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Speeding toward the future is the theme of our annual
report this year, and our future will be the main focus
of my message to you – our shareholders, employees,
customers, and supplier partners. 2003 was a year of
significant accomplishments for our company as we grew
both our sales and our profits in a challenging market
environment. Beyond achieving our financial goals, 2003
was also a year during which we engaged our leaders
and employees around the world in developing a strategic
framework for our business going forward. Traditionally,
this letter would focus primarily on our performance
and accomplishments for the year. While I will summarize
those for you, I believe that you are as interested
in where we are going as a company as you are in where
we have been.
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| Focused on our future, we began the year by identifying three critical, strategic goals: |
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Strengthen Arrow to drive both short-term and long-term profitable growth |
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Create strategies for our future success |
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Build a global leadership team with shared vision and leadership |
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Strengthening Arrow
Our first priority for 2003 was to take immediate steps to
increase our sales and operating income and to create a sustainable
structure to respond to the cyclical nature of our industry.
We put the right people, systems, and processes in place in
a strategic structure that is correct for today's reality
and can be leveraged for future growth, while delivering results
across our business cycles.
Our emphasis on increasing efficiency streamlined our operations
and reduced our cost structure, even as we continued to invest
in the sales resources that drive our top line performance.
As a result, our sales outgrew the market, and we gained share
in key markets and product segments. Our sales efforts were
bolstered by the growing demand in Asia, the improving industry
conditions in the Americas, and the exceptional performance
of our North American Computer Products business. Growth in
operating income, as adjusted,* outpaced the growth in sales,
demonstrating the success of our efficiency initiatives and
continuous process improvements.
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| 2003 Performance Highlights |
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We grew our sales by more than 17
percent, from $7.4 billion in 2002 to $8.7 billion in
2003. |
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Operating income rose
to $242 million – excluding certain charges and
losses that impact comparability – an almost 40
percent increase compared to our 2002 results.* |
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We increased our net income per
share to $0.74 from $0.15 in 2002, excluding certain
charges and losses that impact comparability.* |
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We removed $75 million from our
cost structure on an annual basis, and in early 2004,
we announced a further $15 million reduction as part
of our ongoing continuous process improvement initiatives. |
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Through strong balance sheet management,
we generated more than $290 million in cash from operations,
bringing the total cash generated from operations to
more than $2.6 billion during the past three years of
our industry downturn. |
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The increased efficiency of our
operations and our strong balance sheet management decreased
the amount of working capital required to support our
sales growth to $0.22 of working capital per dollar
of sales, the lowest level in our company's history. |
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We took advantage of our strong
cash position to invest in new capabilities and to make
significant reductions in our debt, placing Arrow in
a strong position to fund future growth. |
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In February 2004, we further strengthened
our capital structure through the issuance of 13.8 million
shares of common stock. |
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Given our strong performance and cash position, we are extremely
well positioned not only to capitalize on future positive
industry conditions, but also to deliver profitable performance
across our business cycles.
Creating Strategies for Future Success
While we focused on immediately increasing our profitability,
we also began to build a strategic business framework for
our future. This framework starts with the creation of our
vision:
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| To be the clear number one worldwide provider of products, services, and solutions that connects technology with customers, powers the supply chain, and delivers premium investment results. | |
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With a clear and shared vision, our global leadership team
identified the key business initiatives that represented our
most critical priorities. We then engaged Arrow employees
from different disciplines, levels, and regions to work on
cross-regional teams to create specific plans for these initiatives.
The work of these teams included developing strategies for
growing our global components business, continuing to expand
the services and solutions of our computer products business,
and increasing the speed and efficiency of our operations
through continuous process improvements.
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we studied our opportunities, it was clear to us that the
Asian markets will be a critical engine of Arrow's future
growth, requiring us to deploy the full range of our capabilities
across the region. In our components businesses in the Americas
and Europe, we will continue to outgrow the market in both
sales and profitability by focusing on continuous process
improvement and the development of new supply chain solutions
for customers and suppliers. Our computer products business
will continue to outgrow the market through its constant development
of innovative, end-to-end customer solutions.
To be the clear number one worldwide provider
to our industry, we must be the clear number one provider
in the Asia/Pacific region, which includes China, Taiwan,
Korea, Southeast Asia, India, Australia, and New Zealand.
Today, approximately 40 percent of the available market for
components purchasing rests in Asia. While Arrow holds the
number one position in many Asian markets, our Asia/Pacific
business represents just 10 percent of our overall revenue.
This is a clear and significant growth opportunity for us.
Our global Asia/Pacific strategy team spent
several months analyzing the dynamics of this marketplace
to determine how best to capitalize on our local strengths
and global capabilities. In addition to the growing number
of global manufacturers that choose to manufacture products
in Asia, there are several emerging and developing local markets
with distinct service needs. The complexities of this market
play to our strengths; we manage complex supply chains every
day and in every region. We are the best-in-class at providing
the solutions our customers and suppliers need to connect
technology with end-markets. The markets in Asia, while still
developing, are increasingly moving toward requiring this
level of support.
Success in Asia requires the flexibility
to provide customized solutions in each market with the efficiency
and lower costs of a centralized organization. To leverage
our strong supplier relationships in the region, we centralized
supplier marketing, asset management, and purchasing functions.
At the same time, we developed targeted sales initiatives
to drive demand in local markets. Recognizing that China represents
the greatest potential for growth in the region, we expanded
our presence and our services in this market, growing our
sales by nearly 45 percent in 2003, with a 50 percent increase
in year-over-year results in the fourth quarter alone. Across
the Asia/Pacific region, we are building sales momentum. Our
investments and the hard work of our teams resulted in more
than 25 percent sequential growth in the fourth quarter of
2003, with a more than 40 percent increase in sales in that
quarter when compared to 2002 sales in the same period. |
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Building a Global Team with Shared Leadership
As we developed our strategic business framework, we quickly
realized that both the creation and the execution of our strategy
would depend on shared leadership – a leadership model
that drives decision making and accountability deeper into
our organization. Our business is too complex and too far-reaching
for decision making and accountability to rest with just the
CEO or a small group of executives. To lead this complex and
global business, all of our employees must share our vision
and our values and align their work around our strategic framework
for the future.
For Arrow, shared leadership means that in every part of the
world our managers must be involved in the decisions that
will drive both local and global performance. Shared leadership
requires that managers are accountable not only for the results
of their local businesses, but also for their contributions
to Arrow's overall performance. Shared leadership leads to
shared best practices. A United Kingdom business leader shares
his team's approach to continuous process improvement with
a team of German leaders launching a similar initiative. An
American supply chain management expert works with a team
in Asia to launch supply chain management tools that are customized
to the local languages and currencies. Practicing shared leadership
drives a level of performance that is greater than the sum
of our individual regions and businesses.
Shared leadership begins at the very top of our organization
with our Executive Committee. In order to take advantage of
our senior management team's deep knowledge and experience,
we announced a new structure that puts the right senior leader
in the right place, with the right resources and a winning
strategy. Pictured below, Arrow's Executive Committee includes
the leaders of every business and global function working
as one team to lead our company to greater levels of performance
and results.
Delivering premium investment results for our shareholders
also depends on a strong and independent Board of Directors.
We continued to demonstrate our commitment to maintaining
a substantial majority of independent directors with the July
election to our Board of Stephen C. Patrick, Chief Financial
Officer, Colgate-Palmolive Company. His broad-based business
experience, both domestic and international, and extensive
finance background make him a valuable addition to Arrow and
to our Board.
As we strengthened our leadership team at all levels, we also
recognized the contributions of two Arrow leaders who announced
their retirements. Robert E. Klatell, Executive Vice President
and longtime Arrow Board member, retired at the end of 2003.
Rob spent more than 30 years as a member of our senior management
team, advancing Arrow's growth and playing a significant leadership
role in our acquisition strategy. In addition, after more
than 30 years with Arrow, Betty Jane (B.J.) Scheihing, our
Senior Vice President of Global Operations and Human Resources,
announced her plan to retire effective June 1, 2004. During
her distinguished career, B.J. has made many substantial contributions
to both Arrow and to our industry. She has helped shape Arrow
into the successful company it is today. On behalf of Arrow's
Board, senior management team, and employees, I want to thank
both Rob and B.J. for their leadership and commitment to Arrow.
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Arrow: Speeding Toward the Future
In 2003, we strengthened our business to deliver profitable
growth both for today and for the future. We created a culture
where continuous process improvement is becoming an integral
part of the way we do business. We developed the strategic
roadmaps for our future success. We invested in the capabilities
and resources that will drive our future growth. We built
a global leadership team with a clear vision that practices
shared leadership to tap into the talent and best practices
of our more than 11,000 employees.
Ultimately it is the talent, commitment, and passion of our
employees that drive our success. They connect the technology
innovations of our suppliers with the product design and development
needs of our customers. They add power and speed to the global
supply chain for electronics manufacturing. When I joined
Arrow more than a year ago, it was to be part of this team
in a company with a great foundation and tremendous growth
potential. Arrow is speeding toward the future with the most
talented team in our industry and the resources and capabilities
to power the global supply chain and to deliver premium investment
results.
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William E. Mitchell
President and Chief Executive Officer
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*Click
here for a reconciliation of this information. |
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