Item 1. Business.
Arrow Electronics, Inc. (the "company" or "Arrow") is a major global provider of
products, services, and solutions to industrial and commercial users of
electronic components and computer products. The company is one of the
electronics distribution industry's leaders in operating systems, employee
productivity, value-added programs, and total quality assurance. Over 600
suppliers market their products through Arrow.
Serving its industrial and commercial customers as a supply channel partner, the
company offers both a wide spectrum of products and a broad range of services
and solutions, including materials planning, programming and assembly services,
inventory management, a comprehensive suite of online supply chain tools, and
design services.
Arrow's diverse worldwide customer base consists of original equipment
manufacturers (OEMs), contract manufacturers (CMs), and commercial customers.
OEMs include manufacturers of computer and office products, industrial equipment
(including machine tools, factory automation, and robotic equipment),
telecommunications products, aircraft and aerospace equipment, and scientific
and medical devices. Commercial customers are mainly value-added resellers
(VARs) and OEMs of computer systems.
The company maintains over 200 sales facilities and 18 distribution centers in
41 countries and territories. Through this network, Arrow provides one of the
broadest product offerings in the electronics distribution industry and a wide
range of value-added services to help customers reduce their time to market,
lower their total cost of ownership, and enhance their overall competitiveness.
The company's global electronic components business, the largest distributor of
electronic components and related services in the world, spans the world's three
largest electronics markets the Americas, Europe, and the Asia/Pacific region.
The Americas Components group includes five targeted sales and marketing
organizations in the United States and Canada, as well as operations in
Argentina, Brazil, and Mexico. The European components group is divided into
three regions:
- Northern Europe, serving Denmark, Estonia, Finland, Ireland, Norway,
Scotland, the Republic of South Africa, Sweden, and the United Kingdom.
- Central Europe, serving Austria, Belgium, the Czech Republic, Germany,
Hungary, the Netherlands, Poland, and Switzerland.
- Southern Europe, serving France, Greece, Israel, Italy, Portugal,
Slovenia, Spain, and Turkey.
In the Asia/Pacific region, Arrow operates in Australia, Hong Kong, India,
Malaysia, New Zealand, the People's Republic of China, the Philippines,
Singapore, Korea, Taiwan, and Thailand.
Arrow's North American Computer Products group ("NACP") is a leading distributor
of enterprise and embedded computing systems, as well as storage and software,
to resellers and OEM customers in North America. NACP consists of the Enterprise
Computing Solutions group, which serves resellers, and the OEM Computer
Solutions group, which serves industrial OEM customers.
The company distributes a broad range of electronic components, computer
products, and related equipment. About 54% of the company's consolidated sales
consist of semiconductor products and related services. Industrial and
commercial computer products and related services, including servers,
workstations, storage products, microcomputer boards and systems, design
systems, desktop computer systems, software, monitors, printers, flat panel
displays, system chassis and enclosures, controllers, and communication control
equipment, account for about 29% of sales. Arrow's remaining sales are of
passive, electromechanical, and interconnect products, principally capacitors,
resistors, potentiometers, power supplies, relays, switches, and connectors.
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The financial information about the company's reportable segments and foreign
and domestic operations can be found in Note 17 of the Notes to Consolidated
Financial Statements.
Most manufacturers of electronic components and computer products rely on
authorized distributors, such as the company, to augment their sales and
marketing operations. As a stocking, marketing, and financial intermediary, the
distributor relieves manufacturers of a portion of the costs and personnel
associated with stocking and selling their products (including otherwise sizable
investments in finished goods inventories, accounts receivable systems, and
distribution networks), while providing geographically dispersed selling, order
processing, and delivery capabilities. At the same time, the distributor offers
a broad range of customers the convenience of accessing from a single source
multiple products from multiple suppliers and rapid or scheduled deliveries, as
well as other value-added services such as kitting and memory programming
capabilities. The growth of the electronics distribution industry has been
fostered by the many manufacturers who recognize their authorized distributors
as essential extensions of their marketing organizations.
The company and its affiliates serve over 150,000 industrial and commercial
customers. Industrial customers range from major OEMs and CMs to small
engineering firms, while commercial customers include principally VARs and OEMs.
No single customer accounted for more than 2% of the company's 2003 sales.
Most of the company's customers require delivery of the products they have
ordered on schedules that are generally not available on direct purchases from
manufacturers, and frequently their orders are of insufficient size to be placed
directly with manufacturers.
The electronic components and other products offered by the company are sold by
field sales representatives, who regularly call on customers in assigned market
areas, and by telephone from the company's selling locations, by inside sales
personnel with access to pricing and stocking data provided by computers on
which orders are accepted and processed. Each of the company's North American
selling locations, warehouses, and primary distribution centers is
electronically linked to the company's central computer system, which provides
fully integrated, online, real-time data with respect to nationwide inventory
levels and facilitates control of purchasing, shipping, and billing. The
company's international operations have similar online, real-time computer
systems and they can access the company's Worldwide Stock Check System, which
provides access to the company's online, real-time inventory system.
The company sells the products of over 600 manufacturers. The company does not
regard any one supplier of products to be essential to its operations and
believes that many of the products currently sold by the company are available
from other sources at competitive prices. Most of the company's purchases are
pursuant to authorized distributor agreements which are typically cancelable by
either party at any time or on short notice.
Approximately 61% of the company's inventory consists of semiconductors. It is
the policy of most manufacturers to protect authorized distributors, such as the
company, against the potential write-down of such inventories due to
technological change or manufacturers' price reductions. Write-downs of
inventories to market value are based upon contractual provisions which
typically provide certain protections to the company for product obsolescence
and price erosion in the form of rights of return and price protection. Under
the terms of the related distributor agreements, and assuming the distributor
complies with certain conditions, such suppliers are required to credit the
distributor for inventory losses incurred through reductions in manufacturers'
list prices of the items. In addition, under the terms of many such agreements,
the distributor has the right to return to the manufacturer for credit a defined
portion of those inventory items purchased within a designated period of time.
A manufacturer who elects to terminate a distributor agreement is generally
required to purchase from the distributor the total amount of its products
carried in inventory. As of December 31, 2003, this type of repurchase
arrangement covered approximately 85% of the company's inventory. While these
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industry practices do not wholly protect the company from inventory losses, the
company believes that they currently provide substantial protection from such
losses.
The company's business is extremely competitive, particularly with respect to
prices, franchises, and, in certain instances, product availability. The company
competes with several other large multi-national, national, and numerous
regional and local distributors. As one of the world's largest electronics
distributors, the company's financial resources and sales are greater than most
of its competitors.
The company, incorporated in New York in 1946, and its affiliates employed over
11,200 employees worldwide as of December 31, 2003.
Available Information
The company makes the annual report on Form 10-K, quarterly reports on Form
10-Q, and any current reports on Form 8-K, and amendments to any of these
reports available through its Internet site ( http://www.arrow.com ) as soon as
reasonably practicable after the company files such material with the Securities
and Exchange Commission ("SEC"). The information posted on the company's
Internet site is not incorporated into this annual report on Form 10-K. In
addition, the SEC maintains an Internet site (http://www.sec.gov) that contains
reports, proxy and information statements, and other information regarding
issuers that file electronically with the SEC.
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Executive Officers
The following table sets forth the names, ages, and the positions and offices
with the company held by each of the executive officers of the company as of
March 5, 2004:
Name Age Position or Office Held
William E. Mitchell 60 President and Chief Executive Officer
Betty Jane Scheihing 55 Senior Vice President
Peter S. Brown 53 Senior Vice President and General Counsel
Germano Fanelli 56 President of Arrow Electronics EMEASA
(Europe, Middle East, Africa and South America)
Harriet Green 42 President of Arrow Asia/Pacific
Brian McNally 45 President of North American Components
Michael J. Long 45 Vice President and President of North
American Computer Products
Paul J. Reilly 47 Vice President and Chief Financial Officer
Jan M. Salsgiver 47 Vice President of Global Strategy and Operations
Mark F. Settle 53 Vice President and Chief Information Officer
Susan M. Suver 44 Vice President of Global Human Resources
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Set forth below is a brief account of the business experience during the past
five years of each executive officer of the company.
William E. Mitchell was appointed President and Chief Executive Officer of the
company in February 2003. Prior thereto, he served as Executive Vice President
of Solectron Corporation and President of Solectron Global Services, Inc. since
March 1999 and previously served as Chairman, President and Chief Executive
Officer of Sequel, Inc. since 1995.
Betty Jane Scheihing has been a Senior Vice President of the company since May
1996.
Peter S. Brown has been a Senior Vice President of the company and General
Counsel since September 2001. Prior to joining the company, he served as the
managing partner of the London office of the law firm of Pillsbury Winthrop LLP
(formerly, Winthrop, Stimson, Putnam, & Roberts) for more than five years.
Germano Fanelli was appointed President of Arrow Electronics EMEASA in January
2004. Prior thereto, he served as Managing Director of Southern Europe for more
than five years.
Harriet Green was appointed President of Arrow Asia/Pacific in March 2004. Prior
thereto, she served in several executive positions, including Managing Director
of Northern Europe, President of the company's Contract Manufacturing Services
(CMS) Distribution group, and most recently, Vice President of Worldwide
Supplier Marketing.
Brian McNally was appointed President of North American Components in March
2004. Prior thereto, he served in several executive positions including
President of the company's CMS Distribution group and Managing Director of
Northern Europe.
Michael J. Long has been President and Chief Operating Officer of NACP since
July 1999. In addition, he has been a Vice President of the company for more
than five years.
Paul J. Reilly has been Chief Financial Officer since October 2001 and has
served as a Vice President of the company for more than five years.
Jan M. Salsgiver was appointed Vice President of Global Strategy and Operations
in March 2004. Prior thereto, she served as President of the Americas Components
group since July 1999 and as President of the Arrow Supplier Services Group
since its inception in January 1998. In addition, she has been a Vice President
of the company for more than five years.
Mark F. Settle has been a Vice President of the company and Chief Information
Officer since November 2001. Prior to joining the company, he served as
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Executive Vice President, Systems and Processing at Visa International since
April 1999 and previously served as Chief Information Officer at Occidental
Petroleum Corporation since February 1997.
Susan M. Suver was appointed Vice President of Global Human Resources in March
2004. Prior thereto, she served as Vice President of Global Organizational
Development. Prior to joining the company in October 2001, she held the position
of Vice President, Organizational Effectiveness Communications at Phelps Dodge
Corporation.
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