Edgar Filing: ARROW ELECTRONICS INC

ARW 12.31.2013 10-K

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K


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

For the fiscal year ended December 31, 2013


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

For the transition period from to

Commission file number 1-4482

ARROW ELECTRONICS, INC.

(Exact name of registrant as specified in its charter)



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

7459 S. Lima Street, Englewood, Colorado	80112
(Address of principal executive offices)	(Zip Code)

(303) 824-4000

(Registrant's telephone number, including area code)

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



Title of each class		Name of each exchange on which registered
Common Stock, $1 par value		New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes x No o

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act.

Yes o No x

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

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

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

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 (check one):



Large accelerated filer x	Accelerated filer o
Non-accelerated filer o (do not check if a smaller reporting company)	Smaller reporting company o

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

The aggregate market value of voting stock held by non-affiliates of the registrant as of the last business day of the registrant's most recently completed second fiscal quarter was $3,911,865,407.

There were 99,961,811 shares of Common Stock outstanding as of January 31, 2014.

DOCUMENTS INCORPORATED BY REFERENCE

The definitive proxy statement related to the registrant's Annual Meeting of Shareholders, to be held May 22, 2014 is incorporated by reference in Part III to the extent described therein.

TABLE OF CONTENTS



PART I
	Item 1.	Business.	3
	Item 1A.	Risk Factors.	8
	Item 1B.	Unresolved Staff Comments.	13
	Item 2.	Properties.	13
	Item 3.	Legal Proceedings.	13
	Item 4.	Mine Safety Disclosures.	15

PART II
	Item 5.	Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.	16
	Item 6.	Selected Financial Data.	19
	Item 7.	Management's Discussion and Analysis of Financial Condition and Results of Operations.	21
	Item 7A.	Quantitative and Qualitative Disclosures About Market Risk.	39
	Item 8.	Financial Statements and Supplementary Data.	41
	Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.	83
	Item 9A.	Controls and Procedures.	83
	Item 9B.	Other Information.	85

PART III
	Item 10.	Directors, Executive Officers and Corporate Governance.	86
	Item 11.	Executive Compensation.	86
	Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.	86
	Item 13.	Certain Relationships and Related Transactions, and Director Independence.	86
	Item 14.	Principal Accounting Fees and Services.	86

PART IV
	Item 15.	Exhibits and Financial Statement Schedules.	87
	Signatures		95

PART I

Item 1. Business.

Arrow Electronics, Inc. (the "company" or "Arrow") is a global provider of products, services, and solutions to industrial and commercial users of electronic components and enterprise computing solutions. The company has one of the world’s broadest portfolios of product offerings available from leading electronic components and enterprise computing solutions suppliers, coupled with a range of services, solutions and tools that help industrial and commercial customers introduce innovative products, reduce their time to market, and enhance their overall competitiveness. Arrow was incorporated in New York in 1946 and serves over 100,000 customers.

Arrow's diverse worldwide customer base consists of original equipment manufacturers ("OEMs"), contract manufacturers ("CMs"), and other commercial customers. These customers include manufacturers of consumer and industrial equipment (such as machine tools, factory automation, and robotic equipment) serving industries ranging from telecommunications, automotive and transportation, aerospace and defense, medical, and professional services, among others. Customers also include value-added resellers ("VARs") of enterprise computing solutions.

The company maintains over 300 sales facilities and 38 distribution and value-added centers in 58 countries, serving over 85 countries. Through this network, Arrow moves innovation forward by helping its customers to deliver new technologies, new materials, new ideas, and new electronics that impact the business community and consumers.

The company has two business segments, the global components business and the global enterprise computing solutions ("ECS") business. The company distributes electronic components to OEMs and CMs through its global components business segment and provides enterprise computing solutions to VARs through its global ECS business segment. For 2013, approximately 63% of the company's sales were from the global components business segment, and approximately 37% of the company's sales were from the global ECS business segment. The financial information about the company's business segments and geographic operations is found in Note 16 of the Notes to the Consolidated Financial Statements.

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

Global Components

As one of the largest distributors of electronic components and related services in the world, the company's global components business segment covers the world's largest electronics markets - the Americas, EMEA (Europe, Middle East, and Africa), and Asia Pacific regions. The Americas include operations in Argentina, Brazil, Canada, Mexico, and the United States. In the EMEA region, the global components business segment operates in Austria, Belgium, Bulgaria, Czech Republic, Denmark, Egypt, Estonia, Finland, France, Germany, Greece, Hungary, Israel, Italy, the Netherlands, Norway, Poland, Portugal, Romania, the Russian Federation, Slovakia, Slovenia, South Africa, Spain, Sweden, Switzerland, Turkey, Ukraine, and the United Kingdom. In the Asia Pacific region, the global components business segment operates in Australia, China, Hong Kong, India, Indonesia, Japan, Korea, Malaysia, New Zealand, Philippines, Singapore, Taiwan, Thailand, and Vietnam.

Over the past three years, the global components business segment completed 15 strategic acquisitions to broaden its product and service offerings, to further expand its geographic reach in the Asia Pacific region, and to increase its e-commerce capabilities to meet the evolving needs of customers and suppliers. These acquisitions also expanded the company's global components business segment's portfolio of products and services across the full product lifecycle including new product development, reverse logistics, and electronics asset disposition.

Through acquisitions and organic growth, the global components business segment is a leading provider of online catalogs for electronic components; cloud-based design tools that expedite product development cycles; factory-direct end-of-life product inventory; and disposition solutions to redeploy, remarket, and recycle technology assets.

Within the global components business segment, approximately 65% of the company's sales consist of semiconductor products and related services; approximately 20% consist of passive, electro-mechanical, and interconnect products, consisting primarily of capacitors, resistors, potentiometers, power supplies, relays, switches, and connectors; approximately 9% consist of computing

and memory; and approximately 6% consist of other products and services. Most of the company's customers require delivery of their orders on schedules or volumes that are generally not available on direct purchases from manufacturers.

The company acts as a marketing, stocking, technical support, and financial intermediary on behalf of electronic components manufacturers and provides geographically dispersed selling, order processing, and delivery capabilities to guide products to market on behalf of these manufacturers. At the same time, Arrow offers to a broad range of customers the convenience of accessing, from a single source, multiple products from numerous suppliers and rapid or scheduled deliveries. Through design engineering, the company assists these customers with its ability to market new products and equipment powered by electronic components through design engineering, programming and assembly services, integration support and supply chain management. Additionally, it simplifies returns and inventory management for customers and provides electronic asset disposition services to ensure the maximum reuse of electronics.

Global ECS

The company's global ECS business segment is a leading value-added distributor of enterprise and midrange computing products, services, and solutions to VARs in North America and EMEA, as well as a leading distributor of enterprise storage and security and virtualization software, and a managed-service provider to Fortune 500 customers in the voice-over-Internet protocol market. Additionally, the company is a provider of unified communications products and related services to Fortune 50 companies in North America. During 2013, as a result of the company's acquisition of CSS Computer Security Solutions Holding GmbH, doing business as ComputerLinks AG ("ComputerLinks"), the global ECS business segment entered into select countries within the Asia Pacific region.

Global ECS includes network operating centers and sales and marketing organizations in 35 countries around the world. North America includes offices in the United States and Canada. In the EMEA region, the global ECS business segment operates in Austria, Belgium, Croatia, Czech Republic, Denmark, Estonia, Finland, France, Germany, Hungary, Iceland, Israel, Italy, Latvia, Lithuania, Luxembourg, Morocco, the Netherlands, Norway, Poland, Portugal, Qatar, Saudi Arabia, Serbia, Slovenia, Spain, Sweden, Switzerland, the United Arab Emirates, and the United Kingdom. The Asia Pacific region includes offices in Australia, Singapore, and India.

Over the past three years, the global ECS business segment completed 5 strategic acquisitions to further expand its geographic reach and its portfolio of products.

Within the global ECS business segment, approximately 45% of the company's sales consist of storage, 28% consist of software, 11% consist of proprietary servers, 9% consist of industry standard servers, and 7% consist of other products and services.

Global ECS provides VARs with many value-added services including, but not limited to, vertical market expertise, systems-level training and certification, solutions testing at Arrow ECS solutions centers, financing support, marketing augmentation, complex order configuration, and access to a one-stop-shop for mission-critical solutions. Midsize and large companies rely on VARs for their IT needs, and global ECS works with these VARs to tailor complex, highly technical mid-market and enterprise solutions in a cost-competitive manner. VARs range in size from small and medium-sized businesses to large global organizations and are typically structured as sales organizations and service providers. They purchase enterprise and mid-market computing solutions from distributors and manufacturers and resell them to end-customers. The increasing complexity of these solutions and increasing demand for bundled solutions is changing how VARs go to market, thereby increasing the importance of global ECS' value-added services. Global ECS' suppliers benefit from affordable mid-market access, demand creation, speed to market, and enhanced supply chain efficiency. For these suppliers, global ECS is the aggregation point to approximately 13,000 VARs.

Aligned with the vision of guiding innovation forward in the IT channel, the company is investing in emerging and adjacent markets, such as managed services and unified computing, within the ECS business.

Customers and Suppliers

The company and its affiliates serve over 100,000 industrial and commercial customers. Industrial customers range from major OEMs and CMs to small engineering firms, while commercial customers primarily include VARs and OEMs. No single customer accounted for more than 2% of the company's 2013 consolidated sales.

The company’s sales teams focus on an extensive portfolio of products and services to support customers’ material management and production needs, including connecting customers to the company’s field application engineers that provide technical support and serve as a gateway to the company’s supplier partners. The company’s sales representatives generally focus on a specific customer segment, particular product lines or a specific geography, and provide end-to-end product offerings and solutions with

an emphasis on helping customers introduce innovative products, reduce their time to market, and enhance their overall competitiveness.

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

Each of the company's selling locations and primary distribution centers in the global components business segment are electronically linked to the company's central computer systems, which provides fully integrated, online, real-time data with respect to global inventory levels and facilitates control of purchasing, shipping, and billing. This system provides global access to real-time inventory data.

No single supplier accounted for more than 9% of the company's consolidated sales in 2013. The company believes that many of the products it sells are available from other sources at competitive prices. However, certain parts of the company's business, such as the company's global ECS business segment, rely on a limited number of suppliers with the strategy of providing focused support, deep product knowledge, and customized service to suppliers and VARs. Most of the company's purchases are pursuant to distributor agreements, which are typically non-exclusive and cancelable by either party at any time or on short notice.

Distribution Agreements

Generally, our agreements with manufacturers protect us against the potential write-down of inventories due to technological change or manufacturers' price reductions. Write-downs of inventories to market value are based upon contractual provisions, which typically provide certain protections to the company for product obsolescence and price erosion in the form of return privileges, scrap allowances, and price protection. Under the terms of the related distributor agreements and assuming the company complies with certain conditions, such suppliers are required to credit the company for reductions in manufacturers' list prices. As of December 31, 2013, this type of arrangement covered approximately 63% of the company's consolidated inventories. In addition, under the terms of many such agreements, the company has the right to return to the manufacturer, for credit, a defined portion of those inventory items purchased within a designated period of time.

A manufacturer, which elects to terminate a distribution agreement, is generally required to purchase from the company the total amount of its products carried in inventory. As of December 31, 2013, this type of repurchase arrangement covered approximately 64% of the company's consolidated inventories.

While these inventory practices do not wholly protect the company from inventory losses, the company believes that they currently provide substantial protection from such losses.

Competition

The company also faces competition from companies entering or expanding into the logistics and product fulfillment, catalog distribution, and e-commerce supply chain services markets. As the company seeks to expand its business into new areas in order to stay competitive in the market, the company may encounter increased competition from its current and/or new competitors.

The company believes that it is well equipped to compete effectively with its competitors in all of these areas due to its comprehensive product and service offerings, highly-skilled work force, and global distribution network.

Employees

The company and its affiliates employed approximately 16,500 employees worldwide as of December 31, 2013.

Available Information

The company files its Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, Proxy Statements, and other documents with the U.S. Securities and Exchange Commission ("SEC") under the Securities Exchange Act of 1934. A copy of any document the company files with the SEC is available for review at the SEC's public reference room, 100 F Street, N.E., Washington, D.C. 20549. The SEC is reachable at 1-800-SEC-0330 for further information on the public reference room. The company's SEC filings are also available to the public on the SEC's Web site at http://www.sec.gov and through the New York Stock Exchange ("NYSE"), 20 Broad Street, New York, New York 10005, on which the company's common stock is listed.

A copy of any of the company's filings with the SEC, or any of the agreements or other documents that constitute exhibits to those filings, can be obtained by request directed to the company at the following address and telephone number:

Arrow Electronics, Inc.

7459 S. Lima Street

Englewood, Colorado 80112

(303) 824-4000

Attention: Corporate Secretary

The company also makes these filings available, free of charge, through its website (http://www.arrow.com) as soon as reasonably practicable after the company files such material with the SEC. The company does not intend this internet address to be an active link or to otherwise incorporate the contents of the website into this Annual Report on Form 10-K.

Executive Officers

The following table sets forth the names, ages, and the positions held by each of the executive officers of the company as of February 5, 2014:



Name	Age	Position
Michael J. Long	55	Chairman, President, and Chief Executive Officer
Peter S. Brown	63	Senior Vice President, General Counsel, and Secretary
Andrew S. Bryant	58	President, Arrow Global Enterprise Computing Solutions
Vincent P. Melvin	50	Senior Vice President, Chief Information Officer
M. Catherine Morris	55	Senior Vice President, Chief Strategy Officer
Paul J. Reilly	57	Executive Vice President, Finance and Operations, and Chief Financial Officer
Eric J. Schuck	51	President, Arrow Global Components
Gretchen K. Zech	44	Senior Vice President, Global Human Resources

Set forth below is a brief account of the business experience during the past five years of each executive officer of the company.

Michael J. Long was appointed Chairman of the Board of Directors in December 2009 and Chief Executive Officer of the company in May 2009. Prior thereto he served as Chief Operating Officer of the company from February 2008 to May 2009. He has been a Director and President of the company for more than five years.

Peter S. Brown has been Senior Vice President, General Counsel, and Secretary of the company for more than five years.

Andrew S. Bryant has been President of Arrow Global Enterprise Computing Solutions for more than five years.

Vincent P. Melvin was appointed Senior Vice President of the company in December 2013. Prior thereto he served as Vice President of the company from September 2006 to December 2013. He has been the Chief Information Officer of the company for more than five years.

M. Catherine Morris has been Senior Vice President and Chief Strategy Officer of the company for more than five years.

Paul J. Reilly was appointed Executive Vice President of Finance and Operations in May 2009. Prior thereto he served as Senior Vice President of the company from May 2005 to May 2009. He has been Chief Financial Officer of the company for more than five years.

Eric J. Schuck was appointed President of Arrow Global Components in January 2014. Prior thereto he served as President of EMEA Components from October 2011 to December 2013 and Vice President of Sales in EMEA Components from July 2010 to October 2011. He also served as Managing Director of Arrow Central Europe GmbH from May 2008 to July 2010.

Gretchen K. Zech was appointed Senior Vice President of Global Human Resources of the company in November 2011. Prior to joining Arrow she served as Senior Vice President, Human Resources, for Dex One Corporation (formerly known as R.H. Donnelley Corporation) from June 2006 to November 2011. R.H. Donnelley Corporation filed for reorganization under Chapter 11 of the United States Bankruptcy Code in May 2009 and emerged as Dex One Corporation in January 2010.

Item 1A. Risk Factors.

Described below and throughout this report are certain risks that the company's management believes are applicable to the company's business and the industry in which it operates. If any of the described events occur, the company's business, results of operations, financial condition, liquidity, or access to the capital markets could be materially adversely affected. When stated below that a risk may have a material adverse effect on the company's business, it means that such risk may have one or more of these effects. There may be additional risks that are not presently material or known. There are also risks within the economy, the industry, and the capital markets that could materially adversely affect the company, including those associated with an economic recession, inflation, and a global economic slowdown. There are also risks associated with the occurrence of natural disasters such as tsunamis, hurricanes, tornadoes, and floods. These factors affect businesses generally, including the company's customers and suppliers and, as a result, are not discussed in detail below except to the extent such conditions could materially affect the company and its customers and suppliers in particular ways.

If the company is unable to maintain its relationships with its suppliers or if the suppliers materially change the terms of their existing agreements with the company, the company's business could be materially adversely affected.

A substantial portion of the company's inventory is purchased from suppliers with which the company has entered into non-exclusive distribution agreements. These agreements are typically cancelable on short notice (generally 30 to 90 days). Certain parts of the company's business, such as the company's global ECS business, rely on a limited number of suppliers. To the extent that the company's significant suppliers reduce the amount of products they sell through distribution, are unwilling to continue to do business with the company, or are unable to continue to meet or significantly alter their obligations, the company's business could be materially adversely affected. In addition, to the extent that the company's suppliers modify the terms of their contracts with the company, limit supplies due to capacity constraints, or other factors, there could be a material adverse effect on the company's business.

The competitive pressures the company faces could have a material adverse effect on the company's business.

The company operates in a highly competitive environment, both in the United States and internationally. The company competes with other large multinational and national electronic components and enterprise computing solutions distributors, as well as numerous other smaller, specialized competitors who generally focus on narrower markets, products, or particular sectors. The company also competes for customers with its suppliers. The size of the company's competitors vary across markets sectors, as do the resources the company has allocated to the sectors in which it does business. Therefore, some of the company's competitors may have a more extensive customer and/or supplier base than the company in one or more of its market sectors. There is significant competition within each market sector and geography that creates pricing pressure and the need for constant attention to improve services. Other competitive factors include rapid technological changes, product availability, credit availability, speed of delivery, ability to tailor solutions to customer needs, quality and depth of product lines and training, as well as service and support provided by the distributor to the customer. The Company also faces competition from companies entering or expanding into the logistics and product fulfillment, catalog distribution, and e-commerce supply chain services markets. As the company seeks to expand its business into new areas in order to stay competitive in the market, the company may encounter increased competition from its current and/or new competitors. The company's failure to maintain and enhance its competitive position could have a material adverse effect on its business.

Products sold by the company may be found to be defective and, as a result, warranty and/or product liability claims may be asserted against the company, which may have a material adverse effect on the company.

The company sells its components at prices that are significantly lower than the cost of the equipment or other goods in which they are incorporated. As a result, the company may face claims for damages (such as consequential damages) that are disproportionate to the revenues and profits it receives from the components involved in the claims. While the company typically has provisions in its supplier agreements that hold the supplier accountable for defective products, and the company and its suppliers generally exclude consequential damages in their standard terms and conditions, the company's ability to avoid such liabilities may be limited as a result of differing factors, such as the inability to exclude such damages due to the laws of some of the countries where it does business. The company's business could be materially adversely affected as a result of a significant quality or performance issue in the products sold by the company, if it is required to pay for the associated damages. Although the company currently has product liability insurance, such insurance is limited in coverage and amount.

Declines in value and other factors pertaining to the company's inventory could materially adversely affect its business.

The market for the company's products and services is subject to rapid technological change, evolving industry standards, changes in end-market demand, oversupply of product, and regulatory requirements, which can contribute to the decline in value or

obsolescence of inventory. Although most of the company's suppliers provide the company with certain protections from the loss in value of inventory (such as price protection and certain rights of return), the company cannot be sure that such protections will fully compensate it for the loss in value, or that the suppliers will choose to, or be able to, honor such agreements. For example, many of the company's suppliers will not allow products to be returned after they have been held in inventory beyond a certain amount of time, and, in most instances, the return rights are limited to a certain percentage of the amount of product the company purchased in a particular time frame. All of these factors pertaining to inventory could have a material adverse effect on the company's business.

The company is subject to environmental laws and regulations that could materially adversely affect its business.

The European Union, China, and other jurisdictions in which the company's products are sold have enacted or are proposing to enact laws addressing environmental and other impacts from product disposal, use of hazardous materials in products, use of chemicals in manufacturing, recycling of products at the end of their useful life, and other related matters. These laws prohibit the use of certain substances in the manufacture of the company's products and directly and indirectly impose a variety of requirements for modification of manufacturing processes, registration, chemical testing, labeling, and other matters. Failure to comply with these laws or any other applicable environmental regulations could result in fines or suspension of sales. Additionally, these directives and regulations may result in the company having non-compliant inventory that may be less readily salable or have to be written off.

Some environmental laws impose liability, sometimes without fault, for investigating or cleaning up contamination on or emanating from the company's currently or formerly owned, leased, or operated property, as well as for damages to property or natural resources and for personal injury arising out of such contamination. As the distribution business, in general, does not involve the manufacture of products, it is typically not subject to significant liability in this area. However, there may be occasions, including through acquisitions, where environmental liability arises. Two sites for which the company assumed responsibility as part of the Wyle Electronics ("Wyle") acquisition are known to have environmental issues, one at Norco, California and the other at Huntsville, Alabama. The company was also named as a defendant in a private lawsuit filed in connection with alleged contamination at a small industrial building formerly leased by Wyle Laboratories in El Segundo, California. The lawsuit was settled, but the possibility remains that government entities or others may attempt to involve the company in further characterization or remediation of groundwater issues in the area. The presence of environmental contamination could also interfere with ongoing operations or adversely affect the company's ability to sell or lease its properties. The discovery of contamination for which the company is responsible, the enactment of new laws and regulations, or changes in how existing requirements are enforced, could require the company to incur costs for compliance or subject it to unexpected liabilities.

The foregoing matters could materially adversely affect the company's business.

Expansion into the electronic asset disposition market has broadened the company's risk profile.

The company has recently expanded into the electronics asset disposition business, pursuant to which it provides services related to electronic devices being disposed of by business customers, including cleansing storage devices from customer equipment and either recycling it through resale or disposing of it in an environmentally compliant manner. The company may also hold equipment in order to protect and preserve customer data. If the company does not meet its contractual and regulatory obligations with respect to such data, it could be subject to contractual damages, penalties, and damage to reputation. Also, the company's or its subcontractors' failure to comply with applicable environmental laws and regulations in disposing of the equipment could result in liability. Such environmental liability may be joint and several, meaning that the company could be held responsible for more than its share of the liability involved. To the extent that company fails to comply with its obligations and such failure is not covered by insurance, the company's business could be adversely affected.

The company may not have adequate or cost-effective liquidity or capital resources.

The company requires cash or committed liquidity facilities for general corporate purposes, such as funding its ongoing working capital, acquisition, and capital expenditure needs, as well as to refinance indebtedness. At December 31, 2013, the company had cash and cash equivalents of $390.6 million. In addition, the company currently has access to committed credit lines of $2.275 billion, of which the company had outstanding borrowings of $420.0 million at December 31, 2013. The company's ability to satisfy its cash needs depends on its ability to generate cash from operations and to access the financial markets, both of which are subject to general economic, financial, competitive, legislative, regulatory, and other factors that are beyond its control.

The company may, in the future, need to access the financial markets to satisfy its cash needs. The company's ability to obtain external financing is affected by various factors including general financial market conditions and the company's debt ratings. Further, any increase in the company's level of debt, change in status of its debt from unsecured to secured debt, or deterioration

of its operating results may cause a reduction in its current debt ratings. Any downgrade in the company's current debt rating or tightening of credit availability could impair the company's ability to obtain additional financing or renew existing credit facilities on acceptable terms. Under the terms of any external financing, the company may incur higher financing expenses and become subject to additional restrictions and covenants. For example, the company's existing debt agreements contain restrictive covenants, including covenants requiring compliance with specified financial ratios, and a failure to comply with these or any other covenants may result in an event of default. The company's lack of access to cost-effective capital resources, an increase in the company's financing costs, or a breach of debt covenants could have a material adverse effect on the company's business.

The agreements governing some of the company's financing arrangements contain various covenants and restrictions that limit some of management's discretion in operating the business and could prevent the company from engaging in some activities that may be beneficial to its business.

The agreements governing the company's financings contain various covenants and restrictions that, in certain circumstances, could limit its ability to:


•	grant liens on assets;


•	make restricted payments (including paying dividends on capital stock or redeeming or repurchasing capital stock);


•	make investments;


•	merge, consolidate, or transfer all or substantially all of its assets;


•	incur additional debt; or


•	engage in certain transactions with affiliates.

As a result of these covenants and restrictions, the company may be limited in how it conducts its business and may be unable to raise additional debt, compete effectively, or make investments.

The company's failure to have long-term sales contracts may have a material adverse effect on its business.

Most of the company's sales are made on an order-by-order basis, rather than through long-term sales contracts. The company generally works with its customers to develop non-binding forecasts for future orders. Based on such non-binding forecasts, the company makes commitments regarding the level of business that it will seek and accept, the inventory that it purchases, and the levels of utilization of personnel and other resources. A variety of conditions, both specific to each customer and generally affecting each customer's industry may cause customers to cancel, reduce, or delay orders that were either previously made or anticipated, go bankrupt or fail, or default on their payments. Generally, customers cancel, reduce, or delay purchase orders and commitments without penalty. The company seeks to mitigate these risks, in some cases, by entering into noncancelable/nonreturnable sales agreements, but there is no guarantee that such agreements will adequately protect the company. Significant or numerous cancellations, reductions, delays in orders by customers, loss of customers, and/or customer defaults on payments could materially adversely affect the company's business.

The company's revenues originate primarily from the sales of semiconductor, PEMCO (passive, electro-mechanical and interconnect), IT hardware and software products, the sales of which are traditionally cyclical.

The semiconductor industry historically has experienced fluctuations in product supply and demand, often associated with changes in technology and manufacturing capacity and subject to significant economic market upturns and downturns. Sales of semiconductor products and related services represented approximately 41%, 43%, and 47% of the company's consolidated sales in 2013, 2012, and 2011, respectively. The sale of the company's PEMCO products closely tracks the semiconductor market. Accordingly, the company's revenues and profitability, particularly in its global components business segment, tend to closely follow the strength or weakness of the semiconductor market. Further, economic weakness could cause a decline in spending in information technology, which could have a negative impact on the company's ECS business. A cyclical downturn in the technology industry could have a material adverse effect on the company's business and negatively impact its ability to maintain historical profitability levels.

The company's non-U.S. sales represent a significant portion of its revenues, and consequently, the company is exposed to risks associated with operating internationally.

In 2013, 2012, and 2011, approximately 53%, 52%, and 55%, respectively, of the company's sales came from its operations outside the United States. As a result of the company's international sales and locations, its operations are subject to a variety of risks that are specific to international operations, including the following:


•	import and export regulations that could erode profit margins or restrict exports;


•	the burden and cost of compliance with international laws, treaties, and technical standards and changes in those regulations;


•	potential restrictions on transfers of funds;


•	import and export duties and value-added taxes;


•	transportation delays and interruptions;


•	the burden and cost of compliance with complex multi-national tax laws and regulations;


•	uncertainties arising from local business practices and cultural considerations;


•	enforcement of the Foreign Corrupt Practices Act, or similar laws of other jurisdictions;


•	foreign laws that potentially discriminate against companies which are headquartered outside that jurisdiction;


•	volatility associated with sovereign debt of certain international economies;


•	potential military conflicts and political risks; and


•	currency fluctuations, which the company attempts to minimize through traditional hedging instruments.

Furthermore, products the company sells which are either manufactured in the United States or based on U.S. technology ("U.S. Products") are subject to the Export Administration Regulations ("EAR") when exported and re-exported to and from all international jurisdictions, in addition to the local jurisdiction's export regulations applicable to individual shipments. Licenses or proper license exemptions may be required by local jurisdictions' export regulations, including EAR, for the shipment of certain U.S. Products to certain countries, including China, India, Russia, and other countries in which the company operates. Non-compliance with the EAR or other applicable export regulations can result in a wide range of penalties including the denial of export privileges, fines, criminal penalties, and the seizure of inventories. In the event that any export regulatory body determines that any shipments made by the company violate the applicable export regulations, the company could be fined significant sums and/or its export capabilities could be restricted, which could have a material adverse effect on the company's business.

Also, the company's operating income margins are lower in certain geographic markets. Operating income in the components business in Asia/Pacific and the global ECS business in Europe tends to be lower than operating income in the other markets in which the company sells products and services. If sales in those markets increased as a percentage of overall sales, consolidated operating income margins will be lower. The financial impact of lower operating income on returns on working capital is offset, in part, by lower working capital requirements. While the company has and will continue to adopt measures to reduce the potential impact of losses resulting from the risks of doing business abroad, it cannot ensure that such measures will be adequate and, therefore, could have a material adverse effect on its business.

When the company makes acquisitions, it may take on additional liabilities or not be able to successfully integrate such acquisitions.

As part of the company's history and growth strategy, it has acquired other businesses. Acquisitions involve numerous risks, including the following:


•	effectively combining the acquired operations, technologies, or products;


•	unanticipated costs or assumed liabilities, including those associated with regulatory actions or investigations;


•	diversion of management's attention;


•	negative effects on existing customer and supplier relationships; and


•	potential loss of key employees, especially those of the acquired companies.

Further, the company has made, and may continue to make acquisitions of, or investments in new services, businesses or technologies to expand its current service offerings and product lines. Some of these may involve risks that may differ from those traditionally associated with the company's core distribution business, including undertaking product or service warranty responsibilities that in its traditional core business would generally reside primarily with its suppliers. If the company is not successful in mitigating or insuring against such risks, it could have a material adverse effect on the company's business.

The company's goodwill and identifiable intangible assets could become impaired, which could reduce the value of its assets and reduce its net income in the year in which the write-off occurs.

Goodwill represents the excess of the cost of an acquisition over the fair value of the assets acquired. The company also ascribes value to certain identifiable intangible assets, which consist primarily of customer relationships and trade names, among others, as a result of acquisitions. The company may incur impairment charges on goodwill or identifiable intangible assets if it determines that the fair values of the goodwill or identifiable intangible assets are less than their current carrying values. The company evaluates, on a regular basis, whether events or circumstances have occurred that indicate all, or a portion, of the carrying amount of goodwill or identifiable intangible assets may no longer be recoverable, in which case an impairment charge to earnings would become necessary.

Refer to Notes 1 and 3 of the Notes to the Consolidated Financial Statements and 'Critical Accounting Policies' in Management's Discussion and Analysis of Financial Condition and Results of Operations for further discussion of the impairment testing of goodwill and identifiable intangible assets.

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 impairment charges on its goodwill or other identifiable intangible assets 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 is required to recognize an impairment charge in the future, the charge would not impact the company's consolidated cash flows, current liquidity, or capital resources.

If the company fails to maintain an effective system of internal controls or discovers material weaknesses in its internal controls over financial reporting, it may not be able to report its financial results accurately or timely or detect fraud, which could have a material adverse effect on its business.

An effective internal control environment is necessary for the company to produce reliable financial reports and is an important part of its effort to prevent financial fraud. The company is required to periodically evaluate the effectiveness of the design and operation of its internal controls over financial reporting. Based on these evaluations, the company may conclude that enhancements, modifications, or changes to internal controls are necessary or desirable. While management evaluates the effectiveness of the company's internal controls on a regular basis, these controls may not always be effective. There are inherent limitations on the effectiveness of internal controls, including collusion, management override, and failure in human judgment. In addition, control procedures are designed to reduce rather than eliminate financial statement risk. If the company fails to maintain an effective system of internal controls, or if management or the company's independent registered public accounting firm discovers material weaknesses in the company's internal controls, it may be unable to produce reliable financial reports or prevent fraud, which could have a material adverse effect on the company's business. In addition, the company may be subject to sanctions or investigation by regulatory authorities, such as the SEC or the NYSE. Any such actions could result in an adverse reaction in the financial markets due to a loss of confidence in the reliability of the company's financial statements, which could cause the market price of its common stock to decline or limit the company's access to capital.

The company relies heavily on its internal information systems, which, if not properly functioning, could materially adversely affect the company's business.

The company's current global operations reside on multiple technology platforms. The size and complexity of the company's computer systems make them potentially vulnerable to breakdown, malicious intrusion, and random attack. Likewise, data privacy breaches by employees and others who access the company's systems may pose a risk that sensitive data may be exposed to unauthorized persons or to the public. While the company believes that it has taken appropriate security measures to protect its data and information technology systems, there can be no assurance that these efforts will prevent breakdowns or breaches in the company's systems that could have a material adverse effect on the company's business. Because many of the company's systems consist of a number of legacy, internally developed applications, it can be harder to upgrade and may be more difficult to adapt to commercially available software.

The company has initiated a global enterprise resource planning ("ERP") effort to standardize processes worldwide and adopt best-in-class capabilities. The company has committed significant resources to this new ERP system, which replaces multiple legacy systems of the company, and is expected to be implemented globally over the next several years. This conversion is extremely complex, in part, because of the wide range of processes and the multiple legacy systems that must be integrated globally. The company is using a controlled project plan that it believes will provide for the adequate allocation of resources. However, such a plan, or a divergence from it, may result in cost overruns, project delays, or business interruptions. During the conversion process, the company may be limited in its ability to integrate any business that it may want to acquire. Failure to properly or adequately address these issues could impact the company's ability to perform necessary business operations, which could materially adversely affect the company's business.

The company may be subject to intellectual property rights claims, which are costly to defend, could require payment of damages or licensing fees and could limit the company's ability to use certain technologies in the future.

Certain of the company's products and services include intellectual property owned primarily by the company's third party suppliers and, to a lesser extent, the company itself. Substantial litigation and threats of litigation regarding intellectual property rights exist in the semiconductor/integrated circuit, software and some service industries. From time to time, third parties (including certain companies in the business of acquiring patents not for the purpose of developing technology but with the intention of aggressively seeking licensing revenue from purported infringers) may assert patent, copyright and/or other intellectual property rights to

technologies that are important to the company's business. In some cases, depending on the nature of the claim, the company may be able to seek indemnification from its suppliers for itself and its customers against such claims, but there is no assurance that it will be successful in obtaining such indemnification or that the company is fully protected against such claims. In addition, the company is exposed to potential liability for technology that it develops itself for which it has no indemnification protections. In any dispute involving products or services that incorporate intellectual property developed, licensed by the company, or obtained through acquisition, the company's customers could also become the target of litigation. The company is obligated in many instances to indemnify and defend its customers if the products or services the company sells are alleged to infringe any third party's intellectual property rights. Any infringement claim brought against the company, regardless of the duration, outcome, or size of damage award, could:


•	result in substantial cost to the company;


•	divert management's attention and resources;


•	be time consuming to defend;


•	result in substantial damage awards; or


•	cause product shipment delays.

Additionally, if an infringement claim is successful the company may be required to pay damages or seek royalty or license arrangements, which may not be available on commercially reasonable terms. The payment of any such damages or royalties may significantly increase the company's operating expenses and harm the company's operating results and financial condition. Also, royalty or license arrangements may not be available at all. The company may have to stop selling certain products or using technologies, which could affect the company's ability to compete effectively.

Compliance with government regulations regarding the use of "conflict minerals" may result in increased costs and risks to the company.

As part of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the "Act"), the SEC has promulgated disclosure requirements regarding the use of certain minerals, which are mined from the Democratic Republic of Congo and adjoining countries, known as conflict minerals. The disclosure rules will take effect for the company in May 2014. The company will have to publicly disclose whether it manufactures (as defined in the Act) any products that contain conflict minerals and could incur significant costs related to implementing a process that will meet the mandates of the Act. Additionally, customers typically rely on the company to provide critical data regarding the parts they purchase, including conflict mineral information. The company's material sourcing is broad-based and multi-tiered, and it may not be able to easily verify the origins for conflict minerals used in the products it sells. The company has many suppliers and each provides conflict mineral information in a different manner, if at all. Accordingly, because the supply chain is complex, the company may face reputational challenges if it is unable to sufficiently verify the origins of conflict minerals used in its products. Additionally, customers may demand that the products they purchase be free of conflict minerals. This may limit the number of suppliers that can provide products in sufficient quantities to meet customer demand or at competitive prices.

Item 1B. Unresolved Staff Comments.

None.

Item 2. Properties.

The company owns and leases sales offices, distribution centers, and administrative facilities worldwide. Its executive office is located in Englewood, Colorado and occupies a 115,000 square foot facility that is owned by the company. The company owns 12 locations throughout the Americas, EMEA, and Asia Pacific regions and occupies approximately 450 additional locations under leases due to expire on various dates through 2023. The company believes its facilities are well maintained and suitable for company operations.

Item 3. Legal Proceedings.

Environmental and Related Matters

Wyle environmental obligations, among other things. During 2012, the company entered into a settlement agreement with the sellers pursuant to which the sellers paid $110 million and the company released the sellers from their indemnification obligation. In connection with this settlement, the company recorded a gain on the settlement of legal matters of $79.2 million ($48.6 million net of related taxes or $.45 and $.44 per share on a basic and diluted basis, respectively) representing the difference between the settlement amount and the amount receivable from the sellers for reimbursement of costs incurred by the company. 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. As further discussed in Note 15 of the Notes to the Consolidated Financial Statements, the Huntsville, Alabama site is being investigated by the company under the direction of the Alabama Department of Environmental Management. The Norco, California site is subject to a consent decree, entered in October 2003, between the company, Wyle Laboratories, and the California Department of Toxic Substance Control. 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.

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 $33.0 million from certain insurance carriers. The company continues to seek recovery from an umbrella liability policy carrier for its proportional share of the total Norco liability. 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.

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

Tekelec Matter

In 2000, the company purchased Tekelec Europe SA ("Tekelec") from Tekelec Airtronic SA and certain other selling shareholders. Subsequent to the closing of the acquisition, Tekelec received a product liability claim in the amount of €11.3 million. The product liability claim was the subject of a French legal proceeding started by the claimant in 2002, under which separate determinations were made as to whether the products that are subject to the claim were defective and the amount of damages sustained by the purchaser. The manufacturer of the products also participated in this proceeding. The claimant has commenced legal proceedings against Tekelec and its insurers to recover damages in the amount of €3.7 million and expenses of €.3 million plus interest. In May 2012, the French court ruled in favor of Tekelec and dismissed the plaintiff's claims. However, that decision has been appealed by the plaintiff. The company believes that any amount in addition to the amount accrued by the company would not materially adversely impact the company's consolidated financial position, liquidity, or results of operations.

Antitrust Investigation

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

The company is in the process of responding to the Civil Investigative Demand. The Civil Investigative Demand merely seeks information, and no proceedings have been instituted against any person. The company has conducted a preliminary review, and does not have any reason to believe that there has been any conduct by the company or its employees that would be actionable under the antitrust laws in connection with its participation in the database program. Since this matter is at a preliminary stage, it is not possible to predict the potential impact, if any, of the Civil Investigative Demand or whether any actions may be instituted by the FTC against any person.

Other

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

Item 4. Mine Safety Disclosures.

Not applicable.

PART II


Item 5.	Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

Market Information

The company's common stock is listed on the NYSE (trading symbol: "ARW"). The high and low sales prices during each quarter of 2013 and 2012 are as follows:



Year	High		Low
2013:
Fourth Quarter	$	54.25	$	47.09
Third Quarter		48.66		39.89
Second Quarter		40.49		36.47
First Quarter		41.94		37.40

2012:
Fourth Quarter	$	39.18	$	31.31
Third Quarter		38.25		30.84
Second Quarter		43.02		31.46
First Quarter		43.39		35.77

Record Holders

On January 31, 2014, there were approximately 1,900 shareholders of record of the company's common stock.

Dividend History

The company did not pay cash dividends on its common stock during 2013 or 2012. While from time to time the Board of Directors (the "Board") considers the payment of dividends on the common stock, the declaration of future dividends is dependent upon the company's earnings, financial condition, and other relevant factors, including debt covenants.

Equity Compensation Plan Information

The following table summarizes information, as of December 31, 2013, relating to the Omnibus Incentive Plan, which was approved by the company's shareholders and under which cash-based awards, non-qualified stock options, incentive stock options, stock appreciation rights, restricted stock, restricted stock units, performance shares, performance share units, covered employee annual incentive awards, and other stock-based awards may be granted.



Plan Category	Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights	Weighted-Average Exercise Price of Outstanding Options, Warrants and Rights		Number of Securities Remaining Available for Future Issuance
Equity compensation plans approved by security holders	4,546,935	$	37.46	4,405,137
Equity compensation plans not approved by security holders	—	—		—
Total	4,546,935	$	37.46	4,405,137

Performance Graph

The following graph compares the performance of the company's common stock for the periods indicated with the performance of the Standard & Poor's 500 Stock Index ("S&P 500 Stock Index") and the average performance of a group consisting of the company's peer companies (the "Peer Group") on a line-of-business basis. The companies included in the Peer Group are Anixter International Inc., Avnet, Inc., Celestica Inc., Flextronics International Ltd., Ingram Micro Inc., Jabil Circuit, Inc., and Tech Data Corporation. The graph assumes $100 invested on December 31, 2008 in the company, the S&P 500 Stock Index, and the Peer Group. Total return indices reflect reinvestment of dividends and are weighted on the basis of market capitalization at the time of each reported data point.



	2008	2009	2010	2011	2012	2013
Arrow Electronics	100	157	182	199	202	288
Peer Group	100	166	189	196	197	275
S&P 500 Stock Index	100	126	145	148	171	226

Issuer Purchases of Equity Securities

In February 2013, the company's Board approved the repurchase of up to $200 million of the company's common stock through a share-repurchase program. In July 2013, the company's Board approved an additional repurchase of up to $200 million of the company's common stock (collectively the "Share-Repurchase Programs").

The following table shows the share-repurchase activity for the quarter ended December 31, 2013:



Month	Total Number of Shares Purchased(a)	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Program(b)	Approximate Dollar Value of Shares that May Yet be Purchased Under the Program
September 29 through October 31, 2013	—	$	—	—	$	201,428,414
November 1 through 30, 2013	968,428	51.63		968,428	151,428,586
December 1 through 31, 2013	3,497	51.64		—	151,428,586
Total	971,925			968,428


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

(b)

The difference between the "total number of shares purchased" and the "total number of shares purchased as part of publicly announced program" for the quarter ended December 31, 2013 is 3,497 shares, which relate to shares withheld from employees for stock-based awards, as permitted by the Omnibus Incentive Plan, in order to satisfy the required tax withholding obligations. The purchase of these shares were not made pursuant to any publicly announced repurchase plan.

Item 6. Selected Financial Data.

The following table sets forth certain selected consolidated financial data and must be read in conjunction with the company's consolidated financial statements and related notes appearing elsewhere in this Annual Report on Form 10-K (dollars in thousands except per share data):



For the years ended December 31:	2013 (a)		2012 (b)		2011 (c)		2010 (d)		2009 (e)
Sales	$	21,357,285	$	20,405,128	$	21,390,264	$	18,744,676	$	14,684,101
Operating income	$	693,500	$	804,123	$	908,843	$	750,775	$	272,787
Net income attributable to shareholders	$	399,420	$	506,332	$	598,810	$	479,630	$	123,512
Net income per share:
Basic	$	3.89	$	4.64	$	5.25	$	4.06	$	1.03
Diluted	$	3.85	$	4.56	$	5.17	$	4.01	$	1.03

At December 31:
Accounts receivable and inventories	$	7,937,046	$	6,976,618	$	6,446,027	$	6,011,823	$	4,533,809
Total assets		12,060,883		10,785,687		9,829,079		9,600,538		7,762,366
Long-term debt		2,226,132		1,587,478		1,927,823		1,761,203		1,276,138
Shareholders' equity		4,180,232		3,983,222		3,668,812		3,251,195		2,916,960

(a)

Operating income and net income attributable to shareholders include restructuring, integration, and other charges of $92.7 million ($65.6 million net of related taxes or $.64 and $.63 per share on a basic and diluted basis, respectively). Net income attributable to shareholders also includes a loss on prepayment of debt of $4.3 million ($2.6 million net of related taxes or $.03 per share on both a basic and diluted basis), as well as an increase in the provision of income taxes of $20.8 million ($.20 per share on both a basic and diluted basis) and interest expense of $1.6 million ($1.2 million net of related taxes or $.01 per share on both a basic and diluted basis) relating to the settlement of certain international tax matters.

(b)

Operating income and net income attributable to shareholders include restructuring, integration, and other charges of $47.4 million ($30.7 million net of related taxes or $.28 per share on both a basic and diluted basis) and a gain of $79.2 million ($48.6 million net of related taxes or $.45 and $.44 per share on a basic and diluted basis, respectively) related to the settlement of a legal matter.

(c)

Operating income and net income attributable to shareholders include restructuring, integration, and other charges of $37.8 million ($28.1 million net of related taxes or $.25 and $.24 per share on a basic and diluted basis, respectively) and a charge of $5.9 million ($3.6 million net of related taxes or $.03 per share on both a basic and diluted basis) related to the settlement of a legal matter. Net income attributable to shareholders also includes a gain on bargain purchase of $1.1 million ($.7 million net of related taxes or $.01 per share on both a basic and diluted basis), a loss on prepayment of debt of $.9 million ($.5 million net of related taxes), and a net reduction in the provision for income taxes of $28.9 million ($.25 per share on both a basic and diluted basis) principally due to a reversal of a valuation allowance on certain deferred tax assets.

(d)

Operating income and net income attributable to shareholders include restructuring, integration, and other charges of $33.5 million ($24.6 million net of related taxes or $.21 per share on both a basic and diluted basis). Net income attributable to shareholders also includes a loss on prepayment of debt of $1.6 million ($1.0 million net of related taxes or $.01 per share on both a basic and diluted basis), as well as a net reduction in the provision for income taxes of $9.4 million ($.08 per share on both a basic and diluted basis) and a reduction in interest expense of $3.8 million ($2.3 million net of related taxes or $.02 per share on both a basic and diluted basis) primarily related to the settlement of certain income tax matters covering multiple years.


(e)	Operating income and net income attributable to shareholders include restructuring, integration, and other charges of $105.5 million ($75.7 million net of related taxes or $.63 per share on both a basic and diluted basis). Net income

attributable to shareholders also includes a loss on prepayment of debt of $5.3 million ($3.2 million net of related taxes or $.03 per share on both a basic and diluted basis).

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.

Overview

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 provides one of the broadest product offerings in the electronic components and enterprise computing solutions distribution industries and a wide range of value-added services to help customers introduce innovative products, reduce their time to market, and enhance their overall competitiveness. The company has two business segments, the global components business segment and the global ECS business segment. The company distributes electronic components to OEMs and CMs through its global components business segment and provides enterprise computing solutions to VARs through its global ECS business segment. For 2013, approximately 63% of the company's sales were from the global components business segment, and approximately 37% of the company's sales were from the global ECS business segment.

On October 28, 2013, the company acquired ComputerLinks for a purchase price of $313.2 million, which included $21.0 million of cash acquired. During 2013, the company completed four additional acquisitions. During 2012 and 2011, the company completed seven and eight acquisitions, respectively. Refer to Note 2, "Acquisitions," of the Notes to the Consolidated Financial Statements for further discussion of the company's recent acquisition activity.

During the third quarter of 2012, the company prospectively revised its presentation of sales related to certain fulfillment contracts to present these revenues on an agency basis as net fees, as compared to presenting gross sales and costs of sales in prior periods. Management concluded that the impact of the revised presentation was not material and, therefore, prior periods have not been adjusted. On a gross basis, these contracts contributed approximately $280.6 million to the company's sales for 2012, which negatively impacted consolidated sales growth for 2013 by approximately 1.4% when compared with 2012. This revised presentation had no impact on the company's consolidated balance sheet or statement of cash flows. Within the company's consolidated statement of operations, this revised presentation had no impact on gross profit dollars, operating income dollars, net income dollars, or earnings per share, but positively impacted the gross profit margin by approximately 10 basis points, while operating income margin remained relatively flat for 2013. Additionally, returns on capital, which are key metrics used to evaluate the company's performance, were also not impacted by this prospective revision.

Executive Summary

Consolidated sales for 2013 increased by 4.7%, compared with the year-earlier period, due to a 1.0% increase in the global components business segment sales and a 11.6% increase in the global ECS business segment sales. The translation of the company's international financial statements into U.S. dollars resulted in an increase in consolidated sales of 0.8% for 2013, compared with the year-earlier period, due to a weaker U.S. dollar.

Net income attributable to shareholders decreased to $399.4 million in 2013, compared with net income attributable to shareholders of $506.3 million in the year-earlier period. The following items impacted the comparability of the company's results for the years ended December 31, 2013 and 2012:


•	restructuring, integration, and other charges of $92.7 million ($65.6 million net of related taxes) in 2013 and $47.4 million ($30.7 million net of related taxes) in 2012;


•	a gain of $79.2 million ($48.6 million net of related taxes) related to the settlement of a legal matter in 2012;


•	a loss on prepayment of debt of $4.3 million ($2.6 million net of related taxes) in 2013; and


•	an increase in the provision for income taxes of $20.8 million and interest expense of $1.6 million ($1.2 million net of related taxes) relating to the settlement of certain international tax matters in 2013.

Excluding the aforementioned items, net income attributable to shareholders for 2013 was relatively consistent with the prior year.

Certain Non-GAAP Financial Information

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

•

Sales, income, or expense items as adjusted for the impact of changes in foreign currencies (referred to as "impact of changes in foreign currencies") and the impact of acquisitions by adjusting the company's prior periods to include the operating results of businesses acquired, including the amortization expense related to acquired intangible assets, as if the acquisitions had occurred at the beginning of the period presented (referred to as "impact of acquisitions");


•	Sales adjusted for certain items that impact the year-over-year comparison, which includes the aforementioned change in presentation of sales related to certain fulfillment contracts to present these revenues on an agency basis as net fees (referred to as "change in presentation of sales");


•	Operating income as adjusted to exclude identifiable intangible asset amortization, restructuring, integration, and other charges, and settlement of legal matters; and


•	Net income attributable to shareholders as adjusted to exclude identifiable intangible asset amortization, restructuring, integration, and other charges, settlement of legal matters, loss on prepayment of debt, gain on bargain purchase, settlement of certain international tax matters, and reversal of valuation allowance on deferred tax assets.

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

Sales

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

Following is an analysis of net sales by business segment for the years ended December 31 (in millions):



	2013		2012			% Change
Consolidated sales, as reported	$	21,357	$	20,405		4.7	%
Impact of changes in foreign currencies	—		161
Impact of acquisitions	834		1,255
Change in presentation of sales	—		(281		)
Consolidated sales, as adjusted	$	22,191	$	21,540		3.0	%

Global components sales, as reported	13,496		13,361			1.0	%
Impact of changes in foreign currencies	—		98
Impact of acquisitions	169		301
Change in presentation of sales	—		(281		)
Global components sales, as adjusted	$	13,665	$	13,479		1.4	%

Global ECS sales, as reported	$	7,862	$	7,044		11.6	%
Impact of changes in foreign currencies	—		63
Impact of acquisitions	665		954
Global ECS sales, as adjusted	$	8,527	$	8,061		5.8	%

Consolidated sales for 2013 increased by $952.2 million, or 4.7%, compared with the year-earlier period. The increase in 2013 was driven by an increase in global components business segment sales of $134.6 million, or 1.0%, and an increase in global ECS business segment sales of $817.5 million, or 11.6%, compared with the year-earlier period. The translation of the company's international financial statements into U.S. dollars resulted in an increase in consolidated sales of 0.8% in 2013, compared with

the year-earlier period, due to a weaker U.S. dollar. Adjusted for the impact of changes in foreign currencies and acquisitions, and the aforementioned change in presentation of sales, the company's consolidated sales increased by 3.0% in 2013, compared with the year-earlier period.

In the global components business segment, sales for 2013 increased 1.0%, compared with the year-earlier period primarily due to an increase in demand for products in the Asia Pacific region, the impact of recently acquired businesses, and the impact of a weaker U.S. dollar on the translation of the company's international financial statements, offset, in part, by a decline in demand for products in both the Americas and EMEA regions. Adjusted for the impact of changes in foreign currencies and acquisitions, and the aforementioned change in presentation of sales, the company's global components business segment sales increased by 1.4% in 2013, compared with the year-earlier period.

In the global ECS business segment, sales for 2013 increased 11.6% due to growth in software, storage, services, and industry standard servers, offset, in part, by a decline in proprietary servers in both the North America and EMEA regions. Adjusted for the impact of changes in foreign currencies and acquisitions, the company's global ECS business segment sales increased by 5.8% in 2013, compared with the year-earlier period.

Following is an analysis of net sales by business segment for the years ended December 31 (in millions):



	2012			2011			% Change
Consolidated sales, as reported	$	20,405		$	21,390		(4.6	)%
Impact of changes in foreign currencies	—			(460		)
Impact of acquisitions	227			748
Change in presentation of sales	(281		)	(786		)
Consolidated sales, as adjusted	$	20,351		$	20,892		(2.6	)%

Global components sales, as reported	13,361			14,854			(10.0	)%
Impact of changes in foreign currencies	—			(316		)
Impact of acquisitions	61			344
Change in presentation of sales	(281		)	(786		)
Global components sales, as adjusted	$	13,141		$	14,096		(6.8	)%

Global ECS sales, as reported	$	7,044		$	6,536		7.8	%
Impact of changes in foreign currencies	—			(144		)
Impact of acquisitions	166			404
Global ECS sales, as adjusted	$	7,210		$	6,796		6.1	%

Consolidated sales for 2012 decreased by $985.1 million, or 4.6%, compared with the year-earlier period. The decrease in 2012 was driven by a decrease in global components business segment sales of $1.49 billion, or 10.0%, offset, in part, by an increase in global ECS business segment sales of $507.6 million, or 7.8%, compared with the year-earlier period. The translation of the company's international financial statements into U.S. dollars resulted in a decrease in consolidated sales of 2.2% in 2012, compared with the year-earlier period, due to a stronger U.S. dollar. Adjusted for the impact of changes in foreign currencies and acquisitions, and the aforementioned change in presentation of sales, the company's consolidated sales decreased by 2.6% in 2012, compared with the year-earlier period.

In the global components business segment, sales for 2012 decreased 10.0% compared with the year-earlier period primarily due to a decline in demand for products due to weaker economic conditions in the Americas, EMEA, and Asia Pacific regions and by the impact of a stronger U.S. dollar on the translation of the company's international financial statements offset, in part, by the impact of recently acquired businesses. Adjusted for the impact of changes in foreign currencies and acquisitions, and the aforementioned change in presentation of sales, the company's global components business segment sales decreased by 6.8% in 2012, compared with the year-earlier period.

In the global ECS business segment, sales for 2012 increased 7.8% due to higher demand for products in both the North America and EMEA regions. The increase in sales for 2012 was driven by growth in services, storage, and software, offset, in part, by a

decline in servers. Adjusted for the impact of changes in foreign currencies and acquisitions, the company's global ECS business segment sales increased by 6.1% in 2012, compared with the year-earlier period.

Gross Profit

Following is an analysis of gross profit for the years ended December 31 (in millions):



	2013			2012			Change
Consolidated gross profit, as reported	$	2,791		$	2,737		2.0	%
Impact of changes in foreign currencies	—			23
Impact of acquisitions	123			196
Consolidated gross profit, as adjusted	$	2,914		$	2,956		(1.4	)%
Consolidated gross profit as a percentage of sales, as reported	13.1		%	13.4		%	(30	)	bps
Consolidated gross profit as a percentage of sales, as adjusted	13.1		%	13.7		%	(60	)	bps

The company recorded gross profit of $2.79 billion and $2.74 billion for 2013 and 2012, respectively. The increase in gross profit was primarily due to the aforementioned 4.7% increase in sales during 2013. Gross profit margins for 2013 decreased by approximately 30 basis points, compared with the year-earlier period primarily due to a change in mix of products and to a lesser extent competitive pricing pressure. The aforementioned change in presentation of sales had no impact on gross profit dollars but positively impacted the gross profit margin percentage by approximately 10 basis points for 2013. Adjusted for the impact of changes in foreign currencies and acquisitions, and the aforementioned change in presentation of sales, the company's consolidated gross profit margin decreased approximately 60 basis points in 2013, compared with the year-earlier period.

Following is an analysis of gross profit for the years ended December 31 (in millions):



	2012			2011			Change
Consolidated gross profit, as reported	$	2,737		$	2,949		(7.2	)%
Impact of changes in foreign currencies	—			(67		)
Impact of acquisitions	40			160
Consolidated gross profit, as adjusted	$	2,777		$	3,042		(8.7	)%
Consolidated gross profit as a percentage of sales, as reported	13.4		%	13.8		%	(40	)	bps
Consolidated gross profit as a percentage of sales, as adjusted	13.6		%	14.6		%	(100	)	bps

The company recorded gross profit of $2.74 billion and $2.95 billion for 2012 and 2011, respectively. The decrease in gross profit was primarily due to the aforementioned 4.6% decrease in sales during 2012. Gross profit margins for 2012 decreased by approximately 40 basis points, compared with the year-earlier period. The aforementioned change in presentation of sales had no impact on gross profit dollars but positively impacted the gross profit margin percentage by approximately 20 basis points for 2012. Adjusted for the impact of changes in foreign currencies and acquisitions, and the aforementioned change in presentation of sales, the company's consolidated gross profit margin decreased approximately 100 basis points in 2012, principally due to increased competitive pricing pressure in both the company's business segments and, to a lessor extent, a change in the mix of products.

Selling, General, and Administrative Expenses and Depreciation and Amortization

Following is an analysis of operating expenses for the years ended December 31 (in millions):



	2013		2012		% Change
Selling, general, and administrative expenses, as reported	$	1,874	$	1,850	1.3	%
Depreciation and amortization, as reported	131		115		13.7	%
Operating expenses, as reported	2,005		1,965		2.0	%
Impact of changes in foreign currencies	—		15
Impact of acquisitions	108		163
Operating expenses, as adjusted	$	2,113	$	2,143	(1.4	)%

Selling, general, and administrative expenses increased by $24.1 million, or 1.3%, in 2013, on a sales increase of 4.7%, compared with the year-earlier period. Selling, general, and administrative expenses, as a percentage of sales, was 8.8% and 9.1% for 2013 and 2012, respectively.

Depreciation and amortization expense for 2013 increased by $15.8 million, or 13.7%, compared with the year-earlier period, primarily due to increased depreciation associated with the company's ERP initiative. Included in depreciation and amortization expense for 2013 and 2012 was $36.8 million ($29.3 million net of related taxes or $.29 and $.28 per share on a basic and diluted basis, respectively) and $36.5 million ($29.3 million net of related taxes or $.27 and $.26 per share on a basic and diluted basis, respectively), respectively, related to identifiable intangible asset amortization.

Adjusted for the impact of changes in foreign currencies and acquisitions, operating expenses (which include both selling, general, and administrative expenses and depreciation and amortization expense) for 2013 decreased 1.4%, on a sales increase, as adjusted, of 3.0%, due to the company's ability to efficiently manage operating costs.

Following is an analysis of operating expenses for the years ended December 31 (in millions):



	2012		2011			% Change
Selling, general, and administrative expenses, as reported	$	1,850	$	1,893		(2.3	)%
Depreciation and amortization, as reported	115		103			11.5	%
Operating expenses, as reported	1,965		1,996			(1.6	)%
Impact of changes in foreign currencies	—		(49		)
Impact of acquisitions	37		129
Operating expenses, as adjusted	$	2,002	$	2,076		(3.6	)%

Selling, general, and administrative expenses decreased $43.1 million, or 2.3%, in 2012, on a sales decrease of 4.6%, compared with the year-earlier period. Selling, general, and administrative expenses, as a percentage of sales, was 9.1% and 8.8%, for 2012 and 2011, respectively. The dollar decrease in selling, general, and administrative expenses was primarily due to the company's efforts to streamline and simplify processes and to reduce expenses in response to the decline in sales. This was offset, in part, by selling, general, and administrative expenses for certain recent acquisitions which have a higher operating cost structure relative to the company's other businesses which is offset by higher gross profit margins for those businesses.

Depreciation and amortization expense for 2012 increased by $11.9 million, or 11.5%, compared with the year-earlier period, primarily due to increased depreciation associated with the company's ERP initiative and increased depreciation and amortization associated with acquisitions. Included in depreciation and amortization expense for 2012 and 2011 was $36.5 million ($29.3 million net of related taxes or $.27 and $.26 per share on a basic and diluted basis, respectively) and $35.4 million ($27.1 million net of related taxes or $.24 and $.23 per share on a basic and diluted basis, respectively), respectively, related to identifiable intangible asset amortization.

Adjusted for the impact of changes in foreign currencies and acquisitions, operating expenses (which include both selling, general, and administrative expenses and depreciation and amortization expense) for 2012 decreased 3.6%, on a sales decrease, as adjusted, of 2.6%, due to the company's ability to efficiently manage operating costs.

Restructuring, Integration, and Other Charges

2013 Charges

In 2013, the company recorded restructuring, integration, and other charges of $92.7 million ($65.6 million net of related taxes or $.64 and $.63 per share on a basic and diluted basis, respectively). Included in the restructuring, integration, and other charges for 2013 is a restructuring charge of $79.9 million related to initiatives taken by the company to improve operating efficiencies. Also included in the restructuring, integration, and other charges for 2013 is a charge of $.8 million related to restructuring and integration actions taken in prior periods and acquisition-related expenses of $11.9 million.

The restructuring charge of $79.9 million in 2013 includes personnel costs of $66.2 million, facilities costs of $12.6 million, and other costs of $1.1 million. The personnel costs are related to the elimination of approximately 870 positions within the global components business segment and approximately 310 positions within the global ECS business segment. The facilities costs are related to exit activities for 38 vacated facilities worldwide due to the company's continued efforts to streamline its operations and reduce real estate costs. These restructuring initiatives are due to the company's continued efforts to lower cost and drive operational efficiency.

2012 Charges

In 2012, the company recorded restructuring, integration, and other charges of $47.4 million ($30.7 million net of related taxes or $.28 per share on both a basic and diluted basis). Included in the restructuring, integration, and other charges for 2012 is a restructuring charge of $43.3 million related to initiatives taken by the company to improve operating efficiencies. Also included in the restructuring, integration, and other charges for 2012 is a charge of $1.4 million related to restructuring and integration actions taken in prior periods and acquisition-related expenses of $2.7 million.

The restructuring charge of $43.3 million in 2012 includes personnel costs of $31.3 million, facilities costs of $5.4 million, and asset write-downs of $6.6 million. The personnel costs are related to the elimination of approximately 505 positions within the global components business segment and approximately 360 positions within the global ECS business segment. The facilities costs are related to exit activities for 14 vacated facilities worldwide due to the company's continued efforts to streamline its operations and reduce real estate costs. The asset write-downs resulted from the company's decision to exit certain business activities which caused these assets to become redundant and have no future benefit. These restructuring initiatives are due to the company's continued efforts to lower cost and drive operational efficiency.

2011 Charges

In 2011, the company recorded restructuring, integration, and other charges of $37.8 million ($28.1 million net of related taxes or $.25 and $.24 per share on a basic and diluted basis, respectively). Included in the restructuring, integration, and other charges for 2011 is a restructuring charge of $23.8 million related to initiatives taken by the company to improve operating efficiencies primarily due to the integration of recently acquired businesses. Also included in the restructuring, integration, and other charges for 2011 is a credit of $.7 million related to restructuring and integration actions taken in prior periods and acquisition-related expenses of $14.7 million.

The restructuring charge of $23.8 million in 2011 primarily includes personnel costs of $17.5 million and facilities costs of $5.4 million. The personnel costs are related to the elimination of approximately 280 positions within the global components business segment and approximately 240 positions within the global ECS business segment. The facilities costs are related to exit activities for 18 vacated facilities in the Americas and EMEA due to the company's continued efforts to streamline its operations and reduce real estate costs. These restructuring initiatives are due to the company's continued efforts to lower cost and drive operational efficiency, primarily related to the integration of recently acquired businesses.

As of December 31, 2013, the company does not anticipate there will be any material adjustments relating to the aforementioned restructuring plans. Refer to Note 9, "Restructuring, Integration, and Other Charges," of the Notes to the Consolidated Financial Statements for further discussion of the company's restructuring and integration activities.

Settlement of Legal Matters

2012

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. During 2012, the company entered into a settlement agreement with the sellers pursuant to which the sellers paid $110 million and the company released the sellers from their indemnification obligation. In connection with this settlement, the company recorded a gain on the settlement of legal matters of $79.2 million ($48.6 million net of related taxes or $.45 and $.44 per share on a basic and diluted basis, respectively) representing the difference between the settlement amount and the amount receivable from the sellers for reimbursement of costs incurred by the company. As part of the settlement agreement the company accepted responsibility for any potential subsequent costs incurred related to the Wyle matters.

Refer to Note 15, "Contingencies," of the Notes to the Consolidated Financial Statements for further discussion of the settlement and on-going environmental remediation.

2011

During 2011, the company recorded a charge of $5.9 million ($3.6 million net of related taxes or $.03 per share on both a basic and diluted basis) in connection with the settlement of a legal matter, inclusive of related legal costs. This matter related to a customer dispute that originated in 1997. The company had successfully defended itself in a trial, but the verdict was subsequently overturned, in part, by an appellate court and remanded for a new trial. The company ultimately decided to settle this matter to avoid further legal expense and the burden on management's time that such a trial would entail.

Operating Income

Following is an analysis of operating income for the years ended December 31 (in millions):



	2013			2012
Consolidated operating income, as reported	$	694		$	804
Identifiable intangible asset amortization	37			37
Restructuring, integration, and other charges	93			47
Settlement of legal matters	—			(79		)
Consolidated operating income, as adjusted*	$	823		$	809
Consolidated operating income, as reported as a percentage of sales, as reported	3.2		%	3.9		%
Consolidated operating income, as adjusted as a percentage of sales, as reported	3.9		%	4.0		%

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

The company recorded operating income of $693.5 million, or 3.2% of sales, in 2013 compared with operating income of $804.1 million, or 3.9% of sales, in 2012. Included in operating income for 2013 and 2012 were the previously discussed identifiable intangible asset amortization of $36.8 million and $36.5 million, respectively and restructuring, integration, and other charges of $92.7 million and $47.4 million, respectively. Also included in operating income for 2012 was the previously discussed gain of $79.2 million related to the settlement of a legal matter. Excluding these items operating income, as adjusted was $822.9 million, or 3.9% of sales, in 2013 compared with operating income, as adjusted of $808.9 million, or 4.0% of sales, in 2012.

Following is an analysis of operating income for the years ended December 31 (in millions):



	2012			2011
Consolidated operating income, as reported	$	804		$	909
Identifiable intangible asset amortization	37			35
Restructuring, integration, and other charges	47			38
Settlement of legal matters	(79		)	6
Consolidated operating income, as adjusted*	$	809		$	988
Consolidated operating income, as reported as a percentage of sales, as reported	3.9		%	4.2		%
Consolidated operating income, as adjusted as a percentage of sales, as reported	4.0		%	4.6		%

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

The company recorded operating income of $804.1 million, or 3.9% of sales, in 2012 compared with operating income of $908.8 million, or 4.2% of sales, in 2011. Included in operating income for 2012 and 2011 were the previously discussed identifiable intangible asset amortization of $36.5 million and $35.4 million, respectively and restructuring, integration, and other charges of $47.4 million and $37.8 million, respectively. Also included in operating income was the previously discussed gain of $79.2 million in 2012 and charge of $5.9 million in 2011 related to the settlement of legal matters. Excluding these items operating income, as adjusted was $808.9 million, or 4.0% of sales, in 2012 compared with operating income, as adjusted of $987.9 million, or 4.6% of sales, in 2011.

Interest and Other Financing Expense, Net

Net interest and other financing expense increased by 12.3% in 2013 to $114.4 million, compared with $101.9 million in 2012, primarily due to higher average debt outstanding. The increase for 2013 was also impacted by an increase in interest expense of $1.6 million ($1.2 million net of related taxes or $.01 per share on both a basic and diluted basis) primarily related to the settlement of certain international tax matters (discussed in "Income Taxes" below), as well as the occurrence of $1.1 million additional interest related to the 6.875% notes which were redeemed by the company subsequent to issuance of its 3.00% notes due 2018 and 4.50% notes due 2023 note offering (refer to Note 6, "Debt," of the Notes to the Consolidated Financial Statements for further discussion on the note offering).

Net interest and other financing expense decreased by 3.9% in 2012 to $101.9 million, compared with $106.0 million in 2011, due to lower interest rates on the company's variable rate bank debt.

Other

During 2013, the company recorded a loss on prepayment of debt of $4.3 million ($2.6 million net of related taxes or $.03 per share on both a basic and diluted basis), related to the redemption of $332.1 million principal amount of its 6.875% senior notes due July 2013.

During 2011, the company acquired Nu Horizons for less than the fair value of its net assets due to Nu Horizons' stock trading below its book value for an extended period of time prior to the announcement of the acquisition. The company offered a purchase price per share for Nu Horizons that was above the prevailing stock price thereby representing a premium to the shareholders. The acquisition of Nu Horizons by Arrow was approved by Nu Horizons' shareholders. The excess of the fair value of the net assets acquired over the purchase price paid was $1.1 million ($.7 million net of related taxes or $.01 per share on both a basic and diluted basis) and was recognized as a gain on bargain purchase. During 2011, the company also recorded a loss on prepayment of debt of $.9 million ($.5 million net of related taxes), related to the redemption of $17.9 million principal amount of its 6.875% senior notes due in 2013.

Income Taxes

The company recorded a provision for income taxes of $182.3 million (an effective tax rate of 31.3%) for 2013. During 2013 the company recorded an increase in the provision for income taxes of $20.8 million ($.20 per share on both a basic and diluted basis) relating to the settlement of certain international tax matters. The company's provision for income taxes and effective tax rate for

2013 were impacted by the previously discussed adjustment to tax reserves, restructuring, integration, and other charges, and loss on prepayment of debt. Excluding the impact of the aforementioned items, the company's effective tax rate for 2013 was 28.0%.

The company recorded a provision for income taxes of $203.6 million (an effective tax rate of 28.7%) for 2012. The company's provision and effective tax rate for 2012 were impacted by the previously discussed restructuring, integration, and other charges, and gain related to the settlement of a legal matter. Excluding the impact of the aforementioned items, the company's effective tax rate for 2012 was 28.0%.

The company recorded a provision for income taxes of $210.5 million (an effective tax rate of 26.0%) for 2011. During 2011, the company recorded a net reduction in the provision of $28.9 million ($.25 per share on both a basic and diluted basis) principally due to a reversal of a valuation allowance on certain deferred tax assets as a result of a realignment of the company's international business operations. The company's provision and effective tax rate for 2011 were impacted by the previously discussed reversal of a valuation allowance on certain deferred tax assets, restructuring, integration, and other charges, charge related to the settlement of a legal matter, a loss on prepayment of debt, and a gain on bargain purchase. Excluding the impact of the aforementioned items, the company's effective tax rate for 2011 was 29.5%.

The company's provision for income taxes and effective tax rate are impacted by, among other factors, the statutory tax rates in the countries in which it operates and the related level of income generated by these operations.

Net Income Attributable to Shareholders

Following is an analysis of net income attributable to shareholders for the years ended December 31 (in millions):



	2013		2012
Net income attributable to shareholders, as reported	$	399	$	506
Identifiable intangible asset amortization	29		29
Restructuring, integration, and other charges	66		31
Settlement of legal matters	—		(49		)
Loss on prepayment of debt	3		—
Settlement of international tax matters:
Income taxes	21		—
Interest (net of taxes)	1		—
Net income attributable to shareholders, as adjusted*	$	519	$	518

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

The company recorded net income attributable to shareholders of $399.4 million for 2013, compared with net income attributable to shareholders of $506.3 million in the year-earlier period. Included in net income attributable to shareholders for 2013 were the previously discussed identifiable intangible asset amortization of $29.3 million, restructuring, integration, and other charges of $65.6 million, loss on prepayment of debt of $2.6 million, and an increase in the provision for income taxes of $20.8 million and interest expense of $1.2 million relating to the settlement of certain international tax matters. Included in net income attributable to shareholders for 2012 were the previously discussed identifiable intangible asset amortization of $29.3 million, restructuring, integration, and other charges of $30.7 million, and a gain of $48.6 million related to the settlement of a legal matter. Excluding the aforementioned items net income attributable to shareholders, as adjusted was $519.0 million for 2013, relatively consistent with net income attributable to shareholders, as adjusted of $517.8 million in the year-earlier period.

Following is an analysis of net income attributable to shareholders for the years ended December 31 (in millions):



	2012			2011
Net income attributable to shareholders, as reported	$	506		$	599
Identifiable intangible asset amortization	29			27
Restructuring, integration, and other charges	31			28
Settlement of legal matters	(49		)	4
Gain on bargain purchase	—			(1		)
Loss on prepayment of debt	—			1
Reversal of valuation allowance on deferred tax assets	—			(29		)
Net income attributable to shareholders, as adjusted*	$	518		$	629

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

The company recorded net income attributable to shareholders of $506.3 million for 2012, compared with net income attributable to shareholders of $598.8 million in the year-earlier period. Included in net income attributable to shareholders for 2012 were the previously discussed identifiable intangible asset amortization of $29.3 million, restructuring, integration, and other charges of $30.7 million, and a gain of $48.6 million related to the settlement of a legal matter. Included in net income attributable to shareholders for 2011 were the previously discussed identifiable intangible asset amortization of $27.1 million, restructuring, integration, and other charges of $28.1 million, a charge of $3.6 million related to the settlement of a legal matter, a gain on bargain purchase of $.7 million, a loss on prepayment of debt of $.5 million, and a net reduction in the provision for income taxes of $28.9 million principally due to a reversal of a valuation allowance on certain deferred tax assets. Excluding the aforementioned items net income attributable to shareholders, as adjusted was $517.8 million for 2012, compared with net income attributable to shareholders of $628.5 million in the year-earlier period. The decrease in net income attributable to shareholders for 2012 was primarily the result of a decrease in sales and a corresponding decrease in gross profit. Additionally, gross profit margins were negatively impacted principally due to increased competitive pricing pressure in both the company's business segments and, to a lessor extent, a change in mix of products. These decreases were offset, in part, by a reduction in selling, general, and administrative expenses due to the company's efforts to streamline processes and to reduce expenses in response to the decline in sales.

Liquidity and Capital Resources

At December 31, 2013 and 2012, the company had cash and cash equivalents of $390.6 million and $409.7 million, respectively, of which $347.4 million and $359.0 million, respectively, were held outside the United States. Liquidity is affected by many factors, some of which are based on normal ongoing operations of the company's business and some of which arise from fluctuations related to global economics and markets. Cash balances are generated and held in many locations throughout the world. It is the company's current intent to permanently reinvest these funds outside the United States and its current plans do not demonstrate a need to repatriate them to fund its United States operations. If these funds were to be needed for the company's operations in the United States it would be required to record and pay significant United States income taxes to repatriate these funds. Additionally, local government regulations may restrict the company's ability to move cash balances to meet cash needs under certain circumstances. The company currently does not expect such regulations and restrictions to impact its ability to make acquisitions or to pay vendors and conduct operations throughout the global organization.

During 2013, the net amount of cash provided by the company's operating activities was $450.7 million, the net amount of cash used for investing activities was $487.1 million, and the net amount of cash used for financing activities was $26.6 million. The effect of exchange rate changes on cash was an increase of $43.9 million.

During 2012, the net amount of cash provided by the company's operating activities was $675.0 million, the net amount of cash used for investing activities was $409.1 million, and the net amount of cash used for financing activities was $257.7 million. The effect of exchange rate changes on cash was an increase of $4.6 million.

During 2011, the net amount of cash provided by the company's operating activities was $120.9 million, the net amount of cash used for investing activities was $646.5 million, and the net amount of cash used for financing activities was $13.9 million. The effect of exchange rate changes on cash was an increase of $10.1 million.

Cash Flows from Operating Activities

The company maintains a significant investment in accounts receivable and inventories. As a percentage of total assets, accounts receivable and inventories were approximately 65.8% at December 31, 2013 and were approximately 64.7% at December 31, 2012.

The net amount of cash provided by the company's operating activities during 2013 was $450.7 million and was primarily due to earnings from operations, adjusted for non-cash items, offset in part, by an increase in net working capital to support an increase in sales.

The net amount of cash provided by the company's operating activities during 2012 was $675.0 million and was primarily due to earnings from operations, adjusted for non-cash items, and a decrease in net working capital due to a decline in sales.

The net amount of cash provided by the company's operating activities during 2011 was $120.9 million and was primarily due to earnings from operations, adjusted for non-cash items, offset in part, by an increase in net working capital to support an increase in sales.

Working capital, as a percentage of sales, was 16.1%, 15.7%, and 14.9% in 2013, 2012, and 2011, respectively.

Cash Flows from Investing Activities

The net amount of cash used for investing activities during 2013 was $487.1 million, primarily reflecting $367.9 million of cash consideration paid for acquired businesses, $116.2 million for capital expenditures, and $3.0 million related to the purchase of a cost method investment. Included in capital expenditures for 2013 is $57.1 million related to the company's global ERP initiative.

During 2013, the company acquired ComputerLinks, a value-added distributor of enterprise computing solutions with a comprehensive offering of IT solutions from many of the world's leading technology suppliers for aggregate consideration of $292.2 million, net of cash acquired. During 2013 the company completed four additional acquisitions for aggregate consideration of $75.7 million, net of cash acquired and contingent consideration.

The net amount of cash used for investing activities during 2012 was $409.1 million, primarily reflecting $281.9 million of cash consideration paid for acquired businesses, $112.2 million for capital expenditures, and $15.0 million related to the purchase of a cost method investment. Included in capital expenditures for 2012 is $65.6 million related to the company's global ERP initiative.

During 2012, the company completed seven acquisitions. The aggregate consideration for these seven acquisitions was $279.4 million, net of cash acquired and contingent consideration. In addition, the company made a payment of $2.5 million to increase its ownership interest in a majority-owned subsidiary.

The net amount of cash used for investing activities during 2011 was $646.5 million, primarily reflecting $532.6 million of cash consideration paid for acquired businesses and $113.9 million for capital expenditures. Included in capital expenditures for 2011 is $63.7 million related to the company's global ERP initiative.

During 2011, the company acquired Richardson RFPD, a leading value-added global component distributor and provider of engineered solutions serving the global radio frequency and wireless communications market and Nu Horizons, a leading global distributor of advanced technology semiconductor, display, illumination, and power solutions, for aggregate consideration of $379.0 million, net of cash acquired. During 2011, the company completed six additional acquisitions for aggregate consideration of $153.6 million, net of cash acquired.

Cash Flows from Financing Activities

The net amount of cash used for financing activities during 2013 was $26.6 million. The uses of cash from financing activities included $338.2 million of redemption of senior notes, $362.8 million of repurchases of common stock, and a $31.3 million decrease in short-term and other borrowings. The sources of cash from financing activities during 2013 were $591.2 million of net proceeds from a note offering, $71.4 million of net proceeds of long-term bank borrowings, $36.0 million of proceeds from the exercise of stock options, and $7.2 million related to excess tax benefits from stock-based compensation arrangements.

During 2013, the company completed the sale of $300.0 million principal amount of its 3.00% notes due in 2018 and $300.0 million principal amount of its 4.50% notes due in 2023. The net proceeds of the offering of $591.2 million were used to refinance the company's 6.875% senior notes due July 2013 and for general corporate purposes.

During 2013, the company redeemed $332.1 million principal amount of its 6.875% senior notes due July 2013. The related loss on the redemption for the year ended December 31, 2013 aggregated $4.3 million ($2.6 million net of related taxes or $.03 per share on both a basic and diluted basis) and was recognized as a loss on prepayment of debt.

The net amount of cash used for financing activities during 2012 was $257.7 million. The uses of cash from financing activities included $260.9 million of repurchases of common stock, a $9.8 million decrease in short-term and other borrowings, and $5.4 million of repayments of long-term bank borrowings. The sources of cash from financing activities during 2012 were $13.4 million of proceeds from the exercise of stock options, and $5.0 million related to excess tax benefits from stock-based compensation arrangements.

The net amount of cash used for financing activities during 2011 was $13.9 million. The uses of cash from financing activities included a $200.0 million repayment of bank term loan, $197.0 million of repurchases of common stock, $19.3 million of repurchases of 6.875% senior notes, and a $6.2 million decrease in short-term and other borrowings. The sources of cash from financing activities were $354.0 million of proceeds from long-term bank borrowings, $46.7 million of proceeds from the exercise of stock options, and $8.0 million related to excess tax benefits from stock-based compensation arrangements.

During 2011, the company redeemed $17.9 million principal amount of its 6.875% senior notes due in 2013. The related loss on the redemption aggregated $.9 million ($.5 million net of related taxes) and was recognized as a loss on prepayment of debt.

In December 2013, the company entered into a $1.50 billion revolving credit facility, maturing in December 2018. 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 and acquisitions, and as support for the company's commercial paper program, as applicable. This agreement amended the company's $1.20 billion revolving credit facility which was scheduled to expire in August 2016. 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 (1.30% at December 31, 2013). The facility fee is .20%. There were no outstanding borrowings under the revolving credit facility at December 31, 2013. At December 31, 2012, the company had $123.6 million in outstanding borrowings under the revolving credit facility. During the years ended December 31, 2013 and 2012, the average daily balance outstanding under the revolving credit facility was $421.8 million and $338.7 million, respectively.

The company has a $775.0 million asset securitization program collateralized by accounts receivable of certain of its United States subsidiaries, maturing in December 2014. 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 (.40% at December 31, 2013), or an effective interest rate of .61% at December 31, 2013. The facility fee is .40%. The company had $420.0 million and $225.0 million in outstanding borrowings under the asset securitization program at December 31, 2013 and 2012, respectively. During the years ended December 31, 2013 and 2012, the average daily balance outstanding under the asset securitization program was $276.5 million and $500.4 million, respectively.

Both the revolving credit facility and asset securitization program 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 December 31, 2013 and is currently not aware of any events that would cause non-compliance with any covenants in the future.

In the normal course of business certain of the company’s subsidiaries have agreements to sell, without recourse, selected trade receivables to financial institutions. The company does not retain financial or legal interests in these receivables, and accordingly they are accounted for as sales of the related receivables and the receivables are removed from the company’s consolidated balance sheets. Financing costs related to these transactions were not material and are included in "Interest and other financing expense, net" in the company’s consolidated statements of operations.

The company filed a shelf registration statement with the SEC in October 2012 registering debt securities, preferred stock, common stock, and warrants of Arrow Electronics, Inc. that may be issued by the company from time to time. As set forth in the shelf registration statement, the net proceeds from the sale of the offered securities may be used by the company for general corporate purposes, including repayment of borrowings, working capital, capital expenditures, acquisitions and stock repurchases, or for such other purposes as may be specified in the applicable prospectus supplement.

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

Contractual Obligations

Payments due under contractual obligations at December 31, 2013 are as follows (in thousands):



	Within 1 Year		1-3 Years		4-5 Years		After 5 Years		Total
Debt	$	440,033	$	257,813	$	497,769	$	1,045,317	$	2,240,932
Interest on long-term debt	100,268		177,354		154,605		226,511		658,738
Capital leases	3,845		4,982		251		—		9,078
Operating leases	60,191		81,796		34,213		21,367		197,567
Purchase obligations (a)	2,850,843		21,005		4,167		355		2,876,370
Other (b)	38,284		7,292		375		—		45,951
	$	3,493,464	$	550,242	$	691,380	$	1,293,550	$	6,028,636


(a)	Amounts represent an estimate of non-cancelable inventory purchase orders and other contractual obligations related to information technology and facilities as of December 31, 2013. Most of the company's inventory purchases are pursuant

to authorized distributor agreements, which are typically cancelable by either party at any time or on short notice, usually within a few months.

(b)

Includes estimates of contributions required to meet the requirements of the Wyle defined benefit plan. Amounts are subject to change based upon the performance of plan assets, as well as the discount rate used to determine the obligation. The company does not anticipate having to make required contributions to the plans beyond 2016. Also included are amounts relating to personnel, facilities, and certain other costs resulting from restructuring and integration activities.

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, 2013, the company's pro-rata share of this debt was approximately $.7 million. The company believes there is sufficient equity in each of the joint ventures to meet their obligations.

At December 31, 2013, the company had a liability for unrecognized tax benefits and a liability for the payment of related interest totaling $56.6 million, of which approximately $.3 million is expected to be paid within one year. For the remaining liability, due to the uncertainties related to these tax matters, the company is unable to make a reasonably reliable estimate when cash settlement with a taxing authority will occur.

Share-Repurchase Programs

Off-Balance Sheet Arrangements

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

Critical Accounting Policies and Estimates

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

The company believes the following critical accounting policies involve the more significant judgments and estimates used in the preparation of its consolidated financial statements:

Revenue Recognition

The company recognizes revenue when there is persuasive evidence of an arrangement, delivery has occurred or services are rendered, the sales price is determinable, and collectibility is reasonably assured. Revenue typically is recognized at time of shipment. Sales are recorded net of discounts, rebates, and returns, which historically have not been material.

A portion of the company's business involves shipments directly from its suppliers to its customers. In these transactions, the company is 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 the sale and cost of sale of the product upon receiving notification from the supplier that the product was shipped.

The company has certain business with select customers and suppliers that is accounted for on an agency basis (that is, the company recognizes the fees associated with serving as an agent in sales with no associated cost of sales) in accordance with Financial Accounting Standards Board ("FASB") Accounting Standards Codification Topic 605-45-45. Generally, these transactions 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.

During the third quarter of 2012, the company prospectively revised its presentation of sales related to certain fulfillment contracts to present these revenues on an agency basis as net fees, as compared to presenting gross sales and costs of sales in prior periods. This revised presentation had no impact on the company's consolidated balance sheet or statement of cash flows. Within the company's consolidated statement of operations, gross profit dollars, operating income dollars, net income dollars, and earnings per share were also not impacted for any periods reported. Prior to this prospective revision, these contracts approximated one and four percent of the company's consolidated sales for 2012 and 2011, respectively. Management has concluded that the impact of this revised presentation was not material and, therefore, prior periods have not been adjusted.

Accounts Receivable

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.

Inventories

Inventories are stated at the lower of cost or market. Write-downs of inventories to market value are based upon contractual provisions governing price protection, stock rotation, and obsolescence, as well as assumptions about future demand and market conditions. If assumptions about future demand change and/or actual market conditions are less favorable than those projected by the company, additional write-downs of inventories may be required. Due to the large number of transactions and the complexity of managing the process around price protections and stock rotations, estimates are made regarding adjustments to the book cost of inventories. Actual amounts could be different from those estimated.

Investments

The company accounts for available-for-sale investments at fair value, using quoted market prices, and the related holding gains and losses are included in "Accumulated other comprehensive income" in the shareholders' equity section in the company's consolidated balance sheets. The company assesses its long-term investments accounted for as available-for-sale on an ongoing basis to determine whether declines in market value below cost are other-than-temporary. When the decline is determined to be other-than-temporary, the cost basis for the individual security is reduced and a loss is realized in the company's consolidated statement of operations in the period in which it occurs. The company makes such determination after considering the length of time and the extent to which the market value of the investment is less than its cost, the financial condition and operating results of the investee, and the company's intent and ability to retain the investment over time to potentially allow for any recovery in market value. In addition, the company assesses the following factors:


•	broad economic factors impacting the investee's industry;


•	publicly available forecasts for sales and earnings growth for the industry and investee; and


•	the cyclical nature of the investee's industry.

The company could incur an impairment charge in future periods if, among other factors, the investee's future earnings differ from currently available forecasts.

Income Taxes

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 the deferred tax assets would be established in the period such determination was made.

It is 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. At December 31, 2013, the company believes it has appropriately accounted for any unrecognized tax benefits. 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, the company's effective tax rate in a given financial statement period may be affected.

Financial Instruments

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

The company occasionally enters 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 on a quarterly basis. The effective portion of 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 effective portion of 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 income." The ineffective portion of the interest rate swaps, if any, is recorded in "Interest and other financing expense, net" in the company's consolidated statements of operations.

Contingencies and Litigation

The company is subject to proceedings, lawsuits, and other claims related to environmental, regulatory, labor, product, tax, and other matters and assesses the likelihood of an adverse judgment or outcome for these matters, as well as the range of potential losses. A determination of the reserves required, if any, is made after careful analysis. The reserves may change in the future due to new developments impacting the probability of a loss, the estimate of such loss, and the probability of recovery of such loss from third parties.

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 is generally recognized over the vesting period of the award utilizing the graded vesting method, while all other awards are recognized on a straight-line basis. The fair value of stock options is determined using the Black-Scholes valuation model and the assumptions shown in Note 12 of the Notes to the Consolidated Financial Statements. The assumptions used in calculating the fair value of share-based payment awards represent management's best estimates. The company's estimates may be impacted by certain variables including, but not limited to, stock price volatility, employee stock option exercise behaviors, additional stock option grants, estimates of forfeitures, the company's performance, and related tax impacts.

Costs in Excess of Net Assets of Companies Acquired

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 raw materials, 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, EMEA, and Asia/Pacific and each of the two regional businesses within the global ECS business segment, which are North America and EMEA.

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 performing the two-step impairment test is unnecessary. However, the company has elected not to perform the qualitative assessment and began its impairment testing with the first step of the two-step impairment process. The first step, used to identify potential impairment, compares the calculated fair value of a reporting unit with its carrying amount. If the carrying amount of the reporting unit is less than its fair value, no impairment exists and the second step is not performed. If the carrying amount of a reporting unit exceeds its fair value, the entity is required to perform the second step of the goodwill impairment test to measure the amount of the impairment loss, if any. The second step of the goodwill impairment test compares the implied fair value of the reporting unit goodwill with the carrying amount of that goodwill. If the carrying amount of the reporting unit goodwill exceeds the implied fair value of that goodwill, an impairment loss is recognized for the excess.

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, 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. As of the first day of the fourth quarters of 2013, 2012, and 2011, the company's annual impairment testing did not indicate 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, asset securitization program, and other outstanding borrowings.

As of December 31, 2013, the company has $2.04 billion of goodwill, of which approximately $939.1 million and $34.0 million was allocated to the Americas and Asia/Pacific reporting units within the global components business segment, respectively and $584.6 million and $481.6 million was allocated to the North America and EMEA reporting units within the global ECS business segment, respectively. As of the date of the company's latest impairment test, the fair value of the Americas and Asia/Pacific reporting units within the global components business segment and the fair value of the North America and EMEA reporting units within the global ECS business segment exceeded their carrying values by approximately 21%, 19%, 179%, and 188%, respectively.

Impairment of Long-Lived Assets

The company reviews long-lived assets, including property, plant, and equipment and identifiable intangible assets, for impairment whenever changes in circumstances or events may indicate that the carrying amounts are not recoverable. The company also tests indefinite-lived intangible assets, consisting of acquired trade names, for impairment at least annually as of the first day of the fourth quarter. If the fair value is less than the carrying amount of the asset, a loss is recognized for the difference.

Factors which may cause an impairment of long-lived assets include significant changes in the manner of use of these assets, negative industry or market trends, a significant underperformance relative to historical or projected future operating results, or a likely sale or disposal of the asset before the end of its estimated useful life. If any of these factors exist, the company is required to test the long-lived asset for recoverability and may be required to recognize an impairment charge for all or a portion of the asset's carrying value.

During 2012, the company recorded an impairment charge of $6.6 million in connection with asset write-downs resulting from the company's decision to exit certain business activities which caused these assets to become redundant and have no future benefit. This impairment charge is included in "Restructuring, integration, and other charges" in the company's consolidated statements of operations.

Impact of Recently Issued Accounting Standards

In July 2013, the FASB issued Accounting Standards Update No. 2013-11, "Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists" ("ASU No. 2013-11"). ASU No. 2013-11 requires an entity to present an unrecognized tax benefit, or a portion of an unrecognized tax benefit, in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward, with limited exceptions. ASU No. 2013-11 is effective for interim and annual periods beginning after December 15, 2013 and may be applied retrospectively. The adoption of the provisions of ASU No. 2013-11 is not expected to have a material impact on the company's financial position or results of operations.

In March 2013, the FASB issued Accounting Standards Update No. 2013-05, "Parent's Accounting for the Cumulative Translation Adjustment upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity" ("ASU No. 2013-05"). ASU No. 2013-05 requires an entity that ceases to have a controlling financial interest in a subsidiary or group of assets within a foreign entity to release any related cumulative translation adjustment into net income. Accordingly, the cumulative translation adjustment should be released into net income only if the sale or transfer results in the complete or substantially complete liquidation of the foreign entity in which the subsidiary or group of assets had resided. ASU No. 2013-05 is effective for interim and annual periods beginning after December 15, 2013, with early adoption permitted and is to be applied prospectively. The adoption of the provisions of ASU No. 2013-05 is not expected to have a material impact on the company's financial position or results of operations.

In February 2013, the FASB issued Accounting Standards Update No. 2013-04, "Obligations Resulting from Joint and Several Liability Arrangements for Which the Total Amount of the Obligation Is Fixed at the Reporting Date" ("ASU No. 2013-04"). ASU No. 2013-04 provides guidance for the recognition, measurement, and disclosure of obligations resulting from joint and several liability arrangements for which the total amount of the obligation within the scope of the guidance is fixed at the reporting date, as the sum of the amount the reporting entity agreed to pay on the basis of its arrangement among its co-obligors and any additional amount the reporting entity expects to pay on behalf of its co-obligors. In addition, ASU No. 2013-04 requires an entity to disclose the nature and amount of the obligation, as well as other information about the obligations. ASU No. 2013-04 is effective for interim and annual periods beginning after December 15, 2013 and is to be applied retrospectively. The adoption of the provisions of ASU No. 2013-04 is not expected to have a material impact on the company's financial position or results of operations.

Information Relating to Forward-Looking Statements

This report includes forward-looking statements that are subject to numerous assumptions, risks, and uncertainties, which could cause actual results or facts to differ materially from such statements for a variety of reasons, including, but not limited to: industry conditions, the company's implementation of its new enterprise resource planning system, changes in product supply, pricing and customer demand, competition, other vagaries in the global components and global ECS markets, changes in relationships with key suppliers, increased profit margin pressure, the effects of additional actions taken to become more efficient or lower costs, risks related to the integration of acquired businesses, change in legal and regulatory matters, and the company’s ability to generate additional cash flow. Forward-looking statements are those statements, which are not statements of historical fact. These forward-looking statements can be identified by forward-looking words such as "expects," "anticipates," "intends," "plans," "may," "will," "believes," "seeks," "estimates," and similar expressions. Shareholders and other readers are cautioned not to place undue reliance

on these forward-looking statements, which speak only as of the date on which they are made. The company undertakes no obligation to update publicly or revise any of the forward-looking statements.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk.

The company is exposed to market risk from changes in foreign currency exchange rates and interest rates.

Foreign Currency Exchange Rate Risk

The company, as a large global organization, faces exposure to adverse movements in foreign currency exchange rates. These exposures may change over time as business practices evolve and could materially impact the company's financial results in the future. The company's primary exposure relates to transactions in which the currency collected from customers is different from the currency utilized to purchase the product sold in Europe, the Asia Pacific region, Canada, and Latin America. The company's policy is to hedge substantially all such currency exposures for which natural hedges do not exist. Natural hedges exist when purchases and sales within a specific country are both denominated in the same currency and, therefore, no exposure exists to hedge with foreign exchange forward, option, or swap contracts (collectively, the "foreign exchange contracts"). In many regions in Asia, for example, sales and purchases are primarily denominated in U.S. dollars, resulting in a "natural hedge." Natural hedges exist in most countries in which the company operates, although the percentage of natural offsets, as compared with offsets that need to be hedged by foreign exchange contracts, will vary from country to country. 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 values of the foreign exchange contracts, which are nominal, are estimated using market quotes. The notional amount of the foreign exchange contracts at December 31, 2013 and 2012 was $445.7 million and $425.1 million, respectively.

The translation of the financial statements of the non-United States operations is impacted by fluctuations in foreign currency exchange rates. The change in consolidated sales and operating income was impacted by the translation of the company's international financial statements into U.S. dollars. This resulted in increased sales and operating income of $161.1 million and $8.4 million, respectively, for 2013, compared with the year-earlier period, based on 2012 sales and operating income at the average rate for 2013. Sales and operating income would decrease by approximately $630.1 million and $17.1 million, respectively, if average foreign exchange rates had declined by 10% against the U.S. dollar in 2013. These amounts were determined by considering the impact of a hypothetical foreign exchange rate on the sales and operating income of the company's international operations.

Interest Rate Risk

The company's interest expense, in part, is sensitive to the general level of interest rates in North America, Europe, and the Asia Pacific region. The company historically has managed its exposure to interest rate risk through the proportion of fixed-rate and floating-rate debt in its total debt portfolio. Additionally, the company utilizes interest rate swaps in order to manage its targeted mix of fixed- and floating-rate debt.

At December 31, 2013, approximately 81% of the company's debt was subject to fixed rates, and 19% of its debt was subject to floating rates. A one percentage point change in average interest rates would not materially impact net interest and other financing expense in 2013. This was determined by considering the impact of a hypothetical interest rate on the company's average floating rate on investments and outstanding debt. This analysis does not consider the effect of the level of overall economic activity that could exist. In the event of a change in the level of economic activity, which may adversely impact interest rates, the company could likely take actions to further mitigate any potential negative exposure to the change. However, due to the uncertainty of the specific actions that might be taken and their possible effects, the sensitivity analysis assumes no changes in the company's financial structure.

In September 2011, the company entered into a ten-year forward-starting interest rate swap (the "2011 swap") locking in a treasury rate of 2.63% on an aggregate notional amount of $175.0 million. This swap managed the risk associated with changes in treasury rates and the impact of future interest payments. The 2011 swap related to the interest payments for anticipated debt issuances to replace the company's 6.875% senior notes due to mature in July 2013. The 2011 swap was classified as a cash flow hedge and had a negative fair value of $10.8 million at December 31, 2012. In February 2013, the company paid $7.7 million to terminate the 2011 swap upon issuance of the ten-year notes due in 2023. The fair value of the 2011 swap is recorded in the shareholders' equity section in the company's consolidated balance sheets in "Accumulated other comprehensive income" and will be reclassified into income over the ten-year term of the notes due in 2023. During 2013, the company reclassified $(.2) million into income relating to the 2011 swap.

In December 2010, the company entered into interest rate swaps, with an aggregate notional amount of $250.0 million. The swaps modified the company's interest rate exposure by effectively converting the fixed 3.375% notes due in November 2015 to a floating rate, based on the three-month U.S. dollar LIBOR plus a spread, through its maturity. In September 2011, these interest rate swap agreements were terminated for proceeds of $11.9 million, net of accrued interest. The proceeds of the swap terminations, less

accrued interest, were reflected as a premium to the underlying debt and are being amortized as a reduction to interest expense over the remaining term of the underlying debt.

In June 2004 and November 2009, the company entered into interest rate swaps, with an aggregate notional amount of $275.0 million. The swaps modified the company's interest rate exposure by effectively converting a portion of the fixed 6.875% senior notes due in July 2013 to a floating rate, based on the six-month U.S. dollar LIBOR plus a spread, through its maturity. In September 2011, these interest rate swap agreements were terminated for proceeds of $12.2 million, net of accrued interest. The proceeds of the swap terminations, less accrued interest, were reflected as a premium to the underlying debt and were being amortized as a reduction to interest expense over the term of the underlying debt.

Item 8. Financial Statements and Supplementary Data.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Shareholders

Arrow Electronics, Inc.

We have audited the accompanying consolidated balance sheets of Arrow Electronics, Inc. (the "company") as of December 31, 2013 and 2012 and the related consolidated statements of operations, comprehensive income, equity, and cash flows for each of the three years in the period ended December 31, 2013. Our audits also included the financial statement schedule listed in the Index at Item 15(a). These financial statements and the schedule are the responsibility of the company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Arrow Electronics, Inc. at December 31, 2013 and 2012, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2013, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Arrow Electronics, Inc.'s internal control over financial reporting as of December 31, 2013, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (1992 framework) and our report dated February 5, 2014 expressed an unqualified opinion thereon.

/s/ ERNST & YOUNG LLP

New York, New York

February 5, 2014

ARROW ELECTRONICS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands except per share data)



	Years Ended December 31,
	2013		2012			2011
Sales	$	21,357,285	$	20,405,128		$	21,390,264
Costs and expenses:
Cost of sales	18,566,356		17,667,842			18,441,661
Selling, general, and administrative expenses	1,873,638		1,849,534			1,892,592
Depreciation and amortization	131,141		115,350			103,482
Restructuring, integration, and other charges	92,650		47,437			37,811
Settlement of legal matters	—		(79,158		)	5,875
	20,663,785		19,601,005			20,481,421
Operating income	693,500		804,123			908,843
Equity in earnings of affiliated companies	7,429		8,112			6,736
Interest and other financing expense, net	114,433		101,876			105,971
Other	4,277		—			(193		)
Income before income taxes	582,219		710,359			809,801
Provision for income taxes	182,343		203,642			210,485
Consolidated net income	399,876		506,717			599,316
Noncontrolling interests	456		385			506
Net income attributable to shareholders	$	399,420	$	506,332		$	598,810
Net income per share:
Basic	$	3.89	$	4.64		$	5.25
Diluted	$	3.85	$	4.56		$	5.17
Weighted-average shares outstanding:
Basic	102,559		109,240			114,025
Diluted	103,699		111,077			115,932

See accompanying notes.

ARROW ELECTRONICS, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands)



	Years Ended December 31,
	2013		2012			2011
Consolidated net income	$	399,876	$	506,717		$	599,316
Other comprehensive income:
Foreign currency translation adjustment	65,793		23,889			(49,384		)
Unrealized gain (loss) on investment securities, net	1,027		3,679			(11,886		)
Unrealized gain (loss) on interest rate swaps designated as cash flow hedges, net	2,075		(4,805		)	(1,855		)
Employee benefit plan items, net	11,520		(6,976		)	(14,482		)
Other comprehensive income (loss)	80,415		15,787			(77,607		)
Comprehensive income	480,291		522,504			521,709
Less: Comprehensive income attributable to noncontrolling interests	456		192			486
Comprehensive income attributable to shareholders	$	479,835	$	522,312		$	521,223

See accompanying notes.

ARROW ELECTRONICS, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands except par value)



	December 31,
	2013			2012
ASSETS
Current assets:
Cash and cash equivalents	$	390,602		$	409,684
Accounts receivable, net	5,769,759			4,923,898
Inventories	2,167,287			2,052,720
Other current assets	258,122			328,999
Total current assets	8,585,770			7,715,301
Property, plant, and equipment, at cost:
Land	24,051			23,944
Buildings and improvements	142,583			152,008
Machinery and equipment	1,113,987			1,030,983
	1,280,621			1,206,935
Less: Accumulated depreciation and amortization	(648,232		)	(607,294		)
Property, plant, and equipment, net	632,389			599,641
Investments in affiliated companies	67,229			65,603
Intangible assets, net	426,069			414,033
Cost in excess of net assets of companies acquired	2,039,293			1,711,703
Other assets	310,133			279,406
Total assets	$	12,060,883		$	10,785,687
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable	$	4,503,200		$	3,769,268
Accrued expenses	774,868			776,586
Short-term borrowings, including current portion of long-term debt	23,878			364,357
Total current liabilities	5,301,946			4,910,211
Long-term debt	2,226,132			1,587,478
Other liabilities	347,977			300,636
Equity:
Shareholders' equity:
Common stock, par value $1:
Authorized - 160,000 shares in both 2013 and 2012
Issued - 125,424 shares in both 2013 and 2012	125,424			125,424
Capital in excess of par value	1,071,075			1,086,239
Treasury stock (25,488 and 19,423 shares in 2013 and 2012, respectively), at cost	(920,528		)	(652,867		)
Retained earnings	3,678,709			3,279,289
Accumulated other comprehensive income	225,552			145,137
Total shareholders' equity	4,180,232			3,983,222
Noncontrolling interests	4,596			4,140
Total equity	4,184,828			3,987,362
Total liabilities and equity	$	12,060,883		$	10,785,687

See accompanying notes.

ARROW ELECTRONICS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)



	Years Ended December 31,
	2013			2012			2011
Cash flows from operating activities:
Consolidated net income	$	399,876		$	506,717		$	599,316
Adjustments to reconcile consolidated net income to net cash provided by operations:
Depreciation and amortization	131,141			115,350			103,482
Amortization of stock-based compensation	36,923			34,546			39,225
Equity in earnings of affiliated companies	(7,429		)	(8,112		)	(6,736		)
Deferred income taxes	273			(5,414		)	(11,377		)
Restructuring, integration, and other charges	65,601			30,739			28,054
Excess tax benefits from stock-based compensation arrangements	(7,172		)	(5,029		)	(7,956		)
Other	3,534			(5,786		)	4,309
Change in assets and liabilities, net of effects of acquired businesses:
Accounts receivable	(572,886		)	(318,689		)	(193,492		)
Inventories	(21,277		)	(62,383		)	105,150
Accounts payable	446,814			406,874			(465,603		)
Accrued expenses	(123,969		)	38,858			(74,236		)
Other assets and liabilities	99,262			(52,638		)	747
Net cash provided by operating activities	450,691			675,033			120,883
Cash flows from investing activities:
Cash consideration paid for acquired businesses	(367,940		)	(281,918		)	(532,568		)
Acquisition of property, plant, and equipment	(116,162		)	(112,224		)	(113,941		)
Purchase of cost method investments	(3,000		)	(15,000		)	—
Net cash used for investing activities	(487,102		)	(409,142		)	(646,509		)
Cash flows from financing activities:
Change in short-term and other borrowings	(31,340		)	(9,812		)	(6,172		)
Proceeds from (repayment of) long-term bank borrowings, net	71,400			(5,400		)	354,000
Repayment of bank term loan	—			—			(200,000		)
Net proceeds from note offering	591,156			—			—
Redemption of senior notes	(338,184		)	—			(19,324		)
Proceeds from exercise of stock options	36,014			13,372			46,665
Excess tax benefits from stock-based compensation arrangements	7,172			5,029			7,956
Repurchases of common stock	(362,793		)	(260,870		)	(197,044		)
Net cash used for financing activities	(26,575		)	(257,681		)	(13,919		)
Effect of exchange rate changes on cash	43,904			4,587			10,111
Net increase (decrease) in cash and cash equivalents	(19,082		)	12,797			(529,434		)
Cash and cash equivalents at beginning of year	409,684			396,887			926,321
Cash and cash equivalents at end of year	$	390,602		$	409,684		$	396,887

See accompanying notes.

ARROW ELECTRONICS, INC.

CONSOLIDATED STATEMENTS OF EQUITY

(In thousands)



	Common Stock at Par Value		Capital in Excess of Par Value		Treasury Stock			Retained Earnings		Accumulated Other Comprehensive Income		Noncontrolling Interests		Total
Balance at December 31, 2010	$	125,337	$	1,063,461	$	(318,494	)	$	2,174,147	$	206,744	$	—	$	3,251,195
Consolidated net income	—		—		—			598,810 <