Magazine for Senior Financial Executives: Bend & Stretch: Why the best companies remain focused on cost cutting, whatever the business cycle – The Eighth Annual Cost Management Survey

Bend & Stretch: Why the best companies remain focused on cost cutting, whatever the business cycle – The Eighth Annual Cost Management Survey – largest companies ranked by cost management index

Lori Calabro

TO SAY THAT CORPORATE America has its eyes on costs these days is a bit of an understatement. Hardly a day goes by without some announcement of a layoff, stalled capital investment, or acquisition put on hold. In January alone, Ford Motor Co. announced the closing of five plants in North America; AT&T Corp. slashed an additional 5,000 jobs; and The Walt Disney Co. shed a number of its Disney Stores.

What companies are doing is cost cuffing by “brute force,” says Jon Scheumann, a director with business-process consulting firm Gunn Partners. For most companies, he explains, “it’s a struggle to adjust SG&A [selling, general, and administrative] costs in concert with fluctuations in their business cycles.” Confronted with an economic downturn, companies take out. costs as quickly as possible, which often translates into workforce reductions. Conversely, in the, midst of an economic boom, costs often escalate wildly in the quest for growth.

“It’s the bane of many CFOs,” says Scheumann. “How to break that cycle.”

To get a handle on which companies are best at doing just that, CFO teamed with Gunn Partners for the eighth annual Cost Management Survey (formerly the SG&A Survey). The survey ranks the largest companies (revenues of at least $750 million per year from 1997 through 2000) publicly traded in the United States, according to their cost management index. The CMI is calculated by adding a company’s cost of goods sold to its SG&A expenses and dividing the sum by operating revenue.

Using figures from 2000, the survey found that Corporate America again made improvements in cost control-albeit marginally. The median company improved its costs-to-revenue ratio by 41 basis points from 1997 to 2000, compared with a 64 basis point improvement in last year’s survey. It’s the improvements at individual companies, however, that offer clues as to which have been best able to weather the current economic climate.

Last year’s leanest operator, Apache Corp., for example, again topped the list in the Energy–Oil & Gas sector, with a CMI of 14.5 percent, compared with 77.0 percent for the industry. While 2000 was a boom year for that industry. Apache maintained its focus on costs, says Roger Plank, CFO of the Houston-based oil-and-gas exploration and production company. Riding business cycles, he explains, “is a way of life” at Apache. “And while I’m not saying we’re going to guess every cyclical turn right, we aren’t afraid to zig when others are zagging.” As an example, he points to the fact that Apache has sat on the acquisition sidelines for the past 11 months, because “everyone else is paying too much.”

The airline industry has been no less volatile in recent months. And the numerous layoffs post-September 11, says Scheumann, “are a direct reflection of how inflexible the airlines are.” Bucking the trend, of course, is Dallas-based Southwest Airlines, which remains one of the only airlines not to have laid off employees since the terrorist attacks. In 2000, the low-cost leader spent 40.8 cents on SG&A expenses for every dollar of operating revenue generated, 560 basis points lower than the industry, and had a CMI of 76.6 percent, compared with the industry median of 91.7 percent. “We do run a tight ship,” says CFO Gary Kelly. “But there are always opportunities to improve.” And many of those opportunities come from employees, who have been challenged to save $5 a day for the past four years.

For Cox Communications Inc., the Atlanta-based cable operator, success depends on “developing new products and applications for future deployment” even though the industry is “somewhat recession resistant,” says CFO Jimmy Hayes. While such developments require a continued investment in SG&A, he says, it must be done with “a balanced perspective.” In 2000, that perspective meant spending only 36.3 cents on SG&A for every dollar of operating revenue it generated, and recording a CMI of 60.7–1,730 basis points better than its industry.

Of course, the CMI is not a perfect indicator of the future, as Ford’s first place finish in the auto industry certainly illustrates. And considering how earnings have dropped at many companies, Scheumann says the index is destined to go up next year–although not as much as one might expect. “Historically, SG&A rises as the business cycle is on the upswing and declines are on the downside, but on a lag basis. So in 2001, revenues will be down, but SG&A won’t be down in proportion.” The true reflection of the current cost-cutting binge, therefore, won’t be seen until the 2002 numbers. “It all goes back to the flexibiity question,” he says.

CYCLE RIDERS

Leading cost containers in 40 industries, 1997-2000.

ALL VALUES ARE & OF OPERATING REVENUE

ADVERTSING & MEDIA

’97-’00 ’97-’00

2000 2000 2000 CMI Earnings

Company COGS SG&A CMI (1) Avg. (2) Growth (3)

Cox Communications 24.4 36.3 60.7 61.7 31.0

Walt Disney 70.4 0.4 70.8 65.3 -6.0

Gannett 49.1 15.6 64.8 66.5 11.0

Comcast Special Stock 54.7 15.2 69.9 70.2 19.0

Belo 35.8 33.5 69.3 70.5 9.0

Industry median 46.2 31.0 78.0 79.7 10.0

AEROSPACE & DEFENSE

’97-’00 ’97-’00

2000 2000 2000 CMI Earnings

Company COGS SG&A CMI (1) Avg. (2) Growth (3)

Goodrich 67.1 13.9 81.0 83.0 18.0

Northrop Grumman 66.5 14.1 80.6 84.6 4.0

General Dynamics 78.7 6.2 85.0 85.7 43.0

Alliant Techsystems 76.1 8.2 84.4 86.2 6.0

Lockheed Martin 89.8 0.0 89.8 88.7 -8.0

Industry Median 77.4 7.8 86.3 87.5 12.3

AIRLINES

’97-’00 ’97-’00

2000 2000 2000 CMI Earnings

Company COGS SG&A CMI (1) Avg. (2) Growth (3)

Southwest Airlines 35.8 40.8 76.6 78.4 22.0

AMR 39.0 47.8 86.9 84.6 -7.0

America West 45.2 47.2 92.4 85.4 -15.0

Alaska Air Group 37.3 54.7 92.0 86.2 -10.0

Continental Airlines 41.1 48.0 89.0 87.4 4.0

Industry median 42.5 46.4 91.7 88.9 -6.0

AUTO & AUTO PARTS MANUFACTURERS

’97-’00 ’97-’00

2000 2000 2000 CMI Earnings

Company COGS SG&A CMI (1) Avg. (2) Growth (3)

Ford Motor 73.2 7.0 80.2 78.9 -0.0

Harley-Davidson 61.3 17.7 79.0 80.1 23.0

Desc SA DE CV ADR 69.4 15.9 85.3 82.4 -2.0

Borg Warner 75.7 9.2 84.9 85.4 15.0

Federal-Mogul 72.3 14.0 86.3 85.7 63.0

Industry median 72.6 15.4 88.0 88.2 9.0

BANKING

’97-’00 ’97-’00

2000 2000 2000 CMI Earnings

Company COGS SG&A CMI (1) Avg. (2) Growth (3)

Golden West Financial * * 32.4 32.9 11.0

Fifth Third Bancorp * * 45.1 46.4 28.0

Bank of New York * * 50.4 46.7 8.0

Comerica * * 47.8 49.5 8.0

Charter One Financial * * 46.6 53.0 27.0

Industry median * * 59.6 60.9 15.0

BEVERAGES

’97-’00 ’97-’00

2000 2000 2000 CMI Earnings

Company COGS SG&A CMI (1) Avg. (2) Growth (3)

Brown-Forman 33.4 35.4 68.7 68.4 7

Coca-Cola 33.6 44.6 78.2 73.6 -7

Anheuser-Busch 55.4 17.7 73.1 74.1 6

Coca-Cola Femsa SA DE CV 44.4 32.0 76.4 79.8 25

PepsiCo 34.8 44.7 79.5 80.6 1

Industry median 46.1 33.2 80.3 81.2 7

BUILDING MATERIALS

’97-’00 ’97-’00

2000 2000 2000 CMI Earnings

Company COGS SG&A CMI (1) Avg. (2) Growth (3)

Rayonier 66.4 2.5 69.0 75.2 14

Vulcan Materials 68.3 8.7 77.0 75.5 12

Lafarge North America 69.9 9.7 79.6 77.2 11

USG 75.2 8.2 83.4 79.8 3

Armstrong Holdings 68.4 18.2 86.5 82.0 -6

Industry median 71.2 13.7 86.8 86.8 12

CHEMICALS

’97-’00 ’97-’00

2000 2000 2000 CMI Earnings

Company COGS SG&A CMI (1) Avg. (2) Growth (3)

Sigma-Aldrich 45.3 28.8 74.1 73.9 -2

Praxair 61.0 14.8 75.8 74.2 0

Air Products & Chemicals 59.4 15.3 74.8 74.6 6

Int’l Flavors & Fragrances 52.1 25.4 77.5 75.5 -5

Albemarle 62.4 14.1 76.5 76.4 4

Industry Median 66.5 15.3 84.1 82.3 4

COMPUTER NETWORKING & STORAGE

’97-’00 ’97-’00

2000 2000 2000 CMI Earnings

Company COGS SG&A CMI (1) Avg. (2) Growth (3)

Cisco Systems 32.6 38.5 71.1 68.6 44

EMC 35.9 32.5 68.4 70.8 52

Enterasys Networks 50.4 40.1 90.5 84.5 -32

3Com 50.3 41.0 91.3 85.7 -19

Storage Technology 52.9 38.8 91.7 86.4 -25

Industry median 50.4 38.5 90.5 85.7 -19

COMPUTER SOFTWARE & SERVICES

’97-’00 ’97-’00

2000 2000 2000 CMI Earnings

Company COGS SG&A CMI (1) Avg. (2) Growth (3)

Microsoft 9.8 38.9 48.7 46.9 27

Computer Assoc Int’l 0.0 45.6 45.6 49.1 17

First Data 51.1 15.2 66.3 68.1 9

Adobe Systems 4.0 59.8 63.9 68.4 16

Oracle 25.2 40.5 65.7 72.1 30

Industry median 41.7 33.5 78.6 75.2 10

COMPUTER SYSTEMS & PERIPHERALS

’97-’00 ’97-’00

2000 2000 2000 CMI Earnings

Company COGS SG&A CMI (1) Avg. (2) Growth (3)

IBM 57.7 23.5 81.2 81.2 6

Sun Microsystems 43.1 36.8 79.8 81.6 32

Lexmark Int’l 64.6 21.0 85.6 85.1 17

Hewlett-Packard 68.7 20.6 89.2 87.9 -4

Dell Computer 78.7 10.9 89.7 89.2 51

Industry median 68.2 21.0 90.9 89.2 3

CONGLOMERATES

’97-’00 ’97-’00

2000 2000 2000 CMI Earnings

Company COGS SG&A CMI (1) Avg. (2) Growth (3)

General Electric 34.1 36.7 70.7 72.2 21

Minnesota Mining & Mfg 46.4 30.3 76.7 76.5 3

Fortune Brands 50.2 27.8 77.9 76.6 9

PPG Industries 61.8 19.1 80.9 79.1 -1

Tyco Int’l 56.3 18.2 74.4 79.7 96

Industry median 67.8 17.7 85.3 85.8 0

CONSTRUCTION & HOUSING

’97-’00 ’97-’00

2000 2000 2000 CMI Earnings

Company COGS SG&A CMI (1) Avg. (2) Growth (3)

Clayton Homes 49.3 31.3 80.6 80.9 18

Toll Brothers 75.3 9.4 84.7 85.5 25

Lennar 87.6 1.1 88.7 88.0 53

NVR 78.9 8.0 87.0 90.5 79

MDC Holdings 84.9 2.3 87.2 90.7 60

Industry median 82.2 8.6 91.7 92.2 23

CONSUMER DURABLES

’97-’00 ’97-’00

2000 2000 2000 CMI Earnings

Company COGS SG&A CMI (1) Avg. (2) Growth (3)

Pitney Bowes 29.0 37.1 66.1 66.8 0

Emerson Electric 60.1 19.2 79.3 79.5 9

Eastman Kodak 51.0 26.9 77.8 79.9 8

Lancaster Colony 66.5 15.7 82.2 81.7 5

Newell Rubbermaid 70.1 13.0 83.1 82.4 19

Industry median 67.0 20.7 87.4 86.3 6

CONSUMER PRODUCTS

’97-’00 ’97-’00

2000 2000 2000 CMI Earnings

Company COGS SG&A CMI (1) Avg. (2) Growth (3)

Gillette 30.7 41.2 71.8 72.6 -2

Clorox 50.2 25.8 76.0 76.5 18

Colgate-Palmolive 42.0 35.3 77.2 79.2 8

Procter & Gamble 48.4 31.2 79.6 79.4 5

Ecolab 38.8 40.5 79.2 79.7 14

Industry median 40.4 40.9 82.1 82.8 8

DIVERSIFIED FINANCIAL SERVICES

’97-’00 ’97-’00

2000 2000 2000 CMI Earnings

Company COGS SG&A CMI (1) Avg. (2) Growth (3)

Fannie Mae * * 16.0 16.9 17

Freddie Mac * * 19.8 21.8 30

USA Education * * 44.1 36.6 3

Household Int’l * * 41.1 44.5 37

Finova Group * * 132.1 65.0 -158

Industry median * * 72.1 69.3 20

DRUGS & BIOTECHNOLOGY

’97-’00 ’97-’00

2000 2000 2000 CMI Earnings

Company COGS SG&A CMI (1) Avg. (2) Growth (3)

Amgen 5.7 48.5 54.2 53.7 15

Eli Lilly 14.9 48.3 63.2 63.6 10

Schering-Plough 16.3 49.1 65.4 67.2 16

Bristol-Myers Squibb 22.0 41.0 63.0 67.3 10

Pfizer 13.7 53.7 67.4 68.8 36

Industry median 21.5 48.5 71.3 71.6 15

ELECTRONICS & SEMICONDUCTORS

’97-’00 ’97-’00

2000 2000 2000 CMI Earnings

Company COGS SG&A CMI (1) Avg. (2) Growth (3)

Intel 27.9 26.6 54.5 54.1 8

Analog Devices 37.2 26.9 64.2 71.7 40

Atmel 43.7 23.0 66.7 73.2 44

LSI Logic 45.2 25.1 70.2 73.3 31

Applied Materials 45.4 21.6 67.1 73.6 47

Industry median 49.3 23.0 76.6 80.5 27

ENERGY OIL & GAS

’97-’00 ’97-’00

2000 2000 2000 CMI Earnings

Company COGS SG&A CMI (1) Avg. (2) Growth (3)

Apache 11.2 3.3 14.5 32.2 38

Burlington Resources 29.9 5.2 35.1 42.8 22

Talisman Energy 20.8 2.0 22.7 44.0 71

Nexen 32.9 4.4 37.3 48.8 22

Noble Affiliates 55.6 3.4 59.0 59.4 5

Industry median 64.5 5.6 77.0 79.3 22

ENERGY–OIL & GAS–REFINING & MARKETING

’97-’00 ’97-’00

2000 2000 2000 CMI Earnings

Company COGS SG&A CMI (1) Avg. (2) Growth (3)

Suncor Energy 25.4 27.1 52.5 56.7 28

Imperial Oil 76.6 0.0 76.6 72.4 14

Ultramar Diamond Shmrck 75.6 1.9 77.5 73.7 22

USX-Marathon Group 75.2 1.8 77.1 73.9 20

Unocal 75.4 1.4 76.9 77.0 6

Industry median 75.6 1.9 77.5 80.1 20

FOOD & FOOD PRODUCTS

’97-’00 ’97-’00

2000 2000 2000 CMI Earnings

Company COGS SG&A CMI (1) Avg. (2) Growth (3)

William Wrigley Jr. 39.4 36.3 75.7 76.6 6

Sensient Technologies 59.2 18.9 78.2 79.8 7

Hershey Foods 54.4 26.7 81.1 81.7 1

McCormick 59.2 27.3 86.5 87.3 10

Interstate Bakeries 47.5 44.5 92.0 90.7 -1

Industry median 71.3 18.9 91.7 91.5 6

HEALTH SERVICES

’97-’00 ’97-’00

2000 2000 2000 CMI Earnings

Company COGS SG&A CMI (1) Avg. (2) Growth (3)

HealthSouth 67.1 5.9 73.0 71.7 5

HCA 34.3 47.4 81.7 83.8 3

Manor Care 84.7 4.4 89.1 84.3 20

Tenet Healthcare 36.1 47.0 83.0 84.5 31

Universal Health Services 23.0 63.2 86.2 86.1 15

Industry median 79.0 13.3 94.2 93.9 8

INSURANCE

’97-’00 ’97-’00

2000 2000 2000 CMI Earnings

Company COGS SG&A CMI (1) Avg. (2) Growth (3)

Ace * * 83.7 69.6 23

Jefferson-Pilot * * 47.9 74.2 11

Unitrin * * 84.8 76.2 0

Torchmark * * 75.5 76.5 1

Conseco * * 84.3 77.3 -13

Industry median * * 88.8 89.7 1

LEISURE ENTERTAINMENT & RESTAURANTS

’97-’00 ’97-’00

2000 2000 2000 CMI Earnings

Company COGS SG&A CMI (1) Avg. (2) Growth (3)

Carnival 54.5 12.9 67.4 66.4 14

McDonald’s 40.9 30.0 70.9 69.4 6

MGM Mirage 47.6 27.9 75.5 72.4 45

Hilton Hotels 68.3 2.0 70.2 73.7 2

Royal Caribbean Cruises 57.7 14.4 72.1 74.1 21

Industry median 57.7 15.0 79.9 80.0 12

MANUFACTURING

’97-’00 ’97-’00

2000 2000 2000 CMI Earnings

Company COGS SG&A CMI (1) Avg. (2) Growth (3)

Pall 39.7 37.2 76.9 78.9 8

Illinois Tool Works 62.0 18.2 80.2 79.1 21

Ucar Int’l 66.6 12.5 79.1 81.2 -443

Masco 65.2 16.9 82.1 81.8 23

Harsco 68.3 14.0 82.3 82.0 6

Industry median 70.3 16.9 87.2 86.8 0

MEDICAL DEVICES & RESEARCH

’97-’00 ’97-’00

2000 2000 2000 CMI Earnings

Company COGS SG&A CMI (1) Avg. (2) Growth (3)

Medtronic 21.5 41.2 62.7 62.4 28

Guidant 2.2 45.6 65.8 68.7 35

Saint Jude Medical 25.3 47.0 72.4 74.6 15

Baxter Int’l 50.2 25.6 75.7 76.4 6

Becton, Dickinson 43.1 33.1 76.2 76.7 9

Industry median 32.3 41.2 75.7 77.6 15

METALS & MINING

’97-’00 ’97-’00

2000 2000 2000 CMI Earnings

Company COGS SG&A CMI (1) Avg. (2) Growth (3)

Barrick Gold 44.4 2.6 47.1 50.2 10

Freeport McMoran C&G 54.6 3.8 58.4 54.9 -4

Placer Dome 52.5 6.6 59.1 64.5 25

Newmont Mining 58.4 7.6 66.0 72.9 -7

Potash CP Saskatchewan 70.0 5.0 75.0 73.4 -6

Industry median 77.8 5.2 83.4 83.2 3

PACKAGING & CONTAINERS

’97-’00 ’97-’00

2000 2000 2000 CMI Earnings

Company COGS SG&A CMI (1) Avg. (2) Growth (3)

Vitro Scoiedad Anonima 63.8 17.0 80.7 77.6 -2

Tupperware 28.5 53.9 82.4 82.7 -2

Owens Illinois 68.6 24.5 93.1 83.8 -26

Bemis 74.3 9.4 83.7 84.1 9

Crown Cork & Seal 82.1 4.3 86.4 85.2 -9

Industry median 78.2 7.4 86.6 85.4 3

PAPER & PAER PRODUCTS

’97-’00 ’97-’00

2000 2000 2000 CMI Earnings

Company COGS SG&A CMI (1) Avg. (2) Growth (3)

Bowater 68.7 5.3 74.0 77.4 29

Westvaco 68.6 7.7 76.3 78.8 14

Kimberly Clark 54.6 22.5 77.1 79.5 12

Sonoco Products 72.2 10.0 82.2 82.3 -1

Longview Fibre 73.4 7.9 81.3 82.3 7

Industry median 74.0 9.9 83.7 85.1 13

RETAIL

’97-’00 ’97-’00

2000 2000 2000 CMI Earnings

Company COGS SG&A CMI (1) Avg. (2) Growth (3)

Intimate Brands 56.5 23.6 80.1 80.7 17

Gap 54.5 26.2 80.6 81.8 34

Tiffany 38.8 40.8 79.6 83.5 32

May Department Stores 64.2 19.4 83.6 84.1 7

AutoZone 55.2 30.5 85.7 85.6 17

Industry median 69.8 23.0 93.1 92.9 14

RETAIL GROCERY STORES

’97-’00 ’97-’00

2000 2000 2000 CMI Earnings

Company COGS SG&A CMI (1) Avg. (2) Growth (3)

Safeway 68.1 22.2 90.2 91.1 22

Whole Foods Market 62.4 28.7 91.0 91.2 23

Albertson’s 70.0 23.1 93.1 92.0 31

Casey’s General Stores 80.3 13.4 93.6 93.0 14

Weis Markets 71.2 22.5 93.6 93.3 1

Industry median 70.7 22.8 94.1 93.9 7

RETAIL–SPECIALTY

’97-’00 ’97-’00

2000 2000 2000 CMI Earnings

Company COGS SG&A CMI (1) Avg. (2) Growth (3)

Pier 1 Imports 58.4 28.4 86.7 86.8 14

Home Depot 69.1 19.8 88.9 90.1 34

Lowe’s 72.5 18.0 90.5 91.0 25

Barnes & Noble 71.2 18.9 90.1 91.4 24

Borders Group 68.9 22.7 91.6 91.7 20

Industry median 71.4 22.4 92.4 92.7 13

RUBBER & PLASTICS

’97-’00 ’97-’00

2000 2000 2000 CMI Earnings

Company COGS SG&A CMI (1) Avg. (2) Growth (3)

Cooper Tire & Rubber 79.7 6.5 86.2 84.1 17

Bandag 57.3 28.5 85.8 84.6 -2

Carlisle 75.8 10.9 86.7 86.8 12

Goodyear Tire & Rubber 76.3 15.5 91.9 89.5 -11

A. Schulman 81.7 9.5 91.2 90.1 -4

Industry median 76.3 10.9 86.7 86.8 -2

SHIPPING & RAILROADS

’97-’00 ’97-’00

2000 2000 2000 CMI Earnings

Company COGS SG&A CMI (1) Avg. (2) Growth (3)

Canadian Nat’l Railway 23.0 43.5 66.5 65.5 15

Burlington Nth Santa Fe 37.7 29.6 67.4 67.2 5

Norfolk Southern 42.8 38.6 81.3 70.9 -11

Union Pacific 24.3 50.1 74.4 78.3 12

Sea Containers 66.3 12.3 78.6 78.4 5

Industry median 68.8 14.8 89.0 87.2 7

TELECOMMUNICATIONS EQUIPMENT

’97-’00 ’97-’00

2000 2000 2000 CMI Earnings

Company COGS SG&A CMI (1) Avg. (2) Growth (3)

Tellabs 42.7 24.3 67.0 65.3 40

Rogers Commun. 73.8 0.0 73.8 71.2 2

Corning 49.6 21.8 71.5 74.3 24

ADC Telecommunications 47.7 32.0 79.6 79.2 41

Andrew 62.7 20.0 82.8 80.2 -5

Industry median 61.9 22.2 82.8 80.9 10

TELECOMMUNICATIONS SERVICES

’97-’00 ’97-’00

2000 2000 2000 CMI Earnings

Company COGS SG&A CMI (1) Avg. (2) Growth (3)

Telefonos De Mexico SA L 28.2 16.5 44.7 42.8 10

BellSouth 52.5 0.0 52.5 54.3 10

Verizon 61.0 0.0 61.0 59.0 31

SBC Communications 60.3 0.0 60.3 61.5 37

Alltel 62.1 0.0 62.1 62.5 30

Industry median 47.2 20.1 62.2 63.0 12

TEXTILE & APPAREL

’97-’00 ’97-’00

2000 2000 2000 CMI Earnings

Company COGS SG&A CMI (1) Avg. (2) Growth (3)

Jones Apparel Group 57.3 25.8 83.1 84.8 52

VF 63.8 24.3 88.1 85.8 -4

Nike 57.6 29.0 86.6 86.5 -8

Liz Claiborne 57.8 29.3 87.1 86.8 8

Kellwood 78.2 15.0 93.1 92.6 -2

Industry median 58.4 29.3 91.7 91.4 2

TOBACCO

’97-’00 ’97-’00

2000 2000 2000 CMI Earnings

Company COGS SG&A CMI (1) Avg. (2) Growth (3)

UST 16.5 30.0 46.5 45.4 2

Philip Morris 34.9 23.5 58.3 58.1 3

Universal 80.9 10.4 91.3 92.2 1

Dimon 84.3 7.2 91.5 92.4 -17

Standard Commercial 85.6 7.6 93.2 93.8 -4

Industry median 68.1 16.9 85.3 85.3 2

UTILITIES

’97-’00 ’97-’00

2000 2000 2000 CMI Earnings

Company COGS SG&A CMI (1) Avg. (2) Growth (3)

American Water Works 43.9 0.0 43.9 43.7 12

DPL 49.5 0.0 49.5 50.8 13

Great Plains Energy 60.1 0.0 60.1 51.4 -2

Progress Energy 58.2 0.0 58.2 52.5 5

Pinnacle West 67.5 0.0 67.5 54.2 5

Industry median 70.3 0.0 72.6 65.7 8

WHOLESALERS

’97-’00 ’97-’00

2000 2000 2000 CMI Earnings

Company COGS SG&A CMI (1) Avg. (2) Growth (3)

Airgas 52.9 34.5 87.5 86.1 2

W.W. Grainger 66.0 25.1 91.1 89.8 -2

Genuine Parts 67.8 23.4 91.2 90.5 6

Ikon Office Solutions 56.2 32.8 89.0 91.0 13

Danka Business Systems 18.7 70.1 88.9 91.1 6

Industry median 84.2 10.4 95.0 94.9 12

(1)Cost Management Index = (COGS+SG&A)/operating revenue for 2000

(2)Average Cost Management Index for 1997-2000

(3)Compound annual growth in operating profit before depreciation.

Analysis performed by Gun Partners, an Exult Company.

Data source: MGFS Inc.

RELATED ARTICLE: METHODOLOGY REVIEW A focus on flexible cost cutting.

CFO magazine teamed with Gunn Partners, an Exult Company, on this year’s annual Cost Management Survey. The survey sample is based on publicly traded companies, including international companies, that reported at least $750 million in revenue annually for the years 1997 through 2000. More than 1,000 companies were grouped into 40 major industry groups. Company data was sourced in a standardized format from Media General Financial Services Inc., in Richmond, Virginia.

Data was analyzed for consistency and comparability across companies and industries. Metrics were calculated to assess cost efficiency and performance. This year, like last, the perspective was broadened to look at both COGS and SG&A (before depreciation and amortization). For financial firms, noninterest expense was used.

Candidates were ranked on the ratio of COGS + SG&A to operating revenue, called the cost management index (CMI). The accompanying tables show the North American-based CMI leaders in each industry.

COPYRIGHT 2002 CFO Publishing Corp.

COPYRIGHT 2002 Gale Group