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Table of Contents
consolidated gross profit margin. Notwithstanding the lower gross profit margins, the TS business contributed to the
Company’s performance goals through the combination of its operating profit margin and asset velocity which is
typically higher than asset velocity at EM.
Selling, General and Administrative Expenses
Selling, general and administrative expenses (“SG&A expenses”)
were $1.53 billion in fiscal 2009, a decrease of
$32.6 million, or 2.1%, over the prior year. Management estimates that this cost reduction was net of approximately
$111.1 million in additional SG&A expenses associated with companies acquired in fiscal 2009, partially offset by a
decrease in SG&A expenses of $66.5 million due to the translation impact of changes in foreign currency exchange
rates. Metrics that management monitors with respect to its operating expenses are SG&A expenses as a percentage
of sales and as a percentage of gross profit. In fiscal 2009, SG&A expenses were 9.4% of sales and 75.7% of gross
profit as compared with 8.7% and 67.6%, respectively, in fiscal 2008.
Due to the decline in sales and gross profit margin, the Company initiated significant cost reduction actions over
the past four quarters in order to realign its expense structure with market conditions; however, the precipitous
decline in revenue has more than offset the beneficial impact of the cost reduction actions undertaken to date (see
Restructuring, Integration and Other Charges
for a discussion of charges associated with the actions undertaken). In
the third quarter of fiscal 2008, the Company began to experience demand weakness and organic sales growth at both
EM and TS continued to slow through the first quarter of fiscal 2009. In the second quarter of fiscal 2009, the
Company experienced continued sales deceleration in both operating groups, particularly in November in the Asia
region and in December in the Americas region. During the third quarter of fiscal 2009, end demand in the EM
business deteriorated even further, in particular in EM Americas and EM EMEA which have been the Company’s
most profitable regions. As a result of the poor market conditions through mid-March, the Company took actions to
reduce costs by approximately $200 million on an annualized basis and expected such actions to be completed by the
end of the June quarter. However, based upon third quarter results, the Company announced further actions to reduce
annualized costs by an additional $25 million, bringing the aggregate annual cost reductions announced to
approximately $225 million since March 2008. As of the end of the fourth quarter of fiscal 2009, management
estimates that approximately $200 million in annualized cost savings have been achieved. The remaining cost
reduction actions are anticipated to be complete by the end of September 2009 with the full benefit of the cost
savings expected to be reflected in the December quarter of fiscal 2010. In addition, the Company expects to achieve
cost synergies of approximately $40 million as a result of acquisition integration activities most of which were
completed by the end of fiscal 2009 with the remaining expected to be completed by the end of the second quarter of
fiscal 2010.
SG&A expenses in fiscal 2008 were $1.56 billion, a $201.4 million increase, or 14.8%, as compared with fiscal
2007. The year-over-
year increase in SG&A expenses was primarily due to acquisitions and the weakening of the US
dollar versus the Euro. Management estimates that approximately $70.8 million of the SG&A expense increase was
attributable to the translation impact of changes in foreign currency exchange rates. SG&A expenses were also
impacted by the overall volume increase due to acquisitions. Furthermore, management believed that during second
half of fiscal 2008, SG&A expenses were higher than necessary to support the level of business in certain business
segments due to revenue weakness in those segments. As a result, during the second half of fiscal 2008, management
took actions, as described in Restructuring, Integration and Other Charges, to adjust the Company’s cost structure.
In fiscal 2008, SG&A expenses were 8.7% of sales and 67.6% of gross profit as compared with 8.7% and 66.5%,
respectively, in fiscal 2007. SG&A expenses as a percentage of sales for fiscal 2008 were flat as compared with
fiscal 2007; however, SG&A expenses as a percentage of gross profits were up 108 basis points.
Impairment Charges
During fiscal 2009, the Company recognized non-cash goodwill and intangible asset impairment charges
totaling $1.41 billion pre-tax, $1.38 billion after tax and $9.13 per share.
The Company performs its annual goodwill impairment test on the first day of its fiscal fourth quarter. In
addition, if and when events or circumstances change that would more likely than not reduce the fair value of any of
its reporting units below its carrying value, an interim test would be performed. Since the end of September 2008,
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