Avnet 2003 Annual Report Download - page 34
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Please find page 34 of the 2003 Avnet annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.Of the 2002 and 2001 charges, which totaled $407.1 million pre-tax, $16.0 million remains unexpended at
June 27, 2003 which relates primarily to severance, substantially all of which is scheduled to be utilized by the
end of the second quarter of 2004, and contractual lease commitments, substantially all of which is expected to
be utilized by the end of 2007.
Gross ProÑt and Gross ProÑt Margins
Consolidated gross proÑt for 2003 was $1.21 billion, representing a gross proÑt margin of 13.43%, down
from $1.22 billion in 2002, or 13.71%. Gross proÑt in 2002 includes $21.6 million of restructuring charges
discussed above which reduced the reported gross proÑt margin in that year by 24 basis points (0.24%).
The decline in consolidated gross proÑt margins year-over-year was primarily attributable to the mix of
business amongst the Company's operating groups, including the negative impact of lower gross proÑt margin
computer product sales in 2003, as well as the mix of product sales within the operating groups, especially a
greater volume of software sales within CM which yield a lower margin (while also bearing a low cost of
capital thus making software sales an attractive market to the Company despite the lower margins). EM's
gross proÑt margins improved in 2003 even with the previously discussed migration of technology manufactur-
ing to the Asia region, where margins have traditionally been lower than in other regions of the world. CM
experienced continued changes in product mix and competitive pricing, most notably in the computer
hardware and storage markets (markets that also bear a low cost of capital, similar to software discussed
above), which exacerbated the decline in gross proÑt margins within this business. Additionally, as discussed
in ""Restructuring and Other Charges'' above, AC continued to exit customer relationships in the low-margin
PC Builder segment which resulted in improved gross proÑt margins for this operating group in the fourth
quarter of 2003. Nevertheless, the group still experienced depressed margins on a year-over-year comparison.
AC's eÅorts in this area yielded gross proÑt margin improvement to a high for the year of 8.60% in the fourth
quarter of 2003.
Consolidated gross proÑt margins were 13.71% in 2002 as compared to 14.56% in 2001. Cost of sales in
these years included the impact of restructuring and other charges totaling $21.6 million and $80.6 million,
respectively, which negatively impacted gross proÑt margins by 24 basis points (0.24%) in 2002 and 63 basis
points (0.63%) in 2001. 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 product 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 impact of these factors on the Company's gross proÑt margins was mitigated in
part by the Company's eÅorts, beginning in late 2001, to expand its presence with customers who utilize more
of the Company's value-added services and in end-market segments that provide generally higher gross proÑt
margins.
Selling, General and Administrative Expenses and Operating Income (Loss)
Selling, general and administrative expenses were $1.20 billion, or 13.3% of sales, in 2003 as compared to
$1.23 billion, or 13.7% of sales, in 2002. Included in 2003 and 2002 operating expenses are restructuring and
other charges discussed above totaling $106.8 million (1.2% of sales) in 2003 and $58.0 million (0.7% of
sales) in 2002. The $23.6 million improvement in operating expenses year-over-year, despite also recording
$48.8 million more of restructuring and other charges in 2003 compared to 2002, is a function of the
Company's extensive cost reduction eÅorts in all facets of its business. This improvement is oÅset in part by
the value of the Euro, which strengthened compared to the US Dollar throughout the majority of 2003.
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