Avnet 2002 Annual Report Download - page 34

lawsuit against Wyle Laboratories, Inc. and certain individuals ($2.7 million). Of the $49.0 million pre-tax
charge, $29.9 million required the use of cash, substantially all of which had been utilized at June 28, 2002.
The charges in 2000 associated with the integration of acquired businesses included the integration of
Marshall Industries into the Company's North American EM and AC operations ($18.4 million), the
integration of JBA Computer Solutions into CM North America ($3.2 million) and the integration of
Eurotronics B.V. and the SEI Macro Group into EM EMEA ($10.1 million). The charges related to the
reorganization of EM Asia are comprised of severance, inventory reserves required related to supplier
terminations, real property lease terminations, employee and facility relocation costs, write-downs associated
with the disposal of Ñxed assets, special incentive payments and other items.
The charges related to the reorganization of EM's European operations consisted primarily of costs
related to the centralization of warehousing operations into the Company's new facility in Tongeren, Belgium.
These charges were for severance, adjustment of the carrying value of Ñxed assets, real property lease
terminations, duplicate employee and property related costs and other items.
The costs incurred pertaining to the Wyle lawsuit, in which the Company was the plaintiÅ, related to
legal and professional fees associated with the trial of the case, which commenced in September 1999. On
February 4, 2000, a jury in Tampa, Florida returned a verdict in the case absolving the defendants of any
liability. Subsequently, the parties agreed to settle the case by dismissing all claims and appeals with prejudice
and with each side bearing its own costs and expenses.
The Company continues to explore potential cost cutting measures including potential reorganizations of
certain lines of business. EÅorts in this regard may result in future special charges. Such charges will be
recorded if and when management makes the necessary decisions and approvals regarding any reorganization
plans and liabilities are incurred.
Operating Income (Loss)
The following table compares consolidated gross proÑt margins, operating expenses as a percent of sales
and operating proÑt margins for the three years ending June 28, 2002:
AVNET CONSOLIDATED MARGIN ANALYSIS
Years Ended
June 28, June 29, June 30,
2002 2001 2000
Gross proÑt margins
Ì Before special charges ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 14.0% 15.2% 14.7%
Ì After special charges ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 13.7 14.6 14.6
Operating expense as a percent of sales
Ì Before special charges ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 13.1% 10.7% 10.5%
Ì After special charges ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 13.7 12.6 10.9
Operating proÑt margins
Ì Before special charges ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 0.9% 4.5% 4.2%
Ì After special charges ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Ì 2.0 3.7
Consolidated gross proÑt margins, before special charges, were 14.0% in 2002 as compared with 15.2%
and 14.7% in 2001 and 2000, respectively. The decline in gross proÑt margin in 2002 from the prior year
illustrated the diÇcult market environment and pressure on average selling prices across the operating groups.
The downward trend also included the eÅect of business mix: increased sales of computer products (including
microprocessors, DRAMS, disk drives, etc.) that generally have lower gross proÑt margins than other products
in the Company's product lines. The strong gross proÑt margin performance during 2001 was due in part to a
mix of business that included a lower percentage of sales during that year to large customers who are typically
granted better pricing due to their signiÑcant sales volume. This eÅect partially oÅset the impact of pricing
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