      
32,193
  
Excess tax benefits from stock-based compensation arrangements
    
(1,728
)
    
2,157
  
Loss on prepayment of debt
    
964
      
-
  
Change in assets and liabilities, net of effects of acquired businesses:
                
Accounts receivable
    
(300,728
)
    
546,654
  
Inventories
    
(445,872
)
    
263,663
  
Accounts payable
    
307,116
      
(253,465
)
Accrued expenses
    
30,034
      
(143,462
)
Other assets and liabilities
    
(96,638
)
    
(22,386
)
Net cash provided by (used for) operating activities
    
(217,541
)
    
536,989
  
                 
Cash flows from investing activities:
                
Acquisition of property, plant and equipment
    
(56,620
)
    
(72,369
)
Cash consideration paid for acquired businesses
    
(172,353
)
    
-
  
Proceeds from sale of facilities
    
16,971
      
1,153
  
Other
    
-
      
(272
)
Net cash used for investing activities
    
(212,002
)
    
(71,488
)
                 
Cash flows from financing activities:
                
Change in short-term and other borrowings
    
(7,794
)
    
(7,509
)
Repayment of long-term bank borrowings
    
(471,700
)
    
(29,400
)
Proceeds from long-term bank borrowings
    
471,700
      
29,400
  
Proceeds from exercise of stock options
    
6,405
      
837
  
Excess tax benefits from stock-based compensation arrangements
    
1,728
      
(2,157
)
Repurchases of common stock
    
(81,179
)
    
(2,145
)
Net cash used for financing activities
    
(80,840
)
    
(10,974
)
                 
Effect of exchange rate changes on cash
    
(49,960
)
    
2,628
  
                 
Net increase (decrease) in cash and cash equivalents
    
(560,343
)
    
457,155
  
                 
Cash and cash equivalents at beginning of period
    
1,137,007
      
451,272
  
Cash and cash equivalents at end of period
  
$
576,664
    
$
908,427
  

See accompanying notes.
 
 
5
 
 
ARROW ELECTRONICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands except per share data)
(Unaudited)

Note A – Basis of Presentation

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

These consolidated financial statements do not include all of the information or notes necessary for a complete presentation and, accordingly, should be read in conjunction with the company's Form 10-Q for the quarterly period ended April 3, 2010, as well as the audited consolidated financial statements and accompanying notes for the year ended December 31, 2009, as filed in the company's Annual Report on Form 10-K.

Quarter End

The company operates on a quarterly reporting calendar that closes on the Saturday following the end of the calendar quarter.

Reclassification

Certain prior period amounts were reclassified to conform to the current period presentation.

Note B – Impact of Recently Issued Accounting Standards

In October 2009, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update No. 2009-13, "Multiple-Deliverable Revenue Arrangements" ("ASU No. 2009-13"). ASU No. 2009-13 amends guidance included within Accounting Standards Codification ("ASC") Topic 605-25 to require an entity to use an estimated selling price when vendor specific objective evidence or acceptable third party evidence does not exist for any products or services included in a multiple element arrangement. The arrangement consideration should be allocated among the products and services based upon their relative selling prices, thus eliminating the use of the residual method of allocation. ASU No. 2009-13 also requires expanded qualitative and quantitative disclosures regarding significant judgments made and changes in applying this guidance. ASU No. 2009-13 is effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010.  Early adoption and retrospective application are also permitted.  The company is currently evaluating the impact of adopting the provisions of ASU No. 2009-13.

In October 2009, the FASB issued Accounting Standards Update No. 2009-14, "Certain Revenue Arrangements That Include Software Elements" ("ASU No. 2009-14"). ASU No. 2009-14 amends guidance included within ASC Topic 985-605 to exclude tangible products containing software components and non-software components that function together to deliver the product’s essential functionality.  Entities that sell joint hardware and software products that meet this scope exception will be required to follow the guidance of ASU No. 2009-13.  ASU No. 2009-14 is effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010.  Early adoption and retrospective application are also permitted.  The company is currently evaluating the impact of adopting the provisions of ASU No. 2009-14.

Note C – Acquisitions

The results of operations of the below acquisitions were included in the company's consolidated results from their respective dates of acquisition.

 
6
 
 
ARROW ELECTRONICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands except per share data)
(Unaudited)

2010

On June 1, 2010, the company acquired Converge, Inc. ("Converge") for a purchase price of $138,363, which included cash acquired of $4,803, debt paid at closing of $27,546, and is subject to a final working capital adjustment.  Converge is a leading provider of reverse logistics services, headquartered in Peabody, Massachusetts.  Converge, with approximately 350 employees, also has offices in Singapore and Amsterdam, with support centers throughout Europe, Asia, and the Americas.  For the second quarter of 2010, Converge sales of $27,243 were included in the company's consolidated results of operations from the date of acquisition.  Total Converge sales for 2009 were approximately $280,000.

The following table summarizes the preliminary allocation of the net consideration paid to the fair value of the assets acquired and liabilities assumed for the Converge acquisition:

Accounts receivable, net
   $ 49,122  
Inventories
     8,182  
Other current assets
     2,392  
Property, plant and equipment
     1,722  
Identifiable intangible assets
     13,500  
Cost in excess of net assets of companies acquired
     78,257  
Accounts payable
     (11,019 )
Accrued expenses
     (8,305 )
Other liabilities
     (291 )
Cash consideration paid, net of cash acquired
   $ 133,560  

The company allocated $12,400 of the purchase price to intangible assets relating to customer relationships, with a useful life of ten years and $1,100 to other intangible assets (consisting of non-competition agreements and sales backlog), with useful lives ranging from one to two years.

The cost in excess of net assets of companies acquired related to the Converge acquisition was recorded in the company's global components business segment.  The intangible assets related to the Converge acquisition are not expected to be deductible for income tax purposes.

The following table summarizes the company's unaudited consolidated results of operations for the second quarter and first six months of 2010, as well as the unaudited pro forma consolidated results of operations of the company, as though the Converge acquisition occurred on January 1, 2010:

   
Quarter Ended
July 3, 2010
    
For the Six Months Ended 
July 3, 2010
  
   
As Reported
    
Pro Forma
    
As Reported
    
Pro Forma
  
                         
Sales
   $ 4,613,307     $ 4,666,485     $ 8,848,673     $ 8,977,610  
Net income attributable to shareholders
     116,193       118,375       203,239       206,999  
Net income per share:
                                
Basic
   $ .97     $ .99     $ 1.70     $ 1.73  
Diluted
   $ .96     $ .98     $ 1.68     $ 1.71  

The unaudited pro forma consolidated results of operations does not purport to be indicative of the results obtained if the Converge acquisition had occurred as of the beginning of 2010, or of those results that may be obtained in the future. Additionally, the above table does not reflect any anticipated cost savings or cross-selling opportunities expected to result from this acquisition.

 
7
 
 
ARROW ELECTRONICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands except per share data)
(Unaudited)

In April 2010, the company acquired Verical Incorporated ("Verical"), an ecommerce business geared towards meeting the end-of-life components and parts shortage needs of customers.  In June 2010, the company acquired Sphinx Group Limited ("Sphinx"), a United Kingdom-based value-added distributor of security and networking solutions.  The impact of these acquisitions was not material to the company's consolidated financial position and results of operations.  Annual sales for these acquisitions were approximately $83,000.  

2009

On December 20, 2009, the company acquired A.E. Petsche Company, Inc. ("Petsche"), a leading provider of interconnect products, including specialty wire, cable, and harness management solutions, to the aerospace and defense markets. Petsche provides value-added distribution services to over 3,500 customers in the United States, Canada, Mexico, the United Kingdom, France, and Belgium.  Total Petsche sales for 2009 were approximately $190,000.

The following table summarizes the company's unaudited consolidated results of operations for the second quarter and first six months of 2009, as well as the unaudited pro forma consolidated results of operations of the company, as though the Converge and Petsche acquisitions occurred on January 1, 2009:

   
Quarter Ended
July 4, 2009
    
Six Months Ended
July 4, 2009
  
   
As Reported
    
Pro Forma
    
As Reported
    
Pro Forma
  
                         
Sales
   $ 3,391,823     $ 3,501,988     $ 6,809,251     $ 7,037,431  
Net income attributable to shareholders
     21,097       24,149       47,838       55,235  
Net income per share:
                                
Basic
   $ .18     $ .20     $ .40     $ .46  
Diluted
   $ .18     $ .20     $ .40     $ .46  

The unaudited pro forma consolidated results of operations does not purport to be indicative of the results obtained had the Converge and Petsche acquisitions occurred as of the beginning of 2009, or of those results that may be obtained in the future.  Additionally, the above table does not reflect any anticipated cost savings or cross-selling opportunities expected to result from these acquisitions.

Other

Amortization expense related to identifiable intangible assets was $4,650 and $9,294 for the second quarter and first six months of 2010 and $3,852 and $7,676 for the second quarter and first six months of 2009, respectively.

In March 2010, the company made a payment of $3,060 to increase its ownership in a majority-owned subsidiary.  The payment was recorded as a reduction to capital in excess of par value, partially offset by the carrying value of the noncontrolling interest.
 
 
8
 
 
ARROW ELECTRONICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands except per share data)
(Unaudited)

Note D – Cost in Excess of Net Assets of Companies Acquired

Cost in excess of net assets of companies acquired, allocated to the company's business segments, is as follows:

   
Global
Components
    
Global ECS
    
Total
  
                   
December 31, 2009
   $ 473,421     $ 452,875     $ 926,296  
Acquisitions
     90,440       24,560       115,000  
Foreign currency translation
     (114 )     (21,890 )     (22,004 )
July 3, 2010
   $ 563,747     $ 455,545     $ 1,019,292  

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

Note E – Investments in Affiliated Companies

The company owns a 50% interest in several joint ventures with Marubun Corporation (collectively "Marubun/Arrow") and a 50% interest in Altech Industries (Pty.) Ltd. ("Altech Industries"), a joint venture with Allied Technologies Limited.  These investments are accounted for using the equity method.

The following table presents the company's investment in Marubun/Arrow and the company's investment and long-term note receivable in Altech Industries:

   
July 3,
2010
    
December 31,
2009
  
             
Marubun/Arrow
   $ 39,268     $ 37,649  
Altech Industries
     14,607       15,361  
    $       53,875     $ 53,010  

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

   
Quarter Ended
    
Six Months Ended
  
   
July 3,
2010
    
July 4,
2009
    
July 3,
2010
    
July 4,
2009
  
                         
Marubun/Arrow
   $ 1,562     $ 806     $ 2,477     $ 919  
Altech Industries
     223       228       456       449  
Other
     -       (7 )     -       (18 )
    $ 1,785     $ 1,027     $ 2,933     $ 1,350  

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 July 3, 2010, the company's pro-rata share of this debt was approximately $7,550. The company believes that there is sufficient equity in the joint ventures to meet their obligations.
 
 
9
 
 
ARROW ELECTRONICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands except per share data)
(Unaudited)

Note F – Accounts Receivable

Accounts receivable, net, consists of the following:

   
July 3, 
2010
    
December 31,
2009
  
             
Accounts receivable
   $ 3,405,128     $ 3,175,815  
Allowances for doubtful accounts
     (32,183 )     (39,674 )
Accounts receivable, net
   $       3,372,945     $ 3,136,141  

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.

Note G – Debt

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

   
July 3,
2010
    
December 31,
2009
  
             
9.15% senior notes, due 2010
   $ 69,544     $ 69,544  
Cross-currency swap, due 2010
     -       41,943  
Interest rate swaps designated as fair value hedges
     728       2,036  
Short-term borrowings in various countries
     7,072       9,572  
    $       77,344     $ 123,095  

Short-term borrowings in various countries are primarily utilized to support the working capital requirements of certain international operations.  The weighted average interest rates on these borrowings at July 3, 2010 and December 31, 2009 were 3.1% and 3.5%, respectively.

Long-term debt consists of the following:

   
July 3, 
2010
    
December 31,
2009
  
             
Bank term loan, due 2012
   $ 200,000     $ 200,000  
6.875% senior notes, due 2013
     349,799       349,765  
6.875% senior debentures, due 2018
     198,346       198,241  
6.00% notes, due 2020
     299,914       299,909  
7.5% senior debentures, due 2027
     197,680       197,610  
Cross-currency swap, due 2011
     -       12,497  
Interest rate swaps designated as fair value hedges
     14,745       9,556  
Other obligations with various interest rates and due dates
     2,381       8,560  
    $       1,262,865     $ 1,276,138  

 
10
 
 
ARROW ELECTRONICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands except per share data)
(Unaudited)

The 7.5% senior debentures are not redeemable prior to their maturity.  The 9.15% senior notes, 6.875% senior notes, 6.875% senior debentures, and 6.00% notes may be called at the option of the company subject to "make whole" clauses.

The estimated fair market value is as follows:

   
July 3, 
2010
    
December 31,
2009
  
             
9.15% senior notes, due 2010
   $       71,000     $ 73,000  
6.875% senior notes, due 2013
     385,000       378,000  
6.875% senior debentures, due 2018
     220,000       214,000  
6.00% notes, due 2020
     315,000       300,000  
7.5% senior debentures, due 2027
     216,000       208,000  

The carrying amount of the company's short-term borrowings, bank term loan, and other obligations approximate their fair value.

During the second quarter of 2010, the company sold a facility and was required to repay the related collateralized debt with a face amount of $9,000.  For both the second quarter and first six months of 2010, the company recognized a loss on prepayment of debt of $1,570 ($964 net of related taxes or $.01 per share on both a basic and diluted basis) in the accompanying consolidated statements of operations.

The company has an $800,000 revolving credit facility with a group of banks that matures in January 2012.  Interest on borrowings under the revolving credit facility is calculated using a base rate or a euro currency rate plus a spread based on the company's credit ratings (.425% at July 3, 2010). The facility fee related to the credit facility is .125%.

The company has a $300,000 asset securitization program collateralized by accounts receivables of certain of its North American subsidiaries which expires in March 2011.  The asset securitization program is conducted through Arrow Electronics Funding Corporation, a wholly-owned, bankruptcy remote subsidiary. The asset securitization program does not qualify for sale treatment.  Accordingly, the accounts receivable and related debt obligation remain on the company's consolidated balance sheet.  Interest on borrowings is calculated using a base rate or a commercial paper rate plus a spread, which is based on the company's credit ratings (.60% at July 3, 2010).  The facility fee is ..50%.

The company had no outstanding borrowings under its revolving credit facility or asset securitization program at July 3, 2010 and December 31, 2009.  Both programs include terms and conditions that limit the incurrence of additional borrowings, limit the company's ability to pay cash dividends or repurchase stock, and require that certain financial ratios be maintained at designated levels. The company was in compliance with all covenants as of July 3, 2010 and is currently not aware of any events that would cause non-compliance with any covenants in the future.

Interest and other financing expense, net, includes interest income of $1,281 and $1,620 for the second quarter and first six months of 2010 and $777 and $2,408 for the second quarter and first six months 2009, respectively.

Note H – Financial Instruments Measured at Fair Value

Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.  The company utilizes a fair value hierarchy, which maximizes the use of observable inputs and minimizes the use of unobservable inputs

 
11
 
 
ARROW ELECTRONICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands except per share data)
(Unaudited)

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 July 3, 2010:

   
Level 1
    
Level 2
    
Level 3
    
Total
  
                         
Cash equivalents
   $ -     $ 214,486     $ -     $ 214,486  
Available-for-sale securities
     57,685       -       -       57,685  
Interest rate swaps
     -       15,473       -       15,473  
    $ 57,685     $ 229,959     $ -     $ 287,644  

The following table presents assets/(liabilities) measured at fair value on a recurring basis at December 31, 2009:

   
Level 1
    
Level 2
    
Level 3
    
Total
  
                         
Cash equivalents
   $ -     $ 744,125     $ -     $ 744,125  
Available-for-sale securities
     56,464       -       -       56,464  
Interest rate swaps
     -       11,592       -       11,592  
Cross-currency swaps
     -       (54,440 )     -       (54,440 )
    $ 56,464     $ 701,277     $ -     $ 757,741  

Available-For-Sale Securities

The company has a 2.7% equity ownership interest in WPG Holdings Co., Ltd. ("WPG") and an 8.4% equity ownership interest in Marubun Corporation ("Marubun"), which are accounted for as available-for-sale securities.

The fair value of the company's available-for-sale securities is as follows:

   
July 3, 2010
    
December 31, 2009
  
   
Marubun
    
WPG
    
Marubun
    
WPG
  
                         
Cost basis
   $ 10,016     $ 10,798     $ 10,016     $ 10,798  
Unrealized holding gain
     2,904       33,967       4,408       31,242  
Fair value
   $ 12,920     $ 44,765     $ 14,424     $ 42,040  

The fair value of these investments are included in "Other assets" in the accompanying consolidated balance sheets, and the related unrealized holding gains or losses are included in "Other" in the shareholders' equity section in the accompanying consolidated balance sheets.

 
12
 
 
ARROW ELECTRONICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands except per share data)
(Unaudited)

Derivative Instruments

The company uses various financial instruments, including derivative financial instruments, for purposes other than trading.  Derivatives used as part of the company's risk management strategy are designated at inception as hedges and measured for effectiveness both at inception and on an ongoing basis.

The fair values of derivative instruments in the consolidated balance sheets are as follows:

   
Asset/(Liability) Derivatives
  
       
Fair Value
  
   
Balance Sheet
Location
  
July 3, 
2010
    
December 31,
2009
  
Derivative instruments designated as hedges:
                
Interest rate swaps designated as fair value hedges
  
Other current assets
   $ 728     $ 2,036  
Interest rate swaps designated as fair value hedges
  
Other assets
     14,745       9,556  
Cross-currency swaps designated as net investment hedges
  
Short-term borrowings
     -       (41,943 )
Cross-currency swaps designated as net investment hedges
  
Long-term debt
     -       (12,497 )
Foreign exchange contracts designated as cash flow hedges
  
Other current assets
     103       406  
Foreign exchange contracts designated as cash flow hedges
  
Accrued expenses
     (684 )     (272 )
Total derivative instruments designated as hedging instruments
         14,892       (42,714 )
Derivative instruments not designated as hedges:
                    
Foreign exchange contracts
  
Other current assets
     3,721       2,362  
Foreign exchange contracts
  
Accrued expenses
     (3,327 )     (1,952 )
Total derivative instruments not designated as hedging instruments
         394       410  
Total
       $ 15,286     $ (42,304 )

The effect of derivative instruments on the consolidated statement of operations is as follows:

   
Gain/(Loss) Recognized in Income
  
   
Quarter Ended
    
Six Months Ended
  
   
July 3,
2010
    
July 4,
2009
    
July 3,
2010
    
July 4,
2009
  
Fair value hedges:
                                
Interest rate swaps (a)
  
$
-
    
$
-
    
$
-
    
$
-
  
Total
  
$
-
    
$
-
    
$
-
    
$
-
  
Derivative instruments not designated as hedges:
                                
Foreign exchange contracts (b)
  
$
1,408
    
$
(226
)
  
$
3,437
    
$
(4,160
)
Total
  
$
1,408
    
$
(226
)
  
$
3,437
    
$
(4,160
)

 
13
 
 
ARROW ELECTRONICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands except per share data)
(Unaudited)

   
Quarter Ended July 3, 2010
    
Six Months Ended July 3, 2010
  
   
Effective Portion
    
Ineffective
Portion
    
Effective Portion
    
Ineffective
Portion
  
   
Gain/(Loss)
Recognized in
Other
Comprehensive
Income
    
Gain/(Loss)
Reclassified
into Income
    
Gain/(Loss)
Recognized
in Income
    
Gain/(Loss)
Recognized in
Other
Comprehensive
Income
    
Gain/(Loss)
Reclassified
into Income
    
Gain/(Loss)
Recognized
in Income
  
                                     
Cash Flow Hedges:
                                    
Foreign exchange contracts (d)
   $ (466 )   $ 2     $ -     $ (620 )   $ (90 )   $ -  
Total
   $ (466 )   $ 2     $ -     $ (620 )   $ (90 )   $ -  
                                                 
Net Investment Hedges:
                                                
Cross-currency swaps (c)
   $ 31,812     $ -     $ (177 )   $ 52,158     $ -     $ (91 )
Total
   $ 31,812     $ -     $ (177 )   $ 52,158     $ -     $ (91 )

   
Quarter Ended July 4, 2009
    
Six Months Ended July 4, 2009
  
   
Effective Portion
    
Ineffective
Portion
    
Effective Portion
    
Ineffective
Portion
  
   
Gain/(Loss)
Recognized in
Other
Comprehensive
Income
    
Gain/(Loss)
Reclassified
into Income
    
Gain/(Loss)
Recognized
in Income
    
Gain/(Loss)
Recognized in
Other
Comprehensive
Income
    
Gain/(Loss)
Reclassified
into Income
    
Gain/(Loss)
Recognized
in Income
  
Cash Flow Hedges:
                                    
Interest rate swaps (c)
   $ (1 )   $ -     $ -     $ 742     $ -     $ -  
Foreign exchange contracts (d)
     (1,086 )     -       -       (2,445 )     (49 )     -  
Total
   $ (1,087 )   $ -     $ -     $ (1,703 )   $ (49 )   $ -  
Net Investment Hedges:
                                                
Cross-currency swaps (c)
   $ (10,590 )   $ -     $ 1,768     $ 1,376     $ -     $ 1,684  
Total
   $ (10,590 )   $ -     $ 1,768     $ 1,376     $ -     $ 1,684  

(a)
The amount of gain/(loss) recognized in income on derivatives is recorded in "Interest and other financing expense, net" in the accompanying consolidated statements of operations.

(b)
The amount of gain/(loss) recognized in income on derivatives is recorded in "Cost of sales" in the accompanying consolidated statements of operations.

(c)
Both the effective and ineffective portions of any gain/(loss) reclassified or recognized in income is recorded in "Interest and other financing expense, net" in the accompanying consolidated statements of operations.

(d)
Both the effective and ineffective portions of any gain/(loss) reclassified or recognized in income is recorded in "Cost of sales" in the accompanying consolidated statements of operations.

Interest Rate Swaps

The company 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 effective portion of the change in the fair value of interest rate swaps designated as fair value hedges are recorded as a change to the carrying value of the related hedged debt, and the effective portion of the change in fair value of interest rate swaps designated as cash flow hedges are recorded in the shareholders' equity section in the accompanying consolidated balance sheets in "Other."  The

 
14
 
 
ARROW ELECTRONICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands except per share data)
(Unaudited)

ineffective portion of the interest rate swap, if any, is recorded in "Interest and other financing expense, net" in the accompanying consolidated statements of operations.

In June 2004, the company entered into interest rate swaps, with an aggregate notional amount of $200,000, of which $130,455 was terminated in 2009 upon the repayment of a portion of the underlying debt.  The swaps modify the company's interest rate exposure by effectively converting the fixed 9.15% senior notes to a floating rate, based on the six-month U.S. dollar LIBOR plus a spread (an effective rate of 4.75% and 4.94% at July 3, 2010 and December 31, 2009, respectively), through its maturity.  The swaps are classified as fair value hedges and had a fair value of $728 and $2,036 at July 3, 2010 and December 31, 2009, respectively.

In June 2004 and November 2009, the company entered into interest rate swaps, with an aggregate notional amount of $275,000.  The swaps modify the company's interest rate exposure by effectively converting a portion of the fixed 6.875% senior notes to a floating rate, based on the six-month U.S. dollar LIBOR plus a spread (an effective rate of 4.37% and 4.18% at July 3, 2010 and December 31, 2009, respectively), through its maturity.  The swaps are classified as fair value hedges and had a fair value of $14,745 and $9,556 at July 3, 2010 and December 31, 2009, respectively.

Cross-Currency Swaps

The company enters into cross-currency swaps to hedge a portion of its net investment in euro-denominated net assets. The company’s cross-currency swaps are derivatives designated as net investment hedges.  The effective portion of the change in the fair value of derivatives designated as net investment hedges is recorded in "Foreign currency translation adjustment" included in the accompanying consolidated balance sheets and any ineffective portion is recorded in "Interest and other financing expense, net" in the accompanying consolidated statements of operations.  As the notional amounts of the company’s cross-currency swaps are expected to equal a comparable amount of hedged net assets, no material ineffectiveness is expected.  The company uses the hypothetical derivative method to assess the effectiveness of its net investment hedges on a quarterly basis.

In May 2006, the company entered into a cross-currency swap, with a maturity date of July 2011, for approximately $100,000 or €78,281 (the "2006 cross-currency swap").  In October 2005, the company entered into a cross-currency swap, with a maturity date of October 2010, for approximately $200,000 or €168,384 (the "2005 cross-currency swap").  These cross-currency swaps hedge a portion of the company's net investment in euro-denominated net assets, by effectively converting the interest expense on $300,000 of long-term debt from U.S. dollars to euros.   During the second quarter of 2010, the company paid $2,282, plus accrued interest, to terminate these cross-currency swaps.  The 2006 cross-currency swap and the 2005 cross-currency swap had a negative fair value at December 31, 2009 of $12,497 and $41,943, respectively.

Foreign Exchange Contracts

The company enters into foreign exchange forward, option, or swap contracts (collectively, the "foreign exchange contracts") to mitigate the impact of changes in foreign currency exchange rates.  These contracts are executed to facilitate the hedging of foreign currency exposures resulting from inventory purchases and sales and generally have terms of no more than six months. Gains or losses on these contracts are deferred and recognized when the underlying future purchase or sale is recognized or when the corresponding asset or liability is revalued. The company does not enter into foreign exchange contracts for trading purposes. The risk of loss on a foreign exchange contract is the risk of nonperformance by the counterparties, which the company minimizes by limiting its counterparties to major financial institutions.  The fair value of the foreign exchange contracts, which are nominal, are estimated using market quotes.  The notional amount of the foreign exchange contracts at July 3, 2010 and December 31, 2009 was $369,577 and $294,928, respectively.

 
15
 
 
ARROW ELECTRONICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands except per share data)
(Unaudited)

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.

Cash equivalents consist primarily of overnight time deposits and institutional money market funds with quality financial institutions.  These financial institutions are located in many different geographical regions, and the company's policy is designed to limit exposure with any one institution.  As part of its cash and risk management processes, the company performs periodic evaluations of the relative credit standing of these financial institutions.

Note I – Restructuring, Integration, and Other Charges

During the second quarters of 2010 and 2009, the company recorded restructuring, integration, and other charges of $5,649 ($4,095 net of related taxes or $.03 per share on both a basic and diluted basis) and $19,252 ($16,124 net of related taxes or $.13 per share on both a basic and diluted basis), respectively.  

During the first six months of 2010 and 2009, the company recorded restructuring, integration, and other charges of $13,086 ($9,640 net of related taxes or $.08 per share on both a basic and diluted basis) and $43,270 ($32,193 net of related taxes or $.27 per share on both a basic and diluted basis), respectively.

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

   
Quarter Ended
    
Six Months Ended
  
   
July 3,
2010
    
July 4,
2009
    
July 3,
2010
    
July 4,
2009
  
                         
Restructuring charges – current period actions
   $ 5,798     $ 19,956     $ 10,987     $ 43,428  
Restructuring and integration charges – actions taken in prior periods
     (1,056 )     (704 )     1,093       (158 )
Acquisition-related expenses
     907       -       1,006       -  
    $ 5,649     $ 19,252     $ 13,086     $ 43,270  

2010 Restructuring Charge

The following table presents the components of the 2010 restructuring charge of $10,987 and activity in the restructuring accrual for the first six months of 2010:

   
Personnel
Costs
    
Facilities
    
Other
    
Total
  
                         
Restructuring charge
   $ 8,966     $ 201     $ 1,820     $ 10,987  
Payments
     (5,477 )     (129 )     (650 )     (6,256 )
Non-cash usage
     -       -       (657 )     (657 )
Foreign currency translation
     (104 )     12       16       (76 )
July 3, 2010
   $ 3,385     $ 84     $ 529     $ 3,998  
 
 
16
 
 
ARROW ELECTRONICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands except per share data)
(Unaudited)

The restructuring charge of $10,987 for the first six months of 2010 primarily includes personnel costs of $8,966 and facilities costs of $201.  The personnel costs are related to the elimination of approximately 90 positions within the global ECS business segment and approximately 80 positions within the global components business segment.  The facilities costs are related to exit activities for 4 vacated facilities in Europe due to the company's continued efforts to streamline its operations and reduce real estate costs. These initiatives are due to the company's continued efforts to lower cost and drive operational efficiency.

2009 Restructuring Charge

The following table presents the activity in the restructuring accrual for the first six months of 2010 related to the 2009 restructuring:

   
Personnel
Costs
    
Facilities
    
Other
    
Total
  
                         
December 31, 2009
   $ 25,380     $ 6,287     $ 224     $ 31,891  
Restructuring charge (credit)
     2,394       (1,586 )     -       808  
Payments
     (21,043 )     290       -       (20,753 )
Foreign currency translation
     (1,716 )     (579 )     (25 )     (2,320 )
July 3, 2010
   $ 5,015     $ 4,412     $ 199     $ 9,626  

Restructuring and Integration Accruals Related to Actions Taken Prior to 2009

The following table presents the activity in the restructuring and integration accruals for the first six months of 2010 related to restructuring and integration actions taken prior to 2009:
 
   
Personnel
Costs
    
Facilities
    
Other
    
Total
  
                         
December 31, 2009
   $ 1,728     $ 6,676     $ 1,822     $ 10,226  
Restructuring and integration charges (credits)
     (190 )     556       (81 )     285  
Payments
     (974 )     (1,165 )     -       (2,139 )
Non-cash usage
     -       (582 )     -       (582 )
Foreign currency translation
     (36 )     (362 )     (26 )     (424 )
July 3, 2010
   $ 528     $ 5,123     $ 1,715     $ 7,366  

Restructuring and Integration Accrual Summary

In summary, the restructuring and integration accruals aggregate $20,990 at July 3, 2010, of which $20,611 is expected to be spent in cash, and are expected to be utilized as follows:

·
The accruals for personnel costs of $8,928 to cover the termination of personnel are primarily expected to be spent within one year. 

·
The accruals for facilities totaling $9,619 relate to vacated leased properties that have scheduled payments of $3,207 in 2010, $2,503 in 2011, $1,395 in 2012, $1,065 in 2013, $607 in 2014, and $842 thereafter.

·
Other accruals of $2,443 are expected to be utilized over several years.

 
17
 
 
ARROW ELECTRONICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands except per share data)
(Unaudited)

Acquisition-Related Expenses

Included in restructuring, integration, and other charges is $1,006 of other acquisition-related expenses for the first six months of 2010 primarily consisting of professional fees directly related to recent acquisition activity.

Note J – Net Income per Share

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

   
Quarter Ended
    
Six Months Ended
  
   
July 3,
2010
    
July 4,
2009
    
July 3,
2010
    
July 4,
2009
  
                         
Net income attributable to shareholders
   $ 116,193     $ 21,097     $ 203,239     $ 47,838  
                                 
Weighted average shares outstanding - basic
     119,228       119,783       119,731       119,675  
Net effect of various dilutive stock-based compensation awards
     1,357       534       1,539       367  
Weighted average shares outstanding - diluted
     120,585       120,317       121,270       120,042  
                                 
Net income per share:
                                
Basic
   $ .97     $ .18     $ 1.70     $ .40  
Diluted (a)
   $ .96     $ .18     $ 1.68     $ .40  

(a)
Stock-based compensation awards for the issuance of 3,471 and 3,300 shares for the second quarter and first six months of 2010 and 4,854 and 4,748 shares for the second quarter and first six months of 2009, respectively, were excluded from the computation of net income per share on a diluted basis as their effect was anti-dilutive.

Note K – Shareholders' Equity

Comprehensive Income

The components of comprehensive income are as follows:

   
Quarter Ended
    
Six Months Ended
  
   
July 3,
2010
    
July 4,
2009
    
July 3,
2010
    
July 4,
2009
  
                         
Consolidated net income
   $ 116,193     $ 21,082     $ 203,234     $ 47,818  
Foreign currency translation adjustments (a)
     (67,131 )     58,118       (131,445 )     17,976  
Other (b)
     508       11,862       80       13,318  
Comprehensive income
     49,570       91,062       71,869       79,112  
Comprehensive loss attributable to noncontrolling interests
     -       (25 )     -       (28 )
Comprehensive income attributable to shareholders
   $ 49,570     $ 91,087     $ 71,869     $ 79,140  
 
 
18
 
 
ARROW ELECTRONICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands except per share data)
(Unaudited)
 
(a)
Except for unrealized gains or losses resulting from the company's cross-currency swaps, foreign currency translation adjustments were not tax effected as investments in international affiliates are deemed to be permanent.

(b)
Other includes unrealized gains or losses on securities, unrealized gains or losses on interest rate swaps designated as cash flow hedges, and other employee benefit plan items.  Each of these items is net of related taxes.

Share-Repurchase Program

In March 2010, the company announced its Board of Directors approved the repurchase of up to $100,000 of the company's common stock in such amounts as to offset the dilution from the granting of equity-based compensation awards.  As of July 3, 2010, the company repurchased 2,662,112 shares under this plan with a market value of $74,995 at the dates of repurchase.

On July 27, 2010, the company's Board of Directors approved an additional repurchase of up to $100,000 of the company's common stock.

Note L – Employee Benefit Plans

The company maintains supplemental executive retirement plans and a defined benefit plan.  The components of the net periodic benefit costs for these plans are as follows:

   
Quarter Ended
    
Six Months Ended
  
   
July 3,
2010
    
July 4,
2009
    
July 3,
2010
    
July 4,
2009
  
                         
Components of net periodic benefit costs:
                        
Service cost
   $ 411     $ 442     $ 822     $ 884  
Interest cost
     2,248       2,244       4,496       4,488  
Expected return on plan assets
     (1,498 )     (1,266 )     (2,996 )     (2,532 )
Amortization of unrecognized net loss
     967       876       1,934       1,752  
Amortization of prior service cost
     20       137       40       274  
Amortization of transition obligation
     7       103       14       206  
Net periodic benefit costs
   $ 2,155     $ 2,536     $ 4,310     $ 5,072  

Note M – Contingencies

Environmental and Related Matters

In 2000, the company assumed certain of the then outstanding obligations of Wyle Electronics ("Wyle"), including Wyle's obligation to indemnify the purchasers of its Laboratories division for environmental clean-up costs associated with pre-1995 contamination or violation of environmental regulations.  Under the terms of the company's purchase of Wyle from the VEBA Group ("VEBA"), VEBA agreed to indemnify the company for, among other things, costs related to environmental pollution associated with Wyle, including those associated with Wyle's sale of its Laboratories division.  The company is currently engaged in clean up and/or investigative activities at the Wyle sites in Huntsville, Alabama and Norco, California.

Characterization of the extent of contaminated soil and groundwater continues at the site in Huntsville, and approximately $3,000 was spent to date.  The company currently estimates additional investigative and related expenditures at the site of approximately $500 to $1,000, depending on the results of which the cost of subsequent remediation is estimated to be between $2,500 and $4,000.

 
19
 
 
ARROW ELECTRONICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands except per share data)
(Unaudited)

At the Norco site, approximately $29,000 was expended to date on project management, regulatory oversight, and investigative and feasibility study activities, providing the technical basis for a final Remedial Investigation Report that was submitted to California oversight authorities during the first quarter of 2008.

Remedial activities underway include the remediation of contaminated groundwater at certain areas on the Norco site and of soil gas in a limited area immediately adjacent to the site, and a hydraulic containment system that captures and treats groundwater before it moves into the adjacent offsite area.  Approximately $9,000 was spent on these activities to date, and it is anticipated that these activities, along with the initial phases of the treatment of contaminated groundwater offsite and remaining Remedial Action Work Plan costs, will cost an additional $9,700 to $18,700.

The company currently estimates that the additional cost of project management and regulatory oversight on the Norco site will range from $400 to $500.  Ongoing remedial investigations (including costs related to soil and groundwater investigations), and the preparation of a final remedial investigation report are projected to cost between $400 to $700.

Despite the amount of work undertaken and planned to date, the complete scope of work in connection with the Norco site is not yet known, and, accordingly, the associated costs not yet determined.

In October 2005, the company filed suit against E.ON AG in the Frankfurt am Main Regional Court in Germany.  The suit seeks indemnification, contribution, and a declaration of the parties’ respective rights and obligations in connection with the related litigation and other costs associated with the Norco site.  In its answer to the company’s claim filed in March 2009 in the German proceedings, E.ON AG filed a counterclaim against the company for approximately $16,000. The litigation is currently suspended while the company engages in a court-facilitated mediation with E.ON AG. The mediation commenced in December 2009 and will continue well into 2010.  The company believes it has reasonable defenses to the counterclaim and plans to defend its position vigorously. The company believes that the ultimate resolution of the counterclaim will not have a material adverse impact on the company’s consolidated financial position, liquidity, or results of operations.

During the second quarter of 2009, the company entered into binding settlement agreements resolving several of the lawsuits associated with the above-mentioned environmental liabilities (Gloria Austin, et al. v. Wyle Laboratories, Inc. et al., the other claims of plaintiff Norco landowners and residents which were consolidated with it, and an action by Wyle Laboratories, Inc. for defense and indemnification in connection with the Austin and related cases).  Arrow's actions against E.ON AG, successor to VEBA, for the judicial enforcement of the various indemnification provisions; and Arrow's claim against a number of insurers on policies relevant to the Wyle sites are ongoing and unresolved. The litigation is described more fully in Note 15 and Item 3 of Part I of the company's Annual Report on Form 10-K for the year ended December 31, 2009.  

The company believes that the recovery of costs incurred to date associated with the environmental clean-up costs related to the Norco and Huntsville sites is probable.  Accordingly, the company increased the receivable for indemnified amounts due from E.ON AG by $1,883 during the first six months of 2010 to $42,795. The company’s net costs for such indemnified matters may vary from period to period as estimates of recoveries are not always recognized in the same period as the accrual of estimated expenses.

Other

From time to time, in the normal course of business, the company may become liable with respect to other pending and threatened litigation, environmental, regulatory, labor, product, and tax matters.  While such

 
20
 
 
ARROW ELECTRONICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands except per share data)
(Unaudited)

matters are subject to inherent uncertainties, it is not currently anticipated that any such matters will have a material impact on the company's consolidated financial position, liquidity, or results of operations.

Note N – Segment and Geographic Information

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

Sales and operating income (loss), by segment, are as follows:

   
Quarter Ended
    
Six Months Ended
  
   
July 3,
2010
    
July 4,
2009
    
July 3,
2010
    
July 4,
2009
  
Sales:
                        
Global components
   $ 3,259,016     $ 2,271,570     $ 6,387,038     $ 4,616,582  
Global ECS
     1,354,291       1,120,253       2,461,635       2,192,669  
Consolidated
   $ 4,613,307     $ 3,391,823     $ 8,848,673     $ 6,809,251  
                                 
Operating income (loss):
                                
Global components
   $ 182,494     $ 57,993     $ 336,602     $ 134,091  
Global ECS
     43,023       34,461       66,936       66,487  
Corporate (a)
     (36,326 )     (41,256 )     (69,077 )     (88,143 )
Consolidated
   $ 189,191     $ 51,198     $ 334,461     $ 112,435  

(a)
Includes restructuring, integration, and other charges of $5,649 and $13,086 for the second quarter and first six months of 2010 and $19,252 and $43,270 for the second quarter and first six months of 2009, respectively.

Total assets, by segment, are as follows:
   
July 3,
    
December 31,
  
   
2010
    
2009
  
             
Global components
   $ 5,432,829     $ 4,512,141  
Global ECS
     1,897,495       2,258,803  
Corporate
     657,686       991,422  
Consolidated
   $ 7,988,010     $ 7,762,366  
 
 
21
 
 
ARROW ELECTRONICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands except per share data)
(Unaudited)
 
Sales, by geographic area, are as follows:

   
Quarter Ended
    
Six Months Ended
  
   
July 3, 
2010
    
July 4, 
2009
    
July 3, 
2010
    
July 4, 
2009
  
                         
Americas (b)
   $ 2,254,263     $ 1,632,557     $ 4,146,019     $ 3,214,730  
EMEA
     1,327,361       941,898       2,644,715       2,036,501  
Asia/Pacific
     1,031,683       817,368       2,057,939       1,558,020  
Consolidated
   $ 4,613,307     $ 3,391,823