Avnet 2003 Annual Report Download - page 35
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Please find page 35 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.The fourth quarter of 2003 was the Ñrst quarter in which the Company beneÑted from the entire impact
of restructuring eÅorts in both the fourth quarter of 2002 and the second quarter of 2003. Operating expenses
in the fourth quarter of 2003 were $262.9 million, which, annualized, represents a run rate of approximately
$1.05 billion. By comparison, annualized operating expenses based on results of operations in the second
quarter of 2001, which is widely regarded as the Ñnal quarter before the industry and economic downturn,
would be $1.41 billion. Factoring in pro forma adjustments (as noted in the table below) to remove
amortization of goodwill and to add estimated operating expenses for a full quarter of expenses for the VEBA
Group which was acquired during the second quarter of 2001, operating expenses annualized would have been
approximately $1.43 billion based on results for the second quarter of 2001. This represents an annualized
expense reduction of $382.4 million since the second quarter of 2001. Furthermore, the previously discussed
weakening of the US Dollar in comparison to most foreign currencies, particularly the Euro (which
strengthened against the US Dollar by over 18% in the fourth quarter of 2003 as compared to the second
quarter of 2001), has oÅset a portion of the impact of the signiÑcant actions the Company has taken to reduce
costs and improve proÑtability. Assuming a constant exchange rate with that of December 2000 for all foreign
functional currency subsidiaries of Avnet would yield total cost reductions of the same ten quarter period of
approximately $478.0 million on an annualized basis.
Q4 Fiscal 2003 Q2 Fiscal 2001
(Thousands)
Selling, general and administrative expenses, as reported ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $262,939 $ 351,632
Pro forma adjustments:
Remove amortization of goodwill ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Ì (8,817)
Add estimated operating expenses for the VEBA Group ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Ì 15,716
Adjust Q4 Fiscal 2003 expenses to December 2000 exchange rates ÏÏÏÏÏÏ (23,918) Ì
Selling, general and administrative expenses, pro forma ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $239,021 $ 358,531
Annualized selling, general and administrative expenses, pro forma ÏÏÏÏÏÏÏÏ $956,084 $1,434,124
As a result of the factors discussed above in this MD&A, operating income in 2003 was $12.7 million
compared to an operating loss of $3.0 million in 2002. These results were negatively impacted by the
restructuring and other charges discussed above which totaled $106.8 million (1.2% of sales) and $79.6 mil-
lion (0.9% of sales) in 2003 and 2002, respectively. On a segment basis, EM improved its operating proÑt
margin dramatically year-over-year (2.0% in 2003 as compared to 0.5% in 2002). However, operating proÑt
margins in both computer businesses were down due to lower revenues across business lines, lower gross proÑt
margins and business mix issues discussed above.
Selling, general and administrative expenses in 2002 were $1.23 billion as compared to $1.61 billion in
2001. As a percentage of sales, these operating expenses increased substantially to 13.7% during 2002 as
compared to 12.6% in 2001 due to the dramatic decline in revenues discussed in ""Sales.'' These operating
expenses included restructuring and other charges as discussed above totaling $58.0 million (0.7% of sales) in
2002 and $246.9 million (1.9% of sales) in 2001. However, the revenue declines during these comparative
periods occurred at an unprecedented rate and faster than management could reasonably remove expense from
the business resulting in an increase in expenses as a percentage of sales.
The Company reported an operating loss of $3.0 million in 2002 as compared to operating income in 2001
of $253.7 million. Each year's results were negatively impacted by total restructuring and other charges of
$79.6 million (0.9% of sales) and $327.5 million (2.6% of sales) in 2002 and 2001, respectively. Each of the
Company's operating groups experienced deep year-over-year declines in operating income when comparing
2002 to 2001. EM's 2002 operating income was $22.7 million, down 95.7% from 2001 levels of $532.3 million.
CM and AC also experienced declines in operating income, from $86.4 million and $63.9 million in 2001,
respectively, to 2002 levels of $63.0 million and $42.8 million, respectively.
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