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YoY shift: Neutral
Year-over-year tone shift - average net-tone change across Risk Factors and MD&A vs the prior 10-K. This filing is 0.10pp more bullish than last year's.
Why YoY instead of absolute: the LM lexicon has ~6.6× more negative words than positive (legal/risk-disclosure language is heavy on hedging), so every 10-K reads bearish on raw tone. Year-over-year change strips that bias and surfaces the actual shift in management's framing.
Tone shift by section
The two components the gauge averages: how Risk Factors and MD&A each shifted in net tone versus last year's 10-K. The headline above is their average, so a green needle over a soft section just means the other section carried it.
Risk Factors
+0.10pp
Flat
Net-tone change vs last year's 10-K.
MD&A
+0.11pp
Flat
Net-tone change vs last year's 10-K.
Per-snippet highlights
Sentence-level sentiment highlighting with category and subcategory filters is coming once the snippet-scoring pipeline lands. For now, dig into the actual section text on the Sections tab.
Language change vs prior 10-K
Risk Factors (Item 1A) - words with the biggest YoY frequency increase
Negative rising
negatively+6
negative+5
adverse+4
litigation+4
violations+2
Positive rising
improve+1
advantages+1
leadership+1
Risk Factors (Item 1A)
8,856 words
Item 1A. Risk Factors.
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.
Global Operational and Economic Risks
Global and regional economic weakness and uncertainty could have a material adverse effect on the company’s financial performance.
The company’s business and financial performance depend on worldwide economic conditions and the demand for technology products and services in the markets in which the company operates. Global and regional economic weakness, market uncertainty, persistent inflation, and other economic conditions have and in the future could impact net revenue, gross margins, earnings, growth rates, and cash flows; result in increased expenses and interest rates; and cause in managing inventory levels, collecting customer receivables, and forecasting revenue, gross margin, cash flows and expenses.
Language change vs prior 10-K
MD&A (Item 7) - words with the biggest YoY frequency increase
Negative rising
disruption+2
losses+1
failure+1
claims+1
negatively+1
Positive rising
gain+4
benefit+2
leading+1
enhance+1
enabled+1
MD&A (Item 7)
9,100 words
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations .
This section of the Form 10-K generally discusses 2025 and 2024 items and year-to-year comparisons between 2025 and 2024. Discussions of 2023 items and year-to-year comparisons between 2024 and 2023 that are not included in this Form 10-K can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2024.
Information Relating to Forward-Looking Statements
This report includes “forward-looking statements,” as the term is defined under the federal securities laws. Forward-looking statements are those statements which are not statements of historical or current fact. These forward-looking statements can be identified by forward-looking words such as “expects,” “anticipates,” “intends,” “plans,” “may,” “will,” “would,” “could,” “believes,” “seeks,” “projected,” “potential,” “estimates,” and similar expressions. These forward-looking statements are subject to numerous assumptions, risks, and uncertainties, which could cause actual results or facts to differ materially from such statements for a variety of reasons, including, but not limited to: unfavorable economic conditions or changes, including those that may occur in connection with recession, inflation, tax rates, foreign currency exchange rates, or the availability of capital; political instability and changes; impacts of military and sanctions; trade protection measures, tariffs, increased trade tensions, trade agreements and policies, and other restrictions, duties, and value-added taxes, and the associated macroeconomic impacts; , , or in the supply chain; non-compliance with certain laws, regulations, or executive orders, such as trade, export, , and anti- laws, or regulatory restrictions relating to the company or its subsidiaries or the permissibility of third-parties to transact therewith; the to realize sufficient sales to cover non-cancellable purchase obligations under certain ECS distribution agreements; management transitions, including the company’s search for a permanent CEO; the incurrence of charges or to realize contemplated cost savings in connection with the Operating Expense Plan; changes in product supply, pricing, and customer demand; increased profit-margin pressure resulting from industry conditions, competition, or other factors; changes in relationships with key suppliers; other vagaries in the global components and the global ECS markets; changes to applicable laws, regulations, executive orders, or rules relating to government contractors and the resulting legal and reputational exposure, including but not limited to those relating to environmental, social, governance, cybersecurity, data privacy, and artificial intelligence issues; commercial , patent , product liability lawsuits, or other legal proceedings; foreign tax and other contingencies; , , or compromise of the company’s information systems or those of a third-party service provider, including use or disclosure of company, supplier, or customer information; outbreaks, epidemics, pandemics, or public health ; the effects of natural or man-made events; and the company’s ability to generate cash flow. For a further discussion of these and other factors that could cause the company’s future results to differ materially from any forward-looking statements, see the section entitled “Risk Factors” in this Annual Report on Form 10-K, as well as in other filings the company makes with the SEC. Shareholders and other readers are not to place 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.
Political developments impacting international trade, trade disputes and increased tariffs, particularly between the United States and China; political instability, such as wars or other armed conflicts; and the effects of epidemics, pandemics, or other public health crises may negatively impact markets and cause weaker macroeconomic conditions, reducing demand for the company’s products and services, particularly due to the company’s extensive international operations and business. Economic downturns may necessitate further restructuring actions, which could have a material adverse effect on the company’s business.
The company’s non-U.S. sales represent a significant portion of its revenues, and consequently, the company is exposed to risks associated with operating internationally.
In 2025, 2024, and 2023, approximately 66%, 65%, and 66%, respectively, of the company’s sales came from its operations outside the United States. As a result of the significant extent of the company’s international business and operations, the company is subject to a variety of risks, including:
import and export regulations that could erode profit margins or restrict international sales and transportation of products;
potential social unrest, military conflicts, government shutdowns and disruptions, and other geopolitical risks and uncertainties;
the burden and cost of compliance with international laws, regulations, treaties, and technical standards, including, without limitation, with respect to tax;
currency fluctuations;
trade protection measures, import and export tariffs and other restrictions, duties, and value-added taxes;
potential restrictions on transfers of funds;
transportation delays and interruptions;
uncertainties arising from local business practices and cultural considerations;
foreign laws that potentially discriminate against or disfavor companies headquartered outside the relevant jurisdiction;
stringentantitrust regulations in local jurisdictions;
volatility associated with sovereign debt of certain countries;
various jurisdictions’ environmental protection laws and regulations, including those related to climate change and sustainability disclosures; and
non-compliance with local laws.
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See also “ The company is subject to laws, regulations, and executive orders that could have a negative impact on the company’s business, including, without limitation, export and import controls, tariffs, sanctions, embargoes, international trade restrictions, anti-corruption laws, and anti-money laundering laws. In the event of non-compliance, the company could face serious consequences, that could harm its business .” Refer to “Foreign Currency Exchange Rate Risk” in Item 7.A Quantitative and Qualitative Disclosures About Market Risk for a further discussion of the company’s description of the impacts of foreign currency exchange rates on the company’s results and projections.
Business Risks
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 business offerings rely on a limited number of suppliers to provide a high percentage of revenues. For example, sales of products from one of the company’s suppliers accounted for approximately 8% of the company’s consolidated sales in 2025. To the extent that the company’s significant suppliers reduce the number of products they sell through distribution, cease selling their products through distribution entirely, experience disruptions in their supply chains, cease doing business with the company, or are unable to continue to meet 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 adverse remedies thereunder due to an actual or perceived breach of contract terms by the company, there could be a material adverse effect on the company’s business.
Further, the supplier landscape has continued to experience 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 business advantages, 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 region and market sector, 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 regions and/or 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 to stay competitive in the market, the company may encounter increased competition from 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.
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As a result, distributors such as the company may experience difficulty maintaining favorable pricing and margins and experience related adverse impacts on operating results.
The company’s success depends upon its ability to attract, retain, motivate, and develop key executive and employee talent.
Any failure to attract, retain, motivate, and develop key executive and employee talent may materially and adversely affect the company’s business.
The company’s success depends, to a significant extent, on the capability, expertise, and continued service of its key executives and employees. The company relies on the expertise and experience of certain key executives and employees in developing business strategies, managing business operations, and cultivating new and maintaining existing relationships with customers and suppliers. If the company were to lose any of its key executives or employees, it may not be able to find a suitable replacement with comparable knowledge and experience in a timely manner, or if at all, at a similar level of remuneration and other benefits.
The company is currently conducting a search for a permanent President and CEO, following the appointment of William F. Austen as Interim President and CEO on September 16, 2025. Changes to executive leadership may create uncertainty, divert resources and management attention, or impact public or market perception, any of which could negatively impact the company's ability to operate effectively or execute its strategies and result in an adverse impact on its business. Further, new executives may have different backgrounds, experiences, and perspectives than the previous executives and thus may have different views on the company’s strategy and other significant matters, potentially resulting in employee, customer, and supplier uncertainty.
The company relies on its employee workforce to execute the business strategy, service customers and suppliers, and perform daily operations. From time to time, and most recently in connection with the Operating Expense Efficiency Plan, the company has and may need to reduce the size of its workforce in response to adverse market conditions or for strategic business realignment. Such workforce reductions may adversely affect the morale and performance of remaining employees as well as the company’s ability to attract, motivate, retain, and develop skilled personnel, which could have a significant impact on the company’s operations and financial condition.
Restrictions on immigration or changes in immigration laws could have adverse impacts on macroeconomic conditions, limit the company’s access to qualified and skilled professionals, increase the cost of doing business, delay international business travel, or otherwise disrupt operations.
Overestimating customer demand for certain products or a decline in the value of the company’s inventory or pre-paid IT solutions could materially adversely affect the company’s 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 some 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 againstadverse shifts in customer demand or declines in the value of its inventory, which could result in increased inventory-management costs, write-downs, or write-offs, which could have a material negative effect on the company’s assets and operations.
The company, within global ECS, has multi-year distribution agreements under which it has non-cancellable purchase obligations through 2032, giving the company the right to sell certain IT solutions in specific regions. In 2025, the company recorded net losses of $18.3 million due to lower demand and profit expectations on certain contracts, which negatively
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impacted the company’s gross profit margins. If the sales under these or other agreements do not meet the company’s purchase obligations in future periods, the company’s business and results of operations could be materially negatively affected. Refer to “Business environment and other trends” in Item 7 for a further discussion of these multi-year distribution agreements.
If the company fails to successfully invest in and implement digital, AI, and other technological developments, or its suppliers are not able to continue to offer competitive components and electronic computing solutions, it could materially adversely impact results.
The company’s industry is subject to rapid and significant technological changes, and the company’s ability to meet its customers’ needs and expectations is key to the company’s ability to grow sales and earnings. The company’s customers and suppliers increasingly expect the company’s platforms to include digital technologies to facilitate distribution of components and electronic computing solutions. For example, the ability of customers to access their accounts, place orders, and otherwise interface with the company using digital technology is an important aspect of the distribution industry, and distribution companies are rapidly introducing new digital and other technology-driven products and services that aim to improve customer experience and reduce costs. If the company is unable to sufficiently maintain and enhance its digital platforms, cloud platforms, and AI tools to keep pace with competitors and align with evolving customer and supplier expectations and demands, there could be an adverse impact on the company’s sales revenues and ability to retain existing, and attract new, customers. Additionally, the company has made, and may continue to make, acquisitions of, or investments in new services or technologies to expand its current service offerings and product lines, which may involve risks that may differ from those traditionally associated with the company’s core business. See also “ Acquisitions, divestitures, or joint ventures may cause the company to experience operating difficulties and other consequences that may negatively impact the company’s business, financial condition, and operating results, and the company may not be able to successfully consummate favorable transactions or integrate acquired businesses. ”
The company’s sales are also partially dependent on continued innovations in components and electronic computing solutions by its suppliers, the competitiveness of its suppliers’ offerings, and the company’s ability to partner with new and emerging technology providers. As a result, the company may have difficulty offering components, services, and solutions that anticipate and respond to rapid and continuing changes in technology and meet customers’ evolving demands. See also “ The competitive pressures the company faces, such as pricing and margin reductions, could have a material adverse effect on the company’s business. ”
Additionally, laws and regulations concerning the use of AI are rapidly evolving and create uncertainty. Compliance with these laws and regulations may impose significant operational costs or limit the manner in which the company can utilize systems that incorporate AI technologies.
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 50%, 53%, and 60%, of the company’s consolidated sales in 2025, 2024, and 2023, 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, have been, and may be, adversely affected by weakness in the semiconductor market. During 2023, the company’s global components reportable segment entered a cyclical downturn that endured throughout 2024 and part of 2025, characterized by declining sales due to elevated customer inventory levels, which were largely a result of the normalization of shortages in electronic components markets toward the end of 2022. A cyclical downturn in semiconductor markets and the technology industry has adversely impacted the company’s business and financial results in the past, and a recurrence of such conditions in the future could have a material adverse effect on the company’s business, profitability, and, consequently, stock price.
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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. A variety of conditions over which the company has little or no control, both specific to each customer or generally affecting each customer’s industry or the broader market, may cause customers to cancel, reduce, or delay orders that were previously made or anticipated, file for bankruptcy protection; or default on their payments owed to the company, which could materially adversely affect the company’s business.
If the company is unable to implement its Operating Expense Efficiency Plan effectively, it could materially adversely impact financial results.
In 2024, the company began a multi-year restructuring plan (the “Operating Expense Efficiency Plan” or the “Plan”) designed to improve operational efficiency through various measures, including reduction and relocation of parts of the company’s employee workforce. For further discussion of the Plan, refer to Note 9 - “Restructuring, Integration, and Other” within Item 8.
The Operating Expense Efficiency Plan could adversely impact the company due to any of the following: a decrease in employee morale; difficulty hiring qualified employees; current cost-effective regions becoming more expensive; inefficiency due to geographic segmentation of employees and operations; disruptions in operations; delays in finalizing the scope of, and implementing, the restructuring; failure to achieve targeted cost savings; failure to meet operational targets and customer requirements; failure to manage supplier relationships; and failure to maintain adequate internal control over financial reporting. These risks are further complicated by the company’s extensive international operations, which subject the company to different legal and regulatory requirements that govern the extent and speed of the company’s ability to reduce or consolidate its operations and workforce. See also “ The company’s success depends upon its ability to attract, retain, and motivate key executive and employee talent. ”
Changes in the company’s global mix of earnings, tax laws, and regulations could cause fluctuations in the company’s effective tax rate and adversely impact financial results.
The company’s effective tax rate may be adversely affected by fluctuations in the geographic distribution of earnings, which may subject earnings to different or multiple statutory tax rates. Shifts in the business environment or changes in tax laws and regulations in each jurisdiction in which the company operates may also adversely affect the company’s effective tax rate. For further details on the company’s deferred tax assets and liabilities and uncertain tax positions, refer to Note 1 – “Summary of Significant Accounting Policies” within Item 8.
In recent years, numerous domestic and international tax proposals have been issued and enacted which have increased the tax burden on large multinational companies. For example, the OECD has advanced new tax proposals affecting international taxation, including the establishment of a global minimum tax of 15%, which many countries are either considering implementing or have already implemented. Any new tax legislation could impact the company’s tax obligations in the countries where it operates, leading to increased taxation of its international earnings.
Moreover, changes to U.S. or foreign tax laws could have broader implications, including indirect effects on the economy, currency markets, inflation, or competitive dynamics, which are difficult to predict and may negatively impact the company. Such tax developments could further increase uncertainty and have a material adverse impact on the company’s cash flows, effective tax rate, and financial results.
The company is regularly audited by U.S. and foreign tax authorities. Although the company provisions for income taxes and tax estimates, the final resolution of these audits may differ, in some cases materially, from the estimates reflected in the company’s financial results. Additionally, economic and political pressures to increase tax revenue by various jurisdictions may make resolving tax disputes more challenging.
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Acquisitions, divestitures, or joint ventures may cause the company to experience operating difficulties and other consequences that may negatively impact the company’s business, financial condition, and operating results, and the company may not be able to successfully consummate favorable transactions or integrate acquired businesses.
From time to time, the company has, and may continue to, evaluate potential acquisitions, divestitures, joint ventures, or other strategic transactions. As part of the company’s growth strategy, it has acquired other businesses and continues to evaluate strategic opportunities to acquire additional businesses from time to time. The company has also in the past, and may in the future, divest or reduce its investment in certain businesses and product lines. Acquisitions and divestitures involve numerous risks, including:
effectively combining and integrating the acquired operations, technologies, or products;
unanticipated costs or assumed or retained liabilities, including, but not limited to, those associated with combining and integrating operations, technologies, and facilities;
costs associated with regulatory approvals, actions, or investigations;
difficulty identifying potential acquirers or other divestiture options on favorable terms;
the inability to retain and obtain required regulatory approvals, licenses, and permits;
delayed completion due to local consultation laws;
not realizing the anticipated financial benefit from the acquired companies;
in the event the acquisition is funded with proceeds of indebtedness, adverse impacts on the company’s leverage ratios and an associated downgrade of its credit rating as well as increased interest costs;
diversion of management’s attention;
negative effects on existing customer and supplier relationships;
disruption due to the integration and rationalization of operations, products, technologies, and personnel;
liability for activities of the acquired company before the acquisition, including patent and trademark infringementclaims; data privacy and security issues; violations of laws and regulations; liabilities associated with violations of anticorruption, sanctions, or trade control laws; commercial disputes; tax liabilities; environmental issues and remediation expenditures; and other known and unknown liabilities;
change in the company’s effective tax rate;
difficulty separating assets or businesses (or portions thereof) from the company’s other businesses;
decrease in margins, loss of revenue, operating income, or disruption to customer relationships as a result of a divestiture;
litigation or other claims in connection with an acquired company or a divestiture, including claims from terminated employees, customers, current or former equity holders, or other third parties;
significant costs associated with exit or disposal activities or related impairment charges; and
potential loss of key employees of the company or acquired companies.
If the company is not able to successfully manage any of these risks in relation to future acquisitions or divestitures, it could have a material adverse effect on the company’s business.
Cybersecurity, Privacy, and Technology Risks
Cybersecurity incidents may hurt the company’s business, damage its reputation, increase its costs, and cause losses.
The company’s information technology and other systems could be subject to significant cybersecurity and privacy incidents, including, but not limited to, invasion, maliciousintrusion, inducement (fraudulent or otherwise) by third parties to obtain information from employees, customers, or suppliers; cyber-attacks; ransom demands; cybersecurity breaches caused by third parties as well as employees and others with authorized access; social engineering; nation-state attacks; exploitation of unpatched or unmanaged vulnerabilities; or destruction or other misuse of data that could harm the company, its operations, or its competitive position. The company and its service providers have been, and continue to be, the subjects of cyber-attacks. While cybersecurity incidents have not had a material impact on the company’s business, strategy, results of operations, or financial condition, there can be no assurance that such incidents will not have a material adverse impact on the company in the future.
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Any such incident, whether successful or unsuccessful, could result in, without limitation, disruption to the company’s operations; loss or compromise of, or damage to, the company’s or any of its customers’, suppliers’, or end-users’ data; theft and misuse of confidential or personal information; significant legal, regulatory, and financial exposure; damage to the company’s reputation; significant costs related to rebuilding internal systems, managing company brand and reputation, litigation, fines, damages, responding to regulatory inquiries, and taking other remedial steps; loss of competitive advantage; and a loss of confidence in the security of the company’s information technology systems, any of which could have an adverse impact on the company’s business and relationships with customers or suppliers, including by impairing the company’s ability to sell its products and services. Because the techniques used to cause these incidents and gainunauthorized access to, disable, or sabotage the company’s information technology systems and data stored on those systems change frequently and often are not recognized until they are initiated, the company may be unable to anticipate them or to implement adequate preventive or protective measures to guard against them. Further, third parties, such as hosted solution providers, are a source of risk because they could be subject to the same or other similar types of incidents, for example in the event of a failure of their own systems and infrastructure or if they experience their own privacy or security event, which could create risks similar to those described above. These third parties could include organizations in the company’s supply chain, which if subject to an incident, could adversely impact the company’s ability to service its customers and suppliers. Additionally, a cyber-attack or information technology system failure affecting the company’s suppliers or customers could disrupt and negatively impact the company’s operations.
Failure to maintain satisfactory compliance with certain privacy and data protections laws and regulations may subject the company to substantial negative financial consequences and civil or criminalpenalties.
Global privacy legislation, enforcement, and policy activity are rapidly expanding and creating a complex compliance environment. The company’s actual or perceived failure to comply with privacy or data protection laws and regulations in any of the jurisdictions in which it operates could result in damage to the company’s reputation as well as legal proceedings against the company by governmental entities or others, which could have a material adverse effect on its business.
The company relies heavily on its internal information systems, which, if not properly functioning, could materially adversely affect the company’s business.
The company relies on its information systems to support daily operations and generate timely, accurate, and reliable financial and operational data. The company’s current global operations reside on multiple technology platforms, some of which are currently undergoing projects intended to streamline or optimize these platforms. The size and complexity of the company’s information systems make them vulnerable to breakdown, defective software updates from the company’s IT vendors, failure to keep software updated and current, and ransomware attacks. Failure to properly or adequately address such issues could impact the company’s ability to perform necessary business operations, which could materially adversely affect the company’s business.
Technologies used in or integrated into the company’s operations, such as cloud-based services, AI, and automation, may cause an adverse shift in the way the company’s existing business operations are conducted. In addition, AI algorithms may be flawed. Datasets used to train the models which support the company’s AI offerings or internal use may be insufficient or contain biased information or lead to unexpected or unintended outcomes, which could erode trust in the company’s AI systems and subject the company to competitive harm, regulatory action, and legal liability.
Regulatory and Legal Risks
The company is subject to laws, regulations, and executive orders that could have a negative impact on the company’s business, including, without limitation, export and import controls, tariffs, sanctions, embargoes, international trade restrictions, anti-corruption laws, and anti-money laundering laws. In the event of non-compliance, the company could face serious consequences that could harm its business.
The company is subject to complex and evolving laws and regulations worldwide that differ among jurisdictions and affect its operations, including the EAR, U.S. Customs regulations, and various other trade laws, regulations, executive orders, and sanctions administered by the U.S. Departments of State, Commerce, and Treasury, as well as other U.S. and foreign governmental agencies. Products the company sells which are either manufactured in the United States or based on U.S.
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technology (“U.S. Products”) are subject to the EAR when exported and re-exported to and from all international jurisdictions, in addition to the local jurisdiction’s export regulations applicable to individual shipments. If a regulator determines, even in error, that the company or its subsidiaries are not in compliance with applicable laws, regulations, or executive orders or designates the company or its subsidiaries as sanctioned entities or otherwise prohibits third-parties from transacting with them, such determination could result in negative impacts to the company’s sales, customer relationships, and reputation that could have a material negative impact on the company’s business and financial condition.
For example, on October 8, 2025, three of the company’s subsidiaries in China were added to the “Entity List” of the BIS, which restricted their ability to receive exports of U.S. technology from suppliers. On October 17, 2025, the BIS issued a temporary authorization that allowed these entities to resume their normal business activities, and the entities were formally removed from the Entity List on November 11, 2025; however, during the intervening time period, the subsidiaries were unable to receive shipments from many suppliers and fulfill corresponding customer orders, which had an adverse impact on the Company’s operating results for the fourth quarter of 2025.
In addition, licenses or proper license exceptions may be required by export regulations, including the EAR, for the shipment of certain U.S. Products to certain countries, including China, India, and other countries in which the company operates. The company may not be able to effectively monitor the activities of all of its employees involved in regulated export or shipment activities, which may lead to the company’s failure to prevent violations of such regulations.
Failure to obtain and apply required authorizations, or other non-compliance with the EAR, OFAC regulations, or other applicable export regulations could result in a wide range of penalties including the denial or restriction of export privileges, significant fines, criminalpenalties, and the seizure of inventories, any of which could have a material adverse effect on the company’s business. The company’s distribution process also includes the use of third parties that operate outside of the company’s direct control. Noncompliance with applicable import, export, and other laws, regulations, or executive orders by these third parties may result in substantial liability to the company and harm the company’s reputation.
Further, the company is also subject to the U.S. Foreign Corrupt Practices Act of 1977, as amended, the U.S. domestic bribery statute contained in 18 U.S.C. § 201, and other anti-bribery and anti-money laundering laws in the countries in which it conducts business. The company can be held liable under these laws, which are often interpreted broadly, for the corrupt or other illegal activities of its employees, agents, contractors, counterparties, and third parties it engages to provide services, even if it does not explicitly authorize or have actual knowledge of such activities. Any violations of these laws and regulations may result in substantial civil and criminalfines, penalties, disgorgement, imprisonment, the loss of export or import privileges, debarment, tax reassessments, breach of contract and fraudlitigation, reputational harm, and other consequences.
The company’s global business also could be negatively affected by trade barriers, such as tariffs, export restrictions, embargoes, and other governmental protectionist measures, which may decrease demand for the company’s products. Such measures can be imposed suddenly and unpredictably and, in the case of tariffs, may increase the prices of many of the products that the company purchases from its suppliers. Tariffs and other protectionist measures, and the additional operational costs incurred in minimizing the number of products subject to them, could adversely affect the operating profits for certain of the company’s businesses and customer demand for certain products, which could have an adverse effect on the company’s business and results of operations.
In the event that the company pays tariffs for imported products that are re-exported outside of the United States, the company may be eligible for refunds of certain tariffs. In order to qualify for these tariff drawbacks, the company must provide data and documentation to the U.S. government that it must obtain from third-party sources, such as its suppliers. There is no guarantee the company will be able to obtain this additional data and documentation from those other sources, which could result in the U.S. government rejecting the drawback requests. There have been, and there could be, additional administrative costs in furtherance of these efforts.
Ongoing litigation regarding U.S. tariffs issued pursuant to the International Emergency Economic Powers Act, including two matters recently heard by the U.S. Supreme Court, has created additional uncertainty regarding the potential effects that tariffs may have on the company’s business. The U.S. Supreme Court’s ruling in those or other similar matters could result in significant changes to U.S. tariff policies, the effects of which are difficult to predict, but could include the
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imposition of different or additional duties, refunds to the company that may be difficult or impossible to collect, or litigation with third parties concerning prior tariff-related payments, any of which could have a material negative impact on the company’s business.
Products sold, designed, or integrated by the company may be found to be defective and, as a result, warranty and/or product liability claims may be asserted against the company, which may have a material adverse effect on the company.
As a distributor, the company sells its components or services at prices that are significantly lower than the cost of the equipment or other goods in which they are incorporated. As a result, the company may face claims for damages (such as consequential damages) that are disproportionate to the revenues and profits it receives from the components involved in such claims. Further, the company’s ability to avoid such liabilities pursuant to defective product provisions in its supplier agreements may be limited as a result of various factors, such as the inability to exclude such damages due to third party contractual provisions or the laws of some of the countries where the company does business. The company’s business could be materially adversely affected as a result of a significant quality or performance issue in the products sold by the company if it is required to pay for the associated damages. The company’s product liability insurance is limited in coverage and amount and may not be sufficient to cover all possible claims. Further, when relying on contractual liability exclusions, the company could lose customers if their claims are not addressed to their satisfaction.
In the company’s rendering of integration services, the company may be exposed to increased risks associated with product defects. Defects arising from integration services could lead to product liability claims, recalls, fines, and penalties. These risks are particularly pronounced in applications for aerospace, automotive, and medical products, where product failures could result in seriousharm to end users. Any such adverse events could affect the company’s financial condition, operating results, and reputation.
The company is subject to environmental laws and regulations, and may be impacted by climate change, in ways that could materially adversely affect its business.
A number of jurisdictions in which the company’s products are sold have enacted laws and regulations addressing environmental and other impacts from product disposal, use of hazardous materials in products, use of chemicals in manufacturing, recycling of products at the end of their useful life, and other related matters. These laws and regulations prohibit the use of certain substances in the manufacture of products sold by the company and impose a variety of requirements for manufacturing processes, registration, chemical testing, labeling, and other activities. Failure to comply with these laws and regulations could result in litigation, fines, or suspension of sales. Additionally, these laws and regulations may restrict or prohibit the sale of certain products, which may negatively affect the value of the company’s inventory.
Certain environmental laws impose liability, sometimes without fault, for investigating or cleaning up contamination on or emanating from the company’s currently or formerly owned, leased, or operated property, as well as for damages to property or natural resources and for personal injury arising out of such contamination. Under these laws and regulations, the company may be responsible for investigating, removing, or otherwise remediating hazardous substances released at properties or facilities it owns or operates, regardless of when such substances were released. For example, the company is currently obligated to perform environmental remediation on sites that it obtained as part of an acquisition transaction (refer to Note 15 - “Contingencies” within Item 8 for additional information related to environmental remediation. The presence of environmental contamination at any of the company’s locations could also interfere with ongoing operations or adversely affect the company’s ability to sell or lease its properties. The discovery of environmental contamination, the enactment of new laws and regulations, or changes in the enforcement of existing regulations, could require the company to incur costs for compliance or subject it to unexpected liabilities.
Additionally, long-term climate change impacts, including the frequency and magnitude of severe weather events and natural disasters may significantly impact the company’s operations and business, either directly or indirectly, by adversely affecting the price and availability of energy, and the supply of other services or materials throughout the company’s supply chain, any of which could have a material adverse effect on the company’s business. Proposed and existing efforts to address concerns over climate change could also directly or indirectly affect the company’s costs of energy and other operating costs.
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The company is subject to a variety of additional laws, regulations, and executive orders in the U.S. and other jurisdictions, and could be subject to claims, investigations, and litigation that could adversely affect the company’s results of operations and harm the company’s reputation.
The company is subject to various laws, regulations, and executive orders involving numerous subject areas in the U.S. and other countries in which it operates, the requirement of which vary across jurisdictions. The company has in the past and may in the future be subject to claims, investigations, regulatory proceedings, and lawsuits in and outside the ordinary course of business, including related to product liability and warranties, investigations by governmental agencies, litigationalleging the infringement of intellectual property rights, securities and shareholder litigation, and litigation related to employee matters and commercial disputes. Such matters are unpredictable. Managing, defending, and responding to claims, investigations, and lawsuits may divert management’s attention, damage the company’s reputation, and cause the company to incur significant expenses, even if there is no evidence of wrongdoing by the company. In addition, the company may be required to pay damage awards, penalties, fines, or settlements, or become subject to injunctions or other equitable remedies, which could have a material adverse effect on the company’s business, financial condition, results of operations, and cash flows. Moreover, any insurance or indemnification rights that the company has may be insufficient or unavailable to protect the company against potential loss exposures.
Certain of the company’s products and services include intellectual property owned primarily by the company’s third-party suppliers and, to a lesser extent, the company itself, and there is risk of litigation regarding these intellectual property rights. Third parties (including companies which acquire patents for the purpose of seeking artificial licensing revenue and not actually developing technology) may assert patent, copyright, or other intellectual property rights to technologies that are important to the company’s business, for which the company may not be able to obtain indemnification. In addition, the company is exposed to potential liability, for which it may not have indemnification protection, for technology it develops and when it combines multiple technologies of its suppliers. The company may also be required to indemnify and defend a customer in the event it becomes a target of intellectual property litigation.
Any infringement or indemnification claim brought against the company, regardless of the duration, outcome, or size of any potential monetary award, could result in substantial cost to the company, could be time consuming and costly to defend, or could cause product shipment delays. Moreover, in the event of an adverse determination, the company may be required to seek royalty or license arrangements, which may not be available on commercially reasonable terms or may be unavailable entirely. An adverse determination could require that the company stop selling certain products or technologies, which could negatively affect the company’s operations and ability to compete in the market. The payment of any such damages or royalties may significantly increase the company’s operating expenses and materially harm the company’s operating results and financial condition.
The company may not be able to adequately anticipate, prevent, or mitigate damage resulting from criminal and other illegal or fraudulent activities committed against it or as a result of misconduct or other improper activities by its employees or contractors.
Global businesses are facing increasing operational risks, including fraudulent acts that potentially violatecriminal and civil law. Due to the evolving nature of such threats, considering new and sophisticated methods used by criminals, including phishing, misrepresentation, social engineering, deepfake video and audio, and forgery, it is increasingly difficult for the company to anticipate and adequately mitigate these risks. In addition, designing and implementing measures to defendagainst, prevent, and detect these types of activities are increasingly costly and invasive to business operations. Misconduct or failure by employees or contractors to adhere to the company’s policies and procedures may further heighten such risks. As a result, the company could experience a material loss if its controls and other measures implemented to address these threatsfail to prevent or detect these types of criminal, illegal, and fraudulent acts.
In addition, misconduct by the company’s employees or contractors may include intentional or negligentfailures to comply with applicable laws and regulations, safeguard personally identifiable information, report financial information or data accurately, or discloseunauthorized activities to the company. Such misconduct could result in legal action by government agencies or impacted third parties, including customers and suppliers, against the company, and, as a result, could cause significant harm to the company, including to its reputation.
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It is not always possible to identify and deter employee misconduct, and precautions the company takes to detect and prevent this activity may not be effective in controlling unknown or unmanaged risks or losses, or in protecting the company from governmental investigations or other actions, including lawsuits on behalf of customers, suppliers, or other parties. If the company is not successful in defending itself or asserting its rights in any such actions, those actions could result in the imposition of significant civil, criminal, and administrative monetary judgments or penalties, which could have a significant impact on the company’s business. Regardless of whether the company is successful in defendingagainst such actions, it could incur substantial costs, including legal fees, and divert the attention of management.
Expectations and regulations related to corporate stewardship and corporate responsibility matters, and related disclosures, expose the company to potential liabilities, increased costs, reputational harm, and other adverse effects on the company’s business.
Certain investors, customers, regulators, governments, and other stakeholders continue to emphasize and assert expectations in connection with environmental, social, and governance matters, as well as other corporate stewardship considerations, and the company may fail to meet these expectations. The company has made statements about various standards, policies, and targets in connection with these expectations, and a number of the company’s customers and suppliers require adherence to specific environmental and human rights standards. Failing to meet these expectations and standards may result in reputational damage, loss of business, or potential liability. Whether the company discloses, or chooses not to disclose, initiatives related to environmental, social, governance, or other corporate stewardship matters, it could face scrutiny regarding the adequacy of its actions, including from investors and proxy advisory firms. In addition, individual stakeholders may consider different criteria and apply different methodologies in evaluating the company’s performance in connection with these matters. This lack of standardization creates potential for wide disparity in assessments, including misrepresentations or unfavorable assessments of the company’s corporate stewardship program and initiatives. Failure to adequately meet the expectations of investors, proxy advisors, customers, suppliers, and other stakeholders in this area may also result in diluted market valuation, an inability to attract or retain customers and suppliers, and an inability to attract or retain top talent.
Additionally, the company is or may be obligated to comply with new requirements related to environmental, social, governance, or other corporate stewardship matters under U.S. federal and state laws, regulations, and executive orders; the European Green Deal; and the laws and regulations of various other jurisdictions. As regulations in these areas increase in number and scope, the company may be required to develop additional governance and compliance frameworks, implement new processes, establish controls, monitor performance metrics, undergo independent assessments, and prepare detailed public reports on an ongoing basis regarding the financial and non-financial risks and impacts associated with the company’s operations and value chains. These laws, regulations, and executive orders may result in significant legal, compliance, accounting, operational, and administrative costs to the company, and may strain the company’s personnel, systems, and other resources. Any actual or perceived violations of these requirements could result in reputational harm, litigation costs, monetary penalties, or other sanctions.
Certain of the company’s business units contract or subcontract with U.S. government agencies, and on January 21, 2025, the U.S. President issued certain executive orders imposing new requirements on federal contractors and subcontractors prohibiting certain “diversity, equity, and inclusion” practices in employment, procurement, and contracting activities, and requiring a certification that the contractor or subcontractor does not operate diversity, equity, and inclusion programs that violate federal anti-discrimination laws. If the company is deemed to have violated these executive orders and any related laws or regulations, it may jeopardize the ability of the company’s business units to continue to do business as federal contractors or subcontractors, and could negatively affect the company’s revenue.
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Financial Risks
The company may not have adequate or cost-effective liquidity or capital resources, which could have a material adverse impact on its ability to maintain cash necessary to operate its business or return capital to shareholders.
The company requires cash or committed liquidity facilities for general corporate purposes, such as funding its ongoing working capital, acquisitions, capital expenditure needs, refinancing, returning capital to shareholders, and implementing the Operating Expense Efficiency Plan. The company’s committed and undrawn liquidity stands at over $2.5 billion in addition to $306.5 million of cash on hand as of December 31, 2025. The company’s ability to satisfy its cash needs depends on its ability to generate cash from operations and to access the financial markets, both of which are partially subject to general economic, financial, competitive, legislative, regulatory, and other factors that are beyond the company’s control.
The company’s ability to obtain external financing is affected by various factors, including general financial market conditions, the company’s debt ratings, and the company’s financial performance. For example, economic uncertainty or adverse economic conditions resulting from the impacts of and responses to changes in global, national, or regional economies; natural disasters; inflation; governmental policies; political unrest; military action and armed conflicts; pandemics and other public health issues; terrorist activities; political and social turmoil; civil unrest; and other crises could result in significant or sustained disruption of global financial markets, thereby reducing the company’s access to capital.
Credit rating agencies consider numerous financial and industry-related metrics in determining a company’s credit ratings. If the company fails to satisfy these metrics, these agencies may choose to downgrade the company’s debt ratings, which could impair the company’s ability to obtain additional financing on favorable terms, redeem existing indebtedness, or renew existing credit facilities; negatively impact the company’s stock price; increase the company’s interest payments under existing debt agreements; and have other negative implications for the company’s business. Under the terms of any additional external financing, the company may incur higher financing expenses and become subject to additional restrictions and covenants that may adversely impact the company’s operations and ability to pursue strategic initiatives. An increase in the company’s financing costs or loss of access to cost-effective capital resources could also have a material adverse effect on the company’s business.
The agreements governing some of the company’s financing arrangements contain various covenants and restrictions that limit some of management’s discretion in operating the business and could prevent the company from engaging in some activities that may be beneficial to its business.
Some of the company’s financing agreements contain covenants and restrictions that, in certain circumstances, could limit its ability to:
grant liens on assets;
make investments or certain acquisitions;
merge, consolidate, or transfer all or substantially all of its assets;
incur additional debt; or
engage in certain transactions with affiliates.
As a result of these covenants and restrictions, the company may be limited in how it conducts its business and may be unable to raise additional debt, compete effectively, or make investments.
Further, if an event of default under any of the company’s existing debt agreements occurred or became imminent, the lenders under any such facility may have the right to declare all outstanding indebtedness immediately due and payable, and lenders under the company’s other debt facilities may likewise be able to declare a cross-default. If such an event causes the company to lose access to capital under its existing credit facilities, the company may be forced to identify alternative sources of capital that are more expensive or restrictive. Further, the company may be unable to borrow additional amounts under the relevant credit facility or under its other credit facilities (in the event of a cross-default), and
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as a result may be unable to make acquisitions, fund share repurchases, or meet other financial obligations. Any such circumstance would have a material adverse effect on the company’s financial position and operations.
The company’s goodwill and identifiable intangible assets could become impaired, which could reduce the value of its assets and reduce its net income in the year in which the write-off occurs.
The company may incur impairment charges on goodwill or identifiable intangible assets if it determines that the fair value of the goodwill or identifiable intangible assets are less than their current carrying value. If events or circumstances occur that indicate all, or a portion, of the carrying amount of goodwill or identifiable intangible assets is or may no longer be recoverable, an impairment charge to earnings may become necessary.
An impairment charge might also be required if valuations of the company’s reporting units are negatively impacted by a decline in general economic conditions, a substantial increase in market interest rates, persistence of a high market-interest rate environment, an increase in income tax rates, or the company’s inability to meet long-term working capital or operating income projections, which could impact the company’s consolidated balance sheets, as well as the company’s consolidated statements of operations.
If the company fails to maintain an effective system of internal controls or discovers material weaknesses in its internal control over financial reporting, it may not be able to report its financial results accurately or timely, or detect fraud, which could have a material adverse effect on its business.
An effective internal control environment is necessary for the company to produce reliable financial reports, safeguard assets, and is an important part of its effort to prevent financial fraud. There are inherent limitations to the effectiveness of internal controls, including collusion, employee override, and failure in human judgment. In addition, control procedures are designed to reduce rather than eliminate financial statement risk. If the company fails to maintain an effective system of internal controls, or if management or the company’s independent registered public accounting firm discovers a material weakness in the company’s internal controls, the company may be unable to produce reliable financial reports or prevent fraud, which could have a material adverse effect on the company’s business. In addition, the company may be subject to sanctions or investigations by government agencies or other entities, such as the SEC or the NYSE. Any such actions could result in an adverse reaction in the financial markets due to a loss of confidence in the reliability of the company’s consolidated financial statements, which could negatively affect the company’s stock price and limit the company’s access to capital.
conflict
disruptions
shortages
inefficiencies
antitrust
corruption
inability
unanticipated
failure
Efficiency
disputes
infringement
claims
loss
failure
disruption
unauthorized
crises
catastrophic
positive
cautioned
undue
Certain Non-GAAP Financial Information
In addition to disclosing financial results that are determined in accordance with GAAP, the company also discloses certain non-GAAP financial information in the sections below captioned “Sales,” “Gross Profit,” “Operating Expenses,” “Operating Income,” “Income Tax,” and “Net Income Attributable to Shareholders.” Refer to these sections below for reconciliations of non-GAAP financial measures to the most directly comparable reported GAAP financial measures. Non-GAAP financial information includes the following:
Non-GAAP sales exclude the impact of changes in foreign currencies by retranslating prior period results at current period foreign exchange rates.
N on-GAAP gross profit excludes inventory (recoveries) write-downs related to the wind down of businesses within global components (“impact of wind down to inventory”) and impact of changes in foreign currencies.
Non-GAAP operating expenses exclude identifiable intangible asset amortization; restructuring, integration, and other; and impact of changes in foreign currencies.
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Non-GAAP operating income excludes identifiable intangible asset amortization; restructuring, integration, and other; and impact of wind down to inventory.
Non-GAAP effective tax rate and non-GAAP net income attributable to shareholders exclude identifiable intangible asset amortization; restructuring, integration, and other; impact of wind down to inventory; loss on extinguishment of debt; gain (loss) on investments, net; and the impact from tax settlements related to the U.S. federal tax law changes enacted as part of the 2017 Tax Cuts and Jobs Act (“impact of TCJA Tax Act settlements”).
Management believes that providing this additional information is useful to the reader to better assess and understand the company’s operating performance and future prospects in the same manner as management, especially when comparing results with previous periods. Management typically monitors the business as adjusted for these items, in addition to GAAP results, to understand and compare operating results across accounting periods, for internal budgeting purposes, for short-term and long-term operating plans, and to evaluate the company’s financial performance. However, analysis of results on a non-GAAP basis should be used as a complement to, and in conjunction with, data presented in accordance with GAAP. For a discussion of what is included within “Restructuring, integration, and other” and “Gain (loss) on investments, net” refer to the similarly captioned sections of this item below.
Key Business Metrics
Management uses gross billings as an operational metric to monitor the operating performance of global ECS, including performance by geographic region, as it provides meaningful supplemental information in evaluating the overall performance of the global ECS business. The company uses this key metric to develop financial forecasts, make strategic decisions, and prepare and approve annual budgets. Gross billings represent amounts invoiced to customers for goods and services during a specified period and does not include the impact of recording sales on a net basis or sales adjustments, such as trade discounts and other allowances. Refer to Note 1 - “Summary of Significant Accounting Policies” within Item 8 for further discussion of the company’s revenue recognition policies. The use of gross billings has certain limitations as an analytical tool and should not be considered in isolation or as a substitute for revenue.
Overview
The company sources and engineers technology for thousands of leading manufacturers, services providers, and users of enterprise computing solutions. The company has one of the world’s broadest portfolios of product offerings available from leading electronic components and enterprise computing solutions suppliers. The company’s revenues originate primarily from the sales of semiconductor products, IP&E components, and IT hardware and software. Equipped with a range of services, solutions, and tools, the company enables its suppliers to distribute their technologies and helps its industrial and commercial customers source, build, and leverage these technologies, reduce their time to market, grow their businesses, and enhance their overall competitiveness. The company is a trusted partner in a complex value chain and is uniquely positioned through its electronic components and IT content portfolios to enhance value and market opportunities for stakeholders.
The company has two reportable segments, global components and global ECS. Global components, enabled by an extensive portfolio of value-added capabilities and services, markets and distributes electronic components primarily to OEMs and EMS providers. Global ECS is a leading value-added provider of comprehensive computing solutions and services. Its portfolio includes datacenter, cloud, security, and analytics solutions. Global ECS offers broad market access, extensive supplier relationships, scale, and value-added solutions to enable its VARs and MSPs to meet the needs of their end-users. In 2025, approximately 70% and 30% of the company’s sales were from global components and global ECS, respectively.
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The company’s strategic initiatives include:
Global Components:
Shifting toward an increased mix of higher-margin value-added services, including engineering, integration and supply chain services by offering procurement, logistics, warehousing, and insights from data analytics which generally leads to longer and more profitable relationships with the company’s suppliers and customers.
Striving to further penetrate the market for IP&E, which tends to be a margin accretive segment of the broader available market.
Global ECS:
Enabling customer cloud-based solutions through ArrowSphere, the company’s cloud marketplace and management platform, which helps VARs and MSPs to manage, differentiate, and scale their cloud businesses while providing the business intelligence and tools that IT solution providers need to drive growth. ArrowSphere includes an AI-enabled digital go-to-market platform aimed at helping the company’s channel partners sell and support a variety of cloud offerings at higher rates.
Providing value-added distribution services including sales and marketing, demand generation, support and managed services, digital platforms and other services on behalf of certain suppliers.
Executive Summary
(millions except per share data)
Change
Consolidated sales
Global components sales
Global ECS sales
Gross profit margin
bps
Non-GAAP gross profit margin
bps
Operating income
Operating income margin
bps
Non-GAAP operating income
Non-GAAP operating income margin
bps
Net income attributable to shareholders
Earnings per share attributable to shareholders - diluted
Non-GAAP net income attributable to shareholders
Non-GAAP earnings per share attributable to shareholders - diluted
During 2025, changes in foreign currencies increased sales by approximately $398.8 million, operating income by $21.6 million and earnings per share on a diluted basis by $0.31 compared to the year-earlier period.
Business environment and other trends:
Within global ECS, the company has entered into certain non-cancellable multi-year purchase obligations through 2032, designating it as the exclusive partner for certain products and granting it the right to sell a broad set of IT solutions. In 2025, the company recorded losses due to lower profit expectations on certain underperforming contracts which negatively impacted gross profit margins. Heading into 2026, the company is continuing to adapt to best service these obligations and is committed to focusing on optimizing, enhancing and scaling these offerings. Due to the early stages and expected variability in the margins related to these contracts, the long-term performance of the agreements cannot be reasonably estimated at this time, and the company is anticipating there could be additional losses in the coming quarters on certain agreements.
Between October 8, 2025, and October 17, 2025, three of the company’s subsidiaries in China were added to the “Entity List” of the BIS, which restricted their ability to receive exports of U.S. technology from suppliers. During that time period, the subsidiaries were unable to receive shipments from many suppliers and fulfill corresponding
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customer orders, which resulted in marginal lost sales by global components in the Asia/Pacific region in the fourth quarter of 2025. The company does not anticipate that this event will have a negative impact on sales in the first quarter of 2026 or future periods.
During 2024, global components experienced a cyclical downturn characterized by elevated customer inventory levels, and a challenging global macroeconomic environment, contributing to lower demand for the company’s products. In 2025, the company began realizing stronger demand trends in all regions and consistent with historical trends from past cyclical downturns, the Asia/Pacific region returned to growth ahead of the Americas and EMEA regions. Despite the temporary business disruption within the Asia/Pacific region related to the BIS entity list incident described above, both the Asia/Pacific and Americas regions saw an increase in sales compared to the year-earlier period. The company anticipates that demand for components will continue to gradually increase aided by the market focus on AI technology. As the market recovery progresses, the company is focusing on efficient deployment and reallocation of working capital investments to maximize margins. While leading indicators are incrementally improving, the company cannot currently predict whether this trend will continue or how it may impact future quarters due to geopolitical and economic uncertainty.
The company’s global business continues to face uncertainty around ongoing developments related to U.S. and foreign tariff policies and is continuing to evaluate and further implement mitigating actions, including supply chain optimization and improved solutions around processing tariffs. Global components continues to see a marginal increase in revenue and cost of sales due to price increases. Given the uncertain and evolving nature of U.S. and foreign tariff policies, the company cannot currently predict whether this trend will continue or how it may impact future quarters. Refer to 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)
Change
Consolidated sales, as reported
Impact of changes in foreign currencies
Non-GAAP consolidated sales
Global components sales, as reported
Impact of changes in foreign currencies
Non-GAAP global components sales
Global ECS sales, as reported
Impact of changes in foreign currencies
Non-GAAP global ECS sales
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.
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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:
(millions)
Sales
% of Sales
Sales
% of Sales
% Change
Americas components sales
EMEA components sales
Asia/Pacific components sales
Global components sales
Americas ECS sales
EMEA ECS sales
Global ECS sales
Consolidated sales
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)
Change
Americas ECS gross billings
EMEA ECS gross billings
Global ECS gross billings
The sum of the subtotals and percentages within global ECS gross billings may not agree to totals, as presented, due to rounding.
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Gross Profit
Following is an analysis of the company’s gross profit by reportable segment for the years ended December 31:
(millions)
Change
Consolidated gross profit, as reported
Impact of wind down to inventory
Impact of changes in foreign currencies
Non-GAAP consolidated gross profit
Consolidated gross profit as a percentage of sales, as reported
bps
Non-GAAP consolidated gross profit as a percentage of sales
bps
Global components gross profit, as reported
Impact of wind down to inventory
Impact of changes in foreign currencies
Non-GAAP global components gross profit
Global components gross profit as a percentage of sales, as reported
bps
Non-GAAP global components gross profit as a percentage of sales
bps
Global ECS gross profit, as reported
Impact of changes in foreign currencies
Non-GAAP global ECS gross profit
Global ECS gross profit as a percentage of sales, as reported
bps
Non-GAAP global ECS gross profit as a percentage of sales
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. Refer to Note 1 - “Summary of Significant Accounting Policies” within Item 8.
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Operating Expenses
Following is an analysis of the company’s operating expenses for the years ended December 31:
(millions)
Change
Consolidated operating expenses, as reported
Identifiable intangible asset amortization
Restructuring, integration, and other
Impact of changes in foreign currencies
Non-GAAP consolidated operating expenses
Consolidated operating expenses as a percentage of sales, as reported
bps
Non-GAAP consolidated operating expenses as a percentage of sales
bps
Global components operating expenses, as reported
Identifiable intangible asset amortization
Impact of changes in foreign currencies
Non-GAAP global components operating expenses
Global components operating expenses as a percentage of sales
bps
Non-GAAP global components operating expenses as a percentage of sales
bps
Global ECS operating expenses, as reported
Identifiable intangible asset amortization
Impact of changes in foreign currencies
Non-GAAP global ECS operating expenses
Global ECS operating expenses as a percentage of sales
bps
Non-GAAP global ECS operating expenses as a percentage of sales
bps
Corporate operating expenses, as reported
Restructuring, integration, and other
Non-GAAP corporate operating expenses
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.
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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)
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)
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.
See details related to the Operating Expense Efficiency Plan discussed below.
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.
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.
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Operating Income
Following is an analysis of the company’s operating income by reportable segment for the years ended December 31:
(millions)
Change
Consolidated operating income, as reported
Identifiable intangible asset amortization
Restructuring, integration, and other
Impact of wind down to inventory
Non-GAAP consolidated operating income
Consolidated operating income as a percentage of sales, as reported
bps
Non-GAAP consolidated operating income, as a percentage of sales
bps
Global components operating income, as reported
Identifiable intangible asset amortization
Impact of wind down to inventory
Non-GAAP global components operating income
Global components operating income as a percentage of sales
bps
Non-GAAP global components operating income as a percentage of sales
bps
Global ECS operating income, as reported
Identifiable intangible asset amortization
Non-GAAP global ECS operating income
Global ECS operating income as a percentage of sales
bps
Non-GAAP global ECS operating income as a percentage of sales
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)
Gain (loss) on investments, net
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)
Interest and other financing expense, net
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.
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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:
Effective income tax rate
Identifiable intangible asset amortization
Restructuring, integration, and other
(Gain) loss on investments, net
Impact of wind down to inventory
Impact of TCJA Tax Act settlements
Non-GAAP effective income tax rate
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)
Net income attributable to shareholders, as reported
Identifiable intangible asset amortization *
Restructuring, integration, and other
(Gain) loss on investment
Impact of wind down to inventory
Loss on extinguishment of debt
Tax effect of adjustments above
Impact of TCJA Tax Act settlements
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.
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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)
Change
Working capital
Cash and cash equivalents
Short-term debt
Long-term debt
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. At December 31, 2025 and 2024, the company had cash and cash equivalents of $306.5 million and $188.8 million, respectively, of which $241.6 million and $164.0 million, respectively, were held outside the U.S.
As of December 31, 2025, the company has $5.4 billion of undistributed earnings of its foreign subsidiaries which it deems indefinitely reinvested, and recognizes that it may be subject to additional foreign taxes and U.S. state income taxes if it reverses its indefinite reinvestment assertion on these foreign earnings. The company has $2.3 billion of foreign earnings that are not deemed permanently reinvested and are available for distribution in future periods as of December 31, 2025.
Revolving Credit Facilities and Debt
The following table summarizes the company’s credit facilities by category at December 31:
Borrowing
Outstanding borrowings
(millions)
capacity
North American asset securitization program
Revolving credit facility
Commercial paper program (a)
Uncommitted lines of credit
Amounts outstanding under the commercial paper program are backstopped by available commitments under the company’s revolving credit facility.
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Average Daily Balance Outstanding
Year Ended
Effective Interest Rate
December 31,
December 31,
December 31,
December 31,
(millions)
North American asset securitization program
Revolving credit facility
Commercial paper program
Uncommitted lines of credit
The company also has an EMEA asset securitization program under which it continuously sells its interest in designated pools of trade accounts receivable of certain of its subsidiaries in the EMEA region. Receivables sold under the program are excluded from “Accounts receivable, net” and no corresponding liability is recorded on the company’s consolidated balance sheets. During 2025 and 2024, the average daily balance outstanding under the EMEA asset securitization program was $337.3 million and $394.8 million, respectively. Refer to Note 4 - “Accounts Receivable” within Item 8 for further discussion.
The following table summarizes recent events impacting the company’s capital resources:
(millions)
Activity
Date
Notional amount
4.00% notes, due April 2025
Repaid
April 2025
3.25% notes, due September 2024
Repaid
September 2024
5.15% notes, due August 2029
Issued
August 2024
5.875% notes, due April 2034
Issued
April 2024
6.125% notes, due March 2026
Repaid
April 2024
Refer to Note 6 - “Debt” within Item 8 for further discussion of the company’s short-term and long-term debt and available financing.
Cash Flows
The following table summarizes the company’s cash flows by category for the periods presented:
(millions)
Change
Net cash provided by operating activities
Net cash provided by (used for) investing activities
Net cash used for financing activities
Cash Flows from Operating Activities
The net amount of cash provided by the company’s operating activities during 2025 and 2024 was $64.0 million and $1.1 billion, respectively. The change in cash provided by operating activities during 2025, compared to the year-earlier period, relates primarily to an increase in inventory to support future growth in response to the expected market recovery coupled with an increase in sales. The fluctuations in both “Accounts receivable, net” and “Accounts payable” are primarily related to the global components supply chain services offerings and generally correlated as the company acts as an intermediary in the transaction and remits payments to the supplier upon receipt from the customer. Refer to Note 4 - “Accounts Receivable” within Item 8.
Cash Flows from Investing Activities
The net amount of cash provided by investing activities during 2025 was $23.6 million compared to $94.4 million of cash used for investing activities in 2024. The change in cash provided by (used for) investing activities related primarily to proceeds from the sale of an investment in certain equity securities (refer to Note 3 - “Investments in Affiliated Companies” within Item 8) and proceeds for the settlement of net investment hedges (refer to Note 7 - “Financial Instruments Measured at Fair Value” within Item 8).
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Cash Flows from Financing Activities
The net amount of cash used for financing activities was $206.1 million during 2025 compared to $956.8 in 2024. The change in cash used for financing activities was primarily due to a decrease in short term and other borrowings, lower redemption of notes and lower share repurchases in 2025.
Capital Expenditures
Capital expenditures were $101.3 million and $92.7 million in 2025 and 2024, respectively. The company expects capital expenditures to be approximately $100.0 million for fiscal year 2026.
Share Repurchase Program
The company repurchased 1.3 million shares of common stock for $149.9 million and 2.0 million shares of common stock for $250.0 million in 2025 and 2024, respectively, under its share repurchase program, excluding excise taxes. As of December 31, 2025, approximately $172.9 million remained available for repurchase under the share repurchase program. The share repurchase authorization does not have an expiration date and the pace of the repurchase activity will depend on factors such as the company’s working capital needs, cash requirements for acquisitions, debt repayment obligations or repurchases of debt, share price, and economic and market conditions. The share repurchase program may be accelerated, suspended, delayed, or discontinued at any time subject to the approval of the company’s Board of Directors.
Contractual Obligations
The company has contractual obligations for short-term and long-term debt, interest on short-term and long-term debt, purchase obligations, and operating leases.
At December 31, 2025, the company had $3.1 billion of total debt outstanding, $0.3 million of which matures in the next twelve months. The remaining debt has maturity dates between 2027 and 2034. During April 2025, the company repaid in full the $350.0 million principal amount of its 4.00% notes due April 2025. Refer to Note 6 - “Debt” within Item 8 for further discussion of the company’s short-term and long-term debt and available financing.
Amounts related to total interest on long-term debt at December 31, 2025 totaled $501.1 million, with $107.0 million expected to be paid within the next 12 months. Refer to Note 6 - “Debt” within Item 8 for further discussion of the company’s interest on short-term and long-term debt and available financing.
Purchase obligations of $21.3 billion represent an estimate of non-cancellable inventory purchase orders, future payments under IT distribution arrangements, and other contractual obligations related to information technology and facilities as of December 31, 2025 with $11.4 billion expected to be paid within the next 12 months, $3.2 billion in 2027, $2.0 billion in 2028, $1.8 billion in 2029 and $1.2 billion in 2030. Some of these purchase obligations relate to sales where the company acts as an agent in the transaction. Refer to discussions of the company’s revenue recognition policy in Note 1 - “Summary of Significant Accounting Policies” within Item 8.
Amounts related to future lease payments for operating lease obligations at December 31, 2025 totaled $296.6 million, with $87.2 million expected to be paid within the next 12 months. Refer to Note 14 - “Lease Commitments” within Item 8 for further discussion of the company’s operating leases.
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Additional Capital Requirements and Sources
Recent and expected other capital requirements and sources, in addition to the above matters, also include the items described below:
Employee Benefit Plans : The company maintains an unfunded executive pension plan under which the company will pay supplemental pension benefits to certain employees upon retirement. As of December 31, 2025, the company had designated $119.3 million in assets to cover the ongoing costs of SERP payouts for both current and former executives. The projected benefit obligation at December 31, 2025 and 2024, was $87.6 million and $83.0 million, respectively. Refer to Note 13 - “Employee Benefit Plans” within Item 8 for further discussion of the company’s executive pension plan.
Environmental liabilities : The company is involved in certain ongoing environmental cleanup activities and legal proceedings, the outcomes of which are inherently uncertain. Refer to Note 15 - “Contingencies” within Item 8 for further discussion of the company’s environmental liabilities.
Hedging activities : The company has entered into certain foreign exchange forward contracts designated as net investment hedges. As of December 31, 2025, all such contracts were in an asset position in the amount of $16.8 million. Refer to Note 7 - “Financial Instruments Measured at Fair Value” within Item 8 for further discussion of the company’s hedging activities.
Restructuring activities : In an effort to address evolving business needs and optimize operating expenses, the company initiated the Operating Expense Efficiency Plan which is expected to incur pre-tax restructuring charges of approximately $200.0 million in total costs of which $156.4 million has been incurred as of December 31, 2025. Refer to Note 9 - “Restructuring, Integration, and Other” within Item 8 for further discussion of the company’s restructuring activities.
Sales of trade receivables : In the normal course of business, certain of the company’s subsidiaries have agreements to sell, without recourse, selected trade receivables to financial institutions. The company does not retain financial or legal interests in these receivables, and, accordingly, they are accounted for as sales of the related receivables and the receivables are removed from the company’s consolidated balance sheets. Refer to Note 4 - “Accounts Receivable” within Item 8 for further discussion of the company’s factoring arrangements.
Critical Accounting Estimates
The company’s consolidated financial statements are 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 have had or are reasonably likely to have a material impact on the reported amounts of assets, liabilities, revenues, and expenses and related disclosure of contingent assets and liabilities. The company has established detailed policies and control procedures intended to ensure the appropriateness of such estimates and assumptions and their consistent application from period to period. The company bases its estimates on historical experience and on various other assumptions that are believed reasonable under the circumstances; the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
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For a description of the company’s significant accounting policies, see Note 1 - “Summary of Significant Accounting Policies” within Item 8. The following components of the consolidated financial statements contain critical accounting estimates:
Trade Accounts Receivable
Management estimates the allowance for credit losses using relevant available information about expected credit losses and an age-based reserve model. Inputs to the model include information about historical credit losses, customer credit ratings, past events, current conditions, and reasonable and supportable forecasts. Adjustments to historical loss information are made for differences in current receivable-specific risk characteristics such as changes in the economic and industry environment, or other relevant factors. These adjustments as well as other inputs such as the identification of credit risk pools, and age-based allowances require significant judgment and are inherently uncertain. This uncertainty can produce volatility in the company’s allowance for credit losses. In addition, the allowance for credit losses could be insufficient to cover actual losses, which would negatively impact net income.
Inventories
Inventories are stated at the lower of cost or net realizable value. Write-downs of inventories to net realizable value for excess or obsolete inventories are based upon contractual provisions governing supplier price protections and stock rotation rights, the age of inventories, inventory turnover, as well as assumptions about future demand and market conditions. Due to the large number of products, markets, and transactions, and the complexity of managing the process around price protections and stock rotations, there is a high degree of judgment required for estimates made regarding demand for age-based inventory and future market conditions, after considering supplier protection provisions.
Income Taxes
The company is subject to income taxes in the U.S. and numerous foreign jurisdictions. The evaluation of the company's valuation allowance on deferred tax assets and uncertain tax positions involves significant judgment in the interpretation and application of GAAP and complex domestic and international tax laws. The assessment of the need for a valuation allowance requires judgment on the part of management with respect to the benefits that could be realized from future taxable income, as well as other positive and negative factors. It is also the company’s policy to provide for uncertain tax positions and the related interest and penalties based upon management’s assessment of whether a tax benefit is more likely than not to be sustained upon examination by tax authorities. To the extent the company prevails in matters for which a liability for an unrecognized tax benefit is established, or is required to pay amounts in excess of the liability, or when other facts and circumstances change, the company’s effective tax rate in a given financial statement period may be materially affected. Refer to Note 8 - “Income Taxes” within Item 8 for further discussion.
Contingencies and Litigation
From time to time, the company is subject to legal claims, regulatory proceedings, and lawsuits related to environmental, intellectual property, labor, product liability, tax, and other matters and assesses the likelihood of an adverse judgment or outcome for these matters, as well as the range of potential losses. A determination of the required reserves, if any, is made after careful analysis. Significant judgments are made when determining if these reserves may change in the future due to new developments impacting the probability of a loss, the estimate of such loss, and the probability of recovery of such loss from third parties. These matters are reviewed at least on a quarterly basis. Refer to Note 15 - “Contingencies” within Item 8 for further discussion.
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Goodwill
The company performs a quantitative goodwill impairment test annually and this test is used to both identify and measure impairment by comparing the fair value of a reporting unit with its carrying amount, including goodwill. Goodwill is tested at a level referred to as a reporting unit. If the carrying amount of the reporting unit is less than its fair value, no impairment exists. If the carrying amount of a reporting unit exceeds its fair value, an impairmentloss is recognized in an amount equal to that excess, limited to the total amount of goodwill allocated to that reporting unit. Refer to the table below for a list of the company’s reporting units and the respective allocation of goodwill at December 31:
(millions)
Americas Components
EMEA Components
Asia/Pacific Components (a)
eInfochips
Americas ECS
EMEA ECS
Consolidated
The sum of the subtotals for goodwill by reporting unit may not agree to the total, as presented, due to rounding.
(a) Within global components, the Asia/Pacific reporting unit’s goodwill was previously fully impaired.
The company estimates the fair value of a reporting unit using the income approach. For the purposes of the income approach, fair value is determined based on the present value of estimated future cash flows, discounted at an appropriate risk-adjusted rate. The assumptions included in the income approach include forecasted revenues, gross profit margins, operating income margins, working capital, perpetual growth rates, income tax rates, and long-term discount rates, among others, all of which require significant judgments by management. The company also reconciles its discounted cash flow analysis to its current market capitalization allowing for a reasonable control premium. As of the first day of the fourth quarters of 2025, 2024, and 2023, the company’s annual impairment testing did not indicate impairment of any of the company’s reporting units.
As of the date of the company’s 2025 annual impairment test, the fair value of all reporting units exceeded their carrying values by more than 20%. Discount rates are one of the more significant assumptions used in the income approach. If the company increased the discount rates used by 100 basis points, the fair value of all reporting units would still exceed their carrying values by more than 11%.
Actual results may differ from those assumed in the company’s forecasts. A decline in general economic conditions or global equity valuations could impact the judgments and assumptions about the fair value of the company’s businesses, and the company could be required to record an impairment charge in the future, which could impact the company’s consolidated balance sheets, as well as the company’s consolidated statements of operations. If the company were required to recognize an impairment charge in the future, the charge would not impact the company’s consolidated cash flows, current liquidity, capital resources, or covenants under its existing revolving credit facility, North American asset securitization program, other outstanding borrowings, and EMEA asset securitization program.
Impact of Recently Issued Accounting Standards
For a summary of recent accounting pronouncements applicable to the company’s consolidated financial statements, see Note 1 - “Summary of Significant Accounting Policies” within Item 8, which is incorporated herein by reference.
