UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
FORM 10-K
(Mark One)
|
[X]
|
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 2004
OR
|
[ ]
|
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from ____ to ____
Commission file number 1-4482
ARROW ELECTRONICS, INC.
New York
11-1806155
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification Number)
50 Marcus Drive, Melville, New York
11747
(Address of principal executive offices)
(Zip Code)
Registrant’s telephone number, including area code (631) 847-2000
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange on Which Registered
New York Stock Exchange
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13
or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained to the best of 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. [ ]
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act).
Yes [X] No [ ]
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 $2,757,766,064.
There were 116,790,264 shares of Common Stock outstanding as of March 8, 2005.
The following documents are incorporated herein by reference:
1. Proxy Statement to be filed in connection with Annual Meeting of Shareholders to be held May 6, 2005 (incorporated in Part III).
TABLE OF CONTENTS
2
PART I
Item 1.
Business
.
Arrow Electronics, Inc. (the “company” or “Arrow”), incorporated in New York in 1946, is a major
global provider of products, services, and solutions to industrial and commercial users of
electronic components and computer products. The company believes it is one of the electronics
distribution industry’s leaders in operating systems, employee productivity, value-added programs,
and total quality assurance. Arrow serves as a supply channel partner for nearly 600 suppliers and
150,000 original equipment manufacturers (“OEMs”), contract manufacturers (“CMs”), and commercial
customers.
Serving its industrial and commercial customers as a supply channel partner, the company offers
both a wide spectrum of products and a broad range of services and solutions, including materials
planning, programming and assembly services, inventory management, a comprehensive suite of online
supply chain tools, and design services.
Arrow’s diverse worldwide customer base consists of OEMs, CMs, and commercial customers. Customers
include manufacturers of industrial equipment (including machine
tools, factory automation, and robotic equipment), telecommunications products, automotive and transportation, aircraft and
aerospace equipment, scientific and medical devices, and
computer and office products, as well as value-added resellers
(“VARs”) of computer products.
The company maintains nearly 225 sales facilities and 15 distribution centers in 53 countries and
territories. Through this network, Arrow provides one of the broadest product offerings in the
electronics distribution industry and a wide range of value-added services to help customers reduce
their time to market, lower their total cost of ownership, and enhance their overall
competitiveness.
The company’s global electronic components business, the largest distributor of electronic
components and related services in the world, spans the world’s three largest electronics markets —
the Americas, EMEASA (Europe, Middle East, Africa, and South America), and the Asia/Pacific region.
The Americas components group includes five sales and marketing organizations in the United States
and Canada, as well as an operation in Mexico. The EMEASA components
group is divided into the following three
regions as well as having operations in the Republic of South Africa,
Argentina, and Brazil:
In the Asia/Pacific
region, Arrow operates in Australia, China, Hong Kong, India, Korea, Malaysia, New
Zealand, the Philippines, Singapore, Taiwan, and Thailand.
Arrow’s North American Computer Products group (“NACP”) is a leading distributor of enterprise and
embedded computing systems, as well as storage and software, to resellers and OEM customers in
North America. NACP consists of the Enterprise Computing Solutions group, which serves resellers,
and the OEM Computer Solutions group, which serves industrial OEM customers. The company also has
dedicated computer product businesses in France, Spain, and the
United Kingdom.
The company distributes a broad range of electronic components, computer products, and related
equipment. Approximately 53% of the company’s sales consist of semiconductor products and related
services. Industrial and commercial computer products and related services, including servers,
workstations, storage products, microcomputer boards and systems, design systems, desktop computer
systems, software, monitors, printers, flat panel displays, system chassis and enclosures,
controllers, and communication control equipment, account for approximately 24% of sales. Arrow’s
remaining sales, included within electronic components, are of passive, electromechanical, and
interconnect products, primarily capacitors, resistors, potentiometers, power supplies, relays,
switches, and connectors.
The financial information about the company’s reportable segments and geographic operations can be
found in Note 17 of the Notes to Consolidated Financial Statements.
3
Most manufacturers of electronic components and computer products rely on authorized distributors,
such as the company, to augment their sales and marketing operations. As a stocking, marketing, and
financial intermediary, the distributor relieves manufacturers of a portion of the costs and
personnel associated with stocking and selling their products (including otherwise sizable
investments in finished goods inventories, accounts receivable systems, and distribution networks),
while providing geographically dispersed selling, order processing, and delivery capabilities. At
the same time, the distributor offers a broad range of customers the convenience of accessing, from
a single source, multiple products from multiple suppliers and rapid or scheduled deliveries, as
well as other value-added services such as materials management and memory programming
capabilities. The growth of the electronics distribution industry has been fostered by the many
manufacturers who recognize their authorized distributors as essential extensions of their
marketing organizations.
The company and its
affiliates serve nearly 150,000 industrial and commercial customers. Industrial
customers range from major OEMs and CMs to small engineering firms, while commercial customers
include primarily VARs and OEMs. No single customer accounted for more than 2% of the company’s
2004 consolidated sales.
Most of the company’s customers require delivery of the products they have ordered on schedules
that are generally not available on direct purchases from manufacturers, and frequently their
orders are of insufficient size to be placed directly with manufacturers.
The electronic components and other products offered by the company are sold by both field sales
representatives, who regularly call on customers in assigned market areas, and by inside sales
personnel, who call on customers by telephone from the company’s selling locations. Each of the
company’s North American selling locations, warehouses, and primary distribution centers is
electronically linked to the company’s central computer system, which provides fully integrated,
online, real-time data with respect to nationwide inventory levels and facilitates control of
purchasing, shipping, and billing. The company’s international operations have similar online,
real-time computer systems and they can also access the company’s Worldwide Stock Check System,
which provides access to the company’s online, real-time inventory system.
The company sells the products of nearly 600 manufacturers. The company does not regard any one
supplier of products to be essential to its operations and believes that many of the products
currently sold by the company are available from other sources at competitive prices. Most of the
company’s purchases are pursuant to authorized distributor agreements which are typically
cancelable by either party at any time or on short notice.
Approximately 60% of the company’s inventory consists of semiconductors. It is the policy of most
manufacturers to protect authorized distributors, such as the company, against the potential
write-down of such 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 and price protection. Under the terms of the related distributor agreements, and assuming
the distributor complies with certain conditions, such suppliers are required to credit the
distributor for inventory losses incurred through reductions in manufacturers’ list prices of the
items. In addition, under the terms of many such agreements, the distributor 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 distributor the total amount of its products carried in inventory. As of December 31,
2004, this type of repurchase arrangement covered approximately 87% of the company’s consolidated
inventories. While these industry practices do not wholly protect the company from inventory
losses, the company believes that they currently provide substantial protection from such losses.
The company’s business is extremely competitive, particularly with respect to prices, franchises,
and, in certain instances, product availability. The company competes with several other large
multinational and national distributors as well as numerous regional and local distributors. As one
of the world’s largest electronics distributors, the company’s financial resources and sales are
greater than most of its competitors.
The company and its
affiliates employed over 11,500 employees worldwide as of December 31, 2004.
4
Available Information
The company makes the annual report on Form 10-K, quarterly reports on Form 10-Q, and any current
reports on Form 8-K, and amendments to any of these reports available through its website
(
http://www.arrow.com
) as soon as reasonably practicable after the company files such material with
the Securities and Exchange Commission (“SEC”). The information posted on the company’s website is
not incorporated into this annual report on Form 10-K. In addition, the SEC maintains a website
(
http://www.sec.gov
) that contains reports, proxy and information statements, and other information
regarding issuers that file electronically with the SEC. The annual report on Form 10-K, for the year ended
December 31, 2004, includes the certifications of the company’s Chief Executive Officer and Chief Financial
Officer as Exhibits 31 (i) and 31 (ii), respectively, which were filed with the SEC as required under Section
302 of the Sarbanes-Oxley Act of 2002 and certify the quality of the
company’s public disclosure.
The company’s Chief Executive Officer has also submitted a certification to the New York Stock Exchange
(“NYSE”) certifying that he is not aware of any violations by the company of NYSE corporate governance listing standards.
5
Executive Officers
The following table sets forth the names, ages, and the positions and offices with the company held
by each of the executive officers of the company as of March 15, 2005:
Set forth below is a brief account of the business experience during the past five years of each
executive officer of the company.
William E. Mitchell has been President and Chief Executive Officer of the company since
February 2003. Prior thereto, he served as Executive Vice President of Solectron Corporation and
President of Solectron Global Services, Inc. since March 1999.
Peter S. Brown has been Senior Vice President of the company and General Counsel since September
2001. Prior to joining the company, he served as the managing partner of the London office of the
law firm of Pillsbury Winthrop LLP (formerly, Winthrop, Stimson, Putnam, & Roberts) for more than
five years.
Germano Fanelli was appointed President of Arrow Electronics EMEASA in January 2004. Prior
thereto, he served as Managing Director of Southern Europe and has been a Vice President of the
company for more than five years.
Harriet Green was appointed President of Arrow Asia/Pacific in March 2004. Prior thereto, she
served in several executive positions, including Managing Director of Northern Europe, President of
the company’s Contract Manufacturing Services (CMS) Distribution group and most recently, Vice
President of Worldwide Supplier Marketing. In addition, she has been a Vice President of the
company for more than five years.
Michael J. Long has been President and Chief Operating Officer of NACP since July 1999 and has been
a Vice President of the company for more than five years.
Brian P. McNally was
appointed President of North American Components in March 2004
and has been a Vice President of the company since
June 2002. Prior thereto,
he served in several executive positions including President of the company’s CMS Distribution
group and Managing Director of Northern Europe.
Paul J. Reilly has been Chief Financial Officer since October 2001 and has served as a Vice
President of the company for more than five years.
Jan M. Salsgiver was appointed Vice President of Global Strategy and Operations in March 2004.
Prior thereto, she served as President of the Americas Components group since July 1999. In
addition, she has been a Vice President of the company for more than five years.
Mark Settle has been a Vice President of the company and Chief Information Officer since
November 2001. Prior to joining the company, he served as Executive Vice President, Systems and
Processing at Visa International since April 1999.
Susan M. Suver was appointed Vice President of Human Resources in March 2004. Prior thereto, she
served as Vice President of Global Organizational Development. Prior to joining the company in
October 2001, she held the position of Vice President, Organizational Effectiveness and
Communications at Phelps Dodge Corporation.
6
Item 2.
Properties
.
The company owns and leases sales offices, distribution centers, and administrative facilities
worldwide. The company’s executive office is located in Melville, New York and occupies a 163,000
square foot facility under a long-term lease. The company owns 17 locations throughout the
Americas, EMEASA, and the Asia/Pacific region. The company occupies over 270 additional locations
under leases due to expire on various dates through 2053. The company believes its facilities are
well maintained and suitable for company operations.
Item 3.
Legal Proceedings
.
Wyle Environmental Matters
As is discussed in Note 16 of the Notes to Consolidated Financial Statements, in 2000, when the
company purchased Wyle Electronics (“Wyle”) from the VEBA
Group (“VEBA”), the company assumed Wyle’s then
outstanding obligations. Among the obligations the company assumed was Wyle’s 1994 indemnification
of the purchasers of one of its divisions, Wyle Laboratories, for costs associated with then
existing contamination or violation of environmental regulations. Under the terms of the company’s
purchase of Wyle, VEBA agreed to indemnify the company for, among other things, costs related to
environmental pollution associated with Wyle, including those associated with its prior sale of
Wyle Laboratories.
The company has been named
as a defendant in a suit filed in January 2005 in the California Superior Court in
Riverside County, California (Gloria Austin, et al. v. Wyle Laboratories, Inc. et al.) in which
approximately 100 plaintiffs (who identify themselves as owners, lessees, or occupants of land or
residences within a several mile radius of a Wyle Laboratories facility in Norco, California) have
sued twelve defendants under a number of different theories for unquantified damages allegedly
caused by environmental contamination at and around Wyle Laboratories’ Norco site. Contaminated
groundwater and related soil-vapor have been found in certain residential areas immediately
adjacent to the site. Characterization of the on- and off-site scope and impact of the
contamination, and the design of interim remedial measures, are on-going. Wyle Laboratories has
also been named as a defendant in the proceeding and has demanded indemnification from Arrow in
connection with it.
As with the costs of the ongoing investigation and remediation of the Norco and Huntsville, Alabama
sites discussed in Note 16 of the Notes to Consolidated Financial Statements, the company believes
that any cost or liability which it may incur in connection with the Austin v. Wyle matter,
including the defense of the case, is covered by the VEBA indemnifications (except, under the terms
of the environmental indemnification, for the first $450,000). VEBA has since merged with E.ON AG,
a large German-based multinational conglomerate. Despite E.ON AG’s acknowledgment of the existence
of the contractual indemnities, and a single, partial payment, neither the company’s demand for
defense and indemnification in the Austin v. Wyle matter, nor its demand for further
indemnification payments have been met. In September 2004, the company filed suit against E.ON AG
and certain of its U.S. subsidiaries in the United States District Court for the Northern District
of Alabama seeking further payments of indemnified amounts and additional related damages.
Export and Re-Export Regulations
Due to the international nature of its business, the company and its subsidiaries are subject
to the import and export laws of the United States and other
countries in which it operates or to
which it exports.
Under U.S. Export Administration Regulations (“EAR”), administered by the Bureau of Industry and
Security (“BIS”) of the Department of Commerce, licenses or proper license exceptions are required
for the shipment of covered U.S. goods and technology to certain countries, including China, India,
Russia and other countries which are among the markets in which the company operates.
Non-compliance with the regulations can result in a wide range of penalties including the denial of
export privileges, fines, criminal penalties, and seizure of commodities.
In September 2004, the company made a preliminary, voluntary disclosure to the BIS advising them
that the company suspected that its Hong Kong subsidiary, Arrow Asia Pac, Ltd., may have exported
or re-exported certain products without the required licenses.
7
The company has since undertaken a review of its historical shipments from North America and the
Asia/Pacific region to determine the number and nature of any
violations. In March 2005, the
company advised the BIS that it had identified 28 export or re-export shipments, over a five-year
period, that may constitute violations of the EAR. The statutory maximum civil penalty for each
violation of the EAR identified by the company is $11,000 for all but two of the shipments in
question, which are subject to a higher statutory maximum civil penalty of $120,000 per violation.
However, because it is not known whether the BIS will agree with the company’s count or
characterization of the violations, and because penalties for such violations may also include
export prohibitions or restrictions, it is not possible at this time to determine the extent of the
penalties the company may incur. Notwithstanding the foregoing, based on the information available
to the company at this time, the company does not believe such penalties will have a material
adverse impact on the company’s financial position, liquidity, or results of operations.
The company understands that it is BIS practice to review submissions such as that made by the
company and to attempt to achieve a negotiated settlement without formal proceedings. To the
company’s knowledge, BIS has not yet commenced its review of the company’s submission or engaged
the company in substantive discussions.
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,
and tax matters. While such matters are subject to inherent
uncertainties, it is not currently
anticipated that any such matters will have a material adverse impact on the company’s financial
position, liquidity, or results of operations.
Item 4.
Submission of Matters to a Vote of Security Holders
.
None.
8
-
-
-
Table of Contents
Table of Contents
Table of Contents
Name
Age
Position or Office Held
61
President and Chief Executive Officer
54
Senior Vice President and General Counsel
57
Vice President and President of Arrow Electronics EMEASA
43
Vice President and President of Arrow Asia/Pacific
46
Vice President and President of North American Computer Products
46
Vice President and President of North American Components
48
Vice President and Chief Financial Officer
48
Vice President of Global Strategy and Operations
54
Vice President and Chief Information Officer
45
Vice President of Human Resources
Table of Contents
Table of Contents
Table of Contents
PART II
Item 5.
Market for Registrant’s Common Equity and Related Stockholder Matters
.
Market Information
The company’s common stock is listed on the New York Stock Exchange (trading symbol: “ARW”). The
high and low sales prices during each quarter of 2004 and 2003 were as follows:
Holders
On March 8, 2005,
there were approximately 2,800 shareholders of record of the company’s common
stock.
Dividend History
The company did not pay cash dividends on its common stock during 2004 or 2003. While the board of
directors considers the payment of dividends on the common stock from time to time, the declaration
of future dividends will be dependent upon the company’s earnings, financial condition, and other
relevant factors, including debt covenants.
9
Item 6.
Selected Financial Data
.
The following table sets forth certain selected consolidated financial data and should be read in
conjunction with the company’s consolidated financial statements and related notes appearing
elsewhere in this annual report on Form 10-K (in thousands except per share data):
10
Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of
Operations
.
For an understanding of the significant factors that influenced the company’s performance during
the past three years, the following discussion should be read in conjunction with the consolidated
financial statements and other information appearing elsewhere in this annual report on Form 10-K.
Overview
The company has two business segments: electronic components and computer products. Consolidated
sales grew by 24.8% in 2004, compared with the year-earlier period, as a result of strong sales
growth in the components businesses in North America, EMEASA (Europe, Middle East, Africa, and
South America), and Asia/Pacific, as well as continued growth in the company’s North American
Computer Products (“NACP”) businesses. The increase in sales, excluding the impact
of the weaker U.S. dollar, was 21.3%. The growth in the North American Components (“NAC”)
businesses was driven by the strength of demand from the company’s broad customer base, as well as
the cyclical upturn that began during 2003 and continued through mid-2004. Since that time, the
rate of increase has slowed throughout the markets the company serves. The second half of 2004 has been
marked by rational demand and continued cautiousness on the part of customers as product remains
readily available. The growth in the EMEASA components businesses is primarily due to improved
customer order patterns and the acquisition of Disway AG (“Disway”) during the third quarter of
2004. The growth in the Asia/Pacific components businesses is a result of the region’s strong
market growth coupled with the company’s initiatives to expand its product offering and customer
base. The growth in the NACP businesses is due to a company initiative to grow sales of certain strategic product
segments, a change in the business model used for the sale of
Hewlett-Packard Company (“HP”) products beginning in the first quarter of 2004, as described below, and
increases in its Enterprise Computing Solutions business due to increased sales of storage and
software, as well as increases in the size of the markets served by Arrow.
Net income increased to $207.5 million in 2004, compared with net income of $25.7 million in 2003.
The increase in net income is due to the company’s ability to increase sales without operating
expenses increasing at the same rate, the impact of efficiency initiatives reducing operating
expenses, and lower interest costs as a result of the prepayment of debt. In addition, the
following items impact the comparability of the company’s
results for the years ended December 31, 2004 and 2003:
Sales
In the fourth quarter of
2004, based upon an evaluation of its business and accounting
practices, the company determined that revenue related to the sale of service contracts should more appropriately be
classified on an agency basis rather than a gross basis. While this change reduces reported sales
and cost of sales, it has no impact on gross profit, operating income, net income, cash flow, or
the balance sheet. All prior period sales and cost of sales have been reclassified to present the
revenue related to the sale of service contracts on an agency basis. Sales and cost of sales have
been reduced by $171.0 million for the nine months ended September 30, 2004 and $151.0 million and
$120.4 million in 2003 and 2002, respectively.
Consolidated sales for 2004 increased 24.8% from $8.5 billion in 2003 to $10.6 billion. The growth
in the NAC businesses was driven by the strength of demand from the company’s broad customer base,
as well as the cyclical upturn that began during 2003 and continued through mid-2004. Since that
time, the rate of increase has slowed throughout the markets the
company serves. The second half of 2004 has
been marked by rational demand and continued cautiousness on the part of customers as product
remains readily available. The growth in the NACP businesses is due to a company initiative to
grow sales of certain strategic
11
product segments, a change in the
business model used for the sale of HP products beginning in the first quarter of 2004, and increases in its Enterprise Computing
Solutions business due to increased sales of storage and software, as
well as increases in the size of the market served by Arrow. EMEASA sales for 2004 increased by $578.7 million or 20.8%, compared with the
year-earlier period, primarily due to improved customer order patterns, the impact of a weaker U.S.
dollar on the translation of the company’s European financial statements, and the completion,
during the third quarter of 2004, of the acquisition of Disway,
reduced, in part, by the elimination
of sales in the Nordic commodity computer products business, which the company exited during the
third quarter of 2003. Asia/Pacific sales for 2004 increased by $349.8 million or 42.6%, compared
with the year-earlier period, as a result of improved market conditions as well as the company’s
initiatives to expand its product offering and customer base. The increase in consolidated sales
was impacted by the translation of the company’s international financial statements into U.S.
dollars which resulted in increased sales of $246.3 million for 2004, compared with the
year-earlier period, due to a weaker U.S. dollar. The increase in
consolidated sales, giving effect to the impact of
the weaker U.S. dollar, was 21.3% for 2004.
Sales of electronic components increased by $1.6 billion or 25.5% for 2004, compared with the
year-earlier period. The overall increase in sales include the aforementioned factors related to
increased sales of electronic components in North America, Europe, and the Asia/Pacific region.
Sales of computer products increased by $478.8 million or 22.7% for 2004, compared with the
year-earlier period. An estimated $196.6 million of the increase
was the result of a change in the business model with HP. During February 2004, HP modified its
agreement with distributors transforming the relationship from that of an agent to that of a
distributor and thereby changing the method of recognizing revenue. Excluding the change related
to HP, computer product sales would have increased by 13.4% for 2004. Sales in the Enterprise
Computing Solutions business increased by 34.0% for 2004, compared with the year-earlier period,
due to increased sales of storage and software, as well as increases in the size of the market
served by Arrow. Sales of industrial related computer products to original equipment manufacturers
(“OEM”) increased by 17.1% for 2004, compared with the year-earlier period. These increases were
reduced, in part, by the elimination of sales in the Nordic commodity computer products business,
which the company exited during the third quarter of 2003.
Consolidated sales for 2003 increased 17.3% from $7.3 billion in 2002 to $8.5 billion. Sales in
the NACP businesses increased in 2003 by $173.5 million or 11.3% due to the growth in the business.
Sales in the NAC businesses increased in 2003 by $626.8 million or 24.9%, when compared with the
year-earlier period, primarily due to the acquisition of the Industrial Electronics Division
(“IED”) of Agilysys, Inc. as well as growth in its businesses. EMEASA sales for 2003 increased by
$334.6 million or 13.7%, compared with the year-earlier period, primarily as a result of the impact
of a weakening U.S. dollar on the translation of the company’s European financial statements.
Asia/Pacific sales for 2003 increased by $162.8 million or 24.7%, compared with the year-earlier
period, as a result of improved market conditions as well as the company’s increased focus in this
region. The increase in consolidated sales was impacted by the translation of the company’s
international financial statements into U.S. dollars which resulted in increased sales of $369.9
million for 2003, compared with the year-earlier period, due to a
weaker U.S. dollar. The
increase in consolidated sales, giving effect to the impact of the
weaker
U.S. dollar, was 11.6% for 2003.
Sales of electronic components increased by $1.1 billion or 20.6% for 2003, compared with the
year-earlier period. Sales in the NAC businesses for 2003 increased by 24.9%, compared with the year-earlier
period. This increase was primarily a result of the acquisition of the IED business in late
February 2003. The remaining factors impacting the overall increase in worldwide sales of
electronic components include the impact of a weakened U.S. dollar on the translation of the
company’s financial statements and the aforementioned increased sales in the Asia/Pacific region
and North America.
Sales of computer products increased by $161.2 million or 8.3% for 2003, compared with the
year-earlier period. Sales in the Enterprise Computing Solutions business increased
by 18.2% in 2003, compared with the year-earlier period. Sales in the OEM business increased by
16.5% in 2003, compared with the year-earlier period. These increases were reduced, in part, by
the 43.8% decrease in sales of the Nordic commodity computer products business, which was exited
during the third quarter of 2003.
Gross Profit
The company recorded gross profit of $1.7 billion for 2004, compared with $1.4 billion in the
year-earlier period. The increase in gross profit is primarily due to the 24.8% increase in sales
in 2004. The gross profit
margin for 2004 decreased by approximately 50 basis points when compared
with the year-earlier period.
12
The decrease in gross profit margin is the result of the lower margin
Asia/Pacific and NACP businesses accounting for a larger part of the company’s sales mix and
pricing pressures in the marketplace relating to the worldwide components businesses. The change in
the business model used for the sale of HP products, beginning in the first quarter of 2004, reduced the gross profit margin by
approximately 30 basis points but had no impact on gross profit.
The company recorded gross profit of $1.4 billion for 2003, compared with $1.3 billion in the
year-earlier period. The increase in gross profit is primarily due to the 17.3% increase in sales
in 2003. The gross profit margin for 2003 decreased by approximately 70 basis points when compared
with the year-earlier period. The decrease in gross profit margin is primarily due to margin
pressures in the components businesses around the world.
Restructuring, Integration, and Other Charges (Credits)
The company recorded restructuring charges of $11.4 million ($6.9 million net of related taxes or
$.07 and $.06 per share on a basic and diluted basis, respectively) and $38.0 million ($27.1
million net of related taxes or $.27 per share) in 2004 and 2003, respectively. These items are
discussed in greater detail below.
Restructurings
The company, over the last 24 months, announced a series of steps to make its organizational
structure more efficient resulting in annualized savings in excess of $100.0 million. The estimated
restructuring charges associated with these actions total approximately $47.9 million, of which
$9.8 million ($6.1 million net of related taxes or $.06 and $.05 per share on a basic and diluted
basis, respectively) and $38.0 million ($27.1 million net of related taxes or $.27 per share) were
recorded in 2004 and 2003, respectively. These restructuring charges related primarily to personnel
costs associated with the elimination of approximately 350 positions in 2004 and 1,085 positions in 2003
across multiple locations, segments, and functions. Approximately 85% of
the total charge is expected to be spent in cash. The company will record the balance
of approximately $.1 million over the next several quarters.
As of December 31,
2004, $5.8 million of these charges were accrued but unused of which $2.8
million are for personnel costs, $2.6 million are to address remaining facilities commitments, and $.4
million are for asset write-downs and other.
During 2004, the company
recorded a restructuring charge of $1.6 million ($.9
million net of related taxes or $.01 per share) related to the 2001 restructuring. The net restructuring charge
consisted of $2.1 million related to facilities and $.4 million of asset write-downs, offset, in
part, by a credit of $.9 million.
Integration
During 2004, the company recorded an integration credit of $2.3 million ($1.4 million net of
related taxes or $.01 per share), which primarily related to the renegotiations of facilities
related obligations.
During 2003, the company incurred integration costs of $18.4 million related to the acquisition of IED. Of the total amount recorded, $6.9 million ($4.8 million
net of related taxes or $.05 per share), relating primarily to severance costs for the company’s
employees, was expensed and $11.5 million ($9.2 million net of related taxes), relating primarily
to severance costs for IED employees and professional fees, was recorded as additional cost in
excess of net assets of companies acquired.
As of December 31,
2004, approximately $.6 million of the IED related accrual was required to address
remaining contractual obligations. The remaining integration accrual,
as of December 31, 2004, of approximately $4.9 million
relates to numerous acquisitions made prior to 2000 and primarily represent payments
for remaining contractual obligations.
Restructuring and Integration Summary
The remaining balances of
the aforementioned restructuring and integration accruals as of December
31, 2004 aggregate $22.1 million, of which $17.6 million is expected to be spent in cash, and will
be utilized as follows:
13
In the first quarter of 2005, the company announced that it has taken additional actions to become
more effectively organized and to improve its operating efficiencies, which will further reduce its
costs on an annual basis by approximately $50.0 million with $40.0 million being realized in 2005. The company
estimates the restructuring charge associated with these actions to be approximately $7.5 million.
Acquisition Indemnification
In the third quarter of 2003, the company recognized an acquisition indemnification charge of
€
11.3
million ($13.0 million or $.13 per share at the 2003 third quarter-end exchange rate) for the full
amount of a claim asserted by the French tax authorities relating to alleged fraudulent activities
concerning value-added tax by Tekelec Europe SA (“Tekelec”), a French subsidiary of the company.
The alleged activities occurred prior to the company’s purchase of Tekelec from Tekelec Airtronic
SA in 2000. In August 2004, an agreement was reached with the French tax authorities
pursuant to which Tekelec agreed to pay
€
3.4 million in full settlement of this claim. The company
recorded an acquisition indemnification credit of
€
7.9 million ($9.7 million at the exchange rate
prevailing on August 12, 2004 or $.09 and $.08 per share on a basic and diluted basis,
respectively) in the third quarter of 2004 to reduce the liability previously recorded (
€
11.3
million) to the required level (
€
3.4 million). In December 2004, Tekelec paid
€
3.4 million ($4.6
million at the exchange rate prevailing at year-end) in full settlement of this claim.
Impairment
In the fourth quarter of
2004, the company recorded an impairment charge related to costs in excess of net assets of
companies acquired of $10.0 million ($.09 and $.08 per share on a basic and diluted basis,
respectively). This non-cash charge principally relates to the
company’s electronic components operations in Latin America. In calculating the
impairment charge, the fair value of the reporting units was estimated using a weighted average
multiple of earnings before interest and taxes from comparable businesses.
Severance
During 2002, the company’s then chief executive officer resigned. As a result, the company
recorded a severance charge totaling $5.4 million ($3.2 million net of related taxes or $.03 per
share), primarily based on the terms of his employment agreement. Included therein are provisions
primarily related to salary continuation, retirement benefits, and the vesting of restricted stock
and options.
Operating Income
The company recorded operating income of $439.3 million in 2004 as compared with operating income
of $184.0 million in 2003. The increase in operating income of $255.3 million is
primarily a result of higher absolute gross profit dollars due to increased sales in 2004, the cost
savings realized from the current restructurings, and the impact of the lower overall acquisition
indemnification, restructuring, and integration charges in 2004 compared to 2003 offset, in part,
by the impairment charge in 2004.
Operating expenses increased in 2004 compared with 2003 by $46.9 million or 3.8%. This increase is
primarily due to the increase in the foreign exchange rates. Variable expenses related to
incremental sales were partially offset by the cost savings resulting from the company’s
restructuring activities.
The company recorded operating income of $184.0 million in 2003 as compared with $167.5 million in
2002. The increase in operating income of $16.5 million for 2003 compared with the year-earlier
period is primarily a result of higher gross profit resulting from increased sales and the cost
savings realized from the company’s
14
restructuring activities,
offset by an increase in the variable costs associated with higher sales and the impact of the acquisition indemnification, restructuring, and
integration charges.
Operating expenses increased in 2003 compared with 2002 by $144.9 million or 13.3%. This increase
was primarily due to the recording of an acquisition indemnification charge and restructuring
charges in 2003 in addition to marginally higher variable expenses as a result of
increased sales.
Loss on Prepayment of Debt
During 2004, the company repurchased, through a series of transactions, $319.8 million accreted
value of its zero coupon convertible debentures due in 2021, which could have been initially put to
the company in February 2006 (“convertible debentures”). The related loss on the repurchase,
including the premium paid and the write-off of related deferred financing costs, aggregated $15.0
million ($9.0 million net of related taxes or $.08 and $.07 per share on a basic and diluted basis,
respectively). Also during 2004, the company repurchased and/or redeemed, through a series of
transactions, $250.0 million principal amount of its 8.7% senior notes due in
October 2005. The premium paid and the related deferred financing costs written-off upon the
repurchase and/or redemption of this debt, net of the gain recognized by terminating the related
interest rate swaps, aggregated $18.9 million ($11.3 million net of related taxes or $.10 and $.09
per share on a basic and diluted basis, respectively). These charges total $33.9 million ($20.3
million net of related taxes or $.18 and $.16 per share on a basic and diluted basis,
respectively), of which $28.2 million was cash, and are recognized as a loss on prepayment of debt.
As a result of these transactions, net interest expense will be reduced by approximately $36.2
million from the dates of repurchase and/or redemption through the earliest maturity date, based on
interest rates in effect at the time of the repurchases.
During 2003, the company repurchased, through a series of transactions, $169.0 million accreted
value of its convertible debentures. The related loss on the repurchase, including the write-off
of related deferred financing costs offset, in part, by the discount on the repurchase, aggregated
$3.6 million ($2.2 million net of related taxes or $.02 per
share). Also during 2003, the company
repurchased, through a series of transactions, prior to maturity, $84.8 million principal amount of
its 8.2% senior notes due in October 2003. The premium paid and the related deferred
financing costs written-off upon the repurchase of this debt aggregated $2.9 million ($1.8 million
net of related taxes or $.02 per share). These charges total $6.6 million ($3.9 million net of
related taxes or $.04 per share), of which $2.3 million was cash, and were recognized as a loss on
prepayment of debt. As a result of these transactions, net interest expense was reduced by
approximately $15.4 million from the dates of the repurchases through the earliest maturity date,
based on interest rates in effect at the time of the repurchases.
During 2002, the company repurchased $398.2 million principal amount of its 6.45% and 8.2% senior
notes, due in the fourth quarter of 2003. The premium paid and the related deferred financing
costs written-off upon the repurchase of this debt aggregated $20.9 million ($12.9 million net of related
taxes or $.13 per share), of which $14.8 million was cash, and was recognized as a loss on
prepayment of debt. As a result of these transactions, net interest expense was reduced by
approximately $31.1 million from the dates of the repurchases through the 2003 maturity date.
Loss on Investment
The company determined that an other-than-temporary impairment occurred in 2004 related to an
investment and, accordingly, recognized a loss on the investment of $1.3 million ($.01 per share).
Interest Expense
Net interest expense decreased 23.5% in 2004 to $103.2 million, compared with $135.0 million in
2003, primarily as a result of lower debt balances. The company has taken advantage of its strong
liquidity by utilizing the cash proceeds from the sale of 13.8 million shares (net proceeds of $312.5
million) of common stock in February 2004, existing cash
balances, and cash flow from operations of $187.5 million to
prepay approximately $570.0 million of debt in 2004.
Net interest expense of $135.0 million in 2003 decreased from $152.6 million in 2002 primarily as a
result of the generation of cash from operations of $291.6 million in 2003, which was utilized to
reduce debt by $62.5 million offset, in part by the loss of interest income from the cash utilized
to pay for the acquisition of IED and declining interest rates on high quality liquid investments.
15
Income Taxes
The company recorded an income tax provision of $96.4 million on income before income taxes and
minority interest of $305.0 million for 2004 (an effective tax rate of 31.6%) compared with an income tax provision of $21.2 million on income before
income taxes and minority interest of $47.3 million (an
effective tax rate of 44.8%) for 2003. The income taxes recorded
in 2004 are impacted by the aforementioned restructuring charges, integration credit,
impairment charge, and loss on investment. Also, the acquisition indemnification credit did not result in a tax charge. The income taxes recorded in 2003 were impacted by the restructuring charges and
integration charge, and the acquisition indemnification charge was not deductible for tax purposes.
The company’s income tax provision and effective tax rate is primarily 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.
The company recorded an income tax provision of $21.2 million on income before income taxes and
minority interest of $47.3 million for 2003 (an effective tax rate of 44.8%), compared with a tax
benefit of $1.8 million on a loss before income taxes and minority interest of $3.3 million in 2002
(an effective tax benefit rate of 53.1%). The income taxes and effective tax rates recorded in 2003
and 2002 were impacted by the estimated tax benefit related to the aforementioned restructuring,
integration, and severance charges. The company’s effective tax rate and income tax provision is
primarily impacted by, among other factors, a tax reorganization completed at the end of 2002, the
statutory tax rates in the countries in which it operates, and the related level of income
generated by these operations.
Discontinued Operations
In May 2002, the company sold substantially all of the assets of Gates/Arrow, a business unit
within NACP. Total cash proceeds of $42.9 million, after price adjustments, have been collected.
The company’s consolidated financial statements and related notes have been presented to reflect
Gates/Arrow as a discontinued operation for 2002.
The company recorded a loss of $10.2 million ($6.1 million net of related taxes or $.06 per share)
on the disposal of Gates/Arrow. The loss related to personnel costs ($1.3 million), facilities
($3.1 million), professional fees ($.6 million), asset write-downs ($3.0 million), and other ($2.2
million).
Change in Accounting Principle
On January 1, 2002, the company adopted Financial Accounting Standards Board (“FASB”) Statement No.
142, “Goodwill and Other Intangible Assets”, and accordingly, discontinued the amortization of
goodwill. As a result of the evaluation process performed during the second quarter of 2002, the
company recorded an impairment charge of $603.7 million ($6.05 per share), which was recorded as a
cumulative effect of change in accounting principle at January 1, 2002.
Net Income (Loss)
The company recorded net income of $207.5 million for 2004, compared with $25.7 million in the
year-earlier period. Included in the results for 2004 are the acquisition indemnification credit of
$9.7 million, restructuring charges of $6.9 million (net of related taxes), an integration credit
of $1.4 million (net of related taxes), an impairment charge of
$10.0 million, a loss on prepayment
of debt of $20.3 million (net of related taxes), as well as a loss on investment of $1.3 million.
Included in the results for 2003 are the acquisition indemnification charge of $13.0 million,
restructuring charges of $27.1 million (net of related taxes), an integration charge of $4.8
million (net of related taxes), and a loss on prepayment of debt of $3.9 million (net of related
taxes).
The company recorded net income of $25.7 million for 2003, compared with a net loss of $610.5
million in the year-earlier period. Included in the results for 2003 are the acquisition
indemnification charge of $13.0 million, restructuring charges of $27.1 million (net of related
taxes), an integration charge of $4.8 million (net of related
taxes), and a loss on prepayment of
debt of $3.9 million (net of related taxes). Included in the results for 2002 are the loss
associated with discontinued operations of $5.9 million (net of
related taxes), a loss on prepayment
of debt of $12.9 million (net of related taxes), a cumulative effect of change in accounting
principle of $603.7 million, and a severance charge of $3.2 million (net of related taxes) related to
the resignation of the company’s then chief executive officer.
16
Liquidity and Capital Resources
At December 31, 2004,
the company had cash, cash equivalents, and short-term investments of
$463.9 million. The net amount of cash generated by the company’s operating
activities during 2004 was $187.5 million primarily from earnings from operations, adjusted for non-cash items and the net
impact of the charges, credits, and losses, partially offset by investments in working capital to
support increased sales. The net amount of cash used for investing activities during 2004 was
$196.4 million, including $158.6 million for net purchases of
short-term investments, $35.0 million for acquired businesses
and $23.5 million for various
capital expenditures offset, in part, by proceeds of $9.6 million from notes receivable and net
proceeds of $10.5 million from the sale of property, plant and equipment, which includes, $8.6
million from the sale of the Brookhaven, New York logistics center. The net amount of cash used for
financing activities during 2004 was $300.6 million, primarily reflecting $329.6 million used to
repurchase convertible debentures and $268.4 million used to repay 8.7% senior notes, offset, in
part by the net proceeds of $312.5 million from the sale of common stock in February 2004. The
effect of exchange rate changes on cash was an increase of $2.4 million.
The net amount of cash provided by the company’s operating activities in 2003 was $291.6 million,
primarily a result of earnings from operations, adjusted for non-cash items and the net impact of
the charges, and lower working capital requirements. The net amount of cash used for investing
activities in 2003 was $261.5 million, including $231.3 million for acquired businesses and $32.0
million for various capital expenditures. The net amount of cash used for financing activities in
2003 was $96.7 million, primarily reflecting $282.2 million used to repay senior notes and $168.4
million used to repurchase convertible debentures, offset by the net proceeds of $346.3 million
from the June 2003 senior note offering.
The net amount of cash provided by operating activities in 2002 was $667.9 million, primarily
reflecting lower working capital requirements. The net amount of cash used for investing
activities in 2002 was $79.8 million, including $111.9 million for acquired businesses and $51.7
million for various capital expenditures offset, in part, by the cash proceeds of $41.1 million
from the sale of Gates/Arrow and the partial repayment of a note receivable of $41.7 million
resulting from a previous transaction. The net amount of cash used for financing activities in
2002 was $484.3 million, primarily reflecting the early retirement of bonds due in the fourth
quarter of 2003 and the repayment of short-term and long-term debt.
Cash Flows from Operating Activities
The company historically has maintained a significant investment in accounts receivable and
inventories. As a percentage of total assets, accounts receivable and inventories were
approximately 63.0% and 58.0% at December 31, 2004 and 2003, respectively.
One of the characteristics of the company’s business is that in periods of revenue growth,
investments in accounts receivable and inventories grow, and the company’s need for financing may
increase. In the periods in which sales decline, investments in accounts receivable and inventories
generally decrease, and cash is generated. In 2004, working capital increased at a slower rate than
the increase in sales. The company continues to focus on improving its working capital management.
Net cash provided by
operating activities decreased by $104.1 million in 2004, as compared with the
year-earlier period, primarily due to investments in working capital to support increased sales,
partially offset by earnings from operations, adjusted for non-cash items and the net impact of the
charges, credits, and losses.
Net cash provided by operating activities decreased by $376.3 million in 2003, as compared with the
year-earlier period, primarily due to investments in working capital to support increased sales,
partially offset by earnings from operations, adjusted for non-cash items and the net impact of the
charges.
Cash Flows from Investing Activities
In July 2004, the company acquired Disway, an electronic components distributor operating in Italy,
Germany, Austria, and Switzerland. In 2003, Disway had sales of approximately $155.0 million. The
final purchase price is subject to a full year audit.
In February 2003, the company acquired substantially all the assets of the IED business. The net
cost of this acquisition was $238.1 million, including a final
payment of $12.2 million during the first
quarter of 2004.
17
As a result of certain acquisitions, the company may be contractually required to purchase the
shareholder interest held by others in its majority (but less than 100%) owned subsidiaries. During
2004, the company made a payment in the amount of $.8 million to increase its ownership interest in
Dicopel US and Dicopel SA from 70% to 80%. During 2003, the company made payments which aggregated
$5.4 million to purchase additional interests in certain of its majority (but less than 100%) owned
subsidiaries. If the put or call options on outstanding agreements were exercised at December 31,
2004, such payments would be approximately $11.0 million ($5.0 million at December 31, 2003). As these payments are based on
the earnings of the acquired companies, the payments will change as the performance of these
subsidiaries change.
The company utilizes short-term investments as part of its cash management activities. During
2004, the net purchases of short-term investments were $158.6
million.
During the second quarter of 2004, the company received proceeds of $8.6 million on the sale of its
Brookhaven, New York logistics center.
Capital expenditures
decreased in 2004 by $8.5 million, or 26.6% when compared with 2003 and also
decreased in 2003 by $19.7 million, or 38.1%, when compared with 2002. These decreases are a
result of the company’s continued cost containment actions, including the consolidation of
facilities.
Cash Flows from Financing Activities
Total debt decreased to $1.47 billion at December 31, 2004 from $2.03 billion at December 31, 2003,
primarily due to the repurchase of convertible debentures and redemption of the company’s 8.7%
senior notes noted below.
During 2004, the company repurchased, through a series of transactions, $319.8 million accreted
value of its convertible debentures. The related loss on the repurchase, including the premium paid
and the write-off of related deferred financing costs, aggregated $15.0 million ($9.0 million net
of related taxes or $.08 and $.07 per share on a basic and diluted basis, respectively). Also
during 2004, the company repurchased and/or redeemed, through a series of transactions, $250.0 million principal amount of its 8.7% senior notes due in October 2005. The
premium paid and the related deferred financing costs written-off upon the repurchase and/or
redemption of this debt, net of the gain recognized by terminating the related interest rate swaps,
aggregated $18.9 million ($11.3 million net of related taxes or $.10 and $.09 per share on a basic
and diluted basis, respectively). These charges total $33.9 million ($20.3 million net of related
taxes or $.18 and $.16 per share on a basic and diluted basis, respectively), of which $28.2
million was cash, and are recognized as a loss on prepayment of debt. As a result of these
transactions, net interest expense will be reduced by approximately $36.2 million from the dates of
repurchase and/or redemption through the earliest maturity date, based on interest rates in effect
at the time of the repurchases.
In February 2004, the company issued 13.8 million shares of common stock with net proceeds of
$312.5 million. The proceeds were used to redeem $208.5 million of the company’s outstanding 8.7%
senior notes due in October 2005, as described above, and for the repurchase of a portion of the
company’s outstanding convertible debentures ($91.9 million accreted value).
The company has a $550.0 million asset securitization program (the “program”). At December 31, 2004
and 2003, there were no receivables sold to and held by third parties under the program, and as
such, the company had no obligations outstanding under the program. The company has not utilized
the program since June 2001. The program agreement, which
requires annual renewals of the banks’ underlying liquidity
facilities, has been extended through February 2008, and the facility
fee has been reduced to .2%.
The company maintains a $450.0 million revolving credit facility which matures in December 2006.
At December 31, 2004 and 2003, the company had no outstanding borrowings under this facility, for
which the company pays a facility fee of .25% per annum.
In June 2003, the company completed the sale of $350.0 million principal amount of 6.875% senior
notes due in 2013. The net proceeds of the offering of $346.3 million were used to repay the
aforementioned 8.2%
senior notes and for general corporate purposes. The additional debt the
company carried during the period between the sale of the 6.875% senior notes in June 2003 and the
repayment of the 8.2% senior notes in October 2003 negatively
impacted income by
$4.7 million ($2.9 million net of related taxes).
During 2003, the company repurchased, through a series of transactions, $169.0 million accreted
value of its convertible debentures. The related loss on the repurchase, including the write-off of
related deferred
18
financing costs offset, in part, by the discount on the repurchase, aggregated
$3.6 million ($2.2 million net of related taxes or $.02 per
share). Also during 2003, the company repurchased, through a series of transactions, prior to maturity, $84.8 million principal amount of
its 8.2% senior notes due in October 2003. The premium paid and the related deferred
financing costs written-off upon the repurchase of this debt aggregated $2.9 million ($1.8 million
net of related taxes or $.02 per share). These charges total $6.6 million ($3.9 million net of
related taxes or $.04 per share), of which $2.3 million was cash, and were recognized as a loss on
prepayment of debt. As a result of these transactions, net interest expense was reduced by
approximately $15.4 million from the dates of the repurchases through the earliest maturity date,
based on interest rates in effect at the time of the repurchases.
During 2002, the company repurchased $398.2 million principal amount of its 6.45% and 8.2% senior
notes, due in the fourth quarter of 2003. The premium paid and the related deferred financing costs
written-off upon the repurchase of this debt aggregated $20.9 million ($12.9 million net of related
taxes or $.13 per share), of which $14.8 million was cash, and was recognized as a loss on
prepayment of debt. As a result of these transactions, net interest expense was reduced by
approximately $31.1 million from the dates of repurchase through the 2003 maturity date.
In March 2005, the company
amended the indenture related to its convertible debentures to
eliminate the company’s option to satisfy the put of such
debentures by the holders thereof through the issuance of shares of
the company’s common stock.
Restructuring and Integration Activities
Based on the aforementioned restructuring and integration charges, at December 31, 2004, the
company has a remaining accrual of $22.1 million, of which $17.6 million is expected to be spent in
cash. The expected cash payments are approximately $8.6 million in 2005, $4.0 million in 2006,
$1.5 million in 2007, $2.2 million in 2008, and $1.3 million thereafter.
In the first quarter of 2005, the company announced that it has taken additional actions to become
more effectively organized and to improve its operating efficiencies, which will further reduce its
costs on an annual basis by approximately $50.0 million with $40.0 million being realized in 2005.
The company estimates the restructuring charge associated with these actions to be approximately
$7.5 million, the majority of which is expected to be spent in cash in 2005.
Contractual Obligations
Payments due under contractual obligations at December 31, 2004 were as follows (in thousands):
19
Under the terms of various joint venture agreements, the company would be required to pay its
pro-rata share, based upon its ownership interests, of the third party debt of the joint ventures in the event
that the joint ventures were unable to meet their obligations. At December 31, 2004, the company’s
pro-rata share of this debt was $7.8 million. The company believes there is sufficient equity in
the joint ventures to cover this potential liability.
Off-Balance Sheet Arrangements
An off-balance sheet arrangement is any contractual arrangement involving an unconsolidated entity
under which a company has (a) made guarantees, (b) a retained or a contingent interest in
transferred assets, (c) any obligation under certain derivative instruments or (d) any obligation
under a material variable interest in an unconsolidated entity that provides financing, liquidity,
market risk, or credit risk support to the company, or engages in leasing, hedging, or research and
development services within the company.
The company does not have any off-balance sheet financing or unconsolidated special purpose
entities.
Critical Accounting Policies and Estimates
The company’s
consolidated financial statements have been prepared in accordance with accounting principles
generally accepted in the United States. The preparation of these
consolidated financial statements requires the
company to make significant estimates and judgments that affect the reported amounts of assets,
liabilities, revenues, and expenses and related disclosure of contingent assets and liabilities.
The company evaluates its estimates, including those related to uncollectible receivables,
inventories, intangible assets, income taxes, restructuring and integration costs, and
contingencies and litigation, on an ongoing basis. The company bases its estimates on historical
experience and on various other assumptions that are believed to be 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, among others, involve the more
significant judgments and estimates used in the preparation of its consolidated financial
statements:
20
21
Impact of Recently Issued Accounting Standards
In December 2004, the FASB issued Statement No. 123 (revised 2004),
“Share-Based Payment” (“Statement No. 123R”). Statement No. 123R addresses all forms of
share-based payment (“SBP”) awards, including, but not limited to, shares issued under stock
options, restricted stock, performance shares, and stock appreciation rights. Statement No. 123R
will require companies to expense SBP awards with compensation cost for SBP transactions measured
at fair value. The company will adopt the new accounting provisions of Statement 123R in the third
quarter of 2005. The company is currently evaluating the impact of applying the various provisions
of Statement No. 123R.
Financial Accounting Standards Statement No. 132 (revised 2003), “Employers’ Disclosures about
Pensions and Other Postretirement Benefits” (“Statement No. 132R”), effective on January 1, 2004,
revises employers’ disclosures about pension plans and other postretirement benefit plans and
requires additional disclosures in annual financial statements about the types of plan assets,
investment strategy, measurement dates, plan obligations, cash flows, and components of net
periodic benefit cost of defined benefit pension plans and other postretirement benefit plans.
Statement No. 132R also requires interim disclosure of the elements of net periodic benefit cost
and, if significantly different from amounts previously disclosed, the total amount of
contributions paid or expected to be paid during the current fiscal year. The company adopted the
disclosure provisions of Statement No. 132R in the first quarter of 2004.
Information Relating to Forward-Looking Statements
This report includes forward-looking statements that are subject to certain 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, changes in product supply, pricing
and customer demand, competition, other vagaries in the electronic components and computer products
markets, changes in relationships with key suppliers, the effects of additional actions taken to
lower costs, and the company’s ability to generate additional cash flow. 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.
22
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 have a material impact on 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
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 a foreign exchange forward or option contract (collectively, “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, which 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 value of the foreign exchange
contracts is estimated using market quotes. The notional amount of the foreign exchange contracts
at December 31, 2004 and 2003 was $224.7 million and $222.7 million, respectively. The carrying
amounts, which are nominal, approximated fair value at December 31, 2004 and 2003. The translation
of the financial statements of the non-North American operations is impacted by fluctuations in
foreign currency exchange rates. The increase in consolidated sales and operating income was
impacted by the translation of the company’s international financial statements into U.S. dollars
which resulted in increased sales of $246.3 million and increased operating income of $11.9 million
for 2004, compared with the year-earlier periods, based on 2003 sales at the average rate for 2004.
Sales and operating income would have decreased by approximately $272.5 million and $13.2 million,
respectively, if average foreign exchange rates had declined by
10% against the U.S. dollar in 2004. This amount was 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 the
Americas, 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. In addition, the company uses interest rate swaps to manage its targeted mix of fixed
and floating rate debt. At December 31, 2004, approximately 64% of the company’s debt was subject
to fixed rates, and 36% of its debt was subject to floating rates. A one percentage point change in
average interest rates would not have a material impact on interest expense, net of interest
income, in 2004. 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.
23
Item 8.
Financial Statements and Supplementary Data
.
REPORT OF ERNST & YOUNG LLP, INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Shareholders
We have audited the accompanying consolidated balance sheets of Arrow Electronics, Inc. as of
December 31, 2004 and 2003, and the related consolidated
statements of operations, shareholders’
equity, and cash flows for each of the three years in the period
ended December 31, 2004. 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 the 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, 2004 and
2003, and the consolidated results of their operations and their cash flows for each of the three
years in the period ended December 31, 2004, 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.
As discussed in Note 1 to the consolidated financial statements, on January 1, 2002, Arrow
Electronics, Inc. adopted Statement of Financial Accounting Standards No. 142, “Goodwill and Other
Intangible Assets”.
We also have audited, in
accordance with the standards of the Public Company Accounting
Oversight Board (United States), the effectiveness of Arrow
Electronics, Inc.’s internal control over financial reporting as
of December 31, 2004, based on criteria established in Internal
Control—Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission and our report
dated March 11, 2005 expressed an unqualified opinion thereon.
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ARROW ELECTRONICS, INC.
See accompanying notes.
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ARROW ELECTRONICS, INC.
See accompanying notes.
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ARROW ELECTRONICS, INC.
See accompanying notes.
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See accompanying notes.
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ARROW ELECTRONICS, INC.
1. Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of the company and its majority-owned
subsidiaries. All significant intercompany transactions are eliminated.
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting
principles requires the company to make estimates and assumptions that affect the amounts
reported in the consolidated financial statements and accompanying notes. Actual results could
differ from those estimates.
Cash and Cash Equivalents
Cash equivalents consist of highly liquid investments, which are readily convertible into cash and have maturities of three months or less when acquired.
Short-term Investments
Short-term investments, consisting primarily
of high-grade debt securities including Auction Rate Securities, are classified as
available-for-sale securities. The company classifies as short-term investments those
investments with an original maturity of less than one year or those investments it
intends to sell within one year. The carrying amount reported in the consolidated
balance sheet for short-term investments approximates fair value.
Financial Instruments
The company uses various financial instruments, including derivative financial instruments, for
purposes other than trading. Derivatives used as part of the company’s risk management strategy
are designated at inception as hedges and measured for effectiveness both at inception and on an
ongoing basis. The company has also entered into interest rate swap transactions that convert
certain fixed rate debt to variable rate debt, effectively hedging the change in fair value of
the fixed rate debt resulting from fluctuations in interest rates. The fair value hedges and the
hedged debt are adjusted to current market values through interest expense.
Inventories
Inventories are stated at the lower of cost or market. Cost approximates the first-in, first-out
method.
Property, Plant and Equipment
Property, plant and equipment are stated at cost. Depreciation is computed on the straight-line
method for financial reporting purposes and on accelerated methods for tax reporting purposes.
Leasehold improvements are amortized over the shorter of the term of the related lease or the
life of the improvement. Long-lived assets are reviewed for impairment whenever changes in
circumstances or events may indicate that the carrying amounts may not be recoverable. If the
fair value is less than the carrying amount of the asset, a loss is recognized for the
difference.
Investments
Investments are accounted for using the equity method of accounting if the investment provides
the company the ability to exercise significant influence, but not control, over an investee.
Significant influence is generally deemed to exist if the company has an ownership interest in
the voting stock of the investee of between 20% and 50%, although other factors, such as
representation on the investee’s Board of Directors, are considered in determining whether the
equity method of accounting is appropriate. The company records
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ARROW ELECTRONICS, INC.
its investments in equity method
investees meeting these characteristics as “Investments in affiliated companies” in the
accompanying consolidated balance sheet.
All other equity investments, which consist of investments for which the company does not have the
ability to exercise significant influence, are accounted for under the cost method, if private, or
as available-for-sale, if public, and are included in “Other assets” in the accompanying
consolidated balance sheet. Under the cost method of accounting, investments are carried at cost
and are adjusted only for other-than-temporary declines in realizable value, distributions of
earnings, and additional investments. If classified as available-for sale, the company accounts for the changes in the fair value with unrealized gains or losses
reflected in the shareholders’ equity section in the accompanying consolidated balance sheet in
“Other”. The company assesses its long-term investments accounted for as available-for-sale on a quarterly
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 period in which it occurs. When the decline is determined to
be temporary, the unrealized losses are included in the
shareholders’ equity section in the accompanying consolidated
balance sheet in “Other”. The company makes
such determination based upon the quoted market price, financial condition, operating results of
the investee, and the company’s intent and ability to retain the investment over a period of time
which would be sufficient to allow for any recovery in market value. In addition, the company
assesses the following factors:
The company could potentially have an impairment charge in future periods if, among other factors,
the investee’s future earnings differ from currently available forecasts.
Cost in Excess of Net Assets of Companies Acquired
On January 1, 2002, the company adopted Financial Accounting Standards Board (“FASB”) Statement No.
142, “Goodwill and Other Intangible Assets”, and accordingly, discontinued the amortization of
goodwill. As a result of the evaluation process performed during the
second quarter of 2002, the company recorded an impairment charge of
$603,709 ($6.05 per share), which was recorded as a cumulative effect
of a change in accounting principle at January 1, 2002. The company performs an annual impairment test as of the first day of the fourth
quarter. In addition, the company adopted, as of January 1, 2002, FASB Statement No. 141,
“Business Combinations”, which requires that all business combinations initiated after June 30,
2001 be accounted for under the purchase method and that certain identifiable intangible assets be
recognized as assets apart from goodwill. The company has no identifiable intangible assets other
than goodwill.
The company performs an annual impairment test as of the first day of
the fourth quarter, or earlier if indicators of potential impairment exist, to evaluate goodwill.
Goodwill is considered impaired if the carrying amount of the reporting
unit exceeds its estimated fair value. In assessing the recoverability of
goodwill, the company reviews both quantitative as well as
qualitative factors to support its assumptions with regard to fair
value. The fair value of a reporting
unit is estimated using a weighted average multiple of earnings
before interest and taxes from comparable companies. In determining the fair value,
the company makes certain judgments, including the identification of
reporting units and the selection of comparable companies. If these
estimates or their related assumptions change in the future as a
result of changes in strategy and/or market conditions, the company
may be required to record an impairment charge.
Foreign Currency Translation
The assets and liabilities of foreign operations are translated at the exchange rates in effect at
the balance sheet date, with the related translation gains or losses reported as a separate
component of shareholders’ equity in the accompanying
consolidated balance sheet. The results of foreign operations are translated at the
monthly average exchange rates.
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Income Taxes
Income taxes are accounted for under the liability
method. Deferred taxes reflect the tax consequences on future years
of differences between the tax bases of assets and liabilities and
their financial reporting amounts. 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 would not be able to realize all or part of its deferred
tax assets in the future, 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 establish accruals for
taxes that may become payable in future years
as a result of examinations by tax authorities. The company establishes the accruals based upon
management’s assessment of probable contingencies. At December 31, 2004, the company
believes it has appropriately accrued for probable contingencies. To the extent the company
were to prevail in matters for which accruals have been established or be required to pay
amounts in excess of accruals, the company’s effective tax rate in a given financial statement
period could be affected.
Net Income (Loss) Per Share
Basic net income (loss) per share is computed by dividing net income (loss) available to common
shareholders by the weighted average number of common shares outstanding for the period. Diluted
net income (loss) per share reflects the potential dilution that would occur if securities or
other contracts to issue common stock were exercised or converted into common stock.
Comprehensive Income (Loss)
Comprehensive income (loss) is defined as the aggregate change in shareholders’ equity excluding
changes in ownership interests. Comprehensive income (loss) consists of foreign currency
translation adjustments, unrealized gain (loss) on securities, unrealized gain on foreign exchange
options, and minimum pension liability adjustments. The foreign currency translation
adjustments included in comprehensive income (loss) have not been tax effected as investments in
foreign affiliates are deemed to be permanent. No deferred income tax has been provided on the
unrealized gain on securities as the company has sufficient capital loss carryforwards.
Stock-based Compensation
The company accounts for stock-based compensation using Accounting Principles Board Opinion No. 25
“Accounting for Stock Issued to Employees”. The company adopted the disclosure
requirements of FASB Statement No. 123, “Accounting for Stock-Based Compensation”, as amended by
FASB Statement No. 148, “Accounting for Stock-Based
Compensation – Transition and Disclosure”
(collectively, “Statement No. 123”) which uses a fair-value based method of accounting for
stock-based employee compensation plans.
The company’s current method of accounting utilizes the intrinsic value method whereby stock
options are granted at market price and therefore no compensation costs are recognized.
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If compensation expense for the company’s various stock-based compensation plans (“compensation
plans”) had been determined utilizing the fair value method of accounting at the grant dates for
awards under the compensation plans in accordance with Statement No. 123, the company’s pro forma
net income (loss) and basic and diluted net income (loss) per share would have been as follows:
The estimated weighted average fair value, utilizing the Black-Scholes option-pricing model, at
the date of option grant, during 2004, 2003, and 2002 was $11.34, $9.62, and $7.77 per share,
respectively. The weighted average fair value was estimated using the following assumptions:
There is no expected dividend yield.
Segment Reporting
Operating segments are defined as components of an enterprise for which separate financial
information is available that is evaluated regularly by the chief operating decision maker in
deciding how to allocate resources and in assessing performance. The company’s operations are classified into two reportable
business segments, the distribution of electronic components and the distribution of computer
products.
Revenue Recognition
The company recognizes revenue in accordance with the Securities and Exchange Commission Staff
Accounting Bulletin No. 104, “Revenue Recognition” (“SAB 104”). Under SAB 104, revenue is
recognized when there is persuasive evidence of an arrangement, delivery has occurred or services
have been 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.
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 has been shipped.
In addition, 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 Emerging Issues Task
Force Issue No. 99-19, “Reporting
Revenue Gross as a Principal versus Net as an Agent”.
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In the fourth quarter of
2004, based upon an evaluation of its business and accounting
practices, the company determined that revenue related to the sale of service contracts should more appropriately be
classified on an agency basis rather than a gross basis. While this change reduces reported sales
and cost of sales, it has no impact on gross profit, operating income, net income, cash flow, or
the balance sheet. All
prior period sales and cost of sales have been reclassified to present the
revenue related to the sale of service contracts on an agency basis. Sales and cost of sales have
been reduced by $171,004 for the nine months ended September 30, 2004 and $150,982 and $120,355 in
2003 and 2002, respectively.
Shipping and Handling Costs
Shipping and handling costs included in selling, general and administrative expenses totaled
$57,296, $42,941, and $32,747 in 2004, 2003, and 2002, respectively.
Software Development Costs
The company capitalizes qualifying costs under FASB Statement of Position 98-1, “Accounting for the
Costs to Develop or Obtain Software for Internal Use” including certain costs incurred in
connection with developing or obtaining software for internal use. Capitalized software costs are
amortized on a straight-line basis over the estimated useful life of the software, which is
generally three to five years.
Impact of Recently Issued Accounting Standards
In December 2004, the FASB issued Statement No. 123 (revised 2004),
“Share-Based Payment” (“Statement No. 123R”). Statement No. 123R addresses all forms of share-based
payment (“SBP”) awards, including, but not limited to, shares issued under stock options, restricted
stock, performance shares, and stock appreciation rights. Statement No. 123R will require companies
to expense SBP awards with compensation cost for SBP transactions measured at fair value. The
company will adopt the new accounting provisions of Statement 123R in the third quarter of 2005.
The company is currently evaluating the impact of applying the various provisions of Statement No.
123R.
Financial Accounting Standards Statement No. 132 (revised 2003), “Employers’ Disclosures about
Pensions and Other Postretirement Benefits” (“Statement No. 132R”), effective on January 1, 2004,
revises employers’ disclosures about pension plans and other postretirement benefit plans and
requires additional disclosures in annual financial statements about the types of plan assets,
investment strategy, measurement dates, plan obligations, cash flows, and components of net
periodic benefit cost of defined benefit pension plans and other postretirement benefit plans.
Statement No. 132R also requires interim disclosure of the elements of net periodic benefit cost
and, if significantly different from amounts previously disclosed, the total amount of contributions paid or expected to be paid during the
current fiscal year. The company adopted the disclosure provisions of Statement No. 132R in the
first quarter of 2004.
Reclassification
Certain prior year amounts have been reclassified to conform with current year presentation.
2. Acquisitions
In July 2004, the company acquired Disway AG (“Disway”), an electronic components distributor in
Italy, Germany, Austria, and Switzerland. In 2003, Disway had sales of approximately $155,000.
The final purchase price is subject to a full year audit. For financial reporting purposes, the
Disway acquisition has been accounted for as a purchase transaction. Accordingly, Disway’s results
of operations have been included in the consolidated results of the company from the date of
acquisition.
In February 2003, the company acquired substantially all the assets of the Industrial Electronics
Division (“IED”) of Agilysys, Inc. IED was an electronics distributor serving industrial original
equipment manufacturers (“OEMs”) and contract manufacturers (“CMs”). The net consideration paid
for this acquisition was $238,132, of which $225,953 was paid through December 31, 2003 and $12,179
was paid during the first quarter of 2004.
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ARROW ELECTRONICS, INC.
A summary of the
allocation of the net consideration paid for the IED business to the fair value of
the assets acquired and liabilities assumed is as follows:
The cost in excess of net assets of companies acquired of $75,127 has been allocated to the
company’s electronic components segment. Of the total amount, $54,437 is expected to be
deductible for tax purposes.
The IED acquisition has been accounted for as a purchase transaction. Accordingly, the
consolidated results of the company, for 2003, include IED’s performance from the date of
acquisition.
The unaudited summary of operations for the year ended December 31, 2003 has been prepared on a
pro forma basis, as though the acquisition of the IED business occurred on January 1, 2003, as follows (shares in thousands):
The 2003 unaudited summary of operations does not purport to be indicative of the results which
would have been obtained if the acquisition had been made at the beginning of 2003 or of those
results which may be obtained in the future.
During 2002, the company purchased 100% of a division of Adecom Srl and acquired a 51% interest in
Adecom Services Srl. The company also increased its holdings in IR Electronics from 64% to 100%
and increased its ownership in Arrow/Ally, Inc. from 75% to 97.4%. The aggregate cost of these
acquisitions was $4,104.
In connection with certain acquisitions, the company was required to make future payments
contingent upon the acquired businesses’ earnings and in certain instances, the achievements of
operating goals. During 2002, the company made such payments aggregating $108,470, of which
$95,659 was capitalized as cost in excess of net assets of companies acquired, and $12,811 was
recorded as a reduction of capital in excess of par value. At December 31, 2004 and 2003, the
company did not have any further requirements to make additional payments.
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As a result of certain acquisitions, the company may be contractually required to purchase the
shareholder interest held by others in its majority (but less than 100%) owned subsidiaries. The
payments for such purchases, which are dependent upon the exercise of a put or call option by
either party, are based upon a multiple of earnings over a contractually determined period and, in
certain instances, capital structure. There are no expiration dates for these agreements. The
terms of these agreements generally provide no limitation to the maximum potential future payments;
however, in most instances the amount to be paid will not be less than the pro-rata net book value
(total assets minus total liabilities) of the subsidiary. During 2004, the company made a payment
in the amount of $805 to increase its ownership interest in Dicopel US and Dicopel SA
(collectively, “Dicopel”) from 70% to 80%. During 2003, the company made such payments which
aggregated $5,376 to increase its ownership interest in Arrow Components (NZ) Limited to 100%; in
Dicopel from 60% to 70%; and in Components Agent (Cayman) Limited to 100%. During 2002, there were
no such payments made. The aforementioned payments were capitalized as cost in excess of net assets
acquired partially offset by the carrying value of the related minority interest. If the put or
call options on outstanding agreements were exercised at
December 31, 2004, such payments would be
approximately $11,000 ($5,000 at December 31, 2003), which would be capitalized as cost in excess
of net assets of companies acquired partially offset by the carrying value of the related minority
interest. As these payments are based on
the earnings of the acquired companies, the payments will
change as the performance of these subsidiaries change.
3. Investments
Affiliated Companies
The company has a 50% interest in several joint ventures with Marubun Corporation, collectively
referred to as Marubun/Arrow, and a 50% interest in Altech Industries (Pty.) Ltd., a joint venture
with Allied Technologies Limited. These investments are accounted for using the equity method.
The following tables
present the company’s investment in Marubun/Arrow and the
company’s investment and long-term note receivable in Altech
Industries at December 31, 2004 and
2003, and the equity in earnings of affiliated companies for the years ended December 31, 2004 and
2003:
Under the terms of various joint venture agreements, the company would be required to pay its
pro-rata share, based upon its ownership interests, of the third
party debt of the joint ventures in the event
that the joint ventures were unable to meet their obligations. At December 31, 2004 and 2003, the
company’s pro-rata share of this debt was $7,750 and $7,290, respectively. The company believes
there is sufficient equity in the joint ventures to cover this potential liability.
Investment Securities
The company determined that an other-than-temporary impairment occurred in 2004 related to an
investment and, accordingly, recognized a loss on the investment of $1,318 ($.01 per share).
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ARROW ELECTRONICS, INC.
During 2003, in connection with the acquisition of IED, and included in the purchase price
thereof, the company paid $10,799 to acquire a 5% interest in World Peace Industrial Co., Ltd.
The company also has an 8.4% ownership interest in Marubun Corporation (“Marubun”), a Japanese
company. These investments are accounted for as available-for-sale securities using the fair
value method as follows:
The fair value of these investments are included in “Other assets” and the related net unrealized
holding losses are included in “Other” in the shareholders’ equity section in the accompanying
consolidated balance sheet.
At December 31, 2004, the cost of the company’s investment in Marubun was $23,065, the unrealized
holding loss was $3,543, and the fair value was $19,522. Since December 31, 2003, the fair value
of the company’s investment has increased by $6,526. Although the fair value of the Marubun
investment has been below the cost basis for more than two years, the company has concluded that
an other-than-temporary decline has not occurred based upon its assessment of the following
factors:
As Marubun experiences the same worldwide technology cyclical effects as the rest of the
electronics distribution industry, it experienced period over period growth in sales for the
quarter and reported its sixth consecutive profitable quarter for the quarter ended
December 31, 2004. Marubun also reported a strong balance sheet as of December 31, 2004. Marubun’s stock
value has fluctuated over the last twelve months, with an increase of 50% compared with the stock
value at December 31, 2003. Additionally, the company has the intent and ability to retain this
investment over a period of time, which would be sufficient to allow for any recovery in market
value. The company could potentially realize an impairment charge in future periods if, among
other factors, Marubun’s future earnings differ from currently available forecasts. Such an
impairment charge would have been $3,543 ($.03 per share) for the year ended December 31, 2004.
4. Discontinued Operations
In May 2002, the company sold substantially all of the assets of Gates/Arrow, a business unit
within the company’s North American Computer Products (“NACP”) group. Total cash proceeds of
$42,873, after price adjustments, have been collected. The company’s consolidated financial
statements and related notes have been presented to reflect Gates/Arrow as a discontinued
operation for 2002 which reflect net sales of $180,534 and a loss from discontinued operations,
net of taxes, of $5,911, through the disposition date of May 31, 2002.
The company recorded a loss of $10,234 ($6,120 net of related taxes or $.06 per share) on the
disposal of Gates/Arrow related to personnel costs ($1,250), facilities ($3,144), professional
fees ($599), asset write-downs ($3,000), and other ($2,241).
As of December 31,
2003, the company had $922 of unused accruals primarily related to
facilities.
During 2004, net cash payments of $13 for personnel costs and $720 for facilities were
recorded against the accrual. As a result, as of December 31, 2004, the company had an unused accrual of $189
relating to facilities, which is expected to be utilized by the end of 2005.
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5. Accounts Receivable
The company has a $550,000 asset securitization program (the “program”), which is conducted through
Arrow Funding Corporation (“AFC”), a wholly owned, bankruptcy remote, special purpose subsidiary.
Any receivables held by AFC would likely not be available to creditors of the company in the event
of bankruptcy or insolvency proceedings. At December 31, 2004 and 2003, there were no receivables
sold to and held by third parties under the program, and as such, the company had no obligations
outstanding under the program. The program agreement, which requires annual renewals of the banks’ underlying
liquidity facilities, has been extended through February 2008. The program has not
been utilized by the company since June 2001.
Accounts receivable, net, consists of the following at December 31:
6. Cost in Excess of Net Assets of Companies Acquired
In the fourth quarter of
2004, the company recorded an impairment charge related to costs in excess of net assets of
companies acquired of $9,995 ($.09 and $.08 per share on a basic and diluted basis, respectively).
This non-cash charge principally relates to the company’s
electronic components operations in Latin America. In calculating the impairment charge, the
fair value of the reporting units was estimated using a weighted
average multiple of earnings before interest and taxes from
comparable businesses.
Cost in excess of net assets of companies acquired, related to the company’s electronic components
business segment, is as follows:
All existing and future costs in excess of net assets of companies acquired are subject to an
annual impairment test as of the first day of the fourth quarter of each year, or earlier if
indicators of potential impairment exist. The company does not have any other intangible assets
subject to valuation.
7. Debt
At December 31, 2004
and 2003, the company had short-term borrowings of
$8,462 and $14,349, respectively, which are primarily utilized to support the
working capital requirements of certain foreign operations. The weighted average interest rates on
these borrowings at December 31, 2004 and 2003 were 4.5% and 2.4%, respectively.
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Long-term debt consists of the following at December 31:
The 7% senior notes and the 7.5% senior debentures are not redeemable prior to their maturity. The
8.7% senior notes were fully repurchased and/or redeemed during 2004. The 9.15% senior notes,
6.875% senior notes, and 6.875% senior debentures may be prepaid at the option of the company
subject to “make whole” clauses.
The estimated fair market value at December 31, as a percentage of par value, is as follows:
The company’s interest rate swaps and other obligations approximate their fair value.
Annual payments of borrowings during each of the years 2005 through 2009 are $8,462, $299,852,
$199,672, $1,075, and $898, respectively, and $964,383 for all years thereafter. Included in
payments for 2006 are the zero coupon convertible debentures due in 2021, which could be initially
put to the company in February 2006 (“convertible debentures”).
The company maintains a $450,000 revolving credit facility which matures in December 2006. At
December 31, 2004 and 2003, the company had no outstanding borrowings under this facility.
The three-year revolving credit facility and the asset securitization program include terms and
conditions which limit the incurrence of additional borrowings, limit the company’s ability to
issue cash dividends or repurchase stock, and require that certain financial ratios be maintained
at designated levels. The company was in compliance with all of the covenants as of December 31,
2004. The company is currently not aware of any events which would cause non-compliance in the
future.
During 2004, the company repurchased, through a series of transactions, $319,849 accreted value of
its convertible debentures. The related loss on the repurchase, including the premium paid and the
write-off of related deferred financing costs, aggregated $15,021 ($8,982 net of related taxes or
$.08 and $.07 per share on a basic and diluted basis, respectively).
Also during 2004, the company
repurchased and/or redeemed, through a series of transactions, $250,000 principal
amount of its 8.7% senior notes due in October 2005. The premium paid and the related deferred
financing costs written-off upon the repurchase and/or redemption of this debt, net of the gain
recognized by terminating the related interest rate swaps, aggregated $18,921 ($11,315 net of
related taxes or $.10 and $.09 per share on a basic and diluted basis, respectively). These charges
total $33,942 ($20,297 net of related taxes or $.18 and $.16 per share on a basic and diluted
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ARROW ELECTRONICS, INC.
basis, respectively), of which $28,194 was cash, and are recognized as a loss on prepayment of
debt. As a result of these transactions, net interest expense will be reduced by approximately
$36,200 from the dates of repurchase and/or redemption through the earliest maturity date, based on
interest rates in effect at the time of the repurchases.
In February 2004, the company issued 13,800,000 shares of common stock with net proceeds of
$312,507. The proceeds were used to redeem $208,500 of the company’s outstanding 8.7% senior notes
due in October 2005, as described above, and for the repurchase of a portion of the company’s
outstanding convertible debentures ($91,873 accreted value).
During 2003, the company repurchased, through a series of transactions, $168,974 accreted value of
its convertible debentures. The related loss on the repurchase, including the write-off of related
deferred financing costs offset, in part, by the discount on the repurchase, aggregated $3,629
($2,171 net of related taxes or $.02 per share). Also during 2003, the company repurchased, through
a series of transactions, prior to maturity, $84,820 principal amount
of its 8.2% senior notes due in October 2003. The premium paid and the related deferred financing costs
written-off upon the repurchase of this debt aggregated $2,942 ($1,759 net of related taxes or
$.02 per share). These charges total $6,571 ($3,930 net of related taxes or $.04 per share), of
which $2,318 was cash, and were recognized as a loss on prepayment of debt. As a result of these
transactions, net interest expense was reduced by approximately $15,400 from the dates of the
repurchases through the earliest maturity date, based on interest rates in effect at the time of
the repurchases.
In June 2003, the company completed the sale of $350,000 principal amount of 6.875% senior notes
due in 2013. The net proceeds of the offering of $346,286 were used to repay $192,010 of the
aforementioned 8.2% senior notes and for general corporate purposes. The additional debt the
company carried during the period between the sale of the 6.875% senior notes in June 2003 and the
repayment of the 8.2% senior notes in October 2003 negatively impacted income by $4,700 ($2,900 net
of related taxes).
During 2002, the company repurchased $398,170 principal amount of its 6.45% and 8.2% senior notes,
due in the fourth quarter of 2003. The premium paid and the related
deferred financing costs written-off
upon the repurchase of this debt aggregated $20,887 ($12,949 net of related taxes or $.13 per
share), of which $14,748 was cash, and was recognized as a loss on prepayment of debt. As a result
of these transactions, net interest expense was reduced by approximately $31,080 from the dates of
the repurchases through the 2003 maturity date.
The company utilizes interest rate swaps in order to manage its targeted mix of fixed and floating
rate debt. Interest expense, net, includes interest income of $9,310, $11,278, and $21,248 in 2004,
2003, and 2002, respectively. Interest
paid, net of interest income, amounted to $97,367,
$102,221, and $129,833 in 2004, 2003, and 2002, respectively.
In March 2005, the company
amended the indenture related to its convertible debentures to
eliminate the company’s option to satisfy the put of such
debentures by the holders thereof through the issuance of shares of
the company’s common stock.
8. Financial Instruments
The company enters into foreign exchange forward or option contracts (collectively, the “foreign
exchange contracts”) to mitigate the impact of changes in foreign currency exchange rates,
primarily the euro. These contracts are executed to facilitate the hedging of foreign currency
exposures resulting from inventory purchases and sales and generally have terms of no more than six
months. Gains or losses on these contracts are deferred and recognized when the underlying future
purchase or sale is recognized or when the corresponding asset or liability is revalued. The
company does not enter into foreign exchange contracts for trading purposes. The risk of loss on a
foreign exchange contract is the risk of nonperformance by the counterparties, which the company
minimizes by limiting its counterparties to major financial institutions. The fair value of the
foreign exchange contracts is estimated using market quotes. The
notional amount of the foreign exchange contracts at December 31, 2004 and 2003 was
$224,652 and $222,695, respectively. The carrying amounts, which are nominal, approximated fair
value at December 31, 2004 and 2003.
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ARROW ELECTRONICS, INC.
The company utilizes interest rate swaps in order to manage its targeted mix of fixed and floating
rate debt. The fair value of the interest rate swaps are included in “Other assets” and the
offsetting adjustment to the carrying value of the debt is included
in “Long-term debt” in the accompanying consolidated
balance sheet.
In June 2004, the company entered into a series of interest rate swaps (the “2004 swaps”), with an
aggregate notional amount of $300,000. The 2004 swaps modify the company’s interest rate exposure
by effectively converting the fixed 9.15% senior notes and a portion of the fixed 6.875% senior
notes to a floating rate based on the six-month U.S. dollar LIBOR plus a spread (an effective rate
of 6.53% and 3.80% at December 31, 2004, respectively) through their maturities. The 2004 swaps
are classified as fair value hedges and had a fair value of $12,650 at December 31, 2004.
In November 2003, the company entered into a series of interest rate swaps (the “2003 swaps”), with
an aggregate notional amount of $200,000. The 2003 swaps modify the company’s interest rate
exposure by effectively converting the fixed 7% senior notes to a floating rate based on the
six-month U.S. dollar LIBOR plus a spread (an effective rate of 5.81% and 5.20% at December 31,
2004 and 2003, respectively) through their maturities. The 2003 swaps are classified as fair value
hedges and had a negative fair value of $746 at December 31, 2004 and had a fair value of $1,649 at
December 31, 2003.
In August 2002, the company entered into a series of interest rate swaps (the “2002 swaps”), with
an aggregate notional amount of $250,000. During the first quarter of 2004, the company, in
conjunction with the aggregate repurchase and/or redemption of the outstanding $250,000 principal
amount of its 8.7% senior notes, terminated the 2002 swaps and recognized a gain of $7,424. This
gain was reported as a component of the aforementioned loss on
prepayment of debt of $18,921. The 2002 swaps were classified as fair
value hedges and had a fair value of $8,421 at December 31, 2003.
9. Income Taxes
The provision for (benefit from) income taxes for the years ended December 31 consists of the
following:
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ARROW ELECTRONICS, INC.
The principal causes of the difference between the U.S. federal statutory tax rate of 35% and
effective income tax rates for the years ended December 31 are as follows:
Deferred income taxes are provided for the effects of temporary differences between the tax basis
of an asset or liability and its reported amount in the consolidated balance sheet. These
temporary differences result in taxable or deductible amounts in future years.
The significant components of the company’s deferred tax assets and liabilities,
included primarily in “Prepaid expenses and other assets”, “Other assets”, and “Other liabilities”
in the accompanying consolidated balance sheet, consist of the
following at December 31:
At December 31, 2004, certain international subsidiaries had tax loss carryforwards of
approximately $195,481 expiring in various years after 2004. Deferred tax assets related to the
tax loss carryforwards of the international subsidiaries in the amount of $49,415 as of December
31, 2004 have been recorded with a corresponding valuation allowance
of $16,252. The impact of the change in this valuation allowance on
the effective rate reconciliation is included in the foreign
effective tax rate differential.
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ARROW ELECTRONICS, INC.
At December 31, 2004, the company had a capital loss carryforward of approximately $40,788. This
loss will expire through 2009. A full valuation allowance of $16,397 has been provided against the
deferred tax asset relating to the capital loss carryforward.
The valuation
allowance reflects the deferred tax benefits that management is uncertain of the ability to utilize
in the future.
Cumulative undistributed earnings of international subsidiaries were approximately $915,595 at
December 31, 2004. No deferred U.S. federal income taxes have been provided for the undistributed
earnings to the extent that they are permanently reinvested in the company’s international
operations. The company does not plan to repatriate the undistributed earnings of the
international subsidiaries under the provisions of the American Jobs Creation Act.
It is the company’s policy to establish accruals for
taxes that may become payable in future years as a result of examinations by tax authorities.
The company establishes the accruals based upon management’s assessment of probable contingencies.
At December 31, 2004, the company believes it has appropriately accrued for probable
contingencies.
Income taxes paid, net of income taxes refunded,
amounted to $44,545 in 2004. Income taxes refunded, net of income taxes paid, amounted to $48,967
and $30,492, in 2003 and 2002, respectively.
10. Restructuring, Integration, and Other Charges (Credits)
The company recorded restructuring charges of $11,391 ($6,943 net of related taxes or $.07 and $.06
per share on a basic and diluted basis, respectively) and $37,965 ($27,144 net of related taxes or
$.27 per share) in 2004 and 2003, respectively. These items are discussed in greater detail below.
Restructurings
The company, over the last 24 months, announced a series of steps to make its organizational
structure more efficient resulting in annualized savings in excess of $100,000. The estimated
restructuring charges associated with these actions total approximately $47,900, of which $9,830
($6,087 net of related taxes or $.06 and $.05 per share on a basic and diluted basis, respectively)
and $37,965 ($27,144 net of related taxes or $.27 per share) were recorded in 2004 and 2003, respectively. Approximately 85% of the
total charge is expected to be spent in cash. The company will record the balance of approximately
$100 over the next several quarters.
The restructuring charges
in 2004 and 2003 are comprised of the following at December 31, 2004:
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ARROW ELECTRONICS, INC.
In mid-2001, the company took a number of significant steps related to cost containment and cost
reduction actions, to mitigate, in part, the impact of significantly reduced sales. As a result,
the company recorded restructuring charges and other charges of $227,622 ($145,079 net of related
taxes or $1.47 per share) in 2001, in addition to prior real estate commitments of $2,052.
During 2004, the company
recorded a restructuring charge of $1,561 ($856 net of related taxes
or $.01 per share)
related to the 2001 restructuring. The net restructuring charge consisted of $2,053 related to
facilities and $373 of asset write-downs, offset, in part, by a credit of $865. As of December 31,
2004, cumulative cash payments of $29,505 ($2,505 in 2004) and non-cash usage of $190,879 were
recorded against the accrual.
As of December 31, 2004 and 2003, the company had $10,851 and $11,795, respectively, of unused
accruals of which $6,774 and $6,406, respectively, are required to address remaining real estate
lease commitments. In addition, accruals of $4,077 and $5,389 at December 31, 2004 and 2003,
respectively, primarily relate to the termination of certain customer
programs.
Integration
During 2003, the company incurred integration costs of $18,407
related to the acquisition of IED. Of the total amount recorded, $6,904 ($4,822 net of related
taxes or $.05 per share), relating primarily to severance costs for the company’s employees, was
expensed and $11,503 ($9,241 net of related taxes), relating primarily to severance costs for IED
employees and professional fees, was recorded as additional cost in excess of net assets of
companies acquired. As of December 31, 2004, approximately $600 of this accrual was required to
address remaining contractual obligations.
The remaining integration
accrual, as of December 31, 2004, of approximately $4,900 relates to
numerous acquisitions made prior to 2000 and primarily
represent payments for remaining contractual obligations. During 2004, the company recorded an
integration credit of $2,323 ($1,389 net of related taxes or $.01 per share), which primarily
related to the renegotiations of facilities related obligations.
Total integration costs are as follows at December 31, 2004:
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ARROW ELECTRONICS, INC.
Restructuring and Integration Summary
The remaining balances of
the aforementioned restructuring and integration accruals as of December
31, 2004 aggregate $22,116, of which $17,630 is expected to be spent in cash, and will be utilized
as follows:
The company’s restructuring and integration programs primarily impacted its electronic components
business segment.
Acquisition Indemnification
In the third quarter of 2003, the company recognized an acquisition indemnification charge of
€
11,327 ($13,002 or $.13 per share at the 2003 third quarter-end exchange rate) for the full
amount of a claim asserted by the French tax authorities relating to alleged fraudulent activities
concerning value-added tax by Tekelec Europe SA (“Tekelec”), a French subsidiary of the company.
The alleged activities occurred prior to the company’s purchase of Tekelec from Tekelec Airtronic
SA (“Airtronic”) in 2000. In August 2004, an agreement was reached with the French tax authorities
pursuant to which Tekelec agreed to pay
€
3,429 in full settlement of this claim. The company
recorded an acquisition indemnification credit of
€
7,898 ($9,676 at the exchange rate prevailing
on August 12, 2004 or $.09 and $.08 per share on a basic and diluted basis, respectively) in the
third quarter of 2004 to reduce the liability previously recorded (
€
11,327) to the required level
(
€
3,429). In December 2004, Tekelec paid
€
3,429 ($4,648 at the exchange rate prevailing at
year-end) in full settlement of this claim.
Impairment
In the fourth quarter of
2004, the company recorded an impairment charge related to costs in excess of net assets of
companies acquired of $9,995 ($.09 and $.08 per share on a basic and diluted basis, respectively).
This non-cash charge principally relates to the company’s
electronic components operations in Latin America. In calculating the impairment charge, the
fair value of the reporting units was estimated using a weighted
average multiple of earnings before interest and taxes from
comparable businesses.
Severance
During 2002, the company’s then chief executive officer resigned. As a result, the company
recorded a severance charge totaling $5,375 ($3,214 net of related taxes or $.03 per share),
primarily based on the terms of his employment agreement. Included therein are provisions
primarily related to salary continuation, retirement benefits, and the vesting of restricted stock
and options.
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ARROW ELECTRONICS, INC.
11. Shareholders’ Equity
The activity in the number of shares outstanding is as follows (in thousands):
In February 2004, the company issued 13,800,000 shares of common stock with net proceeds of
$312,507. The proceeds were used to redeem $208,500 of the company’s outstanding 8.7% senior notes
due in October 2005 and for the repurchase of a portion of the company’s outstanding convertible
debentures ($91,873 accreted value).
The company has 2,000,000 authorized shares of serial preferred stock with a par value of $1.
In 1988, the company paid a dividend of one preferred share purchase right on each outstanding
share of common stock. Each right, as amended, entitles a shareholder to purchase one
one-hundredth of a share of a new series of preferred stock at an
exercise price of fifty dollars (the
“exercise price”). The rights are exercisable only if a person or group acquires 20% or more of the
company’s common stock or announces a tender or exchange offer that will result in such person or
group acquiring 30% or more of the company’s common stock. Rights owned by the person acquiring
such stock or transferees thereof will automatically be void. Each other right will become a right
to buy, at the exercise price, that number of shares of common stock having a market value of twice
the exercise price. The rights, which do not have voting rights, may be redeemed by the company at
a price of $.01 per right at any time until ten days after a 20% ownership position has been
acquired. In the event that the company merges with, or transfers 50% or more of its consolidated
assets or earnings power to, any person or group after the rights become exercisable, holders of
the rights may purchase, at the exercise price, a number of shares of common stock of the acquiring
entity having a market value equal to twice the exercise price. The rights, as amended, expire on
March 1, 2008.
46
ARROW ELECTRONICS,
INC.
12. Net Income (Loss) Per Share
The following table sets forth the calculation of net income (loss) per share on a basic and
diluted basis for the years ended December 31 (shares in thousands):
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ARROW ELECTRONICS, INC.
13. Employee Stock Plans
Omnibus Plan
During 2004, the company adopted the Arrow Electronics, Inc. 2004 Omnibus Incentive Plan (the
“Plan”), which replaced the Arrow Electronics, Inc. Stock Option Plan, the Arrow Electronics, Inc.
Restricted Stock Plan, the 2002 Non-Employee Directors Stock Option Plan, the Non-Employee
Directors Deferral Plan, and the 1999 CEO Bonus Plan (collectively the “Prior Plans”). The Plan
broadens the array of equity alternatives available to the company when designing compensation
incentives. The Plan permits the grant of cash-based awards, non-qualified stock options,
incentive stock options (“ISOs”), stock appreciation rights, restricted stock, restricted stock units,
performance shares, performance units, covered employee annual incentive awards and other
stock-based awards. The Compensation Committee of the company’s Board of Directors (the
“compensation committee”) determines the vesting requirements, termination provision and the term
of the award for any awards under the Plan when such awards are issued.
Under the terms of the Plan, a maximum of 8,300,000 shares of common stock may be awarded, subject
to adjustment, that included 4,096,869 new shares and 4,203,131 shares that were available under
the Prior Plans. As of December 31, 2004, 6,945,155 shares were available for grant under the
Plan. Shares currently subject to awards granted under the Prior Plans which cease to be subject to
such awards for any reason other than exercise for, or settlement in, shares will also be available
under the Plan. Generally, shares are counted against the authorization only to the extent that
they are issued. Restricted stock and performance shares count against the authorization at a rate
of 1.69 to 1.
After adoption of the Plan, there were no additional awards made under any of the Prior Plans,
though awards previously granted under the Prior Plans will survive according to their terms.
Stock Options
Under the Plan, the company may grant both ISOs and non-qualified stock
options. ISOs may only be granted to employees, its subsidiaries and its affiliates. The exercise
price for options cannot be less than the fair market value of Arrow’s common stock on the date of
grant. Options granted under the Prior Plans after May 1997 become exercisable in equal installments
over a four-year period, except for stock options authorized for grant to directors which become
exercisable in equal installments over a two-year period. Previously, options became exercisable
over a two or three-year period. Options currently outstanding have terms of ten years.
The following information relates to the stock option activity for the years ended December 31:
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ARROW ELECTRONICS, INC.
The following table summarizes information about stock options outstanding at December 31,
2004:
Performance Shares
The compensation committee, subject to the terms and conditions of the Plan, may grant performance
unit and/or performance share awards. Performance unit awards have an initial value that is
determined by the compensation committee, while performance shares will have an initial value based
on the fair market value of the stock on the date of grant. Such awards will be earned only if
performance goals over performance periods established by or under the direction of the
compensation committee are met. The performance goals and periods may vary from participant to
participant, group-to-group, and time-to-time. The company awarded 250,800 performance shares to 90
employees for the performance period 2004 to 2006. There were cancellations of 2,150 performance
shares during 2004. The performance shares will be delivered in common stock at the end of the
three-year period based on the company’s actual performance compared to the target metric and may
be from 0% to 200% of the initial award. Compensation expense is measured as the difference
between the aggregate market value of the outstanding performance shares and the aggregate initial
value granted over the service period. This expense is remeasured at intrinsic value until the
performance shares are earned.
Restricted Stock
The compensation committee subject to the terms and conditions of the Plan may grant shares of
restricted stock and/or restricted stock units. Restricted stock units shall be similar to
restricted stock except that no shares are actually awarded to the participant on the date of
grant. Shares of restricted stock and/or restricted stock units awarded under the Plan may not be
sold, transferred, pledged, assigned, or otherwise alienated or hypothecated until the end of the
applicable period of restriction established by the compensation committee and specified in the
award agreement (and in the case of restricted stock units until the date of delivery or other
payment). Shares awarded under the Prior Plans become free of forfeiture restrictions (i.e., vest)
generally over a four-year period. The company awarded 72,000 shares of common stock to 70 employees in respect of 2003 and 378,250 shares of
common stock to 145 employees in respect of 2002. The company did not
award any shares of common stock in 2004.
Forfeitures of shares
awarded under the Plan during 2004, 2003, and 2002 were 17,044, 48,313, and
81,229, respectively. The aggregate market value of outstanding awards under the Plan at the
respective dates of award is amortized over the vesting period, and the unamortized balance is
included in shareholders’ equity as unamortized employee stock awards.
Non-Employee Director Awards
The company’s Board of Directors (the “Board”) shall set the amounts and types of
equity awards that shall be granted to all non-employee directors on a periodic, nondiscriminatory
basis pursuant to the Plan, as well as any additional amounts, if any, to be awarded, also on a
periodic, nondiscriminatory basis, based on each of the following: the number of committees of the
Board on which a non-employee director serves, service of a non-employee director as the chair of a
Committee of the Board, service of a non-employee director as Chairman of the Board, or the first
selection or appointment of an individual to the
Board as a non-employee director. Non-employee
directors receive annual rewards of restricted stock units valued at
$40. There were
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ARROW ELECTRONICS, INC.
13,535 restricted stock units issued to non-employee directors in 2004.
The restricted stock units will
vest one year from date of grant and are subject to further restrictions until one year from the
director’s separation from the Board. All restricted stock units are settled in
common stock after the restriction period. Unless a non-employee director gives notice setting
forth a different percentage, 50% of each directors annual retainer fee will be deferred and
converted into units based on the fair market value of the company’s stock as of the date it would
have been payable. Upon a non-employee director’s retirement from the Board, each unit in their
deferral account will be converted back into cash at the then current fair market value of a share
of company stock. There were 5,884 restricted stock units issued related to the non-employee
director deferral in 2004.
Stock Ownership Plan
The company maintains a noncontributory employee stock ownership plan, which enables most North
American employees to acquire shares of the company’s common stock. Contributions, which are
determined by the Board, are in the form of common stock or cash, which is used to
purchase the company’s common stock for the benefit of participating employees. Contributions to
the plan for 2004, 2003, and 2002 amounted to $10,446, $10,337, and $10,388, respectively.
14. Employee Benefit Plans
Defined Contribution Plan
The company has a defined contribution plan for eligible employees which qualifies under Section
401(k) of the Internal Revenue Code. The company’s contribution to the plan, which is based on a
specified percentage of employee contributions, amounted to $8,690, $8,700, and $8,577 in 2004,
2003, and 2002, respectively. Certain foreign subsidiaries maintain separate defined
contribution plans for their employees and made contributions hereunder which amounted to $3,210,
$2,981, and $2,534 in 2004, 2003, and 2002, respectively.
Supplemental Executive Retirement Plans
The company maintains an unfunded Supplemental Executive Retirement Plan (the “SERP”) under which
the company will pay supplemental pension benefits to certain employees upon retirement. There
are 22 current and former corporate officers participating in this plan. The Board
determines those employees who are eligible to participate in the SERP.
The SERP, as amended in 2002, provides for the pension benefits to be based on a percentage of
average final compensation, based on years of participation in the SERP. The SERP permits early
retirement, with payments at a reduced rate, based on age and years of service subject to a
minimum retirement age of 55. Participants whose accrued rights under the SERP, prior to the 2002
amendment, which would have been adversely affected by the amendment, will continue to be entitled
to such greater rights.
The benefit obligation at
December 31, 2004 and 2003 was $39,061 and $35,757,
respectively, and is included in “Other liabilities” in the
accompanying consolidated balance sheet. The
assumptions utilized in determining this amount include a discount rate of 5.5% and a wage
assumption of 5.0% in 2004 and 2003.
Wyle Electronics (“Wyle”) also sponsored an unfunded supplemental executive retirement plan (“Wyle
SERP plan”) for certain of its executives. Benefit accruals for the Wyle SERP plan were frozen as
of December 31, 2000. As of December 31, 2004 and 2003, the benefit obligation was $7,886 and
$7,673, respectively, and is included in “Other liabilities” in the
accompanying consolidated balance sheet. The assumptions utilized in determining this amount include a discount rate
of 5.75% and 6.25% in 2004 and 2003, respectively.
Expenses relating to the plans were $5,669, $5,017, and $4,972 for the years ended December 31,
2004, 2003, and 2002, respectively.
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ARROW ELECTRONICS, INC.
Defined Benefit Plan
Wyle provided retirement benefits for certain employees under a defined benefit plan. Benefits
under this plan were frozen as of December 31, 2000 and former participants may now participate in
the company’s employee stock ownership plan. The company uses a December 31 measurement date for
this plan. Pension information for the years ended December 31 is as follows:
The amounts reported for net periodic pension cost and the respective benefit obligation amounts
are dependent upon the actuarial assumptions used. The company reviews historical trends, future
expectations, current market conditions, and external data to determine the assumptions. The
discount rate represents the market rate for a high quality corporate bond. The company reduced
the assumed discount rate in 2004 to reflect overall market conditions. The expected return on
assets is based on current and expected asset allocations, historical trends, and expected returns
on plan assets. Based upon the above factors and the long-term nature of the returns, the company
did not change the 2004 assumption from prior year. The actuarial assumptions used to determine
the net periodic pension cost are based upon the prior year’s assumptions used to determine the
benefit obligation.
The company makes contributions to the plan so that minimum contribution requirements, as
determined by government regulations, are met. Based upon the performance of plan assets, the
company does not anticipate a contribution to this plan in 2005.
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ARROW ELECTRONICS, INC.
Benefit payments are expected to be paid as follows:
The plan asset allocations at December 31 are as follows:
The investment portfolio contains a diversified blend of common stocks, bonds, cash equivalents and
other investments, which may reflect varying rates of return. The investments are further
diversified within each asset classification. The portfolio diversification provides protection
against a single security or class of securities having a disproportionate impact on aggregate
performance. The target allocations for plan assets are 55% in equities and 45% in fixed income,
although the actual plan asset allocations may be within a range around these targets. The actual
asset allocations are reviewed and rebalanced on a regular basis to maintain the target
allocations.
Minimum pension liability
adjustments are required to recognize a liability equal to the unfunded accumulated benefit
obligation.
At December 31, 2004
and 2003, the company had additional minimum pension liabilities of
$32,721 and
$29,592, respectively, related to the SERP plan, Wyle SERP plan, and the defined benefit plan,
which are recorded in “Other
liabilities” in the accompanying consolidated balance sheet. The
additional minimum pension liabilities are offset by an
intangible asset included in “Other assets” of $4,866 and
an accumulated other comprehensive loss of $27,855 included in
“Other” in the shareholders’ equity section in the
accompanying consolidated balance sheet. In addition, the company has
recognized deferred tax assets of $11,198 related to the accumulated
other comprehensive loss included in “Other” in the
shareholders’ equity section in the accompanying consolidated
balance sheet.
15. Lease Commitments
The company leases certain office, distribution, and other property under noncancelable operating
leases expiring at various dates through 2053. Rental expense under noncancelable operating
leases, net of sublease income, amounted to $65,942 in 2004, $62,985 in 2003, and $62,543 in 2002.
Aggregate minimum rental commitments under all non-cancelable operating leases, exclusive of real
estate taxes, insurance, and leases related to facilities closed as a result of the integration of
acquired businesses and the restructuring of the company are as follows:
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ARROW ELECTRONICS, INC.
Minimum rental commitments for leases related to facilities closed as a result of the integration
of acquired businesses and restructuring of the company are as follows:
16. Contingencies
Tekelec Matters
In 2000, the company purchased Tekelec from Airtronic and certain other selling shareholders.
Pursuant to the share purchase agreement, Airtronic agreed to indemnify the company against certain
liabilities. Subsequent to the closing of the acquisition, Tekelec received (i) claims by the
French tax authorities relating to alleged fraudulent activities intended to avoid the payment of
value-added tax in respect of periods prior to closing in the amount of
€
11,327 ($14,248 at the
then year-end exchange rate), including penalties and interest (the “VAT Matter”); (ii) a
product liability claim in the amount of
€
11,333 ($14,256 at the then year-end exchange rate); and
(iii) claims for damages from certain former employees of Tekelec for wrongful dismissal or
additional compensation in the amount of
€
467 ($587 at the then year-end exchange rate). Tekelec
notified Airtronic of these claims and invoked its right to indemnification under the purchase
agreement.
The VAT Matter was settled with the French tax authorities in the third quarter of 2004 in exchange
for the payment by Tekelec of
€
3,429.
The product liability claim is subject to French legal proceedings under which separate
determinations are made as to whether the products were defective and the amount of damages
sustained by the purchaser. The manufacturer of the product is also a party to these proceedings.
The preliminary reports of the experts appointed by the French court indicates that the products
were defective and caused damages in the amount of
€
3,742. The court has not yet adopted the
report and the amount of damages, if any, for which Tekelec will be held liable can not be
ascertained.
In February 2005, a French Court of Appeals entered a final order limiting the payment to the
former employees to
€
200, which was the amount Tekelec had previously paid to those employees.
In February 2005, Tekelec entered into a settlement agreement with Airtronic pursuant to which Airtronic will pay
€
1,500 to Tekelec in full settlement of all of
Tekelec’s claims for indemnification under the purchase agreement. The terms of the settlement
reflect the company’s concerns about Airtronic’s ability to fulfill its indemnification obligations
under the purchase agreement, particularly in light of the significant claims that have been
brought against Airtronic by the French tax authorities.
Environmental and Related Litigation
In connection with the
purchase of Wyle from the VEBA Group (“VEBA”) in 2000, the company assumed certain of
the then outstanding obligations of Wyle. In 1994, Wyle sold one of its divisions, Wyle
Laboratories, an engineering unit specializing in the testing of military, aerospace, and
commercial products. As a result, among the Wyle obligations the company assumed was Wyle’s
indemnification of the purchasers of Wyle Laboratories for any environmental clean-up costs
associated with any pre-1995 contamination or violation of environmental regulations. Under the
terms of the company’s purchase of Wyle, VEBA agreed to indemnify the company for, among other
things, costs related to environmental pollution associated with Wyle, including those associated
with Wyle’s sale of its laboratory division.
The company is aware of two Wyle Laboratories facilities, in Huntsville, Alabama and Norco,
California at which contaminated groundwater has been identified, with respect to each of which
remediation, in final form and cost as yet undetermined, is required.
53
ARROW ELECTRONICS, INC.
Characterization of the extent of contaminated groundwater continues at the site in Huntsville,
Alabama. Under the direction of the Alabama Department of Environmental Management, approximately
$600 has been spent to date, but the complete scope of the characterization effort, the design of
any remediation action, and the ultimate cost of the project are all as yet unknown.
Regarding the Norco site, in October 2003, the company entered into a consent decree among it,
Wyle Laboratories and the California Department of Toxic Substance Control (the “DTSC”). In May
2004, a Removal Action Work Plan pertaining to the remediation of contaminated groundwater at
certain previously identified areas of the Norco site was accepted by the DTSC. That remediation is
currently under way. The company currently estimates that characterization work and remediation
under the Removal Action Work Plan for those areas will cost
approximately $6,900 of which approximately
$3,300 has been spent to date.
The complete scope of work under the consent decree, however, is not yet known, since
characterization of the nature and extent of contamination continues elsewhere on the site and in
adjacent residential areas. Contaminated groundwater and related soil-vapor have been found in
residential areas immediately adjacent to the site, and further characterization of the on- and
off-site impacts and the design of interim remedial measures are on-going. Accordingly, the
associated costs have not yet been determined.
In addition, the company has been named as a defendant in a suit filed in January 2005 in the
California Superior Court in Riverside County, California (Gloria Austin, et al. v. Wyle Laboratories, Inc. et
al.) in which approximately 100 plaintiffs (who identify themselves as owners, lessees, or
occupants of land or residences within a several mile radius of the Norco site) have sued the
company, Wyle Laboratories and a number of other entities, under a variety of legal theories, for
unquantified damages allegedly caused by environmental contamination at and around the site.
The company believes that any cost which it may incur in connection
with environmental conditions at the Wyle Laboratories sites and any related litigation is covered
by the contractual indemnifications (except, under the terms of the
environmental indemnification, for the first $450), which arose out of the company’s purchase of Wyle from VEBA.
Wyle Laboratories has demanded indemnification from the company with respect to the work at both
sites and in connection with the litigation, and the company has, in turn, demanded indemnification
from VEBA. VEBA merged with another large German publicly traded conglomerate in June 2000 and the
combined entity is now known as E.ON AG, which remains responsible for VEBA’s liabilities. In
2004, E.ON AG reported net
income of
€
4,339,000
(approximately $5,395,000 at the 2004 average exchange rate),
cash provided by operating activities of
€
5,972,000
(approximately $7,425,000 at the 2004 average exchange rate), and assets of
€
114,062,000
(approximately $154,611,000
at the year-end exchange rate).
E.ON AG has, subject to the terms of the VEBA contract with the company, acknowledged liability in
respect to the Wyle sites and made an initial, partial payment. The company’s demands for
subsequent payments have not been met, however, and in September of 2004, the company filed suit
against E.ON AG and certain of its U.S. subsidiaries in the United States District Court for the
Northern District of Alabama seeking further payments related to the Wyle sites and additional
damages.
Also included in the above-referenced action against E.ON AG is a claim for the reimbursement of
pre-acquisition tax liabilities of Wyle, in the amount of $7,836 for which E.ON AG is also
contractually liable to indemnify the company. E.ON AG has specifically acknowledged owing the
company not less than $6,335 of such amounts, but its promises to make payments of at least that
amount have not been kept.
The company believes strongly in the merits of its action against E.ON AG, and is pursuing it
vigorously.
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,
and tax matters. While such matters are subject to inherent
uncertainties, it is not currently
anticipated that any such other matters will have a material adverse impact on the company’s financial position,
liquidity, or results of operations.
54
ARROW ELECTRONICS, INC.
17. Segment and Geographic Information
The company is engaged in the distribution of electronic components to OEMs and CMs and computer
products to value-added resellers and OEMs. As a result of the company’s philosophy of maximizing
operating efficiencies through the centralization of certain functions, selected fixed assets and
related depreciation, as well as borrowings, are not directly attributable to the individual
operating segments. Computer products includes the company’s NACP group together with UK
Microtronica, ATD (in Spain), Arrow Computer Products (in France), and Nordic Microtronica (prior
to September 30, 2003).
In the fourth quarter of 2004, based upon an evaluation of its business and accounting practices,
the company determined that revenue related to the sale of service contracts should more appropriately be
classified on an agency basis rather than a gross basis. While this change reduces reported sales
and cost of sales, it has no impact on gross profit, operating income, net income, cash flow, or
the balance sheet. All prior period sales and cost of sales have been reclassified to present the
revenue related to the sale of service contracts on an agency basis. Sales and cost of sales have
been reduced by $171,004, for the nine months ended September 30, 2004, and $150,982 and $120,355
in 2003 and 2002, respectively, for the company’s computer products segment in the United States.
Sales, operating income
(loss), and total assets, by segment, are as follows:
Sales, by geographic area, for the years ended December 31 are as follows:
55
ARROW ELECTRONICS, INC.
Total assets, by geographic area, at December 31 are as follows:
18. Quarterly Financial Data (Unaudited)
A summary of the
company’s consolidated quarterly results of operations are as follows:
56
ARROW ELECTRONICS, INC.
19. Subsequent Event
(Unaudited)
In the first quarter of 2005, the company announced that it has taken additional actions to become
more effectively organized and to improve its operating efficiencies, which will further reduce its
costs on an annual basis by approximately $50,000 with $40,000 being realized in 2005. The company
estimates the restructuring charge associated with these actions to
be approximately $7,500, the majority of which is expected to be spent in cash in 2005.
57
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure
.
None.
Item 9A.
Controls and Procedures
.
Disclosure Controls and Procedures
The company’s management, under the supervision and with the participation of the company’s Chief
Executive Officer and Chief Financial Officer, carried out an evaluation of the effectiveness of
the design and operation of the company’s disclosure controls and procedures as of December 31,
2004 (the “Evaluation”). Based upon the Evaluation, the company’s Chief Executive Officer and
Chief Financial Officer concluded that the company’s disclosure controls and procedures (as defined
in Exchange Act Rule 13a-15(e)) are effective in ensuring that material information relating to the
company, including its consolidated subsidiaries, is made known to them by others within those
entities as appropriate to allow timely decisions regarding required disclosure, particularly
during the period in which this annual report was being prepared.
Management’s Report on Internal Control Over Financial Reporting
The company’s management is responsible for establishing and maintaining adequate “internal control
over financial reporting” (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)). Management
evaluates the effectiveness of the company’s internal control over financial reporting using the
criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO)
in
Internal Control – Integrated Framework
. Management, under the supervision and with the
participation of the company’s Chief Executive Officer and Chief Financial Officer, assessed the
effectiveness of the company’s internal control over financial reporting as of December 31, 2004 and concluded that it
is effective.
The company’s independent registered public accounting firm, Ernst & Young LLP, has audited the
effectiveness of the company’s internal control over financial reporting and management’s
assessment of the effectiveness of such controls as of December 31, 2004, as stated in their report
which is included herein.
58
REPORT OF ERNST & YOUNG LLP, INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Shareholders
We have audited management’s assessment, included in the accompanying Management’s Report on
Internal Control Over Financial Reporting, that Arrow Electronics, Inc. maintained effective
internal control over financial reporting as of December 31, 2004, based on criteria established in
Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (the COSO criteria). Arrow Electronics, Inc.’s management is responsible for
maintaining effective internal control over financial reporting and for its assessment of the
effectiveness of internal control over financial reporting. Our responsibility is to express an
opinion on management’s assessment and an opinion on the effectiveness of the company’s internal
control over financial reporting based on our audit.
We conducted our audit 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 effective internal control over financial reporting was
maintained in all material respects. Our audit included obtaining an understanding of internal
control over financial reporting, evaluating management’s assessment, testing and evaluating the
design and operating effectiveness of internal control, and performing such other procedures as we
considered necessary in the circumstances. We believe that our audit provides a reasonable basis
for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles. A
company’s internal control over financial reporting includes those policies and procedures that (1)
pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company; (2) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of management and directors of the company;
and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the company’s assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or
detect misstatements. Also, projections of any evaluation of effectiveness to future periods are
subject to the risk that controls may become inadequate because of changes in conditions, or that
the degree of compliance with the policies or procedures may deteriorate.
In our opinion, management’s assessment that Arrow Electronics, Inc. maintained effective internal
control over financial reporting as of December 31, 2004, is fairly stated, in all material
respects, based on the COSO criteria. Also, in our opinion, Arrow Electronics, Inc. maintained, in
all material respects, effective internal control over financial reporting as of December 31, 2004,
based on the COSO criteria
.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), the 2004 consolidated financial statements of Arrow Electronics, Inc. and
our report dated March 11, 2005 expressed an unqualified opinion thereon.
59
Changes in Internal Control over Financial Reporting
There was no change in the company’s internal control over financial reporting that occurred during
the company’s most recent fiscal quarter that has materially affected, or is reasonably likely to
materially affect, the company’s internal control over financial reporting.
Item 9B.
Other Information
.
None.
60
Year
High
Low
$
25.64
$
20.85
26.82
20.65
29.10
24.48
27.98
22.90
$
24.36
$
17.85
21.49
14.75
18.13
14.23
16.04
11.25
Table of Contents
For the year ended:
2004
(b)
2003
(c)
2002
(d)(e)
2001
(d)(f)
2000
(d)
$
10,646,113
$
8,528,331
$
7,269,799
$
9,407,348
$
12,026,554
$
439,338
$
184,045
$
167,530
$
152,670
$
773,193
$
207,504
$
25,700
$
(862
)
$
(75,587
)
$
351,934
$
1.83
$
.26
$
(.01
)
$
(.77
)
$
3.64
$
1.75
$
.25
$
(.01
)
$
(.77
)
$
3.56
$
3,470,600
$
3,098,213
$
2,579,833
$
2,762,679
$
5,419,476
5,509,101
5,343,690
4,667,605
5,358,984
7,604,541
1,465,880
2,016,627
1,807,113
2,441,983
3,027,671
2,194,186
1,505,331
1,235,249
1,766,461
1,913,748
(a)
(b)
(c)
(d)
(e)
(f)
Table of Contents
•
•
•
•
•
•
Table of Contents
Table of Contents
-
Table of Contents
-
-
-
-
Table of Contents
Table of Contents
Table of Contents
Table of Contents
Table of Contents
Within
1-3
4-5
After
1 Year
Years
Years
5 Years
Total
$
7,892
$
498,168
$
300
$
962,538
$
1,468,898
90,198
144,806
128,629
460,430
824,063
570
1,356
1,673
1,845
5,444
55,671
76,570
39,393
76,076
247,710
1,049,645
23,417
3,128
1,255
1,077,445
5,247
5,035
-
-
10,282
$
1,209,223
$
749,352
$
173,123
$
1,502,144
$
3,633,842
(a)
(b)
(c)
Table of Contents
-
Table of Contents
-
-
-
- publicly available forecasts for sales and earnings growth for the industry and investee, and
- the cyclical nature of the investee’s industry.
-
-
-
-
Table of Contents
-
-
-
Table of Contents
Table of Contents
Arrow Electronics, Inc.
/s/ ERNST & YOUNG LLP
New York, New York
March 11, 2005
Table of Contents
CONSOLIDATED STATEMENT OF OPERATIONS
CONSOLIDATED STATEMENT OF OPERATIONS
(In thousands except per share data)
Years Ended December 31,
2004
2003
2002
$
10,646,113
$
8,528,331
$
7,269,799
8,922,962
7,107,378
6,010,226
1,213,547
1,112,192
1,020,527
60,879
66,845
66,141
(9,676
)
13,002
-
11,391
37,965
-
(2,323
)
6,904
-
9,995
-
-
-
-
5,375
10,206,775
8,344,286
7,102,269
439,338
184,045
167,530
4,106
4,797
2,607
33,942
6,571
20,887
1,318
-
-
103,201
134,987
152,590
304,983
47,284
(3,340
)
96,436
21,206
(1,772
)
208,547
26,078
(1,568
)
1,043
378
(706
)
207,504
25,700
(862
)
-
-
5,911
207,504
25,700
(6,773
)
-
-
(603,709
)
$
207,504
$
25,700
$
(610,482
)
$
1.83
$
.26
$
(.01
)
-
-
(.06
)
-
-
(6.05
)
$
1.83
$
.26
$
(6.12
)
$
1.75
$
.25
$
(.01
)
-
-
(.06
)
-
-
(6.05
)
$
1.75
$
.25
$
(6.12
)
113,109
100,142
99,786
124,561
100,917
99,786
Table of Contents
CONSOLIDATED BALANCE SHEET
CONSOLIDATED BALANCE SHEET
(In thousands)
December 31,
2004
2003
$
305,294
$
612,404
158,600
-
463,894
612,404
1,984,122
1,770,690
1,486,478
1,327,523
93,039
106,853
4,027,533
3,817,470
40,340
43,676
184,344
197,142
418,721
413,861
643,405
654,679
(380,422
)
(366,550
)
262,983
288,129
34,302
31,210
974,285
923,256
209,998
283,625
$
5,509,101
$
5,343,690
$
1,261,971
$
1,211,724
395,955
425,253
8,462
14,349
1,666,388
1,651,326
1,465,880
2,016,627
182,647
170,406
117,675
103,878
797,828
503,320
1,145,806
938,302
190,595
67,046
2,251,904
1,612,546
(36,735
)
(74,816
)
(3,738
)
(8,074
)
(17,245
)
(24,325
)
2,194,186
1,505,331
$
5,509,101
$
5,343,690
Table of Contents
CONSOLIDATED STATEMENT OF CASH FLOWS
CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands)
Years Ended December 31,
2004
2003
2002
$
207,504
$
25,700
$
(610,482
)
-
-
5,911
207,504
25,700
(604,571
)
1,043
378
(706
)
65,675
73,913
78,783
16,827
27,906
28,840
(4,106
)
(4,797
)
(2,607
)
44,732
12,187
(7,935
)
(9,676
)
13,002
-
6,943
27,144
-
(1,389
)
4,822
-
9,995
-
-
20,297
3,930
12,949
1,318
-
-
-
-
3,214
-
-
603,709
(122,882
)
(196,860
)
135,329
(97,083
)
46,755
240,986
1,843
4,087
(3,986
)
11,588
213,251
251,153
23,423
36,496
(57,781
)
11,454
3,644
(9,505
)
187,506
291,558
667,872
(23,516
)
(32,046
)
(51,747
)
10,507
-
-
(34,979
)
(231,288
)
(111,876
)
524
763
(5,832
)
(452,587
)
-
-
293,987
-
-
9,627
-
41,667
-
1,025
41,081
-
-
6,953
(196,437
)
(261,546
)
(79,754
)
(39,875
)
4,774
(81,321
)
(3,144
)
(2,558
)
(6,197
)
(268,399
)
(282,207
)
(405,192
)
(329,639
)
(168,426
)
-
-
346,286
-
312,507
-
-
27,925
5,442
8,408
(300,625
)
(96,689
)
(484,302
)
2,446
(15,011
)
33,415
(307,110
)
(81,688
)
137,231
612,404
694,092
556,861
$
305,294
$
612,404
$
694,092
Table of Contents
CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY
CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY
(In thousands)
Common
Foreign
Unamortized
Stock
Capital
Currency
Employee
Other
at Par
in Excess of
Retained
Translation
Treasury
Stock
Comprehensive
Value
Par Value
Earnings
Adjustment
Stock
Awards
Income (Loss)
Total
$
103,856
$
524,299
$
1,523,084
$
(259,694
)
$
(106,921
)
$
(12,363
)
$
(5,800
)
$
1,766,461
-
-
(610,482
)
-
-
-
-
(610,482
)
-
7
-
114,463
-
-
-
114,470
-
-
-
-
-
-
(2,356
)
(2,356
)
-
-
-
-
-
-
(37,138
)
(37,138
)
(535,506
)
-
(3,158
)
-
-
11,566
-
-
8,408
-
1,470
-
-
-
-
-
1,470
(2
)
98
-
-
3,640
(3,736
)
-
-
-
-
-
-
-
5,925
-
5,925
24
(12,270
)
-
-
(60
)
797
-
(11,509
)
103,878
510,446
912,602
(145,231
)
(91,775
)
(9,377
)
(45,294
)
1,235,249
-
-
25,700
-
-
-
-
25,700
-
-
-
212,277
-
-
-
212,277
-
-
-
-
-
-
915
915
-
-
-
-
-
-
612
612
-
-
-
-
-
-
19,442
19,442
258,946
-
(2,741
)
-
-
8,183
-
-
5,442
-
518
-
-
-
-
-
518
(4,890
)
-
-
8,798
(3,908
)
-
-
-
-
-
-
-
5,184
-
5,184
-
(13
)
-
-
(22
)
27
-
(8
)
$
103,878
$
503,320
$
938,302
$
67,046
$
(74,816
)
$
(8,074
)
$
(24,325
)
$
1,505,331
Table of Contents
CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY (continued)
(In thousands)
Common
Foreign
Unamortized
Stock
Capital
Currency
Employee
Other
at Par
in Excess of
Retained
Translation
Treasury
Stock
Comprehensive
Value
Par Value
Earnings
Adjustment
Stock
Awards
Income (Loss)
Total
$
103,878
$
503,320
$
938,302
$
67,046
$
(74,816
)
$
(8,074
)
$
(24,325
)
$
1,505,331
-
-
207,504
-
-
-
-
207,504
-
-
-
123,549
-
-
-
123,549
-
-
-
-
-
-
6,654
6,654
-
-
-
-
-
-
(612
)
(612
)
-
-
-
-
-
-
1,038
1,038
338,133
13,800
298,707
-
-
-
-
-
312,507
-
1,772
-
-
-
-
-
1,772
-
(10,173
)
-
-
38,098
-
-
27,925
-
2,890
-
-
-
-
-
2,890
-
119
-
-
-
(119
)
-
-
-
-
-
-
-
4,368
-
4,368
(3
)
1,193
-
-
(17
)
87
-
1,260
$
117,675
$
797,828
$
1,145,806
$
190,595
$
(36,735
)
$
(3,738
)
$
(17,245
)
$
2,194,186
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands except per share data)
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands except per share data)
-
-
-
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands except per share data)
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands except per share data)
2004
2003
2002
$
207,504
$
25,700
$
(610,482
)
(11,073
)
(10,020
)
(10,131
)
$
196,431
$
15,680
$
(620,613
)
$
1.83
$
.26
$
(6.12
)
$
1.74
$
.16
$
(6.22
)
$
1.75
$
.25
$
(6.12
)
$
1.66
$
.16
$
(6.22
)
2004
2003
2002
52
48
48
3.3
2.5
2.7
47
55
60
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands except per share data)
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands except per share data)
$
102,723
113,957
461
217,141
3,447
75,127
10,799
306,514
47,873
20,509
68,382
$
238,132
2003
$
8,624,331
28,777
$
.29
100,142
100,917
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands except per share data)
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands except per share data)
2004
2003
$
33,863
$
33,863
(2,777
)
(7,241
)
$
31,086
$
26,622
-
-
-
-
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands except per share data)
2004
2003
$
2,026,598
$
1,817,769
(42,476
)
(47,079
)
$
1,984,122
$
1,770,690
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands except per share data)
2004
2003
$
-
$
249,998
199,480
199,230
199,980
199,977
349,423
349,355
197,195
196,985
196,911
196,771
298,625
601,643
11,904
10,070
12,362
12,598
$
1,465,880
$
2,016,627
2004
2003
-
109%
106%
108%
121%
120%
110%
106%
107%
102%
110%
103%
53%
54%
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands except per share data)
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands except per share data)
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands except per share data)
2004
2003
2002
$
109,221
$
(70,356
)
$
(115,212
)
195,762
117,640
111,872
$
304,983
$
47,284
$
(3,340
)
$
106,744
$
16,550
$
(1,168
)
6,111
(2,599
)
(5,733
)
(18,912
)
611
(23,980
)
1,966
(3,169
)
17,600
650
6,032
7,516
(123
)
3,781
3,993
$
96,436
$
21,206
$
(1,772
)
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands except per share data)
(a)
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands except per share data)
(b)
(c)
(d)
(a)
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands except per share data)
(b)
(c)
(d)
-
-
-
-
-
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands except per share data)
Common
Common
Stock
Treasury
Stock
Issued
Stock
Outstanding
103,856
3,998
99,858
(2
)
(136
)
134
-
(433
)
433
24
2
22
103,878
3,431
100,447
-
(327
)
327
-
(306
)
306
103,878
2,798
101,080
13,800
-
13,800
-
(1,424
)
1,424
(3
)
-
(3
)
117,675
1,374
116,301
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands except per share data)
2004
(a)
2003
(b)
2002
(c)
$
207,504
$
25,700
$
(862
)
-
-
5,911
207,504
25,700
(6,773
)
-
-
(603,709
)
207,504
25,700
(610,482
)
10,063
-
-
$
217,567
$
25,700
$
(610,482
)
113,109
100,142
99,786
1,595
775
-
9,857
-
-
124,561
100,917
99,786
$
1.83
$
.26
$
(.01
)
-
-
(.06
)
-
-
(6.05
)
$
1.83
$
.26
$
(6.12
)
$
1.75
$
.25
$
(.01
)
-
-
(.06
)
-
-
(6.05
)
$
1.75
$
.25
$
(6.12
)
(a)
(b)
(c)
(d)
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands except per share data)
(a)
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands except per share data)
Options Outstanding
Options Exercisable
Weighted
Weighted
Weighted
Maximum
Average
Average
Average
Exercise
Number
Remaining
Exercise
Number
Exercise
Price
Outstanding
Contractual Life
Price
Exercisable
Price
1,868,284
82 months
$14.30
848,738
$15.04
3,045,423
67 months
22.61
1,758,523
21.18
4,802,631
74 months
26.39
2,751,462
26.18
1,096,323
40 months
32.30
1,093,073
32.30
10,812,661
70 months
23.83
6,451,796
24.39
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands except per share data)
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands except per share data)
2004
2003
$
95,218
$
89,103
$
89,103
$
82,560
5,412
5,459
5,347
5,721
(4,644
)
(4,637
)
$
95,218
$
89,103
$
75,256
$
65,020
7,037
14,873
(4,644
)
(4,637
)
$
77,649
$
75,256
$
(17,569
)
$
(13,847
)
25,356
21,908
$
7,787
$
8,061
$
5,412
$
5,459
(6,204
)
(5,334
)
1,066
1,666
$
274
$
1,791
5.75
%
6.25
%
8.50
%
8.50
%
6.25
%
6.75
%
8.50
%
8.50
%
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands except per share data)
$
5,039
5,201
5,317
5,489
5,635
29,601
$
50,237
40,573
29,251
21,097
15,839
75,430
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands except per share data)
$
5,434
4,848
1,898
1,266
1,191
646
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands except per share data)
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands except per share data)
Electronic
Computer
Components
Products
Corporate
Total
2004
$
8,058,541
$
2,587,572
$
-
$
10,646,113
419,380
125,234
(105,276
)(a)
439,338
4,312,345
747,777
448,979
5,509,101
2003
$
6,419,537
$
2,108,794
$
-
$
8,528,331
237,930
78,180
(132,065
)(b)
184,045
3,888,120
678,353
777,217
5,343,690
2002
$
5,322,196
$
1,947,603
$
-
$
7,269,799
183,680
58,501
(74,651
)(c)
167,530
3,404,156
609,652
653,797
4,667,605
(a)
(b)
(c)
2004
2003
2002
$
6,117,587
$
4,928,316
$
4,167,151
3,358,333
2,779,667
2,445,051
1,170,193
820,348
657,597
$
10,646,113
$
8,528,331
$
7,269,799
(d)
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands except per share data)
2004
2003
2002
$
2,690,463
$
2,956,478
$
2,611,373
2,264,225
1,967,229
1,726,332
554,413
419,983
329,900
$
5,509,101
$
5,343,690
$
4,667,605
(e)
First
Second
Third
Fourth
Quarter
Quarter
Quarter
Quarter
2004
$
2,625,958
$
2,678,290
$
2,619,143
$
2,722,722
423,220
451,034
420,163
428,734
29,525
(c
)
66,859
(d
)
63,397
(e
)
47,723
(f
)
$
.28
(c
)
$
.58
(d
)
$
.55
(e
)
$
.41
(f
)
.27
(c
)
.55
(d
)
.52
(e
)
.40
(f
)
2003
$
1,946,912
$
2,084,545
$
2,063,351
$
2,433,523
335,057
355,103
343,565
387,228
(905
)
(g
)
6,827
(h
)
(6,234
)
(i
)
26,012
(j
)
$
(.01
)
(g
)
$
.07
(h
)
$
(.06
)
(i
)
$
.26
(j
)
(.01
)
(g
)
.07
(h
)
(.06
)
(i
)
.26
(j
)
(a)
(b)
(c)
(d)
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands except per share data)
(e)
(f)
(g)
(h)
(i)
(j)
Table of Contents
Table of Contents
Arrow Electronics, Inc.
/s/ ERNST & YOUNG LLP
New York, New York
March 11, 2005
Table of Contents
Table of Contents
Part III
Item 10.
Directors and Executive Officers of the Registrant
.
See “Executive Officers” in Part I of this annual report on Form 10-K. In addition, the
information set forth under the headings “Election of Directors” and “Section 16(A) Beneficial
Ownership Reporting Compliance” in the company’s Proxy Statement filed in connection with the
Annual Meeting of Shareholders scheduled to be held on May 6, 2005 are hereby incorporated herein
by reference.
Information about the company’s audit committee financial experts set forth under the heading
“Committees of the Board” in the company’s Proxy Statement filed in connection with the Annual
Meeting of Shareholders scheduled to be held on May 6, 2005 is hereby incorporated herein by
reference.
The company adopted a code of ethics governing the Chief Executive Officer, Chief Financial
Officer and Controller, known as the “Finance Code of Ethics”, as well as a code of ethics
governing all employees, known as the “Worldwide Code of Business Conduct and Ethics”. Each of
these documents is available free-of-charge on the company’s website at
http://www.arrow.com
and
is available in print to any shareholder upon request.
The company has also adopted “Corporate Governance Guidelines” and written committee charters for
the company’s Audit Committee, Compensation Committee, and Corporate Governance Committee. Each
of these documents is available free-of-charge on the company’s website at
http://www.arrow.com
and is available in print to any shareholder upon request.
Item 11.
Executive Compensation
.
The information set forth under the heading “Executive Compensation and Other Matters” in the
company’s Proxy Statement filed in connection with the Annual Meeting of Shareholders scheduled to
be held on May 6, 2005 is hereby incorporated herein by reference.
Item 12.
Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters
.
The information required by Item 12 is included in the company’s Proxy Statement filed in
connection with the Annual Meeting of Shareholders scheduled to be held on May 6, 2005 and is
hereby incorporated herein by reference.
Item 13.
Certain Relationships and Related Transactions
.
The information required by Item 13 is included in the company’s Proxy Statement filed in
connection with the Annual Meeting of Shareholders scheduled to be held on May 6, 2005 and is
hereby incorporated herein by reference.
Item 14.
Principal Accounting Fees and Services
.
The information set forth under the heading “Principal Accounting Firm Fees” in the company’s
Proxy Statement filed in connection with the Annual Meeting of Shareholders scheduled to be held
on May 6, 2005 and is hereby incorporated herein by reference.
61
Table of Contents
Part IV
Item 15.
Exhibits and Financial Statement Schedules
.
62
(a)3.
Exhibits
.
(2) (a) Shareholder’s
Agreement, dated as of October 10, 1991, among EDI Electronics
Distribution International B.V., Giorgio Ghezzi, Germano Fanelli, and Renzo Ghezzi (incorporated by
reference to Exhibit 2(f)(iii) to the company’s Annual Report on Form 10-K for the year ended
December 31, 1993, Commission File No. 1-4482).
(b)
Share Purchase Agreement, dated as of February 7, 2000, by and between Arrow
Electronics, Inc., Tekelec Airtronic, Zedtek, Investitech, and Natec (incorporated by reference to
Exhibit 2(g) to the company’s Annual Report on Form 10-K for the year ended December 31, 2000,
Commission File No. 1-4482).
(c)
Agreement for Sale and Purchase of Shares of Jakob Hatteland Electronic AS, dated
as of April 20, 2000, between Jakob Hatteland Holding AS, Jakob Hatteland, and Arrow Electronics,
Inc. (incorporated by reference to Exhibit 2(h) to the company’s Annual Report on Form 10-K for the
year ended December 31, 2000, Commission File No. 1-4482).
(d) Share
Purchase Agreement, dated as of August 7, 2000, among VEBA Electronics GmbH,
EBV Verwaltungs GmbH i.L., Viterra Grundstucke Verwaltungs GmbH, VEBA Electronics LLC, VEBA
Electronics Beteiligungs GmbH, VEBA Electronics (UK) Plc, Raab Karcher Electronics Systems Plc and
E.ON AG and Arrow Electronics, Inc., Avnet, Inc., and Cherrybright Limited regarding the sale and
purchase of the VEBA electronics distribution group (incorporated by reference to Exhibit 2(i) to
the company’s Annual Report on Form 10-K for the year ended December 31, 2000, Commission File No.
1-4482).
(e) Purchase
Agreement, dated as of January 13, 2003, by and between the company and
Pioneer-Standard Electronics, Inc., Pioneer-Standard Illinois, Inc., Pioneer-Standard Minnesota,
Inc., Pioneer-Standard Electronics, Ltd., and Pioneer-Standard Canada, Inc. (incorporated by
reference to Exhibit 2(e) to the company’s Annual Report on Form 10-K for the year ended December
31, 2002, Commission File No. 1-4482).
(3) (a)(i) Restated Certificate of
Incorporation of the company, as amended (incorporated
by reference to Exhibit 3(a) to the company’s Annual Report on Form 10-K for the year ended
December 31, 1994, Commission File No. 1-4482).
(ii)
Certificate of Amendment of the Certificate of Incorporation of Arrow Electronics,
Inc., dated as of August 30, 1996 (incorporated by reference to Exhibit 3 to the company’s
Quarterly Report on Form 10-Q for the quarter ended September 30, 1996, Commission File No.
1-4482).
(iii)
Certificate of Amendment of the Restated Certificate of Incorporation of the company,
dated as of October 12, 2000 (incorporated by reference to Exhibit 3(a)(iii) to the company’s
Annual Report on Form 10-K for the year ended December 31, 2000, Commission File No.
1-4482).
(b)(i) By-Laws of
the company, as amended (incorporated by reference to Exhibit 3(b) to
the company’s Annual Report on Form 10-K for the year ended December 31, 1986, Commission File No.
1-4482).
(ii)
Amended Corporate By-Laws dated July 29, 2004 (incorporated by reference to Exhibit
3(ii) to the company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2004,
Commission File No. 1-4482).
(4) (a)(i) Rights Agreement dated as of
March 2, 1988 between Arrow Electronics, Inc. and
Manufacturers Hanover Trust Company, as Rights Agent, which includes as Exhibit A a Certificate of
Amendment of the Restated Certificate of Incorporation for Arrow Electronics, Inc. for the
Participating Preferred Stock, as Exhibit B a letter to shareholders describing the Rights and a
summary of the provisions of the Rights Agreement and as Exhibit C the forms of Rights Certificate
and Election to Exercise (incorporated by reference to Exhibit 1 to the company’s Current Report on
Form 8-K dated March 3, 1988, Commission File No. 1-4482).
63
(ii)
First Amendment, dated June 30, 1989, to the Rights Agreement in (4)(a)(i) above
(incorporated by reference to Exhibit 4(b) to the company’s Current Report on Form 8-K dated June
30, 1989, Commission File No. 1-4482).
(iii)
Second Amendment, dated June 8, 1991, to the Rights Agreement in (4)(a)(i) above
(incorporated by reference to Exhibit 4(i)(iii) to the company’s Annual Report on Form 10-K for the
year ended December 31, 1991, Commission File No. 1-4482).
(iv)
Third Amendment, dated July 19, 1991, to the Rights Agreement in (4)(a)(i) above
(incorporated by reference to Exhibit 4(i)(iv) to the company’s Annual Report on Form 10-K for the
year ended December 31, 1991, Commission File No. 1-4482).
(v)
Fourth Amendment, dated August 26, 1991, to the Rights Agreement in (4)(a)(i) above
(incorporated by reference to Exhibit 4(i)(v) to the company’s Annual Report on Form 10-K for the
year ended December 31 , 1991, Commission File No. 1-4482).
(vi)
Fifth Amendment, dated February 25, 1998, to the Rights Agreement in (4)(a)(i) above
(incorporated by reference to Exhibit 7 to the company’s Current Report on Form 8-A/A dated March
2, 1998, Commission File No. 1-4482).
(b)(i) Indenture,
dated as of January 15, 1997, between the company and the Bank of
Montreal Trust Company, as Trustee (incorporated by reference to Exhibit 4(b)(i) to the company’s
Annual Report on Form 10-K for the year ended December 31, 1996, Commission File No. 1-4482).
(ii)
Officers’ Certificate, as defined by the Indenture in 4(b)(i) above, dated as of
January 22, 1997, with respect to the company’s $200,000,000 7% Senior Notes due 2007 and
$200,000,000 7 1/2% Senior Debentures due 2027 (incorporated by reference to Exhibit 4(b)(ii) to
the company’s Annual Report on Form 10-K for the year ended December 31, 1996, Commission File No.
1-4482).
(iii)
Officers’ Certificate, as defined by the indenture in 4(b)(i) above, dated as of
January 15, 1997, with respect to the $200,000,000 6 7/8% Senior Debentures due 2018, dated as of
May 29, 1998 (incorporated by reference to Exhibit 4(b)(iii) to the company’s Annual Report on Form
10-K for the year ended December 31, 1998, Commission File No. 1-4482).
(iv)
Officers’ Certificate, as defined by the indenture in 4(b)(i) above, dated as of
January 15, 1997, with respect to the $250,000,000 6.45% Senior Notes due 2003, dated October 21,
1998 (incorporated by reference to Exhibit 4(b)(iv) to the company’s Annual Report on Form 10-K for
the year ended December 31, 1998, Commission File No. 1-4482).
(v)
Supplemental Indenture, dated as of February 21, 2001, between the company and The
Bank of New York (as successor to the Bank of Montreal Trust Company), as trustee (incorporated by
reference to Exhibit 4.2 to the company’s Current Report on
Form 8-K dated March 12, 2001,
Commission File No. 1-4482).
(vi)
Supplemental Indenture, dated as of December 31, 2001, between the company and The
Bank of New York (as successor to the Bank of Montreal Trust Company), as trustee (incorporated by
reference to Exhibit 4(b)(vi) to the company’s Annual Report on Form 10-K for the year ended
December 31, 2001, Commission File No. 1-4482).
(vii)
Supplemental Indenture, dated as of March 11, 2005, between the
company and The Bank of New York (as successor to the Bank of
Montreal Trust Company), as trustee.
(10)(a) Arrow Electronics Savings Plan, as
amended and restated on February 15, 2002
(incorporated by reference to Exhibit 10(a) to the company’s Annual Report on Form 10-K for the
year ended December 31, 2002, Commission File No. 1-4482).
64
(b) Wyle
Electronics Retirement Plan, as amended and restated on March 17, 2003
(incorporated by reference to Exhibit 10(b) to the company’s Annual Report on Form 10-K for the
year ended December 31, 2003, Commission File No. 1-4482).
(c) Arrow
Electronics Stock Ownership Plan, as amended and restated on February 15,
2002 (incorporated by reference to Exhibit 10(c) to the company’s Annual Report on Form 10-K for
the year ended December 31, 2002, Commission File No. 1-4482).
(d) Arrow
Electronics, Inc. 2004 Omnibus Incentive Plan as of May 27, 2004.
(e) (i)
Arrow Electronics, Inc. Stock Option Plan, as amended and restated, effective
February 27, 2002 (incorporated by reference to Exhibit 10(d)(i) to the company’s Annual Report on
Form 10-K for the year ended December 31, 2002, Commission File No. 1-4482).
(ii)
Form of Stock Option Agreement under 10(d)(i) above (incorporated by reference to
Exhibit 10(d)(ii) to the company’s Annual Report on Form 10-K for the year ended December 31, 2002,
Commission File No. 1-4482).
(iii)
Paying Agency Agreement, dated November 11, 2003, by and between Arrow Electronics,
Inc. and Wachovia Bank, N.A. (incorporated by reference to Exhibit 10(d)(iii) to the company’s
Annual Report on Form 10-K for the year ended December 31, 2003, Commission File No. 1-4482).
(f) (i)
Restricted Stock Plan of Arrow Electronics, Inc., as amended and restated
effective February 27, 2002 (incorporated by reference to Exhibit 10(e)(i) to the company’s Annual
Report on Form 10-K for the year ended December 31, 2002, Commission File No. 1-4482).
(ii)
Form of Restricted Stock Award Agreement under 10(e)(i) above (incorporated by
reference to Exhibit 10(e)(ii) to the company’s Annual Report on Form 10-K for the year ended
December 31, 2002, Commission File No. 1-4482).
(g) 2002 Non-Employee
Directors Stock Option Plan as of May 23, 2002 (incorporated by
reference to Exhibit 10(f) to the company’s Annual Report on Form 10-K for the year ended December
31, 2002, Commission File No. 1-4482).
(h) Non-Employee
Directors Deferral Plan as of May 15, 1997 (incorporated by reference
to Exhibit 99(d) to the Company’s Registration Statement on Form S-8, Registration No. 333-45631).
(i) Arrow
Electronics, Inc. Supplemental Executive Retirement Plan, as amended
effective January 1, 2002 (incorporated by reference to Exhibit 10(h) to the company’s Annual
Report on Form 10-K for the year ended December 31, 2002, Commission File No. 1-4482).
(j) (i)
Consulting Agreement, dated as of December 15, 2003 between the company and Robert
E. Klatell (incorporated by reference to Exhibit 10(i)(i) to the company’s Annual Report on Form
10-K for the year ended December 31, 2003, Commission File No. 1-4482).
(ii)
Form of agreement between the company and the employee party to the Employment
Agreement listed in 10(i)(i) above, providing extended separation benefits under certain
circumstances (incorporated by reference to Exhibit 10(c)(iv) to the company’s Annual Report on
Form 10-K for the year ended December 31, 1988, Commission File No. 1-4482).
(iii)
Consulting Agreement dated as of June 3, 2002, between the company and Stephen P.
Kaufman (incorporated by reference to Exhibit 10(i) to the company’s Quarterly Report on Form 10-Q
for the quarter ended June 30, 2002, Commission File No. 1-4482).
(iv)
Amended and Restated Agreement dated as of June 13, 2002, between the company and
Francis M. Scricco (incorporated by reference to Exhibit 10(i) to the company’s Quarterly Report on
Form 10-Q for the quarter ended June 30, 2002, Commission File No. 1-4482).
65
(v)
Employment Agreement, dated as of September 1, 1997, between the company and Jan M.
Salsgiver (incorporated by reference to Exhibit 10(c)(vi) to the company’s Annual Report on Form
10-K for the year ended December 31, 1997, Commission File No. 1-4482).
(vi)
Employment Agreement, dated as of January 1, 2001, by and between the company and
Michael J. Long (incorporated by reference to Exhibit 10(c)(v) to the company’s Annual Report on
Form 10-K for the year ended December 31, 2000, Commission File No. 1-4482).
(vii)
Employment Agreement, dated as of December 13, 2002, by and between the company and
Peter S. Brown (incorporated by reference to Exhibit 10(i)(vii) to the company’s Annual Report on
Form 10-K for the year ended December 31, 2002, Commission File No. 1-4482).
(viii)
Employment Agreement, dated as of January 1, 2003, by and between the company and Mark
F. Settle (incorporated by reference to Exhibit 10(i)(ix) to the company’s Annual Report on Form
10-K for the year ended December 31, 2002, Commission File No. 1-4482).
(ix)
Employment Agreement, dated as of January 14, 2003, by and between the company and
Paul J. Reilly (incorporated by reference to Exhibit 10(i)(x) to the company’s Annual Report on
Form 10-K for the year ended December 31, 2002, Commission File No. 1-4482).
(x)
Employment Agreement, dated as of February 3, 2003, by and between the company and
William E. Mitchell (incorporated by reference to Exhibit 10(i)(xi) to the company’s Annual Report
on Form 10-K for the year ended December 31, 2002, Commission File No. 1-4482).
(xi)
Employment Agreement, dated as of June 1, 2003, by and between the company and Betty
Jane Scheihing (incorporated by reference to Exhibit 10(i)(xi) to the company’s Annual Report on
Form 10-K for the year ended December 31, 2003, Commission File No. 1-4482).
(xii)
Employment Agreement, dated as of January 1, 2004, by and between the company and
Germano Fanelli (incorporated by reference to Exhibit 10(i)(xii) to the company’s Annual Report on
Form 10-K for the year ended December 31, 2003, Commission File No. 1-4482).
(xiii)
Form of agreement between the company and all corporate officers, including the
employees parties to the Employment Agreements listed in 10(j)(v)-(xii) above, and excluding the
party listed in 10(j)(i) above, providing extended separation benefits under certain circumstances
(incorporated by reference to Exhibit 10(c)(ix) to the company’s Annual Report on Form 10-K for the
year ended December 31, 1988, Commission File No. 1-4482).
(xiv)
Consulting Agreement, dated January 1, 2003, by and between the company and Steven W.
Menefee (incorporated by reference to Exhibit 10(i)(xiii) to the company’s Annual Report on Form
10-K for the year ended December 31, 2002, Commission File No. 1-4482).
(xv)
Form of agreement between the company and non-corporate officers providing extended
separation benefits under certain circumstances (incorporated by reference to Exhibit 10(c)(x) to
the company’s Annual Report on Form 10-K for the year ended December 31, 1988, Commission File No.
1-4482).
(xvi)
English translation of the Service Agreement, dated January 19, 1993, between Spoerle
Electronic and Carlo Giersch (incorporated by reference to Exhibit 10(f)(v) to the company’s Annual
Report on Form 10-K for the year ended December 31, 1992, Commission File No.
1-4482).
(xvii)
Grantor Trust Agreement, as amended and restated on November 11, 2003, by and between
Arrow Electronics, Inc. and Wachovia Bank, N.A. (incorporated by reference to Exhibit 10(i)(xvii)
to the company’s Annual Report on Form 10-K for the year ended December 31, 2003, Commission File
No. 1-4482).
(xviii)
First Amendment, dated September 17, 2004, to the amended and restated Grantor Trust
Agreement in 10(j)(xvii) above by and between Arrow Electronics, Inc. and Wachovia Bank, N.A.
66
(incorporated by reference to Exhibit 10(a) to the company’s Quarterly Report on Form 10-Q for the
quarter ended September 30, 2004, Commission File No. 1-4482).
(k) (i)
Amended and Restated 364-Day Credit Agreement, dated as of February 22, 2001,
among Arrow Electronics, Inc., the Subsidiary Borrowers, the several banks from time to time
parties hereto, Bank of America, N.A., as syndication agent, Fleet National Bank, as documentation
agent, and The Chase Manhattan Bank, as administrative agent (incorporated by reference to Exhibit
10(g)(i) to the company’s Annual Report on Form 10-K for the year ended December 31, 2000,
Commission File No. 1-4482).
(ii)
First Amendment, dated as of November 29, 2001, to the Amended and Restated 364-Day
Credit Agreement in (10)(f)(i) above among Arrow Electronics, Inc., the Subsidiary Borrowers, the
several banks and other financial institutions from time to time parties thereto, Bank of America,
N.A., as syndication agent, Fleet National Bank, as documentation
agent and JPMorgan Chase Bank, as administrative agent (incorporated by reference to Exhibit 10(f)(iv) to the company’s Annual Report
on Form 10-K for the year ended December 31, 2001, Commission File No. 1-4482).
(l) Commercial
Paper Private Placement Agreement, dated as of November 9, 1999, among
Arrow Electronics, Inc., as issuer, and Chase Securities Inc., Banc of America Securities LLC,
Goldman, Sachs & Co., and Morgan Stanley & Co. Incorporated as placement agents (incorporated by
reference to Exhibit 10(g) to the company’s Annual Report on Form 10-K for the year ended December
31, 1999, Commission File No. 1-4482).
(m) (i) 8.20%
Senior Exchange Notes due October 1, 2003, dated as of October 6, 2000,
among Arrow Electronics, Inc. and Goldman, Sachs & Co., Chase Securities Inc., Morgan Stanley & Co.
Incorporated, Banc of America Securities LLC, Donaldson, Lufkin & Jenrette Securities Corporation,
BNY Capital Markets, Inc., Credit Suisse First Boston Corporation, Deutsche Bank Securities Inc.,
Fleet Securities, Inc., and HSBC Securities (USA) Inc., as underwriters (incorporated by reference
to Exhibit 4.2 to the company’s Registration Statement on Form S-4, Registration No. 333-51100).
(ii)
8.70% Senior Exchange Notes due October 1, 2005, dated as of October 6, 2000, among
Arrow Electronics, Inc. and Goldman, Sachs & Co., Chase Securities Inc., Morgan Stanley & Co.
Incorporated, Banc of America Securities LLC, Donaldson, Lufkin & Jenrette Securities Corporation,
BNY Capital Markets, Inc., Credit Suisse First Boston Corporation, Deutsche Bank Securities Inc.,
Fleet Securities, Inc., and HSBC Securities (USA) Inc., as underwriters (incorporated by reference
to Exhibit 4.3 to the company’s Registration Statement on Form S-4, Registration No. 333-51100).
(iii)
9.15% Senior Exchange Notes due October 1, 2010, dated as of October 6, 2000, among
Arrow Electronics, Inc. and Goldman, Sachs & Co., Chase Securities Inc., Morgan Stanley & Co.
Incorporated, Banc of America Securities LLC, Donaldson, Lufkin & Jenrette Securities Corporation,
BNY Capital Markets, Inc., Credit Suisse First Boston Corporation, Deutsche Bank Securities Inc.,
Fleet Securities, Inc., and HSBC Securities (USA) Inc., as underwriters (incorporated by reference
to Exhibit 4.4 to the company’s Registration Statement on Form S-4, Registration No. 333-51100).
(iv)
6.875% Senior Exchange Notes due 2013, dated as of June 25, 2003, among Arrow
Electronics, Inc. and Goldman, Sachs & Co., JPMorgan, and Banc of America Securities LLC as joint
book-running managers; Credit Suisse First Boston as lead manager; and Fleet Securities, Inc.,
HSBC, Scotia Capital, and Wachovia Securities as co-managers (incorporated by reference to Exhibit
99.1 to the company’s Current Report on Form 8-K dated June 25, 2003, Commission File No. 1-4482).
(n)
Amended and Restated Three Year Credit Agreement, dated as of December 18, 2003, among
Arrow Electronics, Inc., the Subsidiary Borrowers, the several banks from time to time parties
thereto, Bank of America, N.A., Bank of Nova Scotia, BNP Paribas and Fleet National Bank, as
syndication agents, and JPMorgan Chase Bank, as administrative agent (incorporated by reference to
Exhibit 10.1 to the company’s Current Report on Form 8-K dated January 20, 2004, Commission File
No. 1-4482).
(o) (i)
Transfer and Administration Agreement, dated as of March 21, 2001, by and among
Arrow Electronics Funding Corporation, Arrow Electronics, Inc., individually and as Master
Servicer, the several Conduit Investors, Alternate Investors and Funding Agents and Bank of
America, National
67
Association, as administrative agent (incorporated by reference to Exhibit
10(m)(i) to the company’s Annual Report on Form 10-K for the year ended December 31, 2001,
Commission File No. 1-4482).
(ii)
Amendment No. 1 to the Transfer and Administration Agreement, dated as of November 30,
2001, to the Transfer and Administration Agreement in (10)(o)(i) above (incorporated by reference
to Exhibit 10(m)(ii) to the company’s Annual Report on Form 10-K for the year ended December 31,
2001, Commission File No. 1-4482).
(iii)
Amendment No. 2 to the Transfer and Administration Agreement, dated as of December 14,
2001, to the Transfer and Administration Agreement in (10)(o)(i) above (incorporated by reference
to Exhibit 10(m)(iii) to the company’s Annual Report on Form 10-K for the year ended December 31,
2001, Commission File No. 1-4482).
(iv)
Amendment No. 3 to the Transfer and Administration Agreement, dated as of March 20,
2002, to the Transfer and Administration Agreement in (10)(o)(i) above (incorporated by reference
to Exhibit 10(m)(iv) to the company’s Annual Report on Form 10-K for the year ended December 31,
2001,
Commission File No. 1-4482).
(v)
Amendment No. 4 to the Transfer and Administration Agreement, dated as of March 29,
2002, to the Transfer and Administration Agreement in (10)(o)(i) above (incorporated by reference
to Exhibit 10(n)(v) to the company’s Annual Report on Form 10-K for the year ended December 31,
2002, Commission File No. 1-4482).
(vi)
Amendment No. 5 to the Transfer and Administration Agreement, dated as of May 22,
2002, to the Transfer and Administration Agreement in (10)(o)(i) above (incorporated by reference
to Exhibit 10(n)(vi) to the company’s Annual Report on Form 10-K for the year ended December 31,
2002, Commission File No. 1-4482).
(vii)
Amendment No. 6 to the Transfer and Administration Agreement, dated as of September
27, 2002, to the Transfer and Administration Agreement in (10)(o)(i) above (incorporated by
reference to Exhibit 10(n)(vii) to the company’s Annual Report on Form 10-K for the year ended
December 31, 2002, Commission File No. 1-4482).
(viii)
Amendment No. 7 to the Transfer and Administration Agreement, dated as of February 19,
2003, to the Transfer and Administration Agreement in (10)(o)(i) above (incorporated by reference
to Exhibit 99.1 to the company’s Current Report on Form 8-K dated February 6, 2003, Commission File
No. 1-4482).
(ix)
Amendment No. 8 to the Transfer and Administration Agreement, dated as of April 14,
2003, to the Transfer and Administration Agreement in (10)(o)(i) above (incorporated by reference
to Exhibit 10(n)(ix) to the company’s Annual Report on Form 10-K for the year ended December 31,
2003, Commission File No. 1-4482).
(x)
Amendment No. 9 to the Transfer and Administration Agreement, dated as of August 13,
2003, to the Transfer and Administration Agreement in (10)(o)(i) above (incorporated by reference
to Exhibit 10(n)(x) to the company’s Annual Report on Form 10-K for the year ended December 31,
2003, Commission File No. 1-4482).
(xi)
Amendment No. 10 to the Transfer and Administration Agreement, dated as of February
18, 2004, to the Transfer and Administration Agreement in (10)(o)(i) above (incorporated by
reference to Exhibit 10(n)(xi) to the company’s Annual Report on Form 10-K for the year ended
December 31, 2003, Commission File No. 1-4482).
(xii)
Amendment No. 11 to the Transfer and Administration Agreement, dated as of August 13,
2004, to the Transfer and Administration Agreement in (10)(o)(i) above (incorporated by reference
to Exhibit 10(b) to the company’s Annual Report on Form 10-K for the year ended September 30,
2004, Commission File No. 1-4482).
(xiii)
Amendment No. 12 to the Transfer and Administration Agreement, dated as of February
14, 2005, to the Transfer and Administration Agreement in (10)(o)(i) above.
68
(p) Form of
Indemnification Agreement between the company and each director
(incorporated by reference to Exhibit 10(g) to the company’s Annual Report on Form 10-K for the
year ended December 31, 1986, Commission File No. 1-4482).
69
(a)
Table of Contents
Exhibits
Table of Contents
Table of Contents
Table of Contents
Table of Contents
Table of Contents
Table of Contents
(21)
(23)
(31) (i)
(ii)
(32) (i)
(ii)
Table of Contents
| SCHEDULE II — VALUATION AND QUALIFYING ACCOUNTS |
ARROW ELECTRONICS, INC.
SCHEDULE II — VALUATION AND QUALIFYING ACCOUNTS
(In thousands)
| Balance at | Charged | Balance | ||||||||||||||||||
| For the three years ended | beginning | to | at end | |||||||||||||||||
|
December 31,
|
of year
|
income
|
Other
(a)
|
Write-down
|
of year
|
|||||||||||||||
|
Allowance for doubtful accounts
|
||||||||||||||||||||
|
|
||||||||||||||||||||
|
2004
|
$ | 47,079 | $ | 15,262 | $ | 833 | $ | 20,698 | $ | 42,476 | ||||||||||
|
|
|
|
|
|
|
|||||||||||||||
|
2003
|
$ | 52,605 | $ | 1,046 | $ | 20,532 | $ | 27,104 | $ | 47,079 | ||||||||||
|
|
|
|
|
|
|
|||||||||||||||
|
2002
|
$ | 80,970 | $ | 12,622 | $ | - | $ | 40,987 | $ | 52,605 | ||||||||||
|
|
|
|
|
|
|
|||||||||||||||
| (a) |
Represents the allowance for doubtful accounts of the businesses
acquired by the company during 2004 and 2003.
|
70
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| ARROW ELECTRONICS, INC. | ||||
|
|
||||
|
|
By: |
/s/ Peter S. Brown
Peter S. Brown Senior Vice President March 16, 2005 |
||
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated:
|
By:
|
/s/ Daniel W. Duval | March 16, 2005 | ||
|
|
|
|||
|
|
Daniel W. Duval, Chairman | |||
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|
||||
|
By:
|
/s/ William E. Mitchell | March 16, 2005 | ||
|
|
|
|||
|
|
William E. Mitchell, President and Chief
Executive Officer |
|||
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||||
|
By:
|
/s/ Paul J. Reilly | March 16, 2005 | ||
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|||
|
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Paul J. Reilly, Chief Financial Officer | |||
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||||
|
By:
|
/s/ Carmelo Seguinot | March 16, 2005 | ||
|
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|||
|
|
Carmelo Seguinot, Controller | |||
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|
||||
|
By:
|
/s/ John N. Hanson | March 16, 2005 | ||
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|
|||
|
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John N. Hanson, Director | |||
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||||
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By:
|
/s/ Fran Keeth | March 16, 2005 | ||
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|||
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Fran Keeth, Director | |||
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||||
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By:
|
/s/ Roger King | March 16, 2005 | ||
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Roger King, Director | |||
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||||
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By:
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/s/ Karen Gordon Mills | March 16, 2005 | ||
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Karen Gordon Mills, Director | |||
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||||
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By:
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/s/ Stephen C. Patrick | March 16, 2005 | ||
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|||
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Stephen C. Patrick, Director | |||
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||||
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By:
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/s/ Barry W. Perry | March 16, 2005 | ||
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Barry W. Perry, Director | |||
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||||
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By:
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/s/ Richard S. Rosenbloom | March 16, 2005 | ||
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Richard S. Rosenbloom, Director | |||
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||||
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By:
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/s/ John C. Waddell | March 16, 2005 | ||
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John C. Waddell, Director |
71
|
ARROW ELECTRONICS, INC.
|
FORM 10-K – EXHIBIT 4 (b) (vii) | |
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||
|
|
EXECUTION COPY |
ARROW ELECTRONICS, INC.
and
THE BANK OF NEW YORK
(
SUCCESSOR TO BANK OF MONTREAL TRUST COMPANY),
as Trustee
Supplemental Indenture
Dated as of March 11, 2005
THIS SUPPLEMENTAL INDENTURE, dated as of March 11, 2005, between Arrow Electronics, Inc., a corporation duly organized and existing under the laws of New York (the “Company”), and The Bank of New York (as successor to Bank of Montreal Trust Company), a banking corporation duly organized and existing under the laws of the State of New York (the “Trustee”),
WHEREAS, the Company and the Trustee are parties to an Indenture dated as of January 15, 1997 (as amended and supplemented as of the date hereof, the “Indenture”) pursuant to which the Company issued securities of various series, including its Zero Coupon Convertible Senior Debentures due 2021 (the “Debentures”) pursuant to the Supplemental Indenture, dated as of February 21, 2001 between the Company and the Trustee;
WHEREAS, Section 9.1 of the Indenture provides, among other things, that the Company and the Trustee, without notice to or the consent of any Holder, may amend or supplement the Indenture to make any change that does not materially and adversely affect the rights of any Holder;
WHEREAS, the Company desires to amend and supplement the Indenture by way of adoption of the amendments set forth in this Supplemental Indenture; and
WHEREAS, the Company has duly authorized the execution and delivery of this Supplemental Indenture and all other things necessary to make the Indenture, as hereby supplemented and amended, a valid indenture and agreement according to its terms have been done;
NOW, THEREFORE,
For good and valuable consideration , the receipt and sufficiency of which are hereby acknowledged, and, in consideration of the premises and of the covenants contained in the Indenture, the parties hereto mutually covenant and agree as follows:
ARTICLE ONE
DEFINITIONS
Section 1.1 Use of Capitalized Terms. Except to the extent such terms are otherwise defined in this Supplemental Indenture or the context clearly requires otherwise, capitalized terms are used herein as defined in the Indenture.
ARTICLE TWO
AMENDMENTS TO INDENTURE
Section 2.1. Definitions. The definitions in Section 1.1 of the Indenture for the following terms are deleted in their entirety: “Company Notice,” “Company Notice Date,” “Market Price” and “Sale Price.”
Section 2.2. Redemption Provisions.
2
(a) Section 3.8 of the Indenture is hereby amended to read in its entirety as follows:
“ Section 3.8 Purchase of Securities at Option of the Holder.
(a) General . Securities shall be purchased by the Company pursuant to paragraph 4 of the Securities as of February 21, 2006, February 21, 2011 and February 21, 2016 (each, a “Purchase Date”), at the purchase price specified therein (each, a “Purchase Price”) at the option of the Holder thereof, upon:
(1) delivery to the Paying Agent by the Holder of a written notice of purchase (a “Purchase Notice”) at any time from the opening of business on the date that is 20 Business Days prior to a Purchase Date until the close of business on such Purchase Date, stating:
(A) if certificated Securities have been issued, the certificate number of the Security which the Holder will deliver to be purchased (or, if the Security is not certificated, such other identification necessary to comply with appropriate DTC procedures);
(B) the portion of the Principal of the Security which the Holder will deliver to be purchased, which portion must be $1,000 in Principal or a multiple thereof; and
(C) that such Security shall be purchased as of the Purchase Date pursuant to the terms and conditions specified in paragraph 4 of the Securities and the provisions of this Indenture; and
(2) delivery of such Security to the Paying Agent prior to, on or after the Purchase Date (together with all necessary endorsements) at the offices of the Paying Agent, such delivery being a condition to receipt by the Holder of the Purchase Price therefor; provided, however, that such Purchase Price shall be so paid pursuant to this Section 3.8 only if the Security so delivered to the Paying Agent shall conform in all respects to the description thereof in the related Purchase Notice.
The Company shall purchase from the Holder thereof, pursuant to this Section 3.8, a portion of a Security if the Principal of such portion is $1,000 or an integral multiple of $1,000. Provisions of this Indenture that apply to the purchase of all of a Security also apply to the purchase of such portion of such Security.
Any purchase by the Company contemplated pursuant to the provisions of this Section 3.8 shall be consummated by the delivery of the Cash (as defined below) to be received by the Holder promptly following the later of the Purchase Date and the time of delivery of the Security.
Notwithstanding anything herein to the contrary, any Holder delivering to the Paying Agent the Purchase Notice contemplated by this Section 3.8(a) shall have the right at any time prior to the close of business on the Purchase Date to withdraw such Purchase Notice by delivery of a written notice of withdrawal to the Paying Agent in accordance with Section 3.10.
The Paying Agent shall promptly notify the Company of the receipt by it of any Purchase Notice or written notice of withdrawal thereof.
(b) Company’s Manner of Payment of Purchase Price . The Company shall pay the aggregate Purchase Price in respect of the Securities in respect of which a Purchase Notice pursuant to Section 3.8(a) has been given, in U.S. legal tender (“Cash”).
3
(c) Purchase of Securities . The Purchase Price of Securities in respect of which a Purchase Notice pursuant to Section 3.8(a) has been given shall be paid by the Company with Cash equal to the aggregate Purchase price, or such specified percentage thereof, as the case may be, of such Securities.
(d) Procedure upon Purchase . On the Business Day following the Purchase Date, the Company shall deposit with the Paying Agent Cash (in respect of a Cash purchase under Section 3.8(c) or for fractional interests, as applicable), sufficient to pay the aggregate Purchase Price in respect of the Securities to be purchased pursuant to this Section 3.8.”
(b) The first parenthetical in the last paragraph of Section 3.10 of the Indenture is hereby deleted in its entirety.
Section 2.3 The Debentures. The second sentence of paragraph 4(a) of the Zero Coupon Convertible Senior Debentures due 2021 (the “Debentures”) is hereby deleted in its entirety and replaced with the following:
“Such Purchase Prices shall be paid in cash.”
Section 2.4 Terms of the Debentures. The terms of the Debentures authorized pursuant to and issued under the Indenture include the terms in this Supplemental Indenture and the Indenture as amended hereby. The Debentures are subject to all such terms and the Holders are referred to the Indenture as amended hereby for a statement of all such terms. To the extent permitted by applicable law, in the event of any inconsistency between the terms of the Debentures and the terms of the Indenture as amended hereby, the terms of the Indenture as amended hereby shall control.
Section 2.5 Deletion of Cross References. All references in the Indenture and the Debentures to the definitions of the Indenture deleted pursuant to Section 2.1 of this Supplemental Indenture are hereby deleted.
ARTICLE THREE
MISCELLANEOUS
Section 3.1. (a) Ratification of Indenture. As supplemented by this Supplemental Indenture, the Indenture is in all respects ratified and confirmed and the Indenture as so supplemented by this Supplemental Indenture shall be read, taken and construed as one and the same instrument.
(b) Conflict with Trust Indenture Act. If any provision hereof limits, qualifies or conflicts with another provision hereof which is required to be included in this Supplemental Indenture by any of the provisions of the Trust Indenture Act, such required provisions shall control.
(c) Effect of Headings. The article and section headings herein are included for convenience only and shall not affect the construction hereof.
(d) Counterparts. This Supplemental Indenture may be executed in any number of counterparts, each of which shall be an original, but such counterparts shall together constitute but one and the same instrument.
4
(e) Severability. In case any provision of this Supplemental Indenture shall be found invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby.
(f) Benefits of Supplemental Indenture. Nothing in this Supplemental Indenture, express or implied, shall give to any Person, other than the parties hereto and their successors hereunder and the Holders, any benefit or any legal or equitable right, remedy or claim under this Supplemental Indenture.
(g) Acceptance of Trusts. The Bank of New York hereby accepts the trusts in this Supplemental Indenture declared and provided, upon the terms and conditions set forth herein and in the Indenture.
(h) Governing Law. This Supplemental Indenture shall be deemed to be a contract made under the laws of the State of New York, and for all purposes shall be construed in accordance with the laws of said State.
5
IN WITNESS WHEREOF, the parties hereto have caused this Supplemental Indenture to be duly executed as of the day and year first above written.
|
|
ARROW ELECTRONICS, INC.,
as the Company |
|
|
|
||
|
|
By | /s/ Paul J. Reilly |
|
|
||
|
|
Name:
Title: |
Paul J. Reilly
Vice President and Chief Financial Officer |
|
|
||
|
|
THE BANK OF NEW YORK,
as Trustee |
|
|
|
||
|
|
By | /s/ Kisha A. Holder |
|
|
||
|
|
Name:
Title: |
Kisha A. Holder
Assistant Vice President |
6
Exhibit 10(d)
Arrow Electronics, Inc.
Table of Contents
| Page | ||||||
|
|
||||||
|
Article 1.
|
Establishment, Purpose, and Duration | A-2 | ||||
|
Article 2.
|
Definitions | A-2 | ||||
|
Article 3.
|
Administration | A-5 | ||||
|
Article 4.
|
Shares Subject to the Plan and Maximum Awards | A-6 | ||||
|
Article 5.
|
Eligibility and Participation | A-10 | ||||
|
Article 6.
|
Stock Options | A-10 | ||||
|
Article 7.
|
Stock Appreciation Rights | A-12 | ||||
|
Article 8.
|
Restricted Stock and Restricted Stock Units | A-14 | ||||
|
Article 9.
|
Performance Units/ Performance Shares | A-15 | ||||
|
Article 10.
|
Cash-Based Awards and Other Stock-Based Awards | A-16 | ||||
|
Article 11.
|
Performance Measures | A-17 | ||||
|
Article 12.
|
Covered Employee Annual Incentive Award | A-19 | ||||
|
Article 13.
|
Non-Employee Director Awards | A-19 | ||||
|
Article 14.
|
Dividend Equivalents | A-21 | ||||
|
Article 15.
|
Beneficiary Designation | A-22 | ||||
|
Article 16.
|
Deferrals | A-22 | ||||
|
Article 17.
|
Rights of Participants | A-22 | ||||
|
Article 18.
|
Corporate Events | A-23 | ||||
|
Article 19.
|
Amendment, Modification, Suspension, and Termination | A-23 | ||||
|
Article 20.
|
Withholding | A-24 | ||||
|
Article 21.
|
Successors | A-24 | ||||
|
Article 22.
|
General Provisions | A-24 | ||||
Arrow Electronics, Inc.
Article 1. Establishment, Purpose, and Duration
1.1 Establishment. Arrow Electronics, Inc., a New York corporation (hereinafter referred to as the “Company”), establishes an incentive compensation plan to be known as the 2004 Omnibus Incentive Plan (hereinafter referred to as the “Plan”), as set forth in this document.
The Plan permits the grant of Cash-Based Awards, Non-Qualified Stock Options, Incentive Stock Options, Stock Appreciation Rights, Restricted Stock, Restricted Stock Units, Performance Shares, Performance Units, Covered Employee Annual Incentive Awards, and Other Stock-Based Awards.
The Plan shall become effective upon shareholder approval (the “Effective Date”) and shall remain in effect as provided in Section 1.3 hereof.
1.2 Purpose of the Plan. The purpose of the Plan is to promote the interests of the Company and its shareholders by strengthening the Company’s ability to attract, motivate, and retain Employees and Directors of the Company upon whose judgment, initiative, and efforts the financial success and growth of the business of the Company largely depend, and to provide an additional incentive for such individuals through stock ownership and other rights that promote and recognize the financial success and growth of the Company and create value for shareholders. This Plan is intended to replace all Prior Plans.
1.3 Duration of the Plan. Unless sooner terminated as provided herein, the Plan shall terminate ten years from the Effective Date. After the Plan is terminated, no Awards may be granted but Awards previously granted shall remain outstanding in accordance with their applicable terms and conditions and the Plan’s terms and conditions. Notwithstanding the foregoing, no Incentive Stock Options may be granted more than ten years after the earlier of (a) adoption of the Plan by the Board, and (b) the Effective Date.
Article 2. Definitions
Whenever used in the Plan, the following terms shall have the meanings set forth below, and when the meaning is intended, the initial letter of the word shall be capitalized.
| 2.1 | “Affiliate” shall have the meaning ascribed to such term in Rule 12b-2 of the General Rules and Regulations of the Exchange Act. | |
| 2.2 | “Annual Award Limit” or “Annual Award Limits” have the meaning set forth in Section 4.3. | |
| 2.3 | “Award” means, individually or collectively, a grant under this Plan of Cash-Based Awards, Non-Qualified Stock Options, Incentive Stock Options, SARs, Restricted Stock, Restricted Stock Units, Performance Shares, Performance Units, Covered Employee Annual Incentive Awards, or Other Stock-Based Awards, in each case subject to the terms of this Plan. |
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| 2.4 | “Award Agreement” means either (i) a written agreement entered into by the Company and a Participant setting forth the terms and provisions applicable to an Award granted under this Plan, or (ii) a written statement issued by the Company to a Participant describing the terms and provisions of such Award. | |
| 2.5 | “Beneficial Owner” or “Beneficial Ownership” shall have the meaning ascribed to such term in Rule 13d-3 of the General Rules and Regulations under the Exchange Act. | |
| 2.6 | “Board” or “Board of Directors” means the Board of Directors of the Company. | |
| 2.7 | “Cash-Based Award” means an Award granted to a Participant as described in Article 10. | |
| 2.8 | “Code” means the U.S. Internal Revenue Code of 1986, as amended from time to time. | |
| 2.9 | “Committee” means the compensation committee of the Board or any other committee designated by the Board to administer this Plan. The members of the Committee shall be appointed from time to time and shall serve at the discretion of the Board. |
| 2.10 | “Company” means Arrow Electronics, Inc., a New York corporation, and any successor thereto as provided in Article 21 herein. | |
| 2.11 | “Covered Employee” means a Participant: (a) who is a “covered employee,” as defined in Code Section 162(m) and the regulations promulgated under Code Section 162(m), or any successor statute or (b) who the Committee determines could potentially become a covered employee during the lifetime of an Award. | |
| 2.12 | “Covered Employee Annual Incentive Award” means an Award granted to a Covered Employee as described in Article 12. | |
| 2.13 | “Director” means any individual who is a member of the Board of Directors of the Company. | |
| 2.14 | “Disability” means total and permanent disability as determined by the Committee. | |
| 2.15 | “Effective Date” has the meaning set forth in Section 1.1. | |
| 2.16 | “Employee” means any employee of the Company, its Affiliates, and/or Subsidiaries. | |
| 2.17 | “Exchange Act” means the Securities Exchange Act of 1934, as amended from time to time, or any successor act thereto. | |
| 2.18 | “Fair Market Value” or “FMV” means a price that is based on the opening, closing, actual, high, low, or average selling prices of a Share on the New York Stock Exchange (“NYSE”) or other established stock exchange (or exchanges) on the applicable date, the preceding trading days, the next succeeding trading day, or an average of trading days, as determined by the Committee in its discretion. Such definition(s) of FMV shall be determined by the Committee at its discretion. If, however, the required accounting standards used to account for equity Awards granted to Participants are substantially modified subsequent to the Effective Date of the Plan such that fair value accounting for such Awards becomes required, the Committee shall have the ability to determine an Award’s FMV based on the relevant facts and circumstances. If Shares are not traded on an established stock exchange, FMV shall be determined by the Committee based on objective criteria. |
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| 2.19 | “Full Value Award” means an Award other than in the form of an ISO, NQSO, or SAR, and which is settled by the issuance of Shares. | |
| 2.20 | “Freestanding SAR” means a SAR that is granted independently of any Options, as described in Article 7. | |
| 2.21 | “Grant Price” means the price established at the time of grant of a SAR pursuant to Article 7, used to determine whether there is any payment due upon exercise of the SAR. | |
| 2.22 | “Incentive Stock Option” or “ISO” means an Option to purchase Shares granted under Article 6 to an Employee and that is designated as an Incentive Stock Option and that is intended to meet the requirements of Code Section 422, or any successor provision. | |
| 2.23 | “Insider” shall mean an individual who is, on the relevant date, an officer, Director, or more than ten percent (10%) Beneficial Owner of any class of the Company’s equity securities that is registered pursuant to Section 12 of the Exchange Act, as determined by the Board in accordance with Section 16 of the Exchange Act. | |
| 2.24 | “Non-Employee Director” means a Director who is not an Employee. | |
| 2.25 | “Non-Employee Director Award” means any NQSO, SAR, or Full Value Award granted, whether singly, in combination, or in tandem, to a Participant who is a Non-Employee Director pursuant to such applicable terms, conditions, and limitations as the Board may establish in accordance with this Plan. | |
| 2.26 | “Non-Qualified Stock Option” or “NQSO” means an Option that is not intended to meet the requirements of Code Section 422, or that otherwise does not meet such requirements. | |
| 2.27 | “Option” means an Incentive Stock Option or a Non-Qualified Stock Option, as described in Article 6. | |
| 2.28 | “Option Price” means the price at which a Share may be purchased by a Participant pursuant to an Option. | |
| 2.29 | “Other Stock-Based Award” means an equity-based or equity-related Award not otherwise described by the terms of this Plan, granted pursuant to Article 10. | |
| 2.30 | “Participant” means any eligible person as set forth in Article 5 to whom an Award is granted. | |
| 2.31 | “Performance-Based Compensation” means compensation under an Award that satisfies the requirements of Section 162(m) of the Code for deductibility of remuneration paid to Covered Employees. | |
| 2.32 | “Performance Measures” means measures as described in Article 11 on which the performance goals are based and which are approved by the Company’s shareholders pursuant to this Plan in order to qualify Awards as Performance-Based Compensation. | |
| 2.33 | “Performance Period” means the period of time during which the performance goals must be met in order to determine the degree of payout and/or vesting with respect to an Award. |
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| 2.34 | “Performance Share” means an Award granted to a Participant, as described in Article 9. | |
| 2.35 | “Performance Unit” means an Award granted to a Participant, as described in Article 9. | |
| 2.36 | “Period of Restriction” means the period when Restricted Stock or Restricted Stock Units are subject to a substantial risk of forfeiture (based on the passage of time, the achievement of performance goals, or upon the occurrence of other events as determined by the Committee, in its discretion), as provided in Article 8. | |
| 2.37 | “Person” shall have the meaning ascribed to such term in Section 3(a)(9) of the Exchange Act and used in Sections 13(d) and 14(d) thereof, including a “group” as defined in Section 13(d) thereof. | |
| 2.38 | “Plan” means the Arrow Electronics, Inc. 2004 Omnibus Incentive Plan. | |
| 2.39 | “Plan Year” means the calendar year. | |
| 2.40 | “Prior Plans” means the Company’s Arrow Electronics, Inc. Stock Option Plan, as amended and restated effective as of February 27, 2002, the Arrow Electronics, Inc. Restricted Stock Plan, as amended and restated effective as of February 27, 2002, the Arrow Electronics, Inc. 2002 Non-Employee Directors Stock Option Plan, and the Non-Employee Directors Deferral Plan. | |
| 2.41 | “Restricted Stock” means an Award granted to a Participant pursuant to Article 8. | |
| 2.42 | “Restricted Stock Unit” means an Award granted to a Participant pursuant to Article 8, except no Shares are actually awarded to the Participant on the date of grant. | |
| 2.43 | “Share” means a Share of common stock of the Company, $1.00 par value per Share. | |
| 2.44 | “Stock Appreciation Right” or “SAR” means an Award, designated as a SAR, pursuant to the terms of Article 7 herein. | |
| 2.45 | “Subsidiary” means any corporation or other entity, whether domestic or foreign, in which the Company has or obtains, directly or indirectly, a proprietary interest of more than fifty percent (50%) by reason of stock ownership or otherwise. | |
| 2.46 | “Tandem SAR” means a SAR that is granted in connection with a related Option pursuant to Article 7 herein, the exercise of which shall require forfeiture of the right to purchase a Share under the related Option (and when a Share is purchased under the Option, the Tandem SAR shall similarly be canceled). | |
| 2.47 | “Third Party Service Provider” means any consultant, agent, advisor, or independent contractor who renders services to the Company, a Subsidiary, or an Affiliate that (a) are not in connection with the offer and sale of the Company’s securities in a capital raising transaction, and (b) do not directly or indirectly promote or maintain a market for the Company’s securities. |
Article 3. Administration
3.1 General. The Committee shall be responsible for administering the Plan, subject to this Article 3 and the other provisions of the Plan. The Committee may employ attorneys, consultants,
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3.2 Authority of the Committee. Subject to the terms of the Plan, the Committee shall have full and exclusive discretionary power to interpret the terms and the intent of the Plan and any Award Agreement or other agreement or document ancillary to or in connection with the Plan, to determine eligibility for Awards and to adopt such rules, regulations, forms, instruments, and guidelines for administering the Plan as the Committee may deem necessary or proper. Such authority shall include, but not be limited to, selecting Award recipients, establishing all Award terms and conditions, including the terms and conditions set forth in Award Agreements, and, subject to Article 19, adopting modifications and amendments to the Plan or any Award Agreement, including without limitation, any that are necessary to comply with the laws of the countries and other jurisdictions in which the Company, its Affiliates, and/or its Subsidiaries operate.
3.3 Delegation. The Committee may delegate to one or more of its members or to one or more officers of the Company, and/or its Subsidiaries and Affiliates or to one or more agents or advisors such administrative duties or powers as it may deem advisable, and the Committee or any person to whom it has delegated duties or powers as aforesaid may employ one or more persons to render advice with respect to any responsibility the Committee or such person may have under the Plan. The Committee may, by resolution, authorize one or more officers of the Company to do any of the following on the same basis as can the Committee: (a) designate Employees to be recipients of Awards; (b) designate Third Party Service Providers to be recipients of Awards; and (c) determine the size of any such Awards. The Committee shall not delegate such responsibilities with respect to Awards granted to an officer who is considered an Insider or Covered Employee. The resolution providing for such delegation shall set forth the total number of Awards such officer(s) may grant; and, the officer(s) shall report periodically to the Committee regarding the nature and scope of the Awards granted pursuant to the authority delegated.
Article 4. Shares Subject to the Plan and Maximum Awards
4.1 Number of Shares Available for Awards.
| (a) | Subject to adjustment as provided in Section 4.4 herein, the maximum number of Shares available for issuance to Participants under the Plan (the “Share Authorization”) shall be: |
| (i) | Four million ninety six thousand eight hundred sixty nine (4,096,869) Shares; plus | |
| (ii) | (a) four million two hundred three thousand one hundred thirty one (4,203,131) authorized Shares not issued or subject to outstanding awards under the Company’s Prior Plans as of the Effective Date and (b) any Shares subject to the eleven million three hundred sixty two thousand six hundred forty five (11,362,645) outstanding awards as of the Effective Date under the Prior Plans that on or after the Effective Date cease for any reason to be subject to such awards (other than by reason of |
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| exercise or settlement of the awards to the extent they are exercised for or settled in vested and non-forfeitable Shares). |
| (b) | To the extent that a Share is issued pursuant to the grant or exercise of a Full Value Award, it shall reduce the Share Authorization by 1.69 Shares; and, to the extent that a Share is issued pursuant to the grant or exercise of an Award other than a Full Value Award, it shall reduce the Share Authorization by one (1) Share. | |
| (c) | Subject to adjustment as provided in Section 4.4, and subject to the limit set forth in Section 4.1(a) on the number of Shares that may be issued in the aggregate under the Plan, and in order to comply with the requirements of Section 422 of the Code and the regulations thereunder, the maximum number of Shares available for issuance pursuant to ISOs and NQSOs shall be: |
| (i) | Eight million three hundred thousand (8,300,000) Shares that may be issued pursuant to Awards in the form of ISOs, plus a number of shares equal to the number of shares subject to outstanding awards under the Prior Plans as of the Effective Date that thereafter cease for any reason to be subject to such awards (other than by reason of exercise or settlement of the awards to the extent they are exercised for or settled in vested and non-forfeitable Shares) up to a maximum of eleven million three hundred sixty two thousand six hundred forty five (11,362,645); and | |
| (ii) | Eight million three hundred thousand (8,300,000) Shares that may be issued pursuant to Awards in the form of NQSOs, plus a number of shares equal to the number of shares subject to outstanding awards under the Prior Plans as of the Effective Date that thereafter cease for any reason to be subject to such awards (other than by reason of exercise or settlement of the awards to the extent they are exercised for or settled in vested and non-forfeitable Shares) up to a maximum of eleven million three hundred sixty two thousand six hundred forty five (11,362,645). |
| (d) | Subject to adjustment in Section 4.4 and subject to the limit set forth in Section 4.1(a) on the number of Shares that may be issued in the aggregate under the Plan, the maximum number of shares that may be issued to Non-Employee Directors shall be four hundred thousand (400,000) Shares, and no Non-Employee Director may be granted an award covering more than twenty thousand (20,000) Shares in any Plan Year, except that this annual limit on Non-Employee Director Awards shall be increased to forty thousand (40,000) Shares for any Non-Employee Director serving as Chairman of the Board; provided, however, that in the Plan Year in which an individual is first appointed or elected to the Board as a Non-Employee Director, such individual may be granted an Award covering no more than an additional forty thousand (40,000) Shares (a “New Non-Employee Director Award”). | |
| (e) | Except with respect to a maximum of five percent (5%) of the Shares authorized in Section 4.1(a), any Full Value Awards, which vest on the basis of the Participant’s employment with or provision of service to the Company, shall not provide for vesting which is any more rapid than annual pro rata vesting over a three (3) year period, and any Full Value Awards which vest upon the attainment of performance goals, shall provide for a performance period of at least twelve (12) months. |
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4.2 Share Usage.
| (a) | Shares covered by an Award shall only be counted as used to the extent they are actually issued and delivered to a Participant, or, if permitted by the Committee, a Participant’s designated transferee. Any Shares related to Awards which terminate by expiration, forfeiture, cancellation, or otherwise without the issuance of such Shares, are settled in cash in lieu of Shares, or are exchanged with the Committee’s permission, prior to the issuance of Shares, for Awards not involving Shares, shall be available again for grant under the Plan. Moreover, if the Option Price of any Option granted under the Plan or the tax withholding requirements with respect to any Award granted under the Plan are satisfied by tendering Shares to the Company (by either actual delivery or by attestation), or if a SAR is exercised, only the number of Shares issued, net of the Shares tendered, if any, will be deemed delivered for purposes of determining the maximum number of Shares available for delivery under the Plan. The maximum number of Shares available for issuance under the Plan shall not be reduced to reflect any dividends or dividend equivalents that are reinvested into additional Shares or credited as additional Restricted Stock, Restricted Stock Units, Performance Shares, or Stock-Based Awards. The Shares available for issuance under the Plan may be authorized and unissued Shares or treasury Shares. | |
| (b) | The Committee shall have the authority to grant Awards as an alternative to or as the form of payment for grants or rights earned or due under other compensation plans or arrangements of the Company. |
4.3 Annual Award Limits. The following limits (each an “Annual Award Limit” and, collectively, “Annual Award Limits”) shall apply to grants of Awards under the Plan:
| (a) | Options : The maximum aggregate number of Shares that may be granted in the form of Options, pursuant to all Awards of such type granted in any one Plan Year to any one Participant shall be five hundred thousand (500,000), plus the amount of the Participant’s unused applicable Annual Award Limit for Options as of the close of the previous Plan Year. | |
| (b) | SARs : The maximum number of Shares that may be granted in the form of Stock Appreciation Rights, pursuant to all Awards of such type granted in any one Plan Year to any one Participant shall be five hundred thousand (500,000), plus the amount of the Participant’s unused applicable Annual Award Limit for SARs as of the close of the previous Plan Year. | |
| (c) | Restricted Stock or Restricted Stock Units : The maximum aggregate grant with respect to Awards of Restricted Stock or Restricted Stock Units granted in any one Plan Year to any one Participant shall be five hundred thousand (500,000), plus the amount of the Participant’s unused applicable Annual Award Limit for Restricted Stock or Restricted Stock Units as of the close of the previous Plan Year. | |
| (d) | Performance Units or Performance Shares : The maximum aggregate Award of Performance Units or Performance Shares that a Participant may receive in any one Plan Year shall be five hundred thousand (500,000) Shares, or equal to the value of five hundred thousand (500,000) Shares determined as of the date of vesting or payout, as |
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| applicable, plus the amount of the Participant’s unused applicable Annual Award Limit for Performance Units or Performance Shares as of the close of the previous Plan Year. | ||
| (e) | Cash-Based Awards : The maximum aggregate amount awarded or credited with respect to Cash-Based Awards to any one Participant in any one Plan Year may not exceed the value of five million dollars ($5,000,000) determined as of the date of vesting or payout, as applicable, plus the amount of the Participant’s unused applicable Annual Award Limit for Cash-Based Awards as of the close of the previous Plan Year. | |
| (f) | Covered Employee Annual Incentive Award. The maximum aggregate amount awarded or credited with respect to Covered Employee Annual Incentive Awards to any one Participant in any one Plan year may not exceed the value of five million dollars ($5,000,000) determined as of the date of vesting or payout, as applicable, plus the amount of the Participant’s unused applicable Annual Award Limit for Covered Employee Annual Incentive Awards as of the close of the previous Plan Year. | |
| (g) | Other Stock-Based Awards. The maximum aggregate grant with respect to other Stock-Based Awards pursuant to Section 10.2 granted in any one Plan Year to any one Participant shall be five hundred thousand (500,000), plus the amount of the Participant’s unused applicable Annual Award Limit for Other Stock-Based Awards as of the close of the previous Plan Year. |
4.4 Adjustments in Authorized Shares . In the event of any corporate event or transaction (including, but not limited to, a change in the Shares of the Company or the capitalization of the Company) such as a merger, consolidation, reorganization, recapitalization, separation, stock dividend, stock split, reverse stock split, split up, spin-off, or other distribution of stock or property of the Company, combination of Shares, exchange of Shares, dividend in kind, or other like change in capital structure or distribution (other than normal cash dividends) to shareholders of the Company, or any similar corporate event or transaction, the Committee, in its sole discretion, in order to prevent dilution or enlargement of Participants’ rights under the Plan, shall substitute or adjust, as applicable, the number and kind of Shares that may be issued under the Plan or under particular forms of Awards, the number and kind of Shares subject to outstanding Awards, the Option Price or Grant Price applicable to outstanding Awards, the Annual Award Limits, and other value determinations applicable to outstanding Awards.
The Committee, in its sole discretion, also may make appropriate adjustments in the terms of any Awards under the Plan to reflect or related to such changes or distributions and to modify any other terms of outstanding Awards, including modifications of performance goals and changes in the length of Performance Periods. The determination of the Committee as to the foregoing adjustments, if any, shall be conclusive and binding on Participants under the Plan.
Subject to the provisions of Article 19, without affecting the number of Shares reserved or available hereunder or the number or types of options that may be granted hereunder, the Committee may authorize the issuance or assumption of awards under this Plan in connection with any merger, consolidation, acquisition of property or stock or reorganization upon such terms and conditions as it may deem appropriate; provided, however, that, subject to adjustment as provided above, the maximum amount of Shares with respect to which ISOs, NQSOs and/or other Awards may be granted under this paragraph is as set forth in section 4.1 (c) hereof.
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Article 5. Eligibility and Participation
5.1 Eligibility . Individuals eligible to participate in this Plan include all Employees, Directors, and Third Party Service Providers.
5.2 Actual Participation . Subject to the provisions of the Plan, the Committee may, from time to time, select from all eligible individuals, those to whom Awards shall be granted and shall determine, in its sole discretion, the nature of, any and all terms permissible by law, and the amount of each Award, except that in the case of Non-Employee Directors, such determinations shall be made by the Board pursuant to Section 13.1.
Article 6. Stock Options
6.1 Grant of Options . Subject to the terms and provisions of the Plan, Options may be granted to Participants in such number, and upon such terms, and at any time and from time to time as shall be determined by the Committee, in its sole discretion; provided that ISOs may be granted only to eligible employees of the Company or of any parent or subsidiary corporation (as permitted by Section 422 of the Code and the regulations thereunder).
6.2 Award Agreement . Each Option grant shall be evidenced by an Award Agreement that shall specify the Option Price, the maximum duration of the Option, the number of Shares to which the Option pertains, the conditions upon which an Option shall become vested and exercisable, and such other provisions as the Committee shall determine which are not inconsistent with the terms of the Plan. The Award Agreement also shall specify whether the Option is intended to be an ISO or a NQSO.
6.3 Option Price . The Option Price for each grant of an Option under this Plan shall be as determined by the Committee and shall be specified in the Award Agreement; provided, however, the Option Price shall not be less than one hundred percent (100%) of the Fair Market Value of a Share on the date the Option is granted.
6.4 Duration of Options . Each Option granted to a Participant shall expire at such time as the Committee shall determine at the time of grant; provided, however, no Option shall be exercisable later than the tenth (10th) anniversary date of its grant. Notwithstanding the foregoing, for Options granted to Participants outside the United States, the Committee has the authority to grant Options that have a term greater than ten (10) years.
6.5 Exercise of Options . Options granted under this Article 6 shall be exercisable at such times and be subject to such restrictions and conditions as the Committee shall in each instance approve, which terms and restrictions need not be the same for each grant or for each Participant.
6.6 Payment . Options granted under this Article 6 shall be exercised by the delivery of a notice of exercise to the Company or an agent designated by the Company in a form specified or accepted by the Committee, or by complying with any alternative procedures which may be authorized by the Committee, setting forth the number of Shares with respect to which the Option is to be exercised, accompanied by full payment for the Shares.
A condition of the issuance of the Shares as to which an Option shall be exercised shall be the payment of the Option Price. The Option Price of any Option shall be payable to the Company in full either: (a) in cash or its equivalent; (b) by tendering (either by actual delivery or attestation)
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Subject to any governing rules or regulations, as soon as practicable after receipt of written notification of exercise and full payment (including satisfaction of any applicable tax withholding), the Company shall deliver to the Participant evidence of book entry Shares, or upon the Participant’s request, Share certificates in an appropriate amount based upon the number of Shares purchased under the Option(s).
Unless otherwise determined by the Committee, all payments under all of the methods indicated above shall be paid in United States dollars.
6.7 Restrictions on Share Transferability . The Committee may impose such restrictions on any Shares acquired pursuant to the exercise of an Option granted under this Article 6 as it may deem advisable, including, without limitation, minimum holding period requirements, restrictions under applicable federal securities laws, under the requirements of any stock exchange or market upon which such Shares are then listed and/or traded, or under any blue sky or state securities laws applicable to such Shares.
6.8 Termination of Employment . Each Participant’s Award Agreement shall set forth the extent to which the Participant shall have the right to exercise the Option following termination of the Participant’s employment or provision of services to the Company, its Affiliates, or its Subsidiaries, as the case may be. Such provisions shall be determined in the sole discretion of the Committee, shall be included in the Award Agreement entered into with each Participant, need not be uniform among all Options issued pursuant to this Article 6, and may reflect distinctions based on the reasons for termination.
6.9 Transferability of Options .
| (a) | Incentive Stock Options . No ISO granted under the Plan may be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated, other than by will or by the laws of descent and distribution. Further, all ISOs granted to a Participant under this Article 6 shall be exercisable during his or her lifetime only by such Participant. | |
| (b) | Non-Qualified Stock Options . Except as otherwise provided in a Participant’s Award Agreement or otherwise determined at any time by the Committee, no NQSO granted under this Article 6 may be sold, assigned, or otherwise alienated or hypothecated, other than by will or by the laws of descent and distribution; provided that the Board or Committee may permit further transferability, on a general or a specific basis, and may impose conditions and limitations on any permitted transferability. Further, except as otherwise provided in a Participant’s Award Agreement or otherwise determined at any time by the Committee, or unless the Board or Committee decides to permit further transferability, all NQSOs granted to a Participant under this Article 6 shall be exercisable during his or her lifetime only by such Participant. With respect to those NQSOs, if any, that are permitted to be transferred to another person, references in the Plan to exercise or payment of the Option Price |
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| by the Participant shall be deemed to include, as determined by the Committee, the Participant’s permitted transferee. |
6.10 Notification of Disqualifying Disposition . If any Participant shall make any disposition of Shares issued pursuant to the exercise of an ISO under the circumstances described in Section 421(b) of the Code (relating to certain disqualifying dispositions), such Participant shall notify the Company of such disposition within ten (10) days thereof.
6.11 Substituting SARs . In the event the Company no longer uses APB Opinion 25 to account for equity compensation and is required to or elects to expense the cost of Options pursuant to FAS 123 (or a successor standard), the Committee shall have the ability to substitute, without receiving Participant permission, SARs paid only in Stock (or SARs paid in Stock or cash at the Committee’s discretion) for outstanding Options; provided, the terms of the substituted Stock SARs are substantially equivalent to the terms for the Options and the excess of the Fair Market Value of the underlying Shares over the aggregate Grant Price of the SARs is equivalent to the excess of the Fair Market Value of the underlying Shares over the aggregate Option Price of the Options. If this provision creates adverse accounting consequences for the Company, it shall be considered void by the Committee.
Article 7. Stock Appreciation Rights
7.1 Grant of SARs . Subject to the terms and conditions of the Plan, SARs may be granted to Participants at any time and from time to time as shall be determined by the Committee. The Committee may grant Freestanding SARs, Tandem SARs, or any combination of these forms of SARs.
Subject to the terms and conditions of the Plan, the Committee shall have complete discretion in determining the number of SARs granted to each Participant and, consistent with the provisions of the Plan, in determining the terms and conditions pertaining to such SARs.
The Grant Price for each grant of a Freestanding SAR shall be determined by the Committee and shall be specified in the Award Agreement. The Grant Price may be based on one hundred percent (100%) of the FMV of the Shares on the date of grant, set at a premium to the FMV of the Shares on the date of grant, or indexed to the FMV of the Shares on the date of grant, with the index determined by the Committee, in its discretion. The Grant Price of Tandem SARs shall be equal to the Option Price of the related Option.
7.2 SAR Agreement . Each SAR Award shall be evidenced by an Award Agreement that shall specify the Grant Price, the term of the SAR, and such other provisions as the Committee shall determine.
7.3 Term of SAR . The term of a SAR granted under the Plan shall be determined by the Committee, in its sole discretion, and except as determined otherwise by the Committee and specified in the SAR Award Agreement, no SAR shall be exercisable later than the tenth (10th) anniversary date of its grant. Notwithstanding the foregoing, for SARs granted to Participants outside the United States, the Committee has the authority to grant SARs that have a term greater than ten (10) years.
7.4 Exercise of Freestanding SARs . Freestanding SARs may be exercised upon whatever terms and conditions the Committee, in its sole discretion, imposes.
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7.5. Exercise of Tandem SARs . Tandem SARs may be exercised for all or part of the Shares subject to the related Option upon the surrender of the right to exercise the equivalent portion of the related Option. A Tandem SAR may be exercised only with respect to the Shares for which its related Option is then exercisable.
Notwithstanding any other provision of this Plan to the contrary, with respect to a Tandem SAR granted in connection with an ISO: (a) the Tandem SAR will expire no later than the expiration of the underlying ISO; (b) the value of the payout with respect to the Tandem SAR may be for no more than one hundred percent (100%) of the excess of the Fair Market Value of the Shares subject to the underlying ISO over the aggregate Option Price of the Shares subject to the underlying ISO at the time the Tandem SAR is exercised; and (c) the Tandem SAR may be exercised only when the Fair Market Value of the Shares subject to the ISO exceeds the aggregate Option Price of the ISO.
7.6 Payment of SAR Amount. Upon the exercise of a SAR, a Participant shall be entitled to receive payment from the Company in an amount determined by multiplying:
| (a) | The excess of the Fair Market Value of a Share on the date of exercise over the Grant Price; by | |
| (b) | The number of Shares with respect to which the SAR is exercised. |
At the discretion of the Committee, the payment upon SAR exercise may be in cash, Shares, or any combination thereof, or in any other manner approved by the Committee in its sole discretion. The Committee’s determination regarding the form of SAR payout shall be set forth in the Award Agreement pertaining to the grant of the SAR.
7.7 Termination of Employment. Each Award Agreement shall set forth the extent to which the Participant shall have the right to exercise the SAR following termination of the Participant’s employment with or provision of services to the Company, its Affiliates, and/or its Subsidiaries, as the case may be. Such provisions shall be determined in the sole discretion of the Committee, shall be included in the Award Agreement entered into with Participants, need not be uniform among all SARs issued pursuant to the Plan, and may reflect distinctions based on the reasons for termination.
7.8 Non-Transferability of SARs. Except as otherwise provided in a Participant’s Award Agreement or otherwise at any time by the Committee, no SAR granted under the Plan may be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated, other than by will or by the laws of descent and distribution. Further, except as otherwise provided in a Participant’s Award Agreement or otherwise at any time by the Committee, all SARs granted to a Participant under the Plan shall be exercisable during his or her lifetime only by such Participant. With respect to those SARs, if any, that are permitted to be transferred to another person, references in the Plan to exercise of the SAR by the Participant or payment of any amount to the Participant shall be deemed to include, as determined by the Committee, the Participant’s permitted transferee.
7.9 Other Restrictions. The Committee shall impose such other conditions and/or restrictions on any Shares received upon exercise of a SAR granted pursuant to the Plan as it may deem advisable or desirable. These restrictions may include, but shall not be limited to, a requirement that the Participant hold the Shares received upon exercise of a SAR for a specified period of time.
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Article 8. Restricted Stock and Restricted Stock Units
8.1 Grant of Restricted Stock or Restricted Stock Units. Subject to the terms and provisions of the Plan, the Committee, at any time and from time to time, may grant Shares of Restricted Stock and/or Restricted Stock Units to Participants in such amounts as the Committee shall determine. Restricted Stock Units shall be similar to Restricted Stock except that no Shares are actually awarded to the Participant on the date of grant.
8.2 Restricted Stock or Restricted Stock Unit Agreement. Each Restricted Stock and/or Restricted Stock Unit grant shall be evidenced by an Award Agreement that shall specify the Period(s) of Restriction, the number of Shares of Restricted Stock or the number of Restricted Stock Units granted, and such other provisions as the Committee shall determine.
8.3 Transferability. Except as provided in this Plan or an Award Agreement, the Shares of Restricted Stock and/or Restricted Stock Units granted herein may not be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated until the end of the applicable Period of Restriction established by the Committee and specified in the Award Agreement (and in the case of Restricted Stock Units until the date of delivery or other payment), or upon earlier satisfaction of any other conditions, as specified by the Committee, in its sole discretion, and set forth in the Award Agreement or otherwise at any time by the Committee. All rights with respect to the Restricted Stock and/or Restricted Stock Units granted to a Participant under the Plan shall be available during his or her lifetime only to such Participant, except as otherwise provided in an Award Agreement or at any time by the Committee.
8.4 Other Restrictions. The Committee shall impose such other conditions and/or restrictions on any Shares of Restricted Stock or Restricted Stock Units granted pursuant to the Plan as it may deem advisable including, without limitation, a requirement that Participants pay a stipulated purchase price for each Share of Restricted Stock or each Restricted Stock Unit, restrictions based upon the achievement of specific performance goals, time-based restrictions on vesting following the attainment of the performance goals, time-based restrictions, and/or restrictions under applicable laws or under the requirements of any stock exchange or market upon which such Shares are listed or traded, or holding requirements or sale restrictions placed on the Shares by the Company upon vesting of such Restricted Stock or Restricted Stock Units. In the case of Restricted Stock and/or Restricted Stock Units granted to Covered Employees which awards are intended to constitute Performance Based Compensation the applicable performance goal(s) for such Awards shall be selected from those listed in Article 11.
To the extent deemed appropriate by the Committee, the Company may retain the certificates representing Shares of Restricted Stock in the Company’s possession until such time as all conditions and/or restrictions applicable to such Shares have been satisfied or lapse.
Except as otherwise provided in this Article 8 or under applicable law, Shares of Restricted Stock covered by each Restricted Stock Award shall become freely transferable by the Participant after all conditions and restrictions applicable to such Shares have been satisfied or lapse (including satisfaction of any applicable tax withholding obligations), and Restricted Stock Units shall be paid in cash, Shares, or a combination of cash and Shares as the Committee, in its sole discretion shall determine.
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8.5 Certificate Legend. In addition to any legends placed on certificates pursuant to Section 8.4, each certificate representing Shares of Restricted Stock granted pursuant to the Plan may bear a legend such as the following or as otherwise determined by the Committee in its sole discretion:
The sale or transfer of Shares of stock represented by this certificate, whether voluntary, involuntary, or by operation of law, is subject to certain restrictions on transfer as set forth in the Arrow Electronics, Inc. 2004 Omnibus Incentive Plan, and in the associated Award Agreement. A copy of the Plan and such Award Agreement may be obtained from Arrow Electronics, Inc.
8.6 Voting Rights. Unless otherwise determined by the Committee and set forth in a Participant’s Award Agreement, to the extent permitted or required by law, as determined by the Committee, Participants holding Shares of Restricted Stock granted hereunder may be granted the right to exercise full voting rights with respect to those Shares during the Period of Restriction. There shall be no voting rights with respect to any Restricted Stock Units granted hereunder.
8.7 Termination of Employment. Each Award Agreement shall set forth the extent to which the Participant shall have the right to retain Restricted Stock and/or Restricted Stock Units following termination of the Participant’s employment with or provision of services to the Company, its Affiliates, and/or its Subsidiaries, as the case may be. Such provisions shall be determined in the sole discretion of the Committee, shall be included in the Award Agreement entered into with each Participant, need not be uniform among all Awards of Restricted Stock or Restricted Stock Units granted pursuant to the Plan, and may reflect distinctions based on the reasons for termination.
8.8 Section 83(b) Election. The Committee may provide in an Award Agreement that the Award of Restricted Stock is conditioned upon the Participant making or refraining from making an election with respect to the Award under Section 83(b) of the Code. If a Participant makes an election pursuant to Section 83(b) of the Code concerning a Restricted Stock Award, the Participant shall be required to file promptly a copy of such election with the Company.
Article 9. Performance Units/ Performance Shares
9.1 Grant of Performance Units/ Performance Shares. Subject to the terms and provisions of the Plan, the Committee, at any time and from time to time, may grant Performance Units and/or Performance Shares to Participants in such amounts and upon such terms as the Committee shall determine.
9.2 Value of Performance Units/ Performance Shares. Each Performance Unit shall have an initial value that is established by the Committee at the time of grant. Each Performance Share shall have an initial value equal to the Fair Market Value of a Share on the date of grant. The Committee shall set performance goals in its discretion which, depending on the extent to which they are met, will determine the value and/or number of Performance Units/ Performance Shares that will be paid out to the Participant. In the case of Performance Units and or Performance Shares granted to Covered Employees which awards are intended to constitute Performance Based Compensation the applicable performance goal(s) for such Awards shall be selected from those listed in Article 11.
9.3 Earning of Performance Units/ Performance Shares. Subject to the terms of this Plan, after the applicable Performance Period has ended, the holder of Performance Units/ Performance Shares shall be entitled to receive payout on the value and number of Performance Units/
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9.4 Form and Timing of Payment of Performance Units/ Performance Shares. Payment of earned Performance Units/ Performance Shares shall be as determined by the Committee and as evidenced in the Award Agreement. Subject to the terms of the Plan, the Committee, in its sole discretion, may pay earned Performance Units/ Performance Shares in the form of cash or in Shares (or in a combination thereof) equal to the value of the earned Performance Units/ Performance Shares at the close of the applicable Performance Period, or as soon as practicable after the end of the Performance Period. Any Shares may be granted subject to any restrictions deemed appropriate by the Committee and as evidenced in the Award Agreement. The determination of the Committee with respect to the form of payout of such Awards and restrictions shall be set forth in the Award Agreement pertaining to the grant of the Award.
9.5 Dividends and Other Distributions. At the discretion of the Committee, Participants holding Performance Shares may be entitled to receive dividend equivalents with respect to dividends declared with respect to the Shares. Such dividend equivalents may be in the form of cash, Shares, Restricted Stock, or Restricted Stock Units and may be subject to such accrual, forfeiture, or payout restrictions as determined by the Committee in its sole discretion and as evidenced in the Award Agreement.
9.6 Termination of Employment. Each Award Agreement shall set forth the extent to which the Participant shall have the right to retain Performance Units and/or Performance Shares following termination of the Participant’s employment with or provision of services to the Company, its Affiliates, and/or its Subsidiaries, as the case may be. Such provisions shall be determined in the sole discretion of the Committee, shall be included in the Award Agreement entered into with each Participant, need not be uniform among all Awards of Performance Units or Performance Shares issued pursuant to the Plan, and may reflect distinctions based on the reasons for termination.
9.7 Non-Transferability. Except as otherwise provided in a Participant’s Award Agreement or otherwise determined at any time by the Committee, Performance Units/ Performance Shares may not be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated, other than by will or by the laws of descent and distribution. Further, except as otherwise provided in a Participant’s Award Agreement or otherwise determined at any time by the Committee, a Participant’s rights under the Plan shall be exercisable during his or her lifetime only by such Participant.
Article 10. Cash-Based Awards and Other Stock-Based Awards
10.1 Grant of Cash-Based Awards. Subject to the terms and provisions of the Plan, the Committee, at any time and from time to time, may grant Cash-Based Awards to Participants in such amounts and upon such terms as the Committee may determine.
10.2 Other Stock-Based Awards. The Committee may grant other types of equity-based or equity-related Awards not otherwise described by the terms of this Plan (including the grant or offer for sale of unrestricted Shares) in such amounts and subject to such terms and conditions, as the Committee shall determine. Such Awards may involve the transfer of actual Shares to Participants, or payment in cash or otherwise of amounts based on the value of Shares and may include, without limitation, Awards designed to comply with or take advantage of the applicable local laws of jurisdictions other than the United States.
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10.3 Value of Cash-Based and Other Stock-Based Awards. Each Cash-Based Award shall specify a payment amount or payment range as determined by the Committee. Each Other Stock-Based Award shall be expressed in terms of Shares or units based on Shares, as determined by the Committee. The Committee may establish performance goals in its discretion. If the Committee exercises its discretion to establish performance goals, the number and/or value of Cash-Based Awards or Other Stock-Based Awards that will be paid out to the Participant will depend on the extent to which the performance goals are met. In the case of Cash-Based Awards and/or Other Stock-Based Awards granted to Covered Employees which Awards are intended to constitute Performance Based Compensation the applicable performance goals for such Awards shall be selected from those listed in Article 11.
10.4 Payment of Cash-Based Awards and Other Stock-Based Awards. Payment, if any, with respect to a Cash-Based Award or an Other Stock-Based Award shall be made in accordance with the terms of the Award, in cash or Shares as the Committee determines.
10.5 Termination of Employment. The Committee shall determine the extent to which the Participant shall have the right to receive Cash-Based Awards and Other Stock-Based Awards following termination of the Participant’s employment with or provision of services to the Company, its Affiliates, and/or its Subsidiaries, as the case may be. Such provisions shall be determined in the sole discretion of the Committee, such provisions may be included in an agreement entered into with each Participant, but need not be uniform among all Awards of Cash-Based Awards and Other Stock-Based Awards issued pursuant to the Plan, and may reflect distinctions based on the reasons for termination.
10.7 Non-Transferability. Except as otherwise determined by the Committee, neither Cash-Based Awards nor Other Stock-Based Awards may be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated, other than by will or by the laws of descent and distribution. Further, except as otherwise provided by the Committee, a Participant’s rights under the Plan, if exercisable, shall be exercisable during his or her lifetime only by such Participant. With respect to those Cash-Based Awards or Other Stock-Based Awards, if any, that are permitted to be transferred to another person, references in the Plan to exercise or payment of such Awards by or to the Participant shall be deemed to include, as determined by the Committee, the Participant’s permitted transferee.
Article 11. Performance Measures
11.1 Performance Measures. Unless and until the Committee proposes for shareholder vote and the shareholders approve a change in the general Performance Measures set forth in this Article 11, the performance goals upon which the payment or vesting of an Award to a Covered Employee that is intended to qualify as Performance-Based Compensation shall be limited to the following Performance Measures:
| (a) | net income; | |
| (b) | earnings per share; | |
| (c) | sales growth; | |
| (d) | income before taxes; |
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| (e) | net operating profit; | |
| (f) | return measures (including, but not limited to, return on assets, capital, equity, or sales); | |
| (g) | cash flow (including, but not limited to, operating cash flow and free cash flow); | |
| (h) | earnings before, interest, taxes, depreciation, and/or amortization; | |
| (i) | operating margins including gross profit, operating expenses and operating income as a percentage of sales; | |
| (j) | productivity ratios; | |
| (k) | share price (including, but not limited to, growth measures and total shareholder return); | |
| (l) | expense targets; | |
| (m) | operating efficiency; | |
| (n) | customer satisfaction; | |
| (o) | working capital targets; and | |
| (p) | economic value-added. |
Any Performance Measure(s) may be used to measure the performance of the Company, Subsidiary, and/or Affiliate as a whole or any business unit of the Company, Subsidiary, and/or Affiliate or any combination thereof, as the Committee may deem appropriate, or any of the above Performance Measures as compared to the performance of a group of comparator companies, or published or special index that the Committee, in its sole discretion, deems appropriate, or the Company may select Performance Measure (j) above as compared to various stock market indices. The Committee also has the authority to provide for accelerated vesting of any Award based on the achievement of performance goals pursuant to the Performance Measures specified in this Article 11.
11.2 Evaluation of Performance. The Committee may provide in any such Award that any evaluation of performance may include or exclude any of the following events that occurs during a Performance Period: (a) asset write-downs, (b) litigation or claim judgments or settlements, (c) the effect of changes in tax laws, accounting principles, or other laws or provisions affecting reported results, (d) any reorganization and restructuring programs, (e) extraordinary non-recurring items as described in Accounting Principles Board Opinion No. 30 and/or in management’s discussion and analysis of financial condition and results of operations appearing in the Company’s annual report to shareholders for the applicable year, (f) acquisitions or divestitures, and (g) foreign exchange gains and losses. To the extent such inclusions or exclusions affect Awards to Covered Employees, they shall be prescribed in a form that meets the requirements of Code Section 162(m) for deductibility.
11.3 Adjustment of Performance-Based Compensation. Awards that are designed to qualify as Performance-Based Compensation, and that are held by Covered Employees, may not be adjusted upward. The Committee shall retain the discretion to adjust such Awards downward, either on a formula or discretionary basis or any combination, as the Committee determines.
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11.4 Committee Discretion. In the event that applicable tax and/or securities laws change to permit Committee discretion to alter the governing Performance Measures without obtaining shareholder approval of such changes, the Committee shall have sole discretion to make such changes without obtaining shareholder approval. In addition, in the event that the Committee determines that it is advisable to grant Awards that shall not qualify as Performance-Based Compensation, the Committee may make such grants without satisfying the requirements of Code Section 162(m) and may base vesting on Performance Measures in addition to or other than those set forth in Section 11.1.
Article 12. Covered Employee Annual Incentive Award
Notwithstanding any other provision of this Plan to the contrary, for each Plan Year a Covered Employee Annual Incentive Award shall be paid to any Participant who is an executive officer of the Company and, in the Committee’s determination, is likely to be a “covered employee” within the meaning of Section 162(m) of the Code only in accordance with the provisions of this Article. Within the first ninety (90) days of each Plan Year, the Committee shall establish (i) the performance goals, selected from the list of Performance Measures in Section 11.1, that must be achieved in order for a Covered Employee Annual Incentive Award to be paid to any Covered Employee for the Plan Year, and (ii) the amount of each Covered Employee’s Covered Employee Annual Incentive Award that could be paid based on attainment of such performance goals for the Plan Year. As soon as practicable following the end of each Plan Year, the Committee shall certify whether each Covered Employee otherwise satisfied the requirements of this Plan to receive a Covered Employee Annual Incentive Award. Upon the Committee’s certification thereof, the Covered Employee Annual Incentive Awards shall be paid to the Covered Employees or such lesser amounts as the Committee in its discretion shall prescribe taking into account the otherwise applicable provisions of this Plan and the performance of the Company and the Covered Employees during the Plan Year, provided that such action does not preclude the Covered Employee Annual Incentive Award to any Covered Employee from qualifying as performance based compensation under Section 162(m) of the Code. The Committee shall not exercise any discretion in its administration of the Plan that would be inconsistent with the purposes of Section 162(m) of the Code.
Article 13. Non-Employee Director Awards
13.1 Non-Employee Director Awards. Non-Employee Directors may only be granted Awards under the Plan in accordance with this Article 13 and which shall not be subject to management’s discretion. From time to time, the Board shall set the amount(s) and type(s) of equity awards that shall be granted to all Non-employee Directors on a periodic, nondiscriminatory basis pursuant to the Plan, as well as any additional amount(s), if any, to be awarded, also on a periodic, nondiscriminatory basis, based on each of the following: the number of committees of the Board on which a Non-Employee Director serves, service of a Non-Employee Director as the chair of a Committee of the Board, service of a Non-Employee Director as Chairman of the Board, or the first selection or appointment of an individual to the Board as a Non-Employee Director. Subject to the limits set forth in Section 4.1(d) and the foregoing, the Board shall grant such Awards to Non-
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13.2 Non-Employee Director Deferrals.
| (a) | Mandatory Deferral: Fifty percent (50%) of each payment comprising any annual retainer fees payable by the Company to each Non-Employee Director shall automatically be withheld by the Company and deferred hereunder, except to the extent that the Non-Employee Director has made an Optional Deferral Election in accordance with Section 13.2(b). | |
| (b) | Optional Deferral Elections: A Non-Employee Director may submit a written election to the Secretary of the Company not to have the deferral provisions of Section 13.2(a) apply to the Non- Employee Director’s retainer fees or to have a deferral of a percentage other than fifty percent (50%) apply (an “Optional Deferral Election”) as follows: |
| (i) | Prior to the Effective Date of the Plan, each Non-Employee Director may submit an Optional Deferral Election, which may specify that no portion of the Non-Employee Director’s retainer fees will be deferred under Section 13.2 or that a selected percentage other than fifty percent (50%) of the Non-Employee Director’s retainer fees will be deferred under Section 13.2. Such Optional Deferral Election will be effective unless and until it is revoked in writing. | |
| (ii) | Each Non-Employee Director initially elected after the Effective Date of the Plan may submit an Optional Deferral Election prior to the Non-Employee Director’s receipt of any portion of any retainer fee which may specify that no portion of the Non-Employee Director’s retainer fees will be deferred under Section 13.2 or that a selected percentage other than fifty percent (50%) of the Non-Employee Director’s retainer fees will be deferred under Section 13.2, such Optional Deferral Election will be effective unless and until it is revoked in writing. | |
| (iii) | On an ongoing basis, each Non-Employee Director who has not made a standing Optional Deferral Election may make an Optional Deferral Election requesting the cessation of deferrals from his or her future payments of annual retainer fees or specifying that a selected percentage other than fifty percent (50%) of the Non-Employee Director’s retainer fees will be deferred under Section 13.2. In addition, any Non-Employee Director who has previously made a standing Optional Deferral Election may submit a new Optional Deferral Election, which will supersede the prior Optional Deferral Election. Any such election will take effect as of the commencement of the calendar year following the year in which the election is made and will be honored unless and until it is revoked in writing prior to the commencement of the calendar year in which such revocation is to become effective. However, any amounts deferred prior to the effective date of the new Optional Deferral Election will continue to be deferred under Section 13.2. |
| (c) | Maintenance of Deferred Accounts: A recordkeeping account shall be established and maintained in the name of each Non-Employee Director. Amounts which are deferred hereunder shall be converted into units (“Units”) based on the Fair Market Value of the Company’s common stock, and such Units (including any fractional Units) shall be |
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| credited to the Non-Employee Director’s account. The conversion and crediting of deferrals shall occur as of the date that such deferred amounts would otherwise have been payable to the Non- Employee Director. Dividend equivalents earned on the basis of whole Units previously credited to a Non-Employee Director’s account shall be credited to the Non-Employee Director’s account as Units, including fractional Units, on the date any such dividend has been declared to be payable on Shares. Units, excluding fractional Units, shall earn dividend equivalents from the date such Units are credited to a Non-Employee Director’s account until the date such Units are converted into Shares and distributed. Dividend equivalents shall be computed by multiplying the dividend paid per Share during the period Units are credited to a Non-Employee Director’s account times the number of whole Units so credited, but Units shall earn such dividend equivalents only as, if, and when dividends are declared and paid on Shares. | ||
| (d) | Method of Distribution of Deferrals: No distribution of deferrals may be made except as provided in this Section 13.2(d) or in a deferral agreement between the Company and a Non-employee Director. As of the last business day of the calendar month in which a Non-Employee Director’s service as a director of the Company ceases, each whole Unit then credited to the Non-Employee Director’s deferral account shall be converted into one Share and any fractional Unit shall be converted into cash by multiplying such fraction by the Fair Market Value of a Share as of such date. Such Shares and cash shall be distributed to the Non-Employee Director in a single lump sum, as soon as practicable following such date. At the written request of a Non-Employee Director, the Board of Directors, in its sole discretion, may accelerate payment of amounts deferred hereunder, upon a showing of unforeseeable emergency by such Non-Employee Director. For purposes of this paragraph, “unforeseeable emergency” is defined as severe financial hardship resulting from extraordinary and unanticipated circumstances arising as a result of one or more recent events beyond the control of the Non-Employee Director. In any event, payment may not be made to the extent such emergency is or may be relieved: (1) through reimbursement or compensation by insurance or otherwise; (2) by liquidation of the Non-Employee Director’s assets, to the extent the liquidation of such assets would not, itself, cause severe financial hardship; and (3) by cessation of deferrals under the Plan. Examples of events that are not considered to be unforeseeable emergencies include the need to send a Non-Employee Director’s child to college or the desire to purchase a home. |
Article 14. Dividend Equivalents
Any Participant selected by the Committee may be granted dividend equivalents based on the dividends declared on Shares that are subject to any Award, to be credited as of dividend payment dates, during the period between the date the Award is granted and the date the Award is exercised, vests or expires, as determined by the Committee. Such dividend equivalents shall be converted to cash or additional Shares by such formula and at such time and subject to such limitations as may be determined by the Committee.
Dividend equivalents granted with respect to Options or SARs that are intended to be Performance-Based Compensation shall be payable, with respect to pre-exercise periods, regardless of whether such Option or SAR is subsequently exercised.
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Article 15. Beneficiary Designation
Each Participant under the Plan may, from time to time, name any beneficiary or beneficiaries (who may be named contingently or successively) to whom any benefit under the Plan is to be paid in case of his or her death before he or she receives any or all of such benefit. Each such designation shall revoke all prior designations by the same Participant, shall be in a form prescribed by the Committee, and will be effective only when filed by the Participant in writing with the Company during the Participant’s lifetime. In the absence of any such designation, benefits remaining unpaid at the Participant’s death shall be paid to the Participant’s estate.
Article 16. Deferrals
The Committee may permit or, in an Award Agreement, require officers or Non-Employee Directors to defer receipt of the payment of cash or the delivery of Shares that would otherwise be due to such officers or Non-Employee Directors by virtue of the exercise of an Option or SAR, the lapse or waiver of restrictions with respect to Restricted Stock or Restricted Stock Units, or the satisfaction of any requirements or performance goals with respect to Performance Shares, Performance Units, Cash-Based Awards, Covered Employee Annual Incentive Awards, Other Stock-Based Awards, or Cash-Based Awards. If any such deferral election is required or permitted, the Committee shall, in its sole discretion, establish rules and procedures for such payment deferrals.
Article 17. Rights of Participants
17.1 Employment. Nothing in the Plan or an Award Agreement shall interfere with or limit in any way the right of the Company, its Affiliates, and/or its Subsidiaries, to terminate any Participant’s employment or service on the Board or to the Company at any time or for any reason not prohibited by law, nor confer upon any Participant any right to continue his or her employment or service as a Director or Third Party Service Provider for any specified period of time.
Neither an Award nor any benefits arising under this Plan shall constitute an employment contract with the Company, its Affiliates, and/or its Subsidiaries and, accordingly, subject to Articles 3 and 19, this Plan and the benefits hereunder may be terminated at any time in the sole and exclusive discretion of the Committee without giving rise to any liability on the part of the Company, its Affiliates, and/or its Subsidiaries.
17.2 Participation. No individual shall have the right to be selected to receive an Award under this Plan, or, having been so selected, to be selected to receive a future Award.
17.3 Rights as a Shareholder. Except as otherwise provided herein, a Participant shall have none of the rights of a shareholder with respect to Shares covered by any Award until the Participant becomes the record holder of such Shares.
17.4 No Third Party Beneficiaries. This Plan does not confer any right or remedy other than to Participants, the Company, and their respective permitted successors and assigns, and no action may be brought against the Company, the Board, the Committee, or any of the Committee’s delegates by any third party claiming as a third party beneficiary to the Plan or any Award Agreement.
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Article 18. Corporate Events
Unless otherwise set forth in the Award Agreement, upon a dissolution or liquidation of the Company, or a sale of substantially all of the assets of the Company, its Subsidiaries, and its Affiliates and the acquiring entity does not substitute new and equivalent Awards for the outstanding Awards hereunder, or a merger or consolidation in which the surviving corporation does not substitute new and equivalent Awards for the outstanding Awards hereunder, (each a “Corporate Event”) each Participant shall be given at least ten days prior written notice of the occurrence of such Corporate Event, every Award outstanding hereunder shall become fully vested and exercisable, all restrictions on such Awards shall lapse and each Participant may exercise any Award that is in the form of an Option or SAR, in whole or in part, prior to or simultaneously with such Corporate Event. Unless otherwise set froth in the Award Agreement, upon the occurrence of any such Corporate Event, any Option or SAR not exercised pursuant hereto shall terminate. Unless otherwise set forth in the Award Agreement, furthermore, upon the occurrence of a Corporate Event, the Company shall have the option to cancel every outstanding Award hereunder (other than Options and SARs outstanding the cancellation which would be handled by the preceding sentence) and to pay the holder of such Awards the value of those Awards as determined by the Board or Committee in their sole discretion.
Article 19. Amendment, Modification, Suspension, and Termination
19.1 Amendment, Modification, Suspension, and Termination. Subject to Section 19.3, the Committee may, at any time and from time to time, alter, amend, modify, suspend, or terminate the Plan and any Award Agreement in whole or in part; provided, however, that, without the prior approval of the Company’s shareholders and except as provided in Sections 4.4 and 6.11 hereof, Options issued under the Plan will not be repriced, replaced, or regranted through cancellation, or by lowering the Option Price of a previously granted Option, and no amendment of the Plan shall be made without shareholder approval if shareholder approval is required by law, regulation, or stock exchange rule, including, but not limited to, the Securities Exchange Act of 1934, as amended, the Internal Revenue Code of 1986, as amended, and, if applicable, the New York Stock Exchange Listed Company Manual.
19.2 Adjustment of Awards Upon the Occurrence of Certain Unusual or Non-recurring Events. The Committee may make adjustments in the terms and conditions of, and the criteria included in, Awards in recognition of unusual or nonrecurring events (including, without limitation, the events described in Section 4.4 hereof) affecting the Company or the financial statements of the Company or of changes in applicable laws, regulations, or accounting principles, whenever the Committee determines that such adjustments are appropriate in order to prevent unintended dilution or enlargement of the benefits or potential benefits intended to be made available under the Plan. The determination of the Committee as to the foregoing adjustments, if any, shall be conclusive and binding on Participants under the Plan.
19.3 Awards Previously Granted. Notwithstanding any other provision of the Plan to the contrary, no termination, amendment, suspension, or modification of the Plan or an Award Agreement shall adversely affect in any material way any Award previously granted under the Plan, without the written consent of the Participant holding such Award or any predecessor plans.
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Article 20. Withholding
20.1 Tax Withholding. The Company shall have the power and the right to deduct or withhold, or require a Participant to remit to the Company, the minimum statutory amount to satisfy federal, state, and local taxes, domestic or foreign, required by law or regulation to be withheld with respect to any taxable event arising as a result of this Plan.
20.2 Share Withholding. With respect to withholding required upon the exercise of Options or SARs, upon the lapse of restrictions on Restricted Stock and Restricted Stock Units, or upon the achievement of performance goals related to Performance Shares, or any other taxable event arising as a result of an Award granted hereunder, the Committee may decide to permit Participants to satisfy the withholding requirement, in whole or in part, by having the Company withhold Shares having a Fair Market Value on the date the tax is to be determined equal to the minimum statutory total tax that could be imposed on the transaction. If permitted by the Committee, all Participant elections related to share withholding shall be irrevocable, made in writing, and signed by the Participant, and shall be subject to any restrictions or limitations that the Committee, in its sole discretion, deems appropriate.
Article 21. Successors
All obligations of the Company under the Plan with respect to Awards granted hereunder shall be binding on any successor to the Company, whether the existence of such successor is the result of a direct or indirect purchase, merger, consolidation, or otherwise, of all or substantially all of the business and/or assets of the Company.
Article 22. General Provisions
22.1 Forfeiture Events .
| (a) | The Committee may specify in an Award Agreement that the Participant’s rights, payments, and benefits with respect to an Award shall be subject to reduction, cancellation, forfeiture, or recoupment upon the occurrence of certain specified events, in addition to any otherwise applicable vesting or performance conditions of an Award. Such events may include, but shall not be limited to, termination of employment for cause, termination of the Participant’s provision of services to the Company, Affiliate, and/or Subsidiary, violation of material Company, Affiliate, and/or Subsidiary policies, breach of noncompetition, confidentiality, or other restrictive covenants that may apply to the Participant, or other conduct by the Participant that is detrimental to the business or reputation of the Company, its Affiliates, and/or its Subsidiaries. | |
| (b) | If Section 304 of the Sarbanes-Oxley Act of 2002 applies to any Award or payment in settlement of any Award, the Participant shall and hereby agrees to reimburse the Company for any such amounts or Awards as provided by Section 304 of the Sarbanes-Oxley Act of 2002. |
22.2 Legend. The certificates for Shares may include any legend which the Committee deems appropriate to reflect any restrictions on transfer of such Shares .
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22.3 Gender and Number. Except where otherwise indicated by the context, any masculine term used herein also shall include the feminine, the plural shall include the singular, and the singular shall include the plural.
22.4 Severability. In the event any provision of the Plan shall be held illegal or invalid for any reason, the illegality or invalidity shall not affect the remaining parts of the Plan, and the Plan shall be construed and enforced as if the illegal or invalid provision had not been included.
22.5 Requirements of Law. The granting of Awards and the issuance of Shares under the Plan shall be subject to all applicable laws, rules, and regulations, and to such approvals by any governmental agencies or national securities exchanges as may be required.
22.6 Delivery of Title. The Company shall have no obligation to issue or deliver evidence of title for Shares issued under the Plan prior to:
| (a) | Obtaining any approvals from governmental agencies that the Company determines are necessary or advisable; and | |
| (b) | Completion of any registration or other qualification of the Shares under any applicable national or foreign law or ruling of any governmental body that the Company determines to be necessary or advisable. |
22.7 Inability to Obtain Authority. The inability of the Company to obtain authority from any regulatory body having jurisdiction, which authority is deemed by the Company’s counsel to be necessary to the lawful issuance and sale of any Shares hereunder, shall relieve the Company of any liability in respect of the failure to issue or sell such Shares as to which such requisite authority shall not have been obtained.
22.8 Investment Representations. The Committee may require any person receiving Shares pursuant to an Award under this Plan to represent and warrant in writing that the person is acquiring the Shares for investment and without any present intention to sell or distribute such Shares.
22.9 Employees, Directors, Third Party Service Providers, and Participants Based Outside of the United States. Notwithstanding any provision of the Plan to the contrary, in order to comply with the laws in other countries in which the Company, its Affiliates, and/or its Subsidiaries operate or have Employees, Directors, Third Party Service Providers, or Participants, the Committee, in its sole discretion, shall have the power and authority to:
| (a) | Determine which Affiliates and Subsidiaries shall be covered by the Plan; | |
| (b) | Determine which Employees, Directors, Third Party Service Providers, or Participants outside the United States are eligible to participate in the Plan; | |
| (c) | Modify the terms and conditions of any Award granted to Employees, Directors, Third Party Service Providers, or Participants outside the United States to comply with applicable foreign laws; | |
| (d) | Establish subplans and modify exercise procedures and other terms and procedures, to the extent such actions may be necessary or advisable. Any subplans and modifications to Plan terms and procedures established under this Section 22.9 by the Committee shall be attached to this Plan document as appendices; and |
A-25
| (e) | Take any action, before or after an Award is made, that it deems advisable to obtain approval or comply with any necessary local government regulatory exemptions or approvals. |
Notwithstanding the above, the Committee may not take any actions hereunder, and no Awards shall be granted, that would violate applicable law.
22.10 Uncertificated Shares. To the extent that the Plan provides for issuance of certificates to reflect the transfer of Shares, the transfer of such Shares may be effected on a uncertificated basis, to the extent not prohibited by applicable law or the rules of any stock exchange.
22.11 Unfunded Plan. Participants shall have no right, title, or interest whatsoever in or to any investments that the Company, and/or its Subsidiaries, and/or Affiliates may make to aid it in meeting its obligations under the Plan. Nothing contained in the Plan, and no action taken pursuant to its provisions, shall create or be construed to create a trust of any kind, or a fiduciary relationship between the Company and any Participant, beneficiary, legal representative, or any other person. To the extent that any person acquires a right to receive payments from the Company, and/or its Subsidiaries, and/or Affiliates under the Plan, such right shall be no greater than the right of an unsecured general creditor of the Company, a Subsidiary, or an Affiliate, as the case may be. All payments to be made hereunder shall be paid from the general funds of the Company, a Subsidiary, or an Affiliate, as the case may be and no special or separate fund shall be established and no segregation of assets shall be made to assure payment of such amounts except as expressly set forth in the Plan. The Plan is not subject to ERISA.
22.12 No Fractional Shares. No fractional Shares shall be issued or delivered pursuant to the Plan or any Award. The Committee shall determine whether cash, Awards, or other property shall be issued or paid in lieu of fractional Shares or whether such fractional Shares or any rights thereto shall be forfeited or otherwise eliminated.
22.13 Retirement and Welfare Plans. Neither Awards made under the Plan nor Shares or cash paid pursuant to such Awards, except pursuant to Covered Employee Annual Incentive Awards, will be included as “compensation” for purposes of computing the benefits payable to any Participant under the Company’s or any Subsidiary’s or Affiliate’s retirement plans (both qualified and non-qualified) or welfare benefit plans unless such other plan expressly provides that such compensation shall be taken into account in computing a participant’s benefit.
22.14 Nonexclusivity of the Plan. The adoption of this Plan shall not be construed as creating any limitations on the power of the Board or Committee to adopt such other compensation arrangements as it may deem desirable for any Participant.
22.15 No Constraint on Corporate Action. Nothing in this Plan shall be construed to: (i) limit, impair, or otherwise affect the Company’s or a Subsidiary’s or an Affiliate’s right or power to make adjustments, reclassifications, reorganizations, or changes of its capital or business structure, or to merge or consolidate, or dissolve, liquidate, sell, or transfer all or any part of its business or assets; or, (ii) limit the right or power of the Company or a Subsidiary or an Affiliate to take any action which such entity deems to be necessary or appropriate.
22.16 Right of First Refusal. Unless otherwise set forth in the Award Agreement, shares acquired under the Plan by a Participant may not be sold or otherwise disposed of in any way (including a transfer or gift or by reason of the death of the Participant) until the Participant (or his
A-26
22.17 Ratification of Actions. By accepting any Award or other benefit under the Plan, each Participant and each person claiming under or through each Participant shall be conclusively deemed to have indicated his or her acceptance and ratification of, and consent to, any action taken under the Plan by the Company, the Board or the Committee.
22.18 Governing Law. The Plan and each Award Agreement shall be governed by the laws of the State of New York excluding any conflicts or choice of law rule or principle that might otherwise refer construction or interpretation of the Plan to the substantive law of another jurisdiction. Unless otherwise provided in the Award Agreement, recipients of an Award under the Plan are deemed to submit to the exclusive jurisdiction and venue of the federal or state courts of New York, to resolve any and all issues that may arise out of or relate to the Plan or any related Award Agreement.
22.19 Jury Waiver. Every Participant, every person claiming under or through a Participant, and the Company hereby waives to the fullest extent permitted by applicable law any right to a trial by jury with respect to any litigation directly or indirectly arising out of, under, or in connection with the Plan or any Award Agreement issued pursuant to the Plan.
A-27
|
ARROW ELECTRONICS, INC.
|
FORM 10-K — EXHIBIT 10 (o) (xiii) | |
|
|
EXECUTION COPY |
AMENDMENT NO. 12 TO TRANSFER AND ADMINISTRATION AGREEMENT
AMENDMENT NO. 12 TO TRANSFER AND ADMINISTRATION AGREEMENT, dated as of February 14, 2005 (this “ Amendment ”), to that certain Transfer and Administration Agreement dated as of March 21, 2001, as amended by Amendment No. 1 to Transfer and Administration Agreement dated as of November 30, 2001, Amendment No. 2 to Transfer and Administration Agreement dated as of December 14, 2001, Amendment No. 3 to Transfer and Administration Agreement dated as of March 20, 2002, Amendment No. 4 to Transfer and Administration Agreement dated as of March 29, 2002, Amendment No. 5 to Transfer and Administration Agreement dated as of May 22, 2002, Amendment No. 6 and Limited Waiver to Transfer and Administration Agreement dated as of September 27, 2002, Amendment No. 7 to Transfer and Administration Agreement dated as of February 19, 2003, Amendment No. 8 to Transfer and Administration Agreement dated as of April 14, 2003, Amendment No. 9 to Transfer and Administration Agreement dated as of August 13, 2003, Amendment No. 10 to Transfer and Administration Agreement dated as of February 18, 2004 and Amendment No. 11 to Transfer and Administration Agreement dated as of August 13, 2004 (as so amended and in effect, the “ TAA ”), by and among Arrow Electronics Funding Corporation, a Delaware corporation (the “ SPV ”), Arrow Electronics, Inc., a New York corporation, individually (“ Arrow ”) and as the initial Master Servicer, the several commercial paper conduits identified on Schedule A to the TAA and their respective permitted successors and assigns (the “ Conduit Investors ”; each individually, a “ Conduit Investor ”), the agent bank set forth opposite the name of each Conduit Investor on such Schedule A and its permitted successors and assigns (each a “ Funding Agent ”) with respect to such Conduit Investor, and Bank of America, National Association, a national banking association, as the administrative agent for the Investors (the “ Administrative Agent ”), and the financial institutions from time to time parties thereto as Alternate Investors. Capitalized terms used and not otherwise defined herein have the meanings assigned to such terms in the TAA.
PRELIMINARY STATEMENTS:
WHEREAS, the SPV, Arrow, the Conduit Investors, the Funding Agents, the Alternate Investors and the Administrative Agent have entered into the TAA;
WHEREAS, the SPV and Arrow have requested that the Conduit Investors, the Funding Agents, the Alternate Investors and the Administrative Agent agree to make certain changes and amendments to the TAA;
WHEREAS, Blue Ridge Asset Funding Corporation desires to become a Conduit Investor under the TAA and Wachovia Bank, National Association desires to become an Alternate Investor and Funding Agent under the TAA;
WHEREAS, subject to the terms and conditions set forth herein, the Conduit Investors, the Alternate Investors, the Funding Agents and the Administrative Agent are willing to make such changes and amendments to the TAA; and
NOW, THEREFORE, in consideration of the premises and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows:
SECTION 1. Amendments to the TAA . Effective as of the date hereof and subject to the satisfaction of the conditions precedent set forth in Section 3 hereof, the TAA is hereby amended as follows:
Section 1.1. Section 1.1 is amended by amending and restating the definition of “Commitment Termination Date,” such definition to read in its entirety as follows:
“ Commitment Termination Date ” means the earliest to occur of (a) February 19, 2008, (b) the date the commitment of any Program Support Provider terminates under any Program Support Agreement, and (c) the date of termination of any Program Support Agreement; provided , that in any event the Commitment Termination Date shall not occur prior to February 13, 2006 (or such later date as to which the SPV, Arrow, each Conduit Investor, Funding Agent and Alternate Investor affected thereby and the Administrative Agent may agree in writing).
Section 1.2. Section 1.1 is amended by adding the following clause (v) to the definition of “Receivable,”:
"(v) which are not Receivables owed by SPX Corp., by Actron Manufacturing Company (a subsidiary of SPX Corp.) or any successor thereto.”
Section 1.3. Schedule II is amended by amending and restating the definition of “Yield Reserve,” such definition to read in its entirety as follows:
“ Yield Reserve ” for any Calculation Period means an amount equal to the product of (a) the Net Investment as of the most recent Month End Date, (b) the sum of (i) the weighted average rates used to calculate Yield accrued and to accrue through the end of each Rate Period with respect to all Portions of Investment funded by the EFC Conduit Investor, (ii) the aggregate of the fee percentages used to calculate the Program Fee, the Facility Fee and the Administrative Fee set forth in Schedule IV and the Fee Letter with respect to such Calculation Period, and (iii) 2.125%, and (c) the quotient, expressed as a percentage, of (i) 2.00 multiplied by the Days Sales Outstanding divided by (ii) 360.
Section 1.4. From and after the date upon which the Administrative Agent receives a letter from Milbank, Tweed, Hadley & McCloy LLP as to the effect of the amendments contained herein on the conclusions reached in that certain opinion dated March 21, 2001 as to certain bankruptcy matters in a form satisfactory to the Administrative Agent (the “ Delivery Date ”), Subsection 4.1(f) is amended by deleting clause (iii) thereto.
Section 1.5. From and after the Delivery Date, Section 6.1 is amended by amending and restating clause (k) thereof, such clause to read in its entirety as follows:
”(k) [RESERVED].”
Section 1.6. As of the effective date of this Amendment, Wachovia Bank, National Association, as Alternate Investor and Funding Agent and Blue Ridge Asset Funding Corporation, as Conduit Investor (collectively, the “ New TAA Parties ”), shall each be a party to the TAA and, to the extent provided in this Amendment, have the rights and obligations of an Alternate Investor, Funding Agent or Conduit Investor, as applicable, thereunder.
Accordingly, each of the New TAA Parties (i) confirms that it has received a copy of the TAA,
the First Tier Agreement and each Originator Agreement together with copies of the financial
statements referred to in Section 6.1 of the TAA, to the extent delivered through the date of this
Amendment, and such other documents and information as it has deemed appropriate to make its own
credit analysis and decision to enter into this Amendment; (ii) appoints and authorizes the
Administrative Agent and the Related Funding Agent to take such action as Administrative Agent or
the Related Funding Agent on its behalf and to exercise such powers and discretion under the TAA
and the other Transaction Documents as are delegated to the Administrative Agent or the Related
Funding Agent by the terms thereof, together with such powers and discretion as are reasonably
incidental thereto; (iii) agrees that it will perform in accordance with their terms all of the
obligations which by the terms of the TAA are required to be performed by it as an Alternate
Investor or Conduit Investor, as applicable; and (iv) specifies as its address for notices and its
account for payments the office and account set forth beneath its name on the signature pages
hereof.
Section 1.7. Schedule A to the TAA is deleted in its entirety and is replaced with the
schedule attached hereto as Annex I.
Section 1.8. Schedule B to the TAA is deleted in its entirety and is replaced with the
schedule attached hereto as Annex II.
Section 1.9. Schedule IV to the TAA is amended by amending and restating the table contained
therein, such table to read in its entirety as follows:
| Program Fee | ||||||||
| Rate (Per Annum) | ||||||||
| (prior to an | ||||||||
| Rating | Facility Fee | Accounting Based | ||||||
| S&P/Moody's | Rate (Per Annum) | Consolidation Event) | ||||||
|
Greater than or equal to A-/A3
|
0.100% | 0.175% | ||||||
|
BBB+/Baa1
|
0.125% | 0.175% | ||||||
|
BBB/Baa2
|
0.150% | 0.225% | ||||||
|
BBB-/Baa3
|
0.200% | 0.300% | ||||||
|
BB+/Ba1
|
0.250% | 0.450% | ||||||
|
BB/Ba2
|
0.350% | 0.550% | ||||||
|
BB-/Ba3
|
0.500% | 0.750% | ||||||
|
Less than BB-/Ba3 or not rated
by each of S&P and Moody’s
|
Base Rate | 0.000% | ||||||
Section 1.10. Schedule 11.3 to the TAA is deleted in its entirety and is replaced with the schedule attached hereto as Annex III.
SECTION 2. Representations and Warranties of the SPV and Arrow . To induce the Conduit Investors, Alternate Investors, the Funding Agents and the Administrative Agent to enter into this Amendment, the SPV and Arrow each makes the following representations and warranties (which representations and warranties shall survive the execution and delivery of this Amendment) as of the date hereof, after giving effect to the amendments set forth herein:
Section 2.1. Authority . The SPV and Arrow each has the requisite corporate power, authority and legal right to execute and deliver this Amendment and to perform its obligations hereunder and under the Transaction Documents, including the TAA (as modified hereby). The execution, delivery and performance by the SPV and Arrow of this Amendment and their performance of the Transaction Documents, including the TAA (as modified hereby), have been duly approved by all necessary corporate action and no other corporate proceedings are necessary to consummate such transactions.
Section 2.2. Enforceability . This Amendment has been duly executed and delivered by the SPV and Arrow. This Amendment is the legal, valid and binding obligation of the SPV and Arrow, enforceable against the SPV and Arrow in accordance with its terms, subject to applicable bankruptcy, insolvency, moratorium or other similar laws affecting the rights of creditors generally and the application of general principles of equity (regardless of whether considered in a proceeding at law or in equity). The making and delivery of this Amendment and the performance of the Agreement, as amended by this Amendment, do not violate any provision of law or any regulation (except to the extent that the violation thereof could not, in the aggregate, be expected to have a Material Adverse Effect or a material adverse effect on the condition (financial or otherwise), business or properties of Arrow and the other
Originators, taken as a whole), or its charter or by-laws, or result in the breach of or constitute a default under or require any consent under any indenture or other agreement or instrument to which it is a party or by which it or any of its properties may be bound or affected.
Section 2.3. Representations and Warranties . The representations and warranties contained in the Transaction Documents are true and correct on and as of the date hereof as though made on and as of the date hereof after giving effect to this Amendment.
Section 2.4. No Termination Event . After giving effect to this Amendment, no event has occurred and is continuing that constitutes a Termination Event or a Potential Termination Event.
SECTION 3. Conditions Precedent . This Amendment shall become effective, as of the date hereof, on the date on which the following conditions precedent shall have been fulfilled:
Section 3.1. This Amendment . The Administrative Agent shall have received counterparts of this Amendment, duly executed by each of the parties hereto.
Section 3.2. Additional Documents . The Administrative Agent shall have received all additional approvals, certificates, documents, instruments and items of information as the Administrative Agent may reasonably request and all of the foregoing shall be in form and substance reasonably satisfactory to the Administrative Agent and each Funding Agent.
Section 3.3. Amendment Fee . Each of the Funding Agents shall have received payment of an amendment fee equal to (i) 0.05% multiplied by (ii) the sum of the Commitments of the related Alternate Investors and divided by (iii) 1.02.
SECTION 4. References to and Effect on the Transaction Documents .
Section 4.1. Except as specifically amended and modified hereby, each Transaction Document is and shall continue to be in full force and effect and is hereby in all respects ratified and confirmed.
Section 4.2. The execution, delivery and effectiveness of this Amendment shall not operate as a waiver of any right, power or remedy of any Investor, Funding Agent or the Administrative Agent under any Transaction Document, nor constitute a waiver, amendment or modification of any provision of any Transaction Document, except as expressly provided in Section 1 hereof.
Section 4.3. This Amendment contains the final and complete integration of all prior expressions by the parties hereto with respect to the subject matter hereof
and shall constitute the entire agreement among the parties hereto with respect to the subject matter hereof superseding all prior oral or written understandings.
Section 4.4. Each reference in the TAA to “this Agreement”, “hereunder”, “hereof” or words of like import, and each reference in any other Transaction Document to “the Transfer and Administration Agreement”, “thereunder”, “thereof” or words of like import, referring to the Agreement, shall mean and be a reference to the Agreement as amended hereby.
Section 4.5. Arrow and the SPV agree that as of the effective date of this Amendment, the respective Commitments under the TAA of each of Bowand, LLC, Polonious Inc. and Danske Bank A/S (collectively, the “ Exiting Parties ”) are hereby terminated and agree that each of the Exiting Parties hereby ceases to be a party to the TAA.
SECTION 5. Execution in Counterparts . This Amendment may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed to be an original and all of which taken together shall constitute but one and the same agreement. Delivery of an executed counterpart of a signature page to this Amendment by telefacsimile shall be effective as delivery of a manually executed counterpart of this Amendment.
SECTION 6. GOVERNING LAW . THIS AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
SECTION 7. WAIVER OF JURY TRIAL . EACH OF THE PARTIES HERETO HEREBY WAIVES ANY RIGHT TO HAVE A JURY PARTICIPATE IN RESOLVING ANY DISPUTE, WHETHER SOUNDING IN CONTRACT, TORT OR OTHERWISE, AMONG ANY OF THEM ARISING OUT OF, CONNECTED WITH, RELATING TO OR INCIDENTAL TO THE RELATIONSHIP BETWEEN THEM IN CONNECTION WITH THIS AMENDMENT OR ANY OTHER TRANSACTION DOCUMENT.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed by their respective officers thereunto duly authorized, as of the date first above written.
|
Arrow Electronics Funding Corporation
,
as SPV |
||||
| By: | /s/ Ira Birns | |||
| Name: | Ira Birns | |||
| Title: | President | |||
|
Arrow Electronics, Inc.
,
individually and as Master Servicer |
||||
| By: | /s/ Ira Birns | |||
| Name: | Ira Birns | |||
| Title: | President | |||
|
Kitty Hawk Funding Corporation,
as a Conduit Investor |
||||
| By: | /s/ Jill A. Gordon | |||
| Name: | Jill A. Gordon | |||
| Title: | Vice President | |||
|
Bank of America, National Association,
as a Funding Agent, as Administrative Agent, and as an Alternate Investor |
||||
| By: | /s/ Charu Mani | |||
| Name: | Charu Mani | |||
| Title: | Vice President | |||
|
Delaware Funding Company, LLC,
as a Conduit Investor |
||||
|
By: JPMorgan Chase Bank, N.A. (formerly known as
JPMorgan Chase Bank), its attorney-in-fact |
||||
| By: | /s/ Mark J. Connor | |||
| Name: | Mark Connor | |||
| Title: | Vice President | |||
|
JPMorgan Chase Bank, N.A.,
(formerly known as JPMorgan Chase Bank) as a Funding Agent and as an Alternate Investor |
||||
| By: | /s/ Mark J. Connor | |||
| Name: | Mark Connor | |||
| Title: | Vice President | |||
|
Alpine Securitization Corp.,
as a Conduit Investor |
||||
|
By: Credit Suisse First Boston, New York Branch,
its attorney-in-fact |
||||
| By: | /s/ Joseph Soave | |||
| Name: | Joseph Soave | |||
| Title: | Director | |||
| By: | /s/ Mark Golombeck | |||
| Name: | Mark Golombeck | |||
| Title: | Director | |||
|
Credit Suisse First Boston, New York Branch
as a Funding Agent and as an Alternate Investor |
||||
| By: | /s/ Josh Borg | |||
| Name: | Josh Borg | |||
| Title: | Vice President | |||
| By: | /s/ Alberto Zonca | |||
| Name: | Alberto Zonca | |||
| Title: | Director | |||
|
Liberty Street Funding Corp.,
as a Conduit Investor |
||||
| By: | /s/ Bernard J. Angelo | |||
| Name: | Bernard J. Angelo | |||
| Title: | Vice President | |||
|
The Bank of Nova Scotia,
as a Funding Agent and as an Alternate Investor |
||||
| By: | /s/ M. Kus | |||
| Name: | M. Kus | |||
| Title: | Director | |||
|
Gotham Funding Corporation,
as a Conduit Investor |
||||
| By: | /s/ Geraldine St-Louis | |||
| Name: | Geraldine St-Louis | |||
| Title: | Vice President | |||
|
The Bank of Tokyo-Mitsubishi, Ltd., New York
Branch, as a Funding Agent |
||||
| By: | /s/ A.K. Reddy | |||
| Name: | A.K. Reddy | |||
| Title: | Vice President | |||
|
The Bank of Tokyo-Mitsubishi, Ltd., New York
Branch, as an Alternate Investor |
||||
| By: | /s/ J. Terrence Dennehy | |||
| Name: | J. Terrence Dennehy | |||
| Title: | Authorized Signatory | |||
|
Old Line Funding, LLC,
as a Conduit Investor |
||||
| By: | /s/ Kimberly L. Wagner | |||
| Name: | Kimberly L. Wagner | |||
| Title: | Authorized Signatory | |||
|
Royal Bank of Canada
as a Funding Agent and as an Alternate Investor |
||||
| By: | /s/ Robert S. Jones | |||
| Name: | Robert S. Jones | |||
| Title: | Authorized Signatory | |||
| By: | /s/ Veronica L. Gallagher | |||
| Name: | Veronica L. Gallagher | |||
| Title: | Authorized Signatory | |||
|
Blue Ridge Asset Funding Corporation
as a Conduit Investor |
||||
| By: | /s/ Douglas R. Wilson, Sr. | |||
| Name: | Douglas R. Wilson, Sr. | |||
| Title: | Vice President | |||
|
Wachovia Bank, National Association,
as a Funding Agent and as an Alternate Investor |
||||
| By: | /s/ William P. Rutkowski | |||
| Name: | William P. Rutkowski | |||
| Title: | Vice President | |||
ANNEX I
Schedule A
Conduit
Related
Alternate
Funding
Alternate
Related Funding
Investor(s)
Conduit Investor
Limit
Investor(s)
Agent
Commitment
Corporation
$
82,280,000
Bank of America,
National
Association
Bank of America,
National
Association
$
82,280,000
Company, LLC
$
82,280,000
JPMorgan Chase
Bank, N.A.
(formerly known as
JPMorgan Chase
Bank)
JPMorgan Chase
Bank, N.A.
(formerly known as
JPMorgan Chase
Bank)
$
82,280,000
$
82,280,000
Credit Suisse First
Boston, New York
Branch
Credit Suisse First
Boston, New York
Branch
$
82,280,000
$
82,280,000
The Bank of Nova
Scotia
The Bank of Nova
Scotia
$
82,280,000
Corporation
$
82,280,000
The Bank of
Tokyo-Mitsubishi,
Ltd., New York
Branch
The Bank of
Tokyo-Mitsubishi,
Ltd., New York
Branch
$
82,280,000
LLC
$
74,800,000
Royal Bank of Canada
Royal Bank of Canada
$
74,800,000
Funding Corporation
$
74,800,000
Wachovia Bank,
National
Association
Wachovia Bank,
National
Association
$
74,800,000
Annex II
SCHEDULE B
Match Funding Conduit Investors
Kitty Hawk Funding Corporation
Old Line Funding, LLC
Gotham Funding Corporation
Annex III
SCHEDULE 11.3
Address and Payment Information
If to the Conduit Investors :
|
(1)
|
Kitty Hawk Funding Corporation | |
|
|
Lord Securities | |
|
|
48 Wall Street | |
|
|
27 th Floor | |
|
|
New York, New York 10005 | |
|
|
Attention: Jill Gordon | |
|
|
Telephone: 212/346-9021 | |
|
|
Facsimile: 212/346-9012 | |
|
|
||
|
(2)
|
Delaware Funding Company, LLC | |
|
|
c/o JPMorgan Securities Inc. | |
|
|
270 Park Avenue, 10 th Floor | |
|
|
New York, New York 10017 | |
|
|
Attention: Christopher Lew | |
|
|
Telephone: 212/834-5469 | |
|
|
Facsimile: 212/834-6657 | |
|
|
||
|
(3)
|
Alpine Securitization Corp. | |
|
|
c/o Credit Suisse First Boston, New York Branch | |
|
|
as Administrative Agent | |
|
|
11 Madison Avenue | |
|
|
New York, NY 10010 | |
|
|
Attention: Joe Soave | |
|
|
Telephone: 212/325-9082 | |
|
|
Facsimile: 212/325-4519 | |
|
|
||
|
(4)
|
Liberty Street Funding Corp. | |
|
|
c/o Global Securitization Services, LLC | |
|
|
114 West 47 th Street | |
|
|
Suite 1715 | |
|
|
New York, NY 10036 | |
|
|
Attention: Andrew L. Stidd | |
|
|
Telephone: 212/302-5151 | |
|
|
Facsimile: 212/302-8767 | |
|
|
||
|
(5)
|
Gotham Funding Corporation | |
|
|
c/o The Bank of Tokyo-Mitsubishi, Ltd., New York Branch | |
|
|
1251 Avenue of the Americas | |
|
|
New York, New York 10020 | |
|
|
Attention: Devang Sodha | |
|
|
Telephone: 212/782-5980 |
|
|
Facsimile: 212/782-6998 | |
|
|
||
|
(6)
|
Old Line Funding, LLC | |
|
|
c/o Global Securitization Services, LLC | |
|
|
445 Broad Hollow Road | |
|
|
Suite 239 | |
|
|
Melville, NY 11747 | |
|
|
Attention: Tony Wong | |
|
|
Tel. No.: (631) 930-7207 | |
|
|
Facsimile No.: (212) 302-8767 | |
|
|
||
|
|
With a copy to: | |
|
|
Old Line Funding, LLC | |
|
|
One Little Falls Centre | |
|
|
2711 Centerville Road | |
|
|
Suite 215 | |
|
|
Wilmington, DE 19808 | |
|
|
Attn: Kim Wagner | |
|
|
Tel: (302) 892-5903 | |
|
|
Fax: (302) 892-5900 | |
|
|
E-mail: conduit_administration@rbccm.com | |
|
|
||
|
(7)
|
Blue Ridge Asset Funding Corporation | |
|
|
c/o Wachovia Capital Markets, LLC | |
|
|
301 South College Street, TW-16 | |
|
|
Mail Stop NC-0171 | |
|
|
Charlotte, NC 28288 | |
|
|
Attention: Douglas R. Wilson | |
|
|
Tel. No.: (704) 374-2520 | |
|
|
Facsimile No.: (704) 383-9579 |
If to the Alternate Investors :
|
|
||
|
(1)
|
Bank of America, National Association | |
|
|
NC1-027-19-01 | |
|
|
214 North Tryon Street, 19 th Floor | |
|
|
Charlotte, NC 28255 | |
|
|
Attention: Global Asset Backed Securitization Group; | |
|
|
Portfolio Management | |
|
|
Attention: Charu Mani | |
|
|
Telephone: 704/683-4692 | |
|
|
Facsimile: 704/388-9169 | |
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|
||
|
(2)
|
JPMorgan Securities Inc. | |
|
|
c/o Delaware Funding Company, LLC
|
|
|
|
270 Park Avenue, 10 th Floor |
|
|
New York, New York 10017 | |
|
|
Attention: Christopher Lew | |
|
|
Telephone: 212/834-5469 | |
|
|
Facsimile: 212/834-6657 | |
|
|
||
|
(3)
|
Credit Suisse First Boston, New York Bank | |
|
|
11 Madison Avenue | |
|
|
New York, New York 10010 | |
|
|
Attention: Joe Soave | |
|
|
Telephone: 212/325-9082 | |
|
|
Facsimile: 212/325-4519 | |
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|
||
|
(4)
|
The Bank of Nova Scotia | |
|
|
1 Liberty Plaza, 26 th Floor | |
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|
New York, New York 10006 | |
|
|
Attention: Richard L. Taiano | |
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|
Telephone: 212/225-5070 | |
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|
Facsimile: 212/225-5290 | |
|
|
||
|
(5)
|
The Bank of Tokyo-Mitsubishi, Ltd., New York Branch | |
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|
1251 Avenue of the Americas | |
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New York, New York 10020 | |
|
|
Attention: US Corporate Banking, PMG Group, Spencer Hughes | |
|
|
Telephone: 212/782-4226 | |
|
|
||
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|
||
|
(6)
|
Royal Bank of Canada | |
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|
One Liberty Plaza, 5 th Floor | |
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|
New York, NY 10006-1404 | |
|
|
Attention: Managing Director, Global Securitization Group | |
|
|
Tel No.: (212) 428-6537 | |
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Facsimile No.: (212) 428-2304 | |
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||
|
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With a copy to: | |
|
|
Old Line Funding, LLC | |
|
|
One Little Falls Centre | |
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|
2711 Centerville Road | |
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Suite 215 | |
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|
Wilmington, DE 19808 | |
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Attn: Kim Wagner | |
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Tel: (302) 892-5903 | |
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Fax: (302) 892-5900 | |
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E-mail: conduit_administration@rbccm.com | |
|
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||
|
(7)
|
Wachovia Bank, National Association | |
|
|
191 Peachtree Street, N.E. | |
|
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Mail Stop GA-8088 | |
|
|
Atlanta, GA 30303 |
|
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Attention: Victoria Dudley | |
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Telephone: (404) 332-6562 | |
|
|
Fax: (404) 332-5152 |
If to the Funding Agents :
|
|
||
|
(1)
|
Bank of America, National Association, | |
|
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as Funding Agent for Kitty Hawk Funding Corporation | |
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NC1-027-19-01 | |
|
|
214 North Tryon Street, 19 th Floor | |
|
|
Charlotte, NC 28255 | |
|
|
Attention:Global Asset Backed Securitization Group; | |
|
|
Portfolio Management | |
|
|
Telephone:704/683-4692 | |
|
|
Facsimile:704/388-9169 | |
|
|
||
|
|
Payment Information: | |
|
|
||
|
|
Deutsche Bank | |
|
|
ABA 021001033 | |
|
|
Account No.: 00362941 | |
|
|
Account Name: DB as Depository for KHFC | |
|
|
||
|
(2)
|
JPMorgan Chase Bank, N.A. (formerly known as JPMorgan Chase Bank) | |
|
|
as Funding Agent for Delaware Funding Company, LLC | |
|
|
One Bank One Plaza | |
|
|
Mail Suite: IL1-0079 | |
|
|
Chicago, IL 60670 | |
|
|
Attention: D’Andrea Anderson | |
|
|
Telephone: (312) 732-7206 | |
|
|
Facsimile: (312) 732-1844 | |
|
|
||
|
|
Payment Information: | |
|
|
||
|
|
Bank One, NA | |
|
|
ABA No. 071000013 | |
|
|
Account No. 645475310 | |
|
|
Reference: DFC/Arrow Electronics | |
|
|
Attention: D’Andrea Anderson | |
|
|
||
|
(3)
|
Credit Suisse First Boston New York Branch, | |
|
|
as Funding Agent for Alpine Securitization Corp. | |
|
|
11 Madison Avenue |
|
|
New York, New York 10010 | |
|
|
Attention: Joe Soave | |
|
|
Telephone: 212/325-9082 | |
|
|
Facsimile: 212/325-4519 | |
|
|
||
|
|
Payment Information: | |
|
|
||
|
|
Bank of New York | |
|
|
ABA No. 02-000-018 | |
|
|
Account No. 890-038-7025 | |
|
|
Reference: Arrow Funding | |
|
|
||
|
(4)
|
The Bank of Nova Scotia, | |
|
|
as Funding Agent for Liberty Street Funding Corp. | |
|
|
1 Liberty Plaza, 26 th Floor | |
|
|
New York, New York 10006 | |
|
|
Attention: Richard L. Taiano | |
|
|
Telephone: 212/225-5070 | |
|
|
Facsimile: 212/225-5290 | |
|
|
||
|
|
Payment Information: | |
|
|
||
|
|
The Bank of Nova Scotia- New York Agency | |
|
|
ABA No. 026-002-532 | |
|
|
Account No. 02158-13 | |
|
|
Reference: Arrow Electronics Funding Corporation [Reason for Payment] | |
|
|
||
|
(5)
|
The Bank of Tokyo-Mitsubishi, Ltd., New York Branch | |
|
|
as Funding Agent for Gotham Funding Corporation | |
|
|
1251 Avenue of the Americas | |
|
|
10 th Floor | |
|
|
New York, New York 10020 | |
|
|
Attention: Aditya Reddy | |
|
|
Telephone: 212/782-6957 | |
|
|
Facsimile: 212/782-6448 | |
|
|
||
|
|
Payment Information: | |
|
|
||
|
|
Bank of Tokyo-Mitsubishi Trust Company | |
|
|
ABA No. 026-009-687 | |
|
|
Account Name: Gotham Funding Corporation | |
|
|
Account No. 310035147 | |
|
|
Reference: Arrow — Electronics | |
|
|
||
|
(6)
|
Royal Bank of Canada | |
|
|
as Funding Agent for Old Line Funding, LLC | |
|
|
Global Securitization Group | |
|
|
One Liberty Plaza | |
|
|
New York, New York 10006-1404 | |
|
|
Attention:Tony Cowart |
|
|
Telephone: 212/428-6291 | |
|
|
Facsimile: 212/428-2304 | |
|
|
||
|
|
With a copy to: | |
|
|
Old Line Funding, LLC | |
|
|
One Little Falls Centre | |
|
|
2711 Centerville Road | |
|
|
Suite 215 | |
|
|
Wilmington, DE 19808 | |
|
|
Attn: Kim Wagner | |
|
|
Tel: (302) 892-5903 | |
|
|
Fax: (302) 892-5900 | |
|
|
E-mail: conduit_administration@rbccm.com | |
|
|
E-mail CC: Kevin.Wilson@rbccm.com | |
|
|
||
|
|
Payment Information: | |
|
|
||
|
|
Deutsche Bank Trust Company Americas | |
|
|
ABA #021-001-033 | |
|
|
Account Name: Old Line Funding Corporation | |
|
|
Account # 048-72-850 | |
|
|
Reference: Kim Sukdeo/Arrow Electronics | |
|
|
(212) 602-1263 | |
|
|
||
|
(7)
|
Wachovia Bank, National Association | |
|
|
as Funding Agent for Blue Ridge Asset Funding Corporation | |
|
|
201 South College Street | |
|
|
Charlotte, NC 28288 | |
|
|
Attention: Sherry McInturf | |
|
|
Telephone: (704) 715-1125 | |
|
|
Fax: (404) 332-5152 | |
|
|
||
|
|
Payment Information: | |
|
|
||
|
|
First Union National Bank | |
|
|
ABA# 053000219 | |
|
|
Acct. Name: CP Liability Account | |
|
|
Account Number: 2000010384921 | |
|
|
Reference: Arrow Electronics |
If to the SPV :
|
Arrow Electronics Funding Corporation
|
|
7459 South Lima Street
|
|
Building 2
|
|
Englewood, Colorado 80112
|
|
Telephone:
|
|
Facsimile:
|
|
|
|
Payment Information:
|
|
Chase Manhattan Bank
|
|
ABA 021 000 021
|
|
Account No. 323-1-96500
|
|
Reference A/R Securitization Funding
|
|
|
|
If to Arrow or the Master Servicer:
|
|
|
|
Arrow Electronics, Inc.
|
|
50 Marcus Drive
|
|
Melville, New York 11747
|
|
Telephone: (631) 847-1657
|
|
Facsimile: (631) 847-5379
|
|
Payment Information:
|
|
|
|
Chase Manhattan Bank
|
|
New York, NY
|
|
ABA 021000021
|
|
Account No. 144-0-91175
|
|
|
|
If to the Administrative Agent:
|
|
|
|
Bank of America, National Association
|
|
NC1-027-19-01
|
|
214 North Tryon Street, 19
th
Floor
|
|
Charlotte, NC 28255
|
|
Attention: Global Asset Backed Securitization Group; Portfolio Management
|
|
Attention: Charu Mani
|
|
Telephone: 704/683-4692
|
|
Facsimile: 704/388-9169
|
|
|
|
Additional copy of Master Servicer Report, Investment Request to be delivered to:
|
|
|
|
Bank of America, National Association,
|
|
as Administrator
|
|
NC1-027-19-01
|
|
214 North Tryon Street
|
|
Charlotte, NC 28255
|
|
Attention: Global Asset Backed Securitization Group; Portfolio Management, Tim Pacitto
|
|
Telephone: 704/388-9464
|
|
Facsimile: 704/388-0027
|
|
Email: timothy.pacitto@bankofamerica.com
|
|
Payment Information:
|
|
|
|
Collection Account
|
|
|
|
ABA 026009593
|
|
Account Name: BA as Agent for Investors — Collection Account (Arrow)
|
|
Account No. 0006 8765 0051
|
|
Reference: Arrow Electronics
|
|
|
|
Funding Account
|
|
|
|
ABA 026009593
|
|
Account Name: BA as Agent for Investors — Arrow Electronics
|
|
Account No. 0006 8765 0048
|
|
Reference: Arrow Electronics
|
|
ARROW ELECTRONICS, INC.
|
FORM 10-K — EXHIBIT 21 |
ARROW ELECTRONICS, INC. & SUBSIDIARIES
Organizational (Legal Entity) Structure
As of December 31, 2004
1. Arrow Electronics, Inc. a New York corporation
2. Arrow Electronics International, Inc., a Virgin Islands corporation
3. Arrow Electronics Canada Ltd., a Canadian corporation
4. 10556 Newfoundland Limited, a Newfoundland company
5. Schuylkill Metals of Plant City, Inc., a Delaware corporation
6. Arrow Electronics International, Inc., a Delaware corporation
7. Hi-Tech Ad, Inc., a New York corporation
8. Gates/Arrow Distributing, Inc., a Delaware corporation
A) Midrange Open Computing Alliance, Inc., a Delaware corporation
B) SN Holding, Inc. a Delaware corporation
1) Support Net, Inc., an Indiana corporation
C) SBM Holding, Inc., a Delaware corporation
1) Scientific & Business Minicomputers, Inc., a Georgia corporation
9. Consan Inc., a Minnesota corporation
10. Arrow Electronics (Delaware), Inc., a Delaware corporation
11. Arrow Electronics Global Financial Solutions, Inc.
12. Arrow Electronics Funding Corporation, a Delaware corporation
13. Arrow Electronics Real Estate Inc., a New York corporation
14. Arrow Electronics (U.K.), Inc., a Delaware corporation
A) Arrow Electronics (Sweden) KB, a Swedish partnership (98% owned)
B) Arrow Electronics South Africa, LLP (1% owned)
C) Arrow Electronics EMEASA, Inc., a Delaware company
D) Arrow Holdings (Delaware) LLC
1) Arrow International Holdings L.P. (1% owned)
E) Arrow International Holdings L.P., a Cayman company (99% owned)
1) B.V. Arrow Electronics DLC, a Netherlands company
a) Arrow Electronics UK Holding Ltd., a UK company
1. Arrow Electronics (UK) Ltd., a UK company
2. Arrow Northern Europe Ltd., a UK company
a) Jermyn Holdings, Ltd., a UK company (dormant)
| 1) | Hawke Electronics, Ltd., a UK company (dormant) | |||
| 2) | Impulse Electronics, Ltd., a UK company (dormant) | |||
| 3) | Invader Electromechanical Distribution, Ltd., a UK company (dormant) | |||
| 4) | Jermyn Development, Ltd., a UK company (dormant) | |||
| 5) | Jermyn Distribution, Ltd., a UK company (dormant) | |||
| 6) | Jermyn Electronics, Ltd., a UK company (dormant) | |||
| 7) | Jermyn Manufacturing, Ltd., a UK company (dormant) | |||
| 8) | Mogul Electronics, Ltd., a UK company (dormant) | |||
b) RR Electronics, Ltd., a UK company (dormant)
| 1. | Arrow Electronics, Ltd., a UK company (dormant) |
1
ARROW ELECTRONICS, INC. & SUBSIDIARIES
Organizational (Legal Entity) Structure
As of December 31, 2004
c) Techdis, Ltd., a UK company (dormant)
| 1) | Microprocessor & Memory Distribution, Ltd., a UK Company (dormant) | |||
| 2) | Rapid Silicon, Ltd., a UK company (dormant) | |||
| 3) | Tekdis, Ltd., a UK company (dormant) | |||
| 4) | Tecdis, Ltd., a UK company (dormant) | |||
d) Axiom Electronics, Ltd., a UK company (dormant)
3. Multichip Ltd., a UK company
a) Microtronica Ltd.
b) Arrow Europe GmbH, a German company
1) Arrow Holding South Europe S.r.l., an Italian company (95% owned)
a) EDI Electronics Distribution International France, S.A., a French company
1) Arrow Electronique S.A., a French company (22.59% owned)
a) Arrow Computer Products S.N.C., a French company
1.Multichip GmbH, a German company
b) Arrow Electronique S.A., a French company (77.41% owned)
c) Silverstar S.r.l., an Italian company
| 1) | I.R. Electronic D.O.O., a Slovenian company | |||
| 2) | Arrow Elektronik Ticaret, A.S., a Turkish company | |||
| 3) | Arrow Electronics Hellas S.A., a Greek company | |||
| 4) | Distar Srl | |||
| 5) | Adecom Service S.r.l., an Italian company (51% owned) | |||
| 6) | Algol (4% owned) | |||
d) Arrow Iberia Electronica, S.L.U., a Spanish company
| 1) | Arrow Iberia Electronica Lda., a Portugal company | |||
| 2) | ATD Electronica LDA, a Portugal company (dormant) | |||
2) Arrow Electronics Danish Holdings ApS, a Danish company
a) Arrow Norwegian Holdings AS, a Norweigian company
| 1) | Arrow Electronics Estronia OU, an Estonian company | |||
| 2) | Jacob Hatteland Electronic II AS, a Norwegian company | |||
| 3) | Arrow Finland OY, a Finnish company | |||
| 4) |
Arrow Denmark ApS, a Danish company
|
|||
| 5) | Arrow Components Sweden AB, a Swedish company | |||
a) Arrow Nordic Components AB, a Swedish company
| 6) | Arrow Norway A/S, a Norwegian company |
3) Spoerle Electronic GmbH, a German company
a) Spoerle Electronic Distribution International GmbH, a German company
| 1) | E.D.I. Electronic Distribution International GmbH, a German company | |||
| 2) | Industrade AG, a Swiss company | |||
| 3) | SEDI Hungary Kerekedelmi Kft, a Hungarian company (99% owned) | |||
| 4) | Spoerle Kft, a Hungarian company | |||
a) SEDI Hungary Kerekedelmi Kft, a Hungarian company (1% owned)
2
ARROW ELECTRONICS, INC. & SUBSIDIARIES
Organizational (Legal Entity) Structure
As of December 31, 2004
| 5) | Tekpar S.p.r.l., a Belgian company (dormant) |
b) Proelectron Baulelemente-Vertriebs- Gesellschaft MbH, a German company
c) Microtronica Handelsgesellchaft fur Components Gerate und Systeme mbH, a German company
d) Unielectronic GmbH, a German company
e) Sasco Vertrieb von elektronischen Bauelementen GmbH, a German company
f) Integra Handelsgesellschaft, mbH, a German company
g) DLC Distribution Logistic Center GmbH, a German company (dormant)
h) Spoerle Electronic spol s.r.o., a Czech company
i) Spoerle Electronic Polska Sp.z.o.o., a Polish company
j) Spoerle Eastern Europe GmbH
k) Disway AG
| 1) | Holz GmbH |
a) Holz GmbH (Austria)
b) Holz GmbH (Switzerland)
4) Power and Signal Group GmbH, a German company
c) Arrow Electronics (Sweden) KB, a Swedish partnership (2% owned)
d) Arrow Electronics Management Holdings GmbH, a German company (dormant)
e) Arrow Holding South Europe S.r.l., an Italian company (5% owned)
f) ARW Electronics, Ltd., an Israeli company
1) Arrow/Rapac, Ltd, an Israeli company (51% owned)
15. Arrow Electronics South Africa LLP (99% owned), a South African limited partnership
16. Arrow Altech Holdings (Pty) Ltd. (50.1% owned), a South African company
A) Arrow Altech Distribution (Pty) Ltd., a South African company
B) Erf 211 Hughes (Pty) Limited, a South African company
17. Panamericana Comercial Importadora S.A., a Brazilian company (66.67% owned)
18. Elko C.E., S.A., an Argentinean company (82.63% owned) and subsidiary
A) TEC-Tecnologia Ltda, a Brazilian company (99.99% owned)
19. Eurocomponentes, S.A., an Argentinean company (70% owned)
20. Macom, S.A., an Argentinean company (70% owned)
21. Compania de Semiconductores y Componentes, S.A., an Argentinean company (70% owned)
22. Components Agent (Cayman) Limited, a Cayman Islands company)
A. Arrow/Components (Agent) Ltd., a Hong Kong company
B. Arrow Electronics China Ltd., a Hong Kong company
1) Arrow Electronics (Shanghai) Co. Ltd., a Chinese company
2) Arrow Electronics (Shenzhen) Co. Ltd., a Chinese company
3) Arrow Electronics Distribution (Shanghai) Co. Ltd., a Chinese company
C) Arrow Electronics Asia Limited, a Hong Kong company
D) Arrow Electronics (S) Pte Ltd, a Singaporean company
E) Intex-semi Ltd., a Hong Kong company
F) Arrow Electronics Asia (S) Pte Ltd., an Singapore company
1) Arrow Electronics (Thailand) Limited, a Thailand company
G) Arrow Electronics India Ltd., a Hong Kong company
3
ARROW ELECTRONICS, INC. & SUBSIDIARIES
Organizational (Legal Entity) Structure
As of December 31, 2004
H) Microtronica (HK) Ltd., a Hong Kong company
I) Microtronica (S) Pte. Ltd., a Singaporean company
J) Microtronica (M) Sdn Bhd., a Malaysian company
K) Arrow Asia Pac Ltd., a Hong Kong company
L) Kingsview Ltd., a British Virgin Islands company
M) Hotung Ltd., a British Virgin Islands company
N) Components Agent Asia Holdings, Ltd., a Mauritius company
1) Arrow Electronics India Private Limited, an Indian company
O) Arrow Strong Electronics (M) Sdn. Bhd., a Malaysian company
P) Arrow/Texny (H.K.) Limited, a Hong Kong company
Q) Arrow Electronics ANZ Holdings Pty Ltd, an Australian company
1) Arrow Electronics Holdings Pty Ltd., an Australian company
a) Arrow Electronics Australia Pty Ltd., an Australian company
1) Microtronica (Australia) Pty Ltd., an Australian company
2) Arrow Components (NZ), a New Zealand Company
R) Arrow Electronics Labuan Pte Ltd, a Malaysian company
a) Arrow Electronics Korea Limited, a South Korean company
S) Arrow Components (M) Sdn Bhd, a Malaysian company
T) Arrow Electronics Taiwan, Ltd., a Taiwanese company (99.67% owned)
1) Strong Pte, Ltd., a Singaporean company
2) Lite-On Korea, Ltd., a Korean company (48.58% owned)
3) TLW Electronics, Ltd., a Hong Kong company TLW Electronics, Ltd., a Hong Kong company
a) Waily Technology, Ltd., a Hong Kong company
b) Lite-On Korea, Ltd., a Korean company (51.42% owned)
c) Arrow Strong Electronics (S) Pte, Ltd., a Singaporean company (48% owned)
4) Arrow Strong Electronics (S) Pte, Ltd., a Singaporean company (52% owned)
5) Creative Model Limited, a Hong Kong company
23. Arrow Asia Distribution Limited, a Hong Kong company
24. Arrow Electronics Logistics Sdn Bhd, a Malaysia company
25. Arrow Electronics (CI) Ltd., a Cayman Islands company
A) Marubun/Arrow Asia Ltd., a British Virgin Islands company (50% owned)
1) Marubun/Arrow (HK) Limited, a Hong Kong company
a) Marubun/Arrow (Shanghai) Co., Ltd, a Chinese company
2) Marubun/Arrow (S) Pte Ltd., a Singaporean company
a) Marubun/Arrow (Thailand) Co. Ltd., a Thailand company
b) Marubun/Arrow (Philippines) Inc., a Filipino company
26. Marubun/Arrow USA, LLC, a Delaware limited liability company (50% owned)
27. Arrow Electronics Mexico, S. de R.L. de C.V., a Mexican company
28. Dicopel, Inc., a U.S. company (80% owned)
29. Dicopel S.A. de C.V., a Mexican company (80% owned)
30. Wyle Electronics, Inc., a Barbados company
31. Wyle Electronics de Mexico S de R.L. de C.V., a Mexican company
32. Wyle Electronics Caribbean Corp., a Puerto Rican company
4
ARROW ELECTRONICS, INC. & SUBSIDIARIES
Organizational (Legal Entity) Structure
As of December 31, 2004
33. eChipsCanada, Inc., a Canadian company
34. Marubun Corporation, a Japanese company (8.42% owned)
35. World Peace Industrial Co., Ltd., a Taiwanese company (5.0% owned)
5
EXHIBIT 23
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in the following Registration Statements
and related prospectuses of Arrow Electronics, Inc. listed
below of our reports dated March 16, 2005, with respect to the
consolidated financial statements and schedule of Arrow Electronics,
Inc., Arrow Electronics, Inc. management’s assessment of the effectiveness of internal
control over financial reporting, and the effectiveness of internal
control over financial reporting of Arrow Electronics, Inc.,
included in this Annual Report (Form 10-K) for the year ended
December 31, 2004:
/s/ ERNST & YOUNG LLP
1.
Registration Statement (Form S-8 No. 333-118563)
2.
Registration Statement (Form S-8 No. 333-101533)
3.
Registration Statement (Form S-8 No. 333-101534)
4.
Registration Statement (Form S-8 No. 33-61121)
5.
Registration Statement (Form S-8 No. 333-52872)
6.
Registration Statement (Form S-8 No. 333-37704)
7.
Registration Statement (Form S-8 No. 333-70343)
8.
Registration Statement (Form S-8 No. 333-45631)
9.
Registration Statement (Form S-8 No. 33-55565)
10.
Registration Statement (Form S-8 No. 33-66594)
11.
Registration Statement (Form S-8 No. 33-48252)
12.
Registration Statement (Form S-8 No. 33-20428)
13.
Registration Statement (Form S-8 No. 2-78185)
14.
Registration Statement (Form S-3 No. 333-38692)
15.
Registration Statement (Form S-3 No. 333-50572)
16.
Registration Statement (Form S-4 No. 333-51100)
17.
Registration Statement (Form S-3 No. 333-91387)
18.
Registration Statement (Form S-3 No. 333-52695)
19.
Amendment No. 1 to the Registration Statement (Form S-3 No. 333-19431)
20.
Amendment No. 1 to the Registration Statement (Form S-3 No. 33-54473)
21.
Amendment No. 1 to the Registration Statement (Form S-3 No. 33-67890)
22.
Amendment No. 1 to the Registration Statement (Form S-3 No. 33-42176)
New York, New York
March 16, 2005
Exhibit 31(i)
Arrow Electronics, Inc.
Sarbanes-Oxley Act of 2002
I, William E. Mitchell, President and Chief Executive Officer, certify that:
| 1. |
I have reviewed this annual report on Form 10-K for the
year ended December 31, 2004 of Arrow Electronics, Inc.
(the “registrant”);
|
|||
| 2. |
Based on my knowledge, this report does not contain any
untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in
light of the circumstances under which such statements
were made, not misleading with respect to the period
covered by this report;
|
|||
| 3. |
Based on my knowledge, the financial statements, and
other financial information included in this report,
fairly present in all material respects the financial
condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this
report;
|
|||
| 4. |
The registrant’s other certifying officer and I are
responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules
13a-15(e) and 15d-15(e)) and internal control over
financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f)) for the registrant and have:
|
|||
| a) |
designed such disclosure
controls and procedures,
or caused such disclosure
controls and procedures
to be designed under our
supervision, to ensure
that material information
relating to the
registrant, including its
consolidated
subsidiaries, is made
known to us by others
within those entities,
particularly during the
period in which this
report is being prepared;
|
|||
| b) |
designed such internal
control over financial
reporting, or caused such
internal control over
financial reporting to be
designed under our
supervision, to provide
reasonable assurance
regarding the reliability
of financial reporting
and the preparation of
financial statements for
external purposes in
accordance with generally
accepted accounting
principles;
|
|||
| c) |
evaluated the
effectiveness of the
registrant’s disclosure
controls and procedures
and presented in this
report our conclusions
about the effectiveness
of the disclosure
controls and procedures,
as of the end of the
period covered by this
report based on such
evaluation; and
|
|||
| d) |
disclosed in this report
any change in the
registrant’s internal
control over financial
reporting that occurred
during the registrant’s
fourth fiscal quarter
that has materially
affected, or is
reasonably likely to
materially affect, the
registrant’s internal
control over financial
reporting; and
|
|||
| 5. |
The registrant’s other certifying officer and I have
disclosed, based on our most recent evaluation of
internal control over financial reporting, to the
registrant’s auditors and the audit committee of the
registrant’s board of directors:
|
| a) |
all significant
deficiencies and material
weaknesses in the design
or operation of internal
control over financial
reporting which are
reasonably likely to
adversely affect the
registrant’s ability to
record, process,
summarize and report
financial information;
and
|
|||
| b) |
any fraud, whether or not
material, that involves
management or other
employees who have a
significant role in the
registrant’s internal
control over financial
reporting.
|
|||
|
Date:
March 16, 2005
|
By: |
/s/ William E. Mitchell
William E. Mitchell President and Chief Executive Officer |
Exhibit 31(ii)
Arrow Electronics, Inc.
Sarbanes-Oxley Act of 2002
I, Paul J. Reilly, Vice President and Chief Financial Officer, certify that:
| 1. |
I have reviewed this annual report on Form 10-K for the
year ended December 31, 2004 of Arrow Electronics, Inc.
(the “registrant”);
|
|||
| 2. |
Based on my knowledge, this report does not contain any
untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in
light of the circumstances under which such statements
were made, not misleading with respect to the period
covered by this report;
|
|||
| 3. |
Based on my knowledge, the financial statements, and
other financial information included in this report,
fairly present in all material respects the financial
condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this
report;
|
|||
| 4. |
The registrant’s other certifying officer and I are
responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules
13a-15(e) and 15d-15(e)) and internal control over
financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f)) for the registrant and have:
|
|||
| a) |
designed such disclosure
controls and procedures,
or caused such disclosure
controls and procedures
to be designed under our
supervision, to ensure
that material information
relating to the
registrant, including its
consolidated
subsidiaries, is made
known to us by others
within those entities,
particularly during the
period in which this
report is being prepared;
|
|||
| b) |
designed such internal
control over financial
reporting, or caused such
internal control over
financial reporting to be
designed under our
supervision, to provide
reasonable assurance
regarding the reliability
of financial reporting
and the preparation of
financial statements for
external purposes in
accordance with generally
accepted accounting
principles;
|
|||
| c) |
evaluated the
effectiveness of the
registrant’s disclosure
controls and procedures
and presented in this
report our conclusions
about the effectiveness
of the disclosure
controls and procedures,
as of the end of the
period covered by this
report based on such
evaluation; and
|
|||
| d) |
disclosed in this report
any change in the
registrant’s internal
control over financial
reporting that occurred
during the registrant’s
fourth fiscal quarter
that has materially
affected, or is
reasonably likely to
materially affect, the
registrant’s internal
control over financial
reporting; and
|
|||
| 5. |
The registrant’s other certifying officer and I have
disclosed, based on our most recent evaluation of
internal control over financial reporting, to the
registrant’s auditors and the audit committee of the
registrant’s board of directors:
|
| a) |
all significant
deficiencies and material
weaknesses in the design
or operation of internal
control over financial
reporting which are
reasonably likely to
adversely affect the
registrant’s ability to
record, process,
summarize and report
financial information;
and
|
|||
| b) |
any fraud, whether or not
material, that involves
management or other
employees who have a
significant role in the
registrant’s internal
control over financial
reporting.
|
|||
|
Date:
March 16, 2005
|
By: |
/s/ Paul J. Reilly
Paul J. Reilly Vice President and Chief Financial Officer |
Exhibit 32(i)
Arrow Electronics, Inc.
Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350,
As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
In connection with the Annual Report on Form 10-K of Arrow Electronics, Inc. (the “company”) for the year ended December 31, 2004 (the “Report”), I, William E. Mitchell, President and Chief Executive Officer of the company, certify, pursuant to the requirements of Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350), that, to the best of my knowledge:
| 1. |
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities
Exchange Act of 1934; and
|
|||
| 2. |
The information contained in the Report fairly presents, in all material respects, the
financial condition and results of operations of the company.
|
|||
|
|
||||
|
Date:
March 16, 2005
|
By: |
/s/ William E. Mitchell
William E. Mitchell President and Chief Executive Officer |
A signed original of this written statement required by Section 906 of the Sarbanes-Oxley Act of 2002 (Section 906), or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to Arrow Electronics, Inc. and will be retained by Arrow Electronics, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.
Exhibit 32(ii)
Arrow Electronics, Inc.
Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350,
As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
In connection with the Annual Report on Form 10-K of Arrow Electronics, Inc. (the “company”) for the year ended December 31, 2004 (the “Report”), I, Paul J. Reilly, Vice President and Chief Financial Officer of the company, certify, pursuant to the requirements of Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350), that, to the best of my knowledge:
| 1. |
The Report fully complies with the requirements of Section 13(a) or 15(d) of
the Securities Exchange Act of 1934; and
|
|||
| 2. |
The information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the company.
|
|||
|
|
||||
|
Date:
March 16, 2005
|
By: |
/s/ Paul J. Reilly
Paul J. Reilly Vice President and Chief Financial Officer |
A signed original of this written statement required by Section 906 of the Sarbanes-Oxley Act of 2002 (Section 906), or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to Arrow Electronics, Inc. and will be retained by Arrow Electronics, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.