Arrow Electronics 2000 Annual Report Download - page 27

For an understanding of the significant factors that influenced the company’s performance during the
past three years, the following discussion should be read in conjunction with the consolidated financial
statements and other information appearing elsewhere in this annual report.
Sales
Consolidated sales of $13 billion in 2000 were 39 percent higher than 1999 sales of $9.3 billion. This sales
increase was driven by a 61 percent growth in the sales of core components and acquisitions offset,
in part, by foreign exchange rate differences, fewer sales of low margin microprocessors (a product
segment not considered a part of the company’s core business), and market conditions for computer
products. Excluding the impact of acquisitions, foreign exchange rate differences, and lower
microprocessor sales, sales increased by 34 percent over the prior year.
In 1999, consolidated sales increased to $9.3 billion. This 12 percent sales growth over 1998 was
principally due to growth in the worldwide core components operations and acquisitions offset, in part,
by fewer sales of low margin microprocessors and foreign exchange rate differences. Excluding the
impact of acquisitions, foreign exchange rate differences, and lower microprocessor sales, consolidated
revenue increased by 8 percent over the prior year and sales of core components increased by 10
percent. Sales of commercial computer products increased marginally over 1998’s level due principally
to softening demand and lower average selling prices, offset by increasing unit shipments, as a result
of market conditions.
Consolidated sales of $8.3 billion in 1998 were 7 percent higher than 1997 sales of $7.8 billion. This sales
growth was due to an approximate $700 million increase in sales of commercial computer products. The
worldwide market for electronic components continued to be characterized by product availability well
in excess of demand and resultant pressure on average selling prices and gross profit margins resulting
in a decline in sales.
Operating Income
Operating income increased to $784.1 million in 2000, compared to $363.2 million in 1999, excluding the
integration charge of $24.6 million associated with the acquisition and integration of Richey Electronics,
Inc. (“ Richey”) and the electronics distribution group of Bell Industries, Inc. (“ EDG” ). This increase in
operating income was a result of increased sales in the core components businesses around the world
and increased gross profit margins, as well as the full year impact of cost savings resulting from the
integration of Richey and EDG offset, in part, by lower sales of computer products and increased
spending in the company’s Internet business. Operating expenses as a percentage of sales were
9.6 percent, the lowest in the company’s history.
In 1999, the company’s consolidated operating income decreased to $338.7 million from $352.5 million
in 1998, principally as a result of the special charge of $24.6 million. Excluding this integration charge,
operating income was $363.2 million. Operating income, excluding the integration charge, increased as
a result of higher sales, improved gross profit margins in the core components operations in the latter
part of 1999, and improved operating efficiencies resulting from the integration of Richey and EDG into
the company offset, in part, by lower gross profit margins in the computer products operations,
increased non-cash amortization expense associated with goodwill, investments made in systems,
including the Internet, and personnel to support anticipated increases in business activities.
The company’s consolidated operating income decreased to $352.5 million in 1998, compared with oper-
ating income of $374.7 million in 1997, including special charges of $59.5 million. Excluding the special
charges, operating income in 1997 was $434.2 million. The reduction in operating income reflected a
decline in the sales of the components business in North America, a further decline in gross margins
due to proportionately higher sales of lower margin commercial computer products, and competitive
pricing pressures throughout the world offset, in part, by the impact of increased sales and the benefits
of continuing economies of scale. Operating expenses as a percent of sales remained consistent with
1997 at 9.7 percent.
management’s discussion and analysis