ARW

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How ARW rewrote its risk factors

10-K ITEM 1A · FY2024 → FY2025

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Item 1A - Risk Factors in this Annual Report on Form 10-K for further discussion related to tariffs and tariff drawbacks.
Results of Operations Sales by reportable segment Following is an analysis of the company’s sales by reportable segment for the years ended December 31: (millions) 2025 2024 Change Consolidated sales, as reported $ 30,853 $ 27,923 10.5 % Impact of changes in foreign currencies — Non-GAAP consolidated sales $ 30,853 $ 28,322 8.9 % Global components sales, as reported $ 21,501 $ 19,983 7.6 % Impact of changes in foreign currencies — Non-GAAP global components sales $ 21,501 $ 20,189 6.5 % Global ECS sales, as reported $ 9,352 $ 7,940 17.8 % Impact of changes in foreign currencies — Non-GAAP global ECS sales $ 9,352 $ 8,133 15.0 % The sum of the subtotals and percentages within sales, as reported, and sales on a constant currency basis may not agree to totals, as presented, due to rounding. Reportable segment sales by geographic region Following is an analysis of the company’s reportable segment sales by geographic region for the years ended December 31: 2025 2024 (millions) Sales % of Sales Sales % of Sales % Change Americas components sales $ 6,944 22.5 % $ 6,412 23.0 % 8.3 % EMEA components sales 5,671 18.4 % 5,648 20.2 % 0.4 % Asia/Pacific components sales 8,886 28.8 % 7,923 28.4 % 12.1 % Global components sales $ 21,501 69.7 % $ 19,983 71.6 % 7.6 % Americas ECS sales $ 4,231 13.7 % $ 4,067 14.6 % 4.0 % EMEA ECS sales 5,121 16.6 % 3,873 13.8 % 32.2 % Global ECS sales $ 9,352 30.3 % $ 7,940 28.4 % 17.8 % Consolidated sales $ 30,853 100.0 % $ 27,923 100.0 % 10.5 % The sum subtotals and percentages within sales by geographic region and consolidated sales may not agree to totals, as presented, due to rounding. During 2025, consolidated sales increased compared to the year-earlier period due to changes in foreign currencies as well as; Global components sales increased compared to the year-earlier period, primarily due to the following: ● increase in sales in the Americas region primarily due to higher demand for the integrated services offerings, partially offset by a decrease in demand for defense, transportation, and automative verticals; and an ● increase in sales in the Asia/Pacific region primarily due to higher demand for computing, industrial and transportation verticals; Within global ECS, sales increased primarily in the EMEA region, relative to the year-earlier period, mainly due to growth across most major technologies, most notably, cloud-based solutions and infrastructure software, and a shift in sales mix towards more sales recognized on a gross basis.
Refer to Note 1 - “Summary of Significant Accounting Policies” within Item 8.
Gross Billings Following is an analysis of gross billings by geographic region for global ECS for the years ended December 31: (millions) 2025 2024 Change Americas ECS gross billings $ 10,607 $ 10,323 2.7 % EMEA ECS gross billings 11,443 9,205 24.3 % Global ECS gross billings $ 22,050 $ 19,528 12.9 % The sum of the subtotals and percentages within global ECS gross billings may not agree to totals, as presented, due to rounding.
Gross Profit Following is an analysis of the company’s gross profit by reportable segment for the years ended December 31: (millions) 2025 2024 Change Consolidated gross profit, as reported $ 3,467 $ 3,292 5.3 % Impact of wind down to inventory (10) Impact of changes in foreign currencies — Non-GAAP consolidated gross profit $ 3,457 $ 3,407 1.4 % Consolidated gross profit as a percentage of sales, as reported 11.2 % 11.8 % (60) bps Non-GAAP consolidated gross profit as a percentage of sales 11.2 % 12.0 % (80) bps Global components gross profit, as reported $ 2,403 $ 2,332 3.0 % Impact of wind down to inventory (10) Impact of changes in foreign currencies — Non-GAAP global components gross profit $ 2,393 $ 2,417 (1.0) % Global components gross profit as a percentage of sales, as reported 11.2 % 11.7 % (50) bps Non-GAAP global components gross profit as a percentage of sales 11.1 % 12.0 % (90) bps Global ECS gross profit, as reported $ 1,064 $ 10.8 % Impact of changes in foreign currencies — Non-GAAP global ECS gross profit $ 1,064 $ 7.4 % Global ECS gross profit as a percentage of sales, as reported 11.4 % 12.1 % (70) bps Non-GAAP global ECS gross profit as a percentage of sales 11.4 % 12.2 % (80) bps The sum of the subtotals and percentages within non-GAAP gross profit may not agree to totals, as presented, due to rounding. Global components gross profit margins decreased during 2025, compared with the year-earlier period, due to regional mix shifting toward the Asia/Pacific region which generally has lower margins compared to Americas and EMEA regions as well as changes in customer mix within EMEA region and product mix in the Americas region.
Global components supply chain services offerings continued to have a positive impact on gross profit margins.
Global ECS gross profit margins decreased during 2025, compared with the year-earlier period, due to $18.3 million in net losses related to underperformance of certain non-cancellable multi-year purchase obligations and a shift in sales mix towards more sales recognized on a gross basis in the EMEA region.
Operating Expenses Following is an analysis of the company’s operating expenses for the years ended December 31: (millions) 2025 2024 Change Consolidated operating expenses, as reported $ 2,644 $ 2,524 4.8 % Identifiable intangible asset amortization (20) (30) Restructuring, integration, and other (116) (143) Impact of changes in foreign currencies — Non-GAAP consolidated operating expenses $ 2,509 $ 2,383 5.3 % Consolidated operating expenses as a percentage of sales, as reported 8.6 % 9.0 % (40) bps Non-GAAP consolidated operating expenses as a percentage of sales 8.1 % 8.4 % (30) bps Global components operating expenses, as reported $ 1,628 $ 1,591 2.3 % Identifiable intangible asset amortization (16) (25) Impact of changes in foreign currencies — Non-GAAP global components operating expenses $ 1,612 $ 1,583 1.8 % Global components operating expenses as a percentage of sales 7.6 % 8.0 % (40) bps Non-GAAP global components operating expenses as a percentage of sales 7.5 % 7.8 % (30) bps Global ECS operating expenses, as reported $ $ 16.0 % Identifiable intangible asset amortization (4) (4) Impact of changes in foreign currencies — Non-GAAP global ECS operating expenses $ $ 13.2 % Global ECS operating expenses as a percentage of sales 6.8 % 6.9 % (10) bps Non-GAAP global ECS operating expenses as a percentage of sales 6.8 % 6.9 % (10) bps Corporate operating expenses, as reported $ $ (1.1) % Restructuring, integration, and other (116) (143) Non-GAAP corporate operating expenses $ $ 9.3 % The sum of the subtotals and percentages within consolidated operating expenses may not agree to totals, as presented, due to rounding.
Operating expenses increased during 2025 compared to the year-earlier period, primarily due to: ● changes in foreign currencies; ● increase in operating expenses in global components primarily due to higher sales incentives, in line with the increase in sales discussed above; and ● increase in operating expenses for global ECS primarily due to increased employee headcount and higher sales incentives, in line with the increase in sales discussed above, costs to expand the business related to the multi-year non-cancellable purchase obligations discussed above, and a $20.0 million benefit related to the reversal of an allowance for credit losses due to the collection of certain aged receivables related to one customer in 2024 with no similar items recorded in 2025.
These factors were offset by a ● decrease in corporate operating expenses primarily due to a decrease in restructuring, integration and other charges (see discussion below) and reversal of stock-based compensation expense mainly due to equity-award forfeitures, which were partially offset by an increase in professional fees. Restructuring, Integration, and Other Restructuring initiatives and integration costs are related to the company’s continued efforts to lower costs, drive operational efficiency and consolidate certain operations, as necessary.
The company recorded restructuring, integration, and other charges as follows for the years ended December 31: (millions) 2025 2024 Restructuring, integration and related costs Operating Expense Efficiency Plan costs (a) $ $ Other plans Other expenses Operating expense reduction costs not related to restructuring initiatives (b) (1) Environmental remediation liabilities Early lease termination costs Consulting costs (c) — Other charges Total $ $ The sum of the subtotals within restructuring, integration, and other may not agree to totals, as presented, due to rounding.
(a) See details related to the Operating Expense Efficiency Plan discussed below.
(b) These costs are primarily related to employee severance and benefit costs.
As of December 31, 2025, the accrued liabilities related to these costs totaled $15.7 million and substantially all accrued amounts are expected to be spent in cash within two years.
(c) Consulting costs are related to operating expense reduction costs not related to the restructuring initiative. Operating Expense Efficiency Plan On October 31, 2024, in response to evolving business needs and as part of an initiative to optimize operating expenses, the company announced a multi-year restructuring plan (the “Operating Expense Efficiency Plan” or “the Plan”).
The Plan is designed to improve operational efficiency through the following measures: (i) reorganizing and consolidating certain areas of the company’s operations to centralize functions and streamline resources, with a focus on more cost-efficient regions; (ii) enhancing warehouse and logistics operations; (iii) investing in information technology to support automation and process improvements; (iv) consolidating the company’s global real estate footprint; (v) reducing third-party spending; and (vi) winding down certain non-core businesses that are not aligned with the company’s strategic objectives.
The company expects to substantially complete the Plan by the end of fiscal year 2026, subject to, among other things, local legal and consultation requirements. Under the Plan, the company anticipates to incur pre-tax restructuring charges of approximately $200.0 million which is an increase of $15.0 million compared to the original estimate of $185.0 million previously disclosed in Item 2.05 Form 8K filed on October 31, 2024.
While the expected cash charges are in line with original expectations, the increase is primarily related to non-cash write-offs due to changes in foreign currencies.
The composition of these costs will continue to evolve over time the company currently expects to incur approximately $ 100.0 million of employee severance and other personnel cash expenditures; approximately $ 65.0 million of non-cash asset impairments, inventory write-downs and foreign currency translation adjustment write-offs related to the wind down of certain business operations; and approximately $ 35.0 million of other related cash expenditures.
As a result of the company’s philosophy of maximizing operating efficiencies through the centralization of certain functions, restructuring, integration, and related costs are included in the corporate line item for management and segment reporting as they are not attributable to the individual reportable segments. As a result of the Plan, the company expects to reduce annual operating expenses by approximately $90.0 million to $100.0 million by the end of fiscal year 2026.
The estimates of charges or savings related to the Plan could differ materially from actual charges or savings recognized. Refer to Note 9 - “Restructuring, Integration, and Other” within Item 8 for further discussion of the company’s restructuring and integration activities. Operating Income Following is an analysis of the company’s operating income by reportable segment for the years ended December 31: (millions) 2025 2024 Change Consolidated operating income, as reported $ $ 7.0 % Identifiable intangible asset amortization Restructuring, integration, and other Impact of wind down to inventory (10) Non-GAAP consolidated operating income $ $ 1,002 (5.3) % Consolidated operating income as a percentage of sales, as reported 2.7 % 2.8 % (10) bps Non-GAAP consolidated operating income, as a percentage of sales 3.1 % 3.6 % (50) bps Global components operating income, as reported $ $ 4.5 % Identifiable intangible asset amortization Impact of wind down to inventory (10) Non-GAAP global components operating income $ $ (5.6) % Global components operating income as a percentage of sales 3.6 % 3.7 % (10) bps Non-GAAP global components operating income as a percentage of sales 3.6 % 4.1 % (50) bps Global ECS operating income, as reported $ $ 3.9 % Identifiable intangible asset amortization Non-GAAP global ECS operating income $ $ 3.7 % Global ECS operating income as a percentage of sales 4.6 % 5.2 % (60) bps Non-GAAP global ECS operating income as a percentage of sales 4.6 % 5.2 % (60) bps The sum of the subtotals and percentages within consolidated operating income do not agree to totals, as presented, because unallocated corporate amounts are not included in the table above.
Refer to Note 16 - “Segment and Geographic Information” within Item 8 for a reconciliation. The decrease in consolidated operating income as a percentage of sales during 2025 relates primarily to the changes in sales, gross profit margins, and operating expenses discussed above. Gain (loss) on Investments, Net (millions) 2025 2024 Gain (loss) on investments, net $ $ (5) The gain on investments during 2025 is primarily related to a $99.0 million gain on the sale of an investment in certain equity securities.
Refer to Note 3 - “Investments in Affiliated Companies” within Item 8. Interest and Other Financing Expense, Net The company recorded net interest and other financing expense as follows: (millions) 2025 2024 Interest and other financing expense, net $ (215) $ (270) The decrease in interest and other financing expenses, net for 2025 is primarily related to lower interest rates and lower average daily borrowings on floating rate credit facilities.
Refer to the section below titled “Liquidity and Capital Resources” for more information on changes in borrowings.
Income Tax The company records a provision for income taxes for the anticipated tax consequences of the reported financial results of operations using the asset and liability method.
The following table presents the company's effective income tax rate and non-GAAP effective tax rate for the years ended December 31: 2025 2024 Effective income tax rate 20.6 % 19.6 % Identifiable intangible asset amortization 0.1 0.3 Restructuring, integration, and other 0.5 1.2 (Gain) loss on investments, net (0.6) — Impact of wind down to inventory (0.1) 0.7 Impact of TCJA Tax Act settlements 1.2 — Non-GAAP effective income tax rate 21.7 % 21.8 % The sum of the subtotals and percentages within non-GAAP effective income tax rate may not agree to totals, as presented, due to rounding.
The year-over-year change in the effective tax rate for 2025 was primarily driven by a shift in jurisdictional mix of earnings, the impact of foreign currency exchange rate fluctuations in certain locations, the tax treatment of stock-based compensation, an increase in gain on investments and adjustments to reserves for uncertain tax positions.
On July 4, 2025, the One Big Beautiful Bill Act (“OBBBA”) was enacted, significantly amending U.S. federal tax law, including changes to international tax provisions, expensing of research and experimental expenditures, depreciation, and interest deduction rules.
The company does not expect the OBBBA to have a material impact on its effective tax rate.
Net Income Attributable to Shareholders Following is an analysis of the company’s consolidated net income attributable to shareholders for the years ended December 31: (millions) 2025 2024 Net income attributable to shareholders, as reported $ $ Identifiable intangible asset amortization * Restructuring, integration, and other (Gain) loss on investment (110) Impact of wind down to inventory (10) Loss on extinguishment of debt — Tax effect of adjustments above (3) (63) Impact of TCJA Tax Act settlements (8) — Non-GAAP net income attributable to shareholders $ $ The sum of the subtotals within non-GAAP net income attributable to shareholders may not agree to totals, as presented, due to rounding. * Identifiable intangible asset amortization excludes amortization attributable to the noncontrolling interest.
The increase in net income attributable to shareholders in 2025 compared to the year-earlier period relates primarily to gain on investments, net, changes in sales and gross margins, as discussed above, and the impact of TCJA Tax Act settlements.
Liquidity and Capital Resources Management believes that the company’s current cash availability, its current borrowing capacity under its revolving credit facility and asset securitization programs, and its expected ability to generate future operating cash flows are sufficient to meet its projected cash flow needs for the next 12 months and the foreseeable future.
The company’s committed and undrawn liquidity stands at over $2.5 billion in addition to $306.5 million of cash on hand at December 31, 2025.
The company also may issue debt or equity securities in the future and management believes the company will have adequate access to the capital markets, if needed.
The company continually evaluates its liquidity requirements and would seek to amend its existing borrowing capacity or access the financial markets if necessary.
The company’s principal sources of liquidity are existing cash and cash equivalents, cash generated from operations, and cash provided by its revolving credit facilities and debt.
The company’s principal uses of liquidity include cash used in operations, investments to grow working capital, scheduled interest and principal payments on its borrowings, and the return of cash to shareholders through share repurchases.
The following table presents selected financial information related to liquidity at December 31: (millions) 2025 2024 Change Working capital $ 7,437 $ 6,693 $ Cash and cash equivalents Short-term debt — (350) Long-term debt 3,085 2,774 Working Capital The company maintains a significant investment in working capital which the company defines as accounts receivable, net, plus inventories less accounts payable. Working capital, as a percentage of sales, which is defined as working capital divided by annualized quarterly sales, decreased to 21.3% at December 31, 2025 compared to 23.0% at December 31, 2024.
Sales for the fourth quarter of 2025 and 2024 were $8.7 billion and $7.3 billion, respectively.
The decrease in working capital as a percentage of sales was primarily due to the increase in sales. Cash and Cash Equivalents Cash equivalents consist of highly liquid investments, which are readily convertible into cash, with original maturities of three months or less.

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Described below and in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Quantitative and Qualitative Disclosures about Market Risk” are certain risks that the company’s management believes are applicable to the company’s business and the industries in which it operates.
If any one or more of the described events occur, the company’s business, reputation, results of operations, financial condition, stock price, liquidity, or access to the capital markets could be materially adversely affected.
When stated below that a risk may have a material adverse effect on the company’s business, it means that such risk may have one or more of these effects.
There may be additional risks that are not presently material or known.
Business Risks The company’s revenues originate primarily from the sales of semiconductor, IP&E, and IT hardware and software products, the sales of which are traditionally cyclical and may be impacted by shortages and other disruptions in the global supply chain. The semiconductor industry historically has experienced fluctuations in product supply and demand, often associated with changes in technology and manufacturing capacity and significant economic market upturns and downturns.
Sales of semiconductor products and related services represented approximately 53%, 60%, and 60%, of the company’s consolidated sales in 2024, 2023, and 2022, respectively.
The sale of the company’s IP&E products closely tracks the semiconductor market.
Accordingly, the company’s revenues and profitability, particularly in its global components reportable segment, may be, and have been, adversely affected by weakness in the semiconductor market.
During 2023, the company’s global components reportable segment entered a cyclical downturn characterized by declining sales due to elevated customer inventory levels, which were largely a result of the normalization of shortages in electronic components markets towards the end of 2022.
This downturn continued throughout 2024, and its duration and severity, and the related adverse impacts on the company’s results of operations, remain uncertain and difficult to predict.
Additionally, economic weakness could cause a decline in spending in information technology, which could reduce demand for semiconductor-related products and services, thereby negatively impacting the company’s ECS reportable segment.
The current cyclical downturn in semiconductor markets and the technology industry has adversely impacted the company’s business and financial results throughout 2024, and a further prolongation or worsening of such conditions in the future could have a material adverse effect on the company’s business, profitability, and, consequently, stock price.
If the company is unable to maintain its relationships with its suppliers, if the suppliers materially change the terms of their existing agreements with the company or the company fails to abide by the terms of such agreements, if suppliers cease selling their products through distribution generally, or if supply chain shortages and other disruptions occur, the company’s business could be materially adversely affected.
A substantial portion of the company’s inventory is purchased from suppliers with which the company has entered into non-exclusive distribution agreements.
These agreements are typically cancellable at any time or on short notice (generally 30 to 90 days).
Some of the company’s businesses rely on a limited number of suppliers to provide a high percentage of their revenues.
For example, sales of products from one of the company’s suppliers accounted for approximately 8% of the company’s consolidated sales in 2024.
To the extent that the company’s significant suppliers reduce the number of products they sell through distribution or cease selling their products through distribution entirely, experience disruptions in their supply chains, cease to continue doing business with the company, or are unable to continue to meet or significantly alter their obligations, the company’s business could be materially adversely affected.
In addition, to the extent the company’s suppliers modify the terms of their contracts to the detriment of the company, limit supplies due to capacity constraints or other factors, or cancel such contracts or exercise remedies thereunder due to the company’s breach of contract terms, there could be a material adverse effect on the company’s business.
Further, the supplier landscape has continued to experience a consolidation, which could negatively impact the company if the surviving, consolidated suppliers decide to exclude the company from their supply chains, and which could expose the company to increased pricing and dependence on a smaller number of suppliers, among other risks.
Increasing consolidation in the industries where the company’s suppliers operate may occur as companies combine to achieve further economies of scale and other synergies, which could result in reduced supplies, as companies seek to eliminate duplicative product lines and services, and increased prices, which could have a material adverse effect on the company’s business.
The competitive pressures the company faces, such as pricing and margin reductions, could have a material adverse effect on the company’s business.
The company competes for both customers and suppliers in a highly competitive international environment against other large multinational and national electronic components and enterprise computing solutions distributors, as well as numerous other smaller, specialized competitors who generally focus on narrower market sectors, products, or industries.
Such robust competition broadly, and within each market sector and geography, creates pricing and margin pressure and continuous demand for the company to improve service and product offerings.
Additionally, some of the company’s competitors may have more extensive customer and/or supplier bases than the company in one or more of its market sectors.
Other competitive factors include rapid technological changes, product availability, credit availability, speed of delivery, ability to tailor solutions to changing customer needs, quality and depth of product lines and training, and increasing demand for customer service and support.
The company also faces competition from its own suppliers and from companies in the logistics and product fulfillment, catalog distribution, e-commerce, design services, and supply chain services markets.
Reduced pricing power and reduced margins, as well as a failure to adequately address evolving customer demand and otherwise respond to these competitive factors, could adversely impact the company’s results of operations.
As the company continues to expand its business into new areas in order to stay competitive in the market, the company may encounter increased competition from its current and/or new competitors, making it difficult to retain or increase its market share.
Further, supplier consolidation may result in suppliers with greater scale, market presence, and purchasing power.
As a result, distributors such as the company may experience difficulty maintaining favorable pricing and margins and experience related adverse impacts on operating results.
Declines in value of the company’s inventory, or pre-paid IT Solutions, could materially adversely affect its business.
The market for the company’s products and services is subject to rapid technological changes, evolving industry standards, changes in end-market demand, evolving customer expectations and demands, oversupply of product, and regulatory requirements, which can contribute to the decline in value or the obsolescence of the company’s inventory.
Although many of the company’s suppliers provide the company with certain protections from the loss in value of inventory (such as price protection and certain rights of return), the company cannot be sure that (i) such protections will fully compensate it for the loss in value, (ii) the suppliers will choose to, or be able to, honor such agreements, or (iii) the company will be able to continue to secure such protections in the future.
For example, many of the company’s suppliers will not allow products to be returned after they have been held in inventory beyond a certain amount of time, and, in most instances, the return rights are limited to a certain percentage of the amount of products the company purchased in a particular time frame.
Therefore, the company is not fully protected from a decline in the value of the company’s inventory, and such decline could have a material adverse effect on the company’s business. The company, within its ECS reportable segment, has multi-year distribution agreements under which it has non-cancellable payment obligations through 2030, giving the company the right to sell a broad set of IT solutions.
If the company is unable to sell sufficient IT solutions under these agreements to cover our purchase obligations, it could have a material adverse effect on the company’s business. The company’s lack of long-term sales contracts may have a material adverse effect on its business.
Most of the company’s sales are made on an order-by-order basis, rather than through long-term sales contracts.
The company generally works with its customers to develop non-binding forecasts for future orders.
Based on such non-binding forecasts, the company makes commitments regarding the level of business that it will seek and accept, the inventory that it purchases, and the levels of utilization of personnel and other resources.

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Sentence-level comparison of Item 1A in the two most recent 10-Ks (FY2024 ↗, FY2025 ↗). A reworded sentence counts as one dropped and one added, so heavy edits read as low “kept”. Headings and page furniture are stripped; nothing is summarised by a model.

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