Avnet 2002 Annual Report Download - page 31

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Enterprise-wide operations were impacted by the economic downturn in a number of areas. Revenues
continued to be depressed compared with prior year levels due primarily to excess inventory in the supply
chain combined with widespread weak demand across the technology segments served by the Company. This
impact has been compounded by pricing pressures within the supply chain, common to the industry in a down
cycle, which have also kept proÑts at suppressed levels. The combination of these factors led to substantially
reduced gross proÑt dollars in 2002. The rapid decline in gross proÑt dollars occurred at a rate greater than
operating expenses could be removed from the business and, as a result, each operating group experienced
signiÑcant declines in operating income in 2002 as compared with 2001. In addition, operating losses occurred
within EM in the Ñrst and second quarters of 2002 and within AC during the fourth quarter of 2002.
Sales
On a year-over-year basis, the Company completed 2002 with sales of $8.92 billion, down 30.4%, or
$3.89 billion, from the record sales of $12.81 billion recorded in 2001. As discussed above, the decrease in
consolidated sales was due primarily to the conÖuence of global and domestic economic forces that caused the
severe downturn in the technology markets the Company serves. EM sales of $4.84 billion and CM sales of
$2.40 billion which, combined, represented over 80% of the Company's consolidated revenues in 2002, were
down from 2001 levels by 41.6% and 16.0%, respectively. AC sales of $1.68 billion in 2002 increased
marginally by 0.4% from 2001 due primarily to growth in its European operations (aÅected, in part, by a full
year of operations of RKE Systems in 2002, acquired as part of the VEBA Group acquisition discussed in
Item 1 of this Report) as well as marginally positive growth in Asia.
Consolidated sales for 2001 of $12.81 billion were up $2.90 billion, or 29.2%, as compared with 2000. A
signiÑcant portion of the increase in sales was primarily due to the robust market conditions that existed
through the December 2000 timeframe, especially in the telecommunications sectors being fueled by the dot
com infrastructure buildup, and the impact of acquisitions. EM sales represented 64.7% of Avnet's
consolidated sales in 2001, down from 71.7% in 2000. However, revenue dollars at EM year-over-year grew to
record levels of $8.29 billion in 2001, an increase of $1.18 billion, or 16.6%, over sales of $7.11 billion in 2000.
This continued increase in sales was due primarily to the impact of acquisitions (the VEBA Group of
companies and the Ñrst full year of operations of Marshall and SEI) and the strengthening of business
conditions in the electronics component distribution market. CM achieved a $716.2 million, or 33.5%, increase
in sales from $2.14 billion in 2000 to $2.86 billion in 2001. The continued growth rate was primarily impacted
by the acquisition of Savoir and by growth in sales of enterprise IT equipment and services that accompanied
the dot com infrastructure buildup in larger companies in the industry that comprise a signiÑcant portion of
the CM customer base. EM and CM sales for 2000 include $368 million of AC sales recorded prior to the
period when AC was separated into its own operating group, making AC global sales approximately
$1.038 billion on a pro forma basis for 2000.
Special Charges
The Company recorded a number of special charges during the last three Ñscal years. These charges
relate primarily to three items: (1) the change in accounting principle further discussed in ""Change in
Accounting Principle Ì Goodwill'' in this MD&A and in Note 6 to the consolidated Ñnancial statements
appearing in Item 14 of this Report; (2) charges stemming from acquisition and integration of newly acquired
businesses; and (3) the reorganization of operations in each of the three major regions of the world in which
the Company operates and other non-recurring items, generally taken in response to business conditions at the
time of the charge. Management believes that the Company's future results of operations will continue to
beneÑt from the cost savings resulting from its acquisitions and integrations of new businesses and
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