Avnet 2002 Annual Report Download - page 27

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Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
For an understanding of the signiÑcant factors that inÖuenced the Company's performance during the
past three Ñscal years, the following discussion should be read in conjunction with the consolidated Ñnancial
statements, including the related notes, and other information appearing elsewhere in this Report. The Ñscal
2001 acquisition of Kent, which has been accounted for as a ""pooling-of-interests'' and is more fully described
in Item 1 of this Report, materially impacts the nature of the reported results for the years prior to 2002
presented herein. In addition, the severe economic downturn in the technology markets in which the Company
competes is also a material contributor to the Ñnancial results discussed in this ""Management's Discussion and
Analysis of Financial Condition and Results of Operations'' (""MD&A'').
Since the Company's second quarter of Ñscal 2001, technology markets have been severely impacted by a
global economic and industry downturn. This downturn in the technology markets is primarily a consequence
of several economic and geopolitical forces: weakened Ñnancial markets following the collapse within the dot
com industry and other recent signiÑcant business failures; weak global demand for IT capital equipment
following on the heels of the Y2K and dot com infrastructure buildup; a severe oversupply of electronic
components (speciÑcally semiconductors Ì the worldwide semiconductor industry experienced its worst
performance in annual revenue trends in calendar 2001, registering a 32% decline in revenues according to the
Semiconductor Industry Association); and an uncertain geopolitical climate precipitated by the events of
September 11, 2001. These events have impacted, to varying degrees, all facets of the technology markets in
which the Company competes.
Please note that unless otherwise speciÑcally indicated, references herein to any particular year or quarter
generally are to the Company's Ñscal year periods. The Company's Ñscal year ends on the Friday closest to
June 30.
Fiscal Year Organizational Developments
Brian Hilton, president of EM, retired from the Company eÅective June 28, 2002 in conjunction with the
close of the Ñscal year. Andrew Bryant, a 22-year Avnet employee and prior president of CM, was appointed
the new global president of EM. Richard Hamada, a 20-year Avnet employee, was promoted to president of
CM worldwide. Mr. Hamada was the president of CM's largest division prior to assuming his new
responsibilities. The change in responsibilities for Messrs. Bryant and Hamada took place in January 2002 in
order to ensure a smooth transition prior to Mr. Hilton's retirement.
Critical Accounting Policies
The Company's consolidated Ñnancial statements have been prepared in accordance with accounting
principles generally accepted in the United States. The preparation of these consolidated Ñnancial statements
requires the Company to make estimates and assumptions that aÅect the reported amounts of assets,
liabilities, revenues and expenses during the reporting period. These estimates and assumptions are based upon
the Company's continuous evaluation of historical results and anticipated future events. Actual results may
diÅer from these estimates under diÅerent assumptions or conditions.
The Securities and Exchange Commission deÑnes critical accounting polices as those that are, in
management's view, most important to the portrayal of the Company's Ñnancial condition and results of
operations and those that require signiÑcant judgments and estimates. The Company does not consider
revenue recognition to be a critical accounting policy due to the nature of its business in which revenues are
generally recognized upon the actual shipment of product. Accordingly, other than for estimates related to
possible returns of products from customers, discounts or rebates, the recording of revenue does not require
signiÑcant judgments or estimates. Furthermore, revenues and anticipated proÑts from long-term contracts,
which are recorded on a percentage of completion basis, are not material to the consolidated results of
operations of the Company.
16