|
|
 |
 |
|
 |
The industry recession that began in 2001 continued through 2002, making this the longest and most severe downturn in our industry´s history. While our business has always been cyclical, this is one of the few times that an industry downturn and a global recession have occurred simultaneously. The general economic malaise, combined with low component demand and pricing pressures, reduced overall revenues in the electronic components industry to levels not seen since the mid-1990s.
Due to these conditions, Arrow Electronics posted 2002 sales of $7.4 billion from continuing operations, a 22 percent decline compared to sales in 2001 and a 39 percent decline compared to our sales at the height of the last cycle in 2000. Despite this steep drop in sales, Arrow remained profitable on an operating basis, with income from continuing operations of $12.1 million and earnings per share of $.12 on a diluted basis.
Throughout the year, we continued to focus on improving our inventory position and on process improvements and cost-control initiatives. As a result, Arrow generated close to $620 million in free cash flow, bringing the total free cash flow generated to more than $2.2 billion since the downturn began. During 2002, we took advantage of our strong cash position to fund the early retirement of bonds due in 2003, further reducing our debt. We closed the year with more than $690 million in cash, ensuring the critical inventory purchasing power and the capital to fund receivables during the next upturn in demand, as well as the capital to fund current and future acquisitions.
An increase in demand for our products and services is inevitable as the demand for electronic and computing solutions will only increase over time. Our customers and suppliers create the devices and products that drive technology. Their work spans almost every end-market, from basic industrial controls to complex global satellite systems. Arrow is a pivotal intermediary in the supply chain, providing the products and solutions that bring our suppliers´ technology to our customers´ design and manufacturing activities. Our goal has been to ensure that we are in the strongest position possible to support their requirements now and in the future. |
CONSISTENT ADHERENCE TO CORE STRATEGY
|
While the market and technologies may change, our core mission remains fundamentally unchanged. It revolves around providing the highest level of service in the most cost-effective manner to our more than 150,000 customers and 600 suppliers around the world. Arrow powers the global electronics manufacturing supply chain. We deliver the core components and computer products that our customers need to manufacture their products. We constantly look for ways to increase our offerings across the full span of their product life cycles and to make the supply chain more efficient, reducing the cost of doing business for all of our partners. Our strategy has been, and will continue to be, a services strategy; creating value for our customers and suppliers.
That strategy requires us to participate in those markets where our ability to provide products and value-added services differentiates us and generates acceptable financial returns. During 2002, we examined our role in the commodity computer products business and came to the conclusion that, in this market, customers require fewer value-added solutions and base their buying decisions primarily on price. As a result, in 2002, we sold the Gates/Arrow commodity computer products business. While we exited the commodity business, we continue to serve the computer products markets where our value proposition is integral to our customers´ and suppliers´ business models. Our Enterprise and OEM Computing Solutions groups in North America provide a full range of solutions, including complex system integrations and configurations. Owing to the strong performance of these businesses, the overall operating profits in our North American Computer Products group increased by 47 percent when compared to 2001.
|
|
|
|
|
|
William E. Mitchell joined Arrow in February 2003 as President and CEO and a member of the Board of Directors. Bill brings significant leadership experience to his new role having served as President and CEO of Nashua Corporation and as Chairman, President and CEO of Sequel, Inc. Earlier in his career, Bill spent more than 20 years with Raychem Corporation, where he held a variety of leadership positions in international business management, sales and marketing, and operations. Most recently, Bill was President of the Global Services division of Solectron Corporation, one of the world´s leading contract manufacturers and an Arrow global customer. It was there that Bill developed a first-hand understanding of the complexities of global electronics distribution and manufacturing.
|
|
|
|
|
STRATEGIC INVESTMENTS IN SERVICES
|
Just a few years ago, Arrow´s primary offering was the delivery of parts to the receiving department of an original equipment manufacturer (OEM). Today, our web-based information services support customers in the very early technical discovery phase when engineers research technologies for a new product design. Our materials management solutions range from simple materials planning to sophisticated supply chain management tools that connect our customers to critical partners, global information services, and Arrow´s materials management and ordering systems. Beyond the delivery of parts to the production line, our physical value-added services range from component programming to building and configuring a complex system and shipping it directly to the end-customer. Our presence across the entire supply chain has broadened and continues to broaden.
Arrow has traditionally made strategic and selective investments in the infrastructure that support the expansion of our services. In 2002, we increased our semiconductor programming capacity by expanding our Bedford, UK and Penang, Malaysia value-added centers. At our Hong Kong primary distribution center, we increased the square-footage by nearly 40 percent to improve our inventory management capabilities. We also entered the final phase of the expansion of our Pan-European primary distribution center in Venlo, the Netherlands. This facility makes it possible for us to ship products to customers with multiple locations in Europe. |
LOCAL AND GLOBAL SUPPORT
|
Since 1985, when Arrow led the industry in expanding its presence outside of North America, our goal has been to position Arrow to serve customers and suppliers in the local markets in which they choose to do business. Investing in acquisitions and expansion in local markets has been a core part of our strategy. During 2002, we completed the acquisition of ADECOM, a connector distributor based in Italy. As we entered 2003, we announced yet another acquisition, the purchase of the electronic components division of Pioneer-Standard in North America. Combining this business with our North American Components group will result in increased sales, greater operating leverage, and improved value-added capabilities. We are confident that it will also add to our earnings in the first full year following the combination.
Beyond supporting our local customers and suppliers, we now have many customers and suppliers who require integrated support across multiple geographies. Today it is not unusual for an OEM to design a product in one country, produce the prototype in another country, and then transfer volume manufacturing to a third location. To capture more business from cross-market customers, we launched the Global Business Conversion group (GBC). Leveraging Arrow´s vast IT and data resources, this team provides advance information to local sales teams when production is planned for their locations. GBC works closely with our suppliers and the Arrow sales and logistics teams to coordinate the quoting and inventory resources required to provide seamless service across multiple regions. |
OUR PEOPLE MAKE THE DIFFERENCE
|
Daniel W. Duval stepped into the role of Chairman and interim CEO following the resignation of Arrow´s CEO and the planned retirement of Stephen P. Kaufman, Arrow´s Chairman and former CEO. During the transition period, Steve agreed to return to Arrow full-time, serving as our interim CEO until his retirement in September 2002. Our search for a CEO was successfully completed with the February 2003 appointment of William E. Mitchell as President and Chief Executive Officer and a member of Arrow´s Board of Directors. Dan Duval will continue to serve as Arrow´s Chairman.
Both of us want to take this opportunity to thank Steve for his counsel throughout our transition. It is a testament to the strength of the senior management team that Steve assembled that our company has managed to remain profitable on an operating basis, despite the challenges of the past two years. As a result of their efforts, and the hard work of all our employees, Fortune magazine has for the sixth time recognized Arrow Electronics on its list of America´s most admired companies.
We also want to take this opportunity to thank the more than 11,000 employees worldwide who make up the Arrow family. They dedicate their time, talent, and energy to delivering the support that our customers and suppliers expect today and to creating the new services they will need for tomorrow.
|
|
|
|
|
 |
|
| Back to Top |
|
|
|
