Avnet 2003 Annual Report Download - page 3

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annual report2003
1
Celebrating industry leadership
and more than 40 years on the
New York Stock Exchange, Avnet
Chairman and CEO Roy Vallee rang
the closing bell December 17, 2002.
Dear fellow Avnet shareholder: FY ’03 has been a year of meaningful progress for Avnet despite
essentially flat revenue as markets struggled to recover from the sobering and well-documented
technology downturn that has defined our world for the past two-and-a-half years. During this time,
we have focused intently on managing that which we can control, dramatically reducing cost and debt
by improving expense and asset productivity to create a high degree of operating leverage and a
healthy balance sheet. Year over year, we have increased operating profit margin, earnings and earnings
per share while generating substantial cash flow, which was used to pay down a large amount of debt
and build our cash balance. As FY ’04 begins, more is being done to restructure the business and reduce
costs without negatively impacting the value propositions we have in place. These actions are being
taken to help us achieve acceptable profitability at any level of revenue. Avnet is positioned to grow
earnings even if revenue remains flat and should grow earnings substantially faster than revenue when
the inevitable industry recovery occurs. We are, effectively, changing our business model as we focus
the entire organization on creating shareholder value.
re:ACT
Creating Operating Leverage and a Strong Balance Sheet
Since the end of calendar 2000 when the industry downturn began, Avnet has:
•Trimmed more than one-third of the Company’s operating expenses on a going-forward
basis, excluding the effect of foreign currency fluctuations (expenses were reduced by one-fourth,
including the effect of foreign currency fluctuations).
•Reduced working capital (trade accounts receivable, plus inventory, less accounts
payable) by more than 50 percent.
•Lowered debt by more than 50 percent.
In FY ’03:
•Pre-tax earnings improved $41 million.
•Operating expenses were down $24 million.
•Net debt (debt and drawings under the accounts receivable securitization
program, less cash) was reduced by $595 million.
When we take action to reduce our cost structure, we often have to spend money to save
costs going forward.
Without taking into account the money we spent to achieve these cost
reductions in
FY ’03
:
•Pre-tax earnings improved $82 million.
•Operating expenses were down $72 million.
We believe it is helpful for you to understand our financial information after taking into account the
money we spent to achieve savings and what our results would have been absent those expenditures,
because we believe it helps provide you a clearer picture of our business. You will find a reconciliation
of the difference between the earnings and expenses set forth above in this report on the inside
back cover and on page 24 in the Form 10-K.
Message to Our Shareholders