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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
-
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 28, 2002
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from___________ to___________
Commission File Number: 1-5989
ANIXTER INTERNATIONAL INC.
(Exact name of registrant as specified in its charter)
Delaware 94-1658138
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
4711 Golf Road
Skokie, Illinois 60076
(847) 677-2600
(Address and telephone number of principal executive offices)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
--- ---
At August 5, 2002, 37,418,091 shares of the registrant's Common Stock,
$1.00 par value, were outstanding.
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements---------------------------------------------------1
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations--------------------------------------------10
Item 3. Quantitative and Qualitative Disclosures About Market Risk-------------*
PART II. OTHER INFORMATION
Item 1. Legal Proceedings------------------------------------------------------*
Item 2. Changes in Securities--------------------------------------------------*
Item 3. Defaults Upon Senior Securities----------------------------------------*
Item 4. Submission of Matters to a Vote of Security Holders-------------------17
Item 5. Other Information------------------------------------------------------*
Item 6. Exhibits and Reports on Form 8-K--------------------------------------17
________________
* No reportable information under this item.
This report may contain various "forward-looking statements" within the meaning
of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended, which can be identified by the use
of forward-looking terminology such as "believes", "expects", "prospects",
"estimated", "should", "may" or the negative thereof or other variations thereon
or comparable terminology indicating the Company's expectations or beliefs
concerning future events. The Company cautions that such statements are
qualified by important factors that could cause actual results to differ
materially from those in the forward-looking statements, a number of which are
identified in this report. Other factors could also cause actual results to
differ materially from expected results included in these statements. These
factors include general economic conditions, technology changes, changes in
supplier or customer relationships, exchange rate fluctuations and new or
changed competitors.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
ANIXTER INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In millions, except per share amounts)
13 Weeks Ended 26 Weeks Ended
---------------------- ------------------------
June 28, June 29, June 28, June 29,
2002 2001 2002 2001
--------- --------- ---------- ----------
Net sales $ 617.3 $ 839.8 $ 1,232.0 $ 1,720.1
Cost of goods sold 469.6 639.3 942.5 1,307.6
--------- --------- ---------- ----------
Gross profit 147.7 200.5 289.5 412.5
Operating expenses 125.2 155.0 246.5 315.1
Goodwill amortization - 2.3 - 4.5
--------- --------- ---------- ----------
Operating income 22.5 43.2 43.0 92.9
Interest expense (4.1) (8.9) (8.8) (18.2)
Other, net 2.9 (3.4) 2.9 (8.2)
--------- --------- ---------- ----------
Income before income taxes
and extraordinary loss 21.3 30.9 37.1 66.5
Income tax expense 8.5 12.2 14.8 26.9
--------- --------- ---------- ----------
Income before extraordinary loss 12.8 18.7 22.3 39.6
Extraordinary loss on early
extinguishment of debt, net (0.4) (0.8) (1.0) (0.8)
--------- --------- ---------- ----------
Net income $ 12.4 $ 17.9 $ 21.3 $ 38.8
========= ========= ========== ==========
Basic income (loss) per share:
Income before extraordinary loss $ 0.35 $ 0.52 $ 0.60 $ 1.08
Extraordinary loss $ (0.01) $ (0.02) $ (0.03) $ (0.02)
Net income $ 0.34 $ 0.50 $ 0.58 $ 1.06
Diluted income (loss) per share:
Income before extraordinary loss $ 0.33 $ 0.49 $ 0.58 $ 1.01
Extraordinary loss $ (0.01) $ (0.02) $ (0.02) $ (0.02)
Net income $ 0.33 $ 0.47 $ 0.56 $ 0.99
See accompanying notes to the consolidated financial statements.
ANIXTER INTERNATIONAL INC.
CONSOLIDATED BALANCE SHEETS
(In millions, except share amounts)
June 28, December 28,
2002 2001
----------- -----------
ASSETS (Unaudited)
Current assets
Cash $ 82.1 $ 27.2
Accounts receivable (less allowances of
$18.2 and $20.9 in 2002 and 2001, respectively) 175.8 154.1
Note receivable - unconsolidated subsidiary 99.9 111.4
Inventories 444.7 495.7
Deferred income taxes 32.0 32.0
Other current assets 8.0 8.6
----------- -----------
Total current assets 842.5 829.0
Property and equipment, at cost 178.8 167.4
Accumulated depreciation (128.2) (112.4)
----------- -----------
Property and equipment, net 50.6 55.0
Goodwill (less accumulated amortization of
$96.1 and $95.4 in 2002 and 2001, respectively) 233.5 231.6
Other assets 81.2 83.2
----------- -----------
$ 1,207.8 $ 1,198.8
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $ 264.5 $ 251.0
Accrued expenses 82.2 86.2
Accrued restructuring 8.3 11.1
Income taxes payable 2.5 4.4
----------- -----------
Total current liabilities 357.5 352.7
Long-term debt 200.8 241.1
Other liabilities 42.6 41.9
----------- -----------
Total liabilities 600.9 635.7
Stockholders' equity
Common stock --- $1.00 par value, 100,000,000 shares
authorized, 37,325,364 and 36,917,313 shares issued
and outstanding in 2002 and 2001, respectively 37.3 36.9
Capital surplus 41.7 32.5
Accumulated other comprehensive income (46.6) (59.5)
Retained earnings 574.5 553.2
----------- -----------
Total stockholders' equity 606.9 563.1
----------- -----------
$ 1,207.8 $ 1,198.8
=========== ===========
See accompanying notes to the consolidated financial statements.
ANIXTER INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In millions)
26 Weeks Ended
----------------------
June 28, June 29,
2002 2001
-------- --------
Operating activities
Net income $ 21.3 $ 38.8
Adjustments to reconcile net income to net cash
provided by continuing operating activities:
Extraordinary loss 1.0 0.8
Gain on sale of fixed assets and securities (3.3) -
Depreciation and amortization 11.5 16.2
Accretion of zero-coupon convertible notes 7.2 7.2
Income tax savings from employee stock plans 2.4 -
Changes in current assets and liabilities, net 60.3 62.8
Restructuring costs (6.5) -
Other, net 4.6 1.2
-------- --------
Net cash provided by continuing operating activities 98.5 127.0
Investing activities
Capital expenditures (5.4) (15.4)
Proceeds from the sale of fixed assets 2.1 -
Proceeds from the sale of securities 2.0 -
-------- --------
Net cash used in continuing investing activities (1.3) (15.4)
Financing activities
Proceeds from long-term borrowings 46.9 578.8
Repayment of long-term borrowings (46.9) (639.4)
Retirement of notes payable (47.9) (27.3)
Proceeds from issuance of common stock 5.5 14.9
Purchases of common stock for treasury - (46.9)
Other, net (0.3) (0.2)
-------- --------
Net cash used in continuing financing activities (42.7) (120.1)
-------- --------
Increase (decrease) in cash from continuing operations 54.5 (8.5)
Net cash provided by (used in) discontinued operations 0.4 (4.0)
Cash at beginning of period 27.2 20.8
-------- --------
Cash at end of period $ 82.1 $ 8.3
======== ========
See accompanying notes to the consolidated financial statements.
ANIXTER INTERNATIONAL INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Summary of Significant Accounting Policies
Basis of Consolidation and Presentation
The accompanying consolidated financial statements should be read in
conjunction with the consolidated financial statements included in Anixter
International Inc.'s ("the Company") Annual Report on Form 10-K for the year
ended December 28, 2001. The consolidated financial information furnished herein
reflects all adjustments (consisting of normal recurring accruals) which are, in
the opinion of management, necessary for a fair presentation of the consolidated
financial statements for the periods shown. The results of operations of any
interim period are not necessarily indicative of the results that may be
expected for a full fiscal year. Certain amounts for the prior year have been
reclassified to conform to the 2002 presentation.
Recently Issued Accounting Pronouncements
In April 2002, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 145, "Rescission of
FASB Statements No. 4, 44, 64, Amendment of FASB Statement No. 13, and Technical
Corrections", effective for fiscal years beginning after May 15, 2002. SFAS No.
145 rescinds FASB Statement No. 4, 44, 64 and amends SFAS No. 13, "Accounting
for Leases", to eliminate an inconsistency between the required accounting for
sale-leaseback transactions and the required accounting for certain lease
modifications that have economic effects that are similar to sale-leaseback
transactions. Additionally, SFAS No. 145 will require gains and losses on
extinguishment of debt to be classified as income or loss from continuing
operations rather than as extraordinary items as previously required under SFAS
No. 4. The Company will adopt SFAS No. 145 as required on January 4, 2003. As a
result, any gain or loss from the extinguishment of debt will be recorded as
other income or expense from continuing operations before income taxes. Any gain
or loss on extinguishment of debt that was classified as an extraordinary item
in prior periods will be reclassified in accordance with this statement. The
adoption of SFAS No. 145 is not expected to have a material effect on the
Company's results of operations, financial position or debt covenants.
Note 2. Goodwill
The Company adopted the provisions of Statement of Financial Accounting
Standards ("SFAS") No. 142 "Goodwill and Other Intangible Assets" as of December
29, 2001. In accordance with this Statement, the Company no longer amortizes
goodwill. In addition, any goodwill or intangible assets with infinite useful
lives, acquired in a future purchase will not be amortized, but will be
evaluated for impairment. Intangible assets with finite useful lives will be
amortized. The Company performed the annual impairment test during the first
quarter of 2002. This test compared the market value of the reporting units to
the book value using a measurement date of December 29, 2001. The results of
this test concluded that the market value exceeds the book value, and therefore,
an impairment charge is not required at this time. The Company recognized $2.3
million and $4.5 million of goodwill amortization during the 13 and 26 weeks
ended June 29, 2001, respectively. If the provisions of SFAS No. 142 had been
applied to the 13 and 26 weeks ended June 29, 2001, net income would have
increased $2.3 million and $4.5 million, respectively. For the 13 and 26 weeks
ended June 29, 2001, basic earnings per share would have increased $0.06 and
$0.12, respectively, while diluted earnings per share would have increased $0.05
and $0.10, respectively. See Note 3 "Income (Loss) per Share" for a
reconciliation of reported net income and net income adjusted to exclude
goodwill amortization.
Note 3. Income (Loss) per Share
The following table sets forth the computation of basic and diluted income
per common share:
13 weeks ended 26 weeks ended
--------------------- ---------------------
June 28, June 29, June 28, June 29,
(In millions, except per share amounts) 2002 2001 2002 2001
--------- --------- --------- ---------
Basic Income (Loss) Per Share:
Reported income before extraordinary loss $ 12.8 $ 18.7 $ 22.3 $ 39.6
Goodwill amortization - 2.3 - 4.5
--------- --------- --------- ---------
Adjusted income before extraordinary loss 12.8 21.0 22.3 44.1
Extraordinary loss (0.4) (0.8) (1.0) (0.8)
--------- --------- --------- ---------
Adjusted net income $ 12.4 $ 20.2 $ 21.3 $ 43.3
========= ========= ========= =========
Weighted-average common shares outstanding 36.9 35.8 36.8 36.6
Reported income per share before extraordinary loss $ 0.35 $ 0.52 $ 0.60 $ 1.08
Goodwill amortization per share - 0.06 - 0.12
Adjusted income per share before extraordinary loss 0.35 0.59 0.60 1.21
Extraordinary loss (0.01) (0.02) (0.03) (0.02)
Adjusted net income per share $ 0.34 $ 0.56 $ 0.58 $ 1.18
Diluted Income (Loss) Per Share:
Income before extraordinary loss $ 12.8 $ 18.7 $ 22.3 $ 39.6
Interest impact of assumed
conversion of convertible notes - 2.2 - 4.4
--------- --------- --------- ---------
Reported income before extraordinary loss 12.8 20.9 22.3 44.0
Goodwill amortization - 2.3 - 4.5
--------- --------- --------- ---------
Adjusted net income before extraordinary loss 12.8 23.2 22.3 48.5
Extraordinary loss (0.4) (0.8) (1.0) (0.8)
--------- --------- --------- ---------
Net income $ 12.4 $ 22.4 $ 21.3 $ 47.7
========= ========= ========= =========
Weighted average common shares outstanding 36.9 35.8 36.8 36.6
Effect of dilutive securities:
Stock options, warrants and convertible notes 1.3 7.3 1.3 7.1
--------- --------- --------- ---------
Weighted-average common shares outstanding 38.2 43.1 38.1 43.7
========= ========= ========= =========
Reported income per share before extraordinary loss $ 0.33 $ 0.49 $ 0.58 $ 1.01
Goodwill amortization per share - 0.05 - 0.10
Adjusted income per share before extraordinary loss 0.33 0.54 0.58 1.11
Extraordinary loss per share (0.01) (0.02) (0.02) (0.02)
Adjusted net income per share $ 0.33 $ 0.52 $ 0.56 $ 1.09
Note 4. Summarized Financial Information of Anixter Inc.
The Company guarantees, fully and unconditionally, substantially all of the
debt of its subsidiaries which includes Anixter Inc. Certain debt agreements
entered into by Anixter Inc. contain various restrictions including restrictions
on payments to the Company. Such restrictions have not had nor are expected to
have an adverse impact on the Company's ability to meet its cash obligations.
The following summarizes the financial information for Anixter Inc.:
ANIXTER INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In millions) June 28, December 28,
2002 2001
----------- -----------
Assets: (Unaudited)
Current assets $ 840.8 $ 827.1
Property, net 50.6 55.0
Goodwill, net 233.5 231.6
Other assets 82.1 83.1
----------- -----------
$ 1,207.0 $ 1,196.8
=========== ===========
Liabilities and Stockholders' Equity:
Current liabilities $ 350.9 $ 352.9
Other liabilities 42.0 41.5
Long-term debt 12.1 19.3
Subordinated notes payable to parent 227.6 244.8
Stockholders' equity 574.4 538.3
----------- -----------
$ 1,207.0 $ 1,196.8
=========== ===========
ANIXTER INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
13 weeks ended 26 weeks ended
--------------------- -----------------------
(In millions) June 28, June 29, June 28, June 29,
2002 2001 2002 2001
-------- -------- --------- ---------
Net sales $ 617.3 $ 839.8 $ 1,232.0 $ 1,720.1
Operating income $ 22.8 $ 43.5 $ 42.9 $ 93.5
Income before income taxes
and extraordinary loss $ 21.3 $ 30.9 $ 36.7 $ 66.3
Income before extraordinary loss $ 12.7 $ 18.4 $ 21.8 $ 38.7
Extraordinary loss $ - $ 0.8 $ 0.3 $ 0.8
Net income $ 12.7 $ 17.6 $ 21.5 $ 37.9
Note 5. Restructuring and Other Charges
Due to increased general economic softness and deteriorating market
conditions in the communications products market, the Board of Directors
approved the restructuring plan (as outlined below) and the Company incurred
unusual restructuring and other charges of $31.7 million during the third
quarter of 2001. As of June 28, 2002, the Company has substantially implemented
all of the restructuring initiatives. The expected annualized expense reduction
from this initiative is estimated to be $48.0 million.
Staff Reductions - In 2001, the Company recorded a restructuring charge of
$9.8 million relating to severance and outplacement costs. The Company
implemented a plan to reduce approximately 700 employees across all business
functions and geographical areas. The expected headcount reductions were to
occur in the following functional areas - administrative 100, sales and
marketing 350, operations 250. These reductions approximated 13% of the total
workforce prior to the announcement. The Company expects to realize $40.0
million in annual savings from this staff reduction. Most of the staff
reductions occurred during the last half of 2001. During the 13 and 26 weeks
ended June 28, 2002, the Company paid $1.3 million and $3.2 million,
respectively, in severance and outplacement benefits. As of June 28, 2002, the
Company has completed all staff reductions associated with this initiative,
resulting in estimated savings of $10.0 million and $19.6 million for the 13 and
26 weeks ended June 28, 2002. Also during the current quarter, Europe recorded
an additional charge of $0.4 million for severance associated with headcount
reductions. The Company's consolidated results of operations were not impacted
by this charge, as it was offset by the reversal of excess accruals in North
America and Asia Pacific.
Facility Restructuring - In 2001, the Company recorded a restructuring
charge of $13.9 million to cover the costs of vacating 900,000 square feet of
space in approximately 35 warehouses and sales locations primarily located in
North America. The reduction in square feet represented approximately 18% of the
total square footage the Company occupied prior to the restructuring initiative.
The major components of the charge included the following items - $19.1 million
for the gross value of committed future lease payments and related costs and
$2.0 million for impaired asset write-offs. These charges were partially offset
by management's estimate of realizing sublet income totaling $7.2 million. The
sublet income was estimated based on a review of each facility with a local real
estate broker to determine the potential for subletting each of the properties
and the expected rental income per square foot. The Company expects to realize
$8.0 million in annual expense savings from the facility restructuring. During
the 13 and 26 weeks ended June 28, 2002, the Company paid $2.1 million and $3.0
million, respectively, associated with the facility restructuring. As of June
28, 2002, the Company has vacated substantially all of the space, resulting in
estimated operating expense savings of $1.9 million and $3.8 million for the 13
and 26 weeks ended June 28, 2002. In addition, the remaining accrued expense of
$8.5 million for the facility restructuring is reasonable given our current
understanding of our sublet income opportunities. Also during the quarter,
Europe recorded an additional charge for the facility consolidation in the
Company's UK operation of $1.0 million. The Company's consolidated results of
operations were not impacted by this charge, as it was offset by the reduction
of excess accruals in North America and Asia Pacific. The Company has classified
$3.4 million of the net lease obligations due to the consolidation of facilities
as long-term and estimates that it will be paid over the respective lease terms
through the year 2008.
Korea - In 2001, the Company decided to exit the Korean market and, as a
result, recorded restructuring and other charges of $6.2 million. The major
portions of the charge included reserving for the net remaining accounts
receivable balance of $3.1 million, legal proceedings brought against Anixter
Korea of $2.1 million and other closure costs of $1.0 million. Exiting the
Korean market had no material impact on the Company's consolidated revenue as
Korean sales accounted for less than 0.2% of the Company's total sales. There
was no cash paid out in 2002. The remaining accrued expense of $1.4 million is
needed to cover the legal proceedings against Anixter.
Other Items - In 2001, the Company expensed purchased software that it
decided not to implement due to the general economic downturn and provided for
legal costs associated with the restructuring. The total charge for these items
was $1.8 million.
Activity related to the accrued costs during 2002 is identified below:
Staff Facility
(In millions) Reductions Restructuring Korea Other Total
---------- ------------- --------- --------- -------
Balance at December 28, 2001 $ 4.3 $ 11.0 $ 1.6 $ 0.8 $ 17.7
Cash payments (1.9) (0.9) - (0.3) (3.1)
---------- ------------- --------- --------- -------
Balance at March 29, 2002 2.4 10.1 1.6 0.5 14.6
Accrual adjustments 0.4 1.0 (0.4) (0.7) 0.3
Cash payments (1.3) (2.1) - - (3.4)
Reclassification - (0.5) - 0.5 -
Foreign exchange - - 0.2 - 0.2
---------- ------------- --------- --------- -------
Balance at June 28, 2002 $ 1.5 $ 8.5 $ 1.4 $ 0.3 $ 11.7
========== ============= ========= ========= =======
The Company's remaining liability at June 28, 2002 was $11.7 million, of
which $8.3 million was classified as short-term. Accrual adjustments were made
during the second quarter of 2002 as excess accruals in Korea and North America
were used to cover additional facility and severance charges in Europe and Latin
America. A reclassification was made during the second quarter to appropriately
classify facility restructuring payments made during 2002 that were originally
recorded as other. Cash payments during 2002 consisted of $3.2 million for
severance, $3.0 million for facility restructuring and $0.3 million for other
restructuring related costs. During the 26 weeks ended June 28, 2002, Europe and
Latin America incurred restructuring costs in excess of their accruals of $1.4
million and $0.2 million, respectively. These costs were offset by a reduction
in restructuring accruals in North America and Asia Pacific totaling $0.9
million and $0.7 million, respectively. There was no impact on the Company's
consolidated results of operations as a result of restructuring costs in 2002.
Note 6. Comprehensive Income
Comprehensive income, net of tax, consisted of the following:
(In millions) 13 weeks ended 26 weeks ended
---------------------- -----------------------
June 28, June 29, June 28, June 29,
2002 2001 2002 2001
--------- --------- --------- ---------
Net income $ 12.4 $ 17.9 $ 21.3 $ 38.8
Cumulative effect of adoption of
SFAS No. 133 - - - 2.7
Change in cumulative translation
adjustment 10.6 1.1 18.0 (7.2)
Change in fair market value of
derivatives - (1.7) (5.1) 1.1
--------- --------- ---------- ---------
Comprehensive income $ 23.0 $ 17.3 $ 34.2 $ 35.4
========= ========= ========== =========
Note 7. Extinguishment of Debt
During the 26 weeks ended June 28, 2002 and June 29, 2001, the Company
repurchased a portion of its 7% zero-coupon notes and its 8% senior notes and
subsequently wrote-off debt issuance costs associated with the convertible notes
and cancellation of a $110.0 million revolving credit agreement due 2001. The
following table reflects the repurchase activity during the 13 and 26 weeks
ended June 28, 2002 and June 29, 2001:
13 weeks ended 26 weeks ended
----------------------------------------------- -----------------------------------------------
(In millions) June 28, June 29, June 28, June 29,
2002 2001 2002 2001
--------------------- --------------------- --------------------- ---------------------
Face Face Face Face
Amount Cost Amount Cost Amount Cost Amount Cost
-------- -------- -------- -------- -------- -------- -------- --------
8% Senior notes $ - $ - $ 26.2 $ 27.3 $ 7.0 $ 7.4 $ 26.2 $ 27.3
7% Zero-coupon notes $ 25.1 $ 25.0 $ - $ - $ 40.4 $ 40.5 $ - $ -
Debt issuance costs
written off $ 0.6 $ - $ 0.3 $ - $ 1.0 $ - $ 0.3 $ -
Accordingly, for the 13 weeks ended June 28, 2002 and June 29, 2001, the
Company recorded an extraordinary loss on the early extinguishment of debt in
its consolidated statements of operations of $0.5 million and $1.4 million ($0.4
million and $0.8 million, net of tax), respectively. For the 26 weeks ended June
28, 2002 and June 29, 2001, the Company recorded an extraordinary loss on the
early extinguishment of debt of $1.5 million and $1.4 million ($1.0 million and
$0.8 million, net of tax), respectively.
Note 8. Subsequent Event
Subsequent to June 28, 2002, the Company has repurchased an additional
$50.4 million of its 7% zero-coupon convertible notes that mature June, 2020 for
$47.8 million. The Company will write-off $1.3 million of debt issuance costs
associated with the convertible notes. In addition, the Company repurchased $3.6
million of its 8% senior notes that mature September, 2003 for $3.7 million. As
a result, after related income taxes, the Company will realize a net
extraordinary gain of $0.7 million on the early extinguishment of debt.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following is a discussion of the historical results of operations and
financial condition of Anixter International Inc. (the "Company") and factors
affecting the Company's financial resources. This discussion should be read in
conjunction with the consolidated financial statements, including the notes
thereto, set forth herein under "Financial Statements" and the Company's Annual
Report on Form 10-K for the year ended December 28, 2001. This discussion
contains forward-looking statements, which are qualified by reference to, and
should be read in conjunction with, the Company's discussion regarding
forward-looking statements as set forth in this report.
Accounts Receivable Securitization
On October 6, 2000, the Company entered into an accounts receivable
securitization program. The program is conducted through Anixter Receivables
Corporation ("ARC"), which is a wholly-owned unconsolidated subsidiary of the
Company. The investment is accounted for using the equity method. The program
allows the Company to sell, on an ongoing basis without recourse, a majority of
the accounts receivable originating in the United States to ARC at a discount of
2.12% and consists of a series of 364-day facilities. At June 28, 2002 and
December 28, 2001, the outstanding balance of accounts receivable sold to ARC
totaled $271.1 million and $296.0 million, respectively. Accordingly, these
accounts receivable were removed from the balance sheet.
2001 Restructuring
Following is an update on the progress of the Company's restructuring plan
that was announced during the third quarter of 2001.
Staff reductions - The Company has completed all of the approximately 700
staff reductions (approximately 13% of the total workforce prior to the
announcement) that were originally anticipated in the restructuring charge.
During the 13 and 26 weeks ended June 28, 2002, the Company paid $1.3 million
and $3.2 million, respectively, in severance and termination benefits. Also
during the quarter, the Company recorded an additional charge of $0.4 million
for severance associated with headcount reductions in Europe. The Company
estimates that staff reductions resulted in savings of $10.0 million and $19.6
million for the 13 and 26 weeks ended June 28, 2002, respectively. Annualized
savings of $40.0 million are expected to be realized.
Facility Restructuring - The Company vacated substantially all of the
900,000 square feet of space located in 35 warehouses and sales locations. The
reduction in square feet represented approximately 18% of the total square
footage the Company occupied prior to the restructuring initiative. The Company
expects to realize annualized expense savings of $8.0 million from these
actions. Substantially all of the savings will occur in the current year as most
of the space was vacated during the fourth quarter of 2001. During the 13 and 26
weeks ended June 28, 2002, the Company paid out $2.1 million and $3.0 million,
respectively, related to exit costs for these facilities. The Company estimates
that operating expense savings were $1.9 million and $ 3.8 million for the 13
and 26 weeks ended June 28, 2002. Also during the quarter, the Company recorded
an additional charge for the facility consolidation in our UK operation of $1.0
million. The Company's consolidated results of operations were not impacted by
this charge, as it was offset by the reduction in excess accruals in North
America and Asia Pacific.
Korea - The Company closed operations in Korea during the fourth quarter of
2001. Excess accruals of $0.4 million and non-cash charges of $0.3 million were
reversed during the period.
Other Items - The Company reversed excess accruals of $0.7 million as a
result of lower than anticipated litigation activity.
Financial Liquidity and Capital Resources
Cash Flow
Consolidated net cash provided by continuing operating activities was $98.5
million for the 26 weeks ended June 28, 2002 compared to $127.0 million for the
same period in 2001. Cash provided by operating activities was lower than 2001
due to the decline in sales, which resulted in lower operating profitability.
Working capital reductions of $60.3 million in 2002 approximated the reductions
of $62.8 million in 2001. In 2002, $6.5 million was paid in conjunction with
restructuring charges recorded for the 13 week period ended September 30, 2001.
Consolidated net cash used in investing activities was $1.3 million for the 26
weeks ended June 28, 2002 versus $15.4 million for the same period in 2001. In
the second quarter of 2002, $2.1 million was received from the sale of real
estate and other fixed assets and $2.0 million from the sale of securities.
Capital expenditures decreased $10.0 million from the same period in 2001 as
spending was reduced in the current period due to weak economic conditions.
Capital expenditures are expected to be approximately $24.0 million in 2002 with
the majority being related to the construction of a new headquarters building.
Consolidated net cash used in financing activities was $42.7 million for the 26
weeks ended June 28, 2002 in comparison to $120.1 million in the corresponding
2001 period. The change is primarily the result of a net decrease in long-term
borrowings of $47.9 million in 2002 as compared to $87.9 million in 2001. In
addition, $46.9 million of treasury stock purchases partially offset by proceeds
of $14.9 million received from the exercise of 896,637 stock options occurred in
2001. In 2002, the Company did not repurchase stock, but received proceeds of
$5.5 million from the exercise of 408,051 stock options. Cash provided by
discontinued operations was $0.4 million in the 26 weeks ended June 28, 2002
compared to $4.0 million used in the corresponding 2001 period.
Financings
Certain debt agreements entered into by the Company's subsidiaries contain
various restrictions including restrictions on payments to the Company. Such
restrictions have not had nor are expected to have an adverse impact on the
Company's ability to meet its cash obligations. At June 28, 2002, $409.2 million
was available under the bank revolving lines of credit at Anixter Inc., of which
$33.3 million was available to pay the Company for intercompany liabilities.
Additionally, Anixter Inc. is limited to declaring dividends to the Company in
the amount of $92.8 million. During the 26 weeks ended June 28, 2002, the
Company retired $40.4 million of the 7% zero-coupon convertible notes and $7.0
million of the 8% senior notes. As a result, the Company recorded an
extraordinary loss of $0.02 per diluted share. Subsequent to June 28, 2002, the
Company repurchased an additional $50.4 million of its 7% zero-coupon
convertible notes that mature June, 2020 and $3.6 million of its 8% notes that
mature September, 2003. The Company may continue to pursue opportunities to
repurchase outstanding debt securities, with the volume and timing to depend on
market conditions.
Consolidated interest expense was $8.8 million and $18.2 million for the 26
weeks ended June 28, 2002 and June 29, 2001, respectively. The decrease is due
to lower debt levels and lower interest rates. In addition, in 2001 the Company
incurred $1.7 million in interest expense related to the cancellation of certain
interest rate hedge agreements for which there were no longer outstanding
borrowings. The average outstanding long-term debt balance in the first half of
2002 was $229.8 million compared to $433.7 million in 2001. Included in the
Consolidated Statements of Operations other classification are net expenses
incurred by ARC, a wholly-owned unconsolidated subsidiary, of $0.9 million and
$7.4 million, for the 26 weeks ended June 28, 2002 and June 29, 2001,
respectively. Included in the ARC net expense amount was interest expense,
incurred by ARC, of $1.6 million and $6.6 million for the 26 weeks ended June
28, 2002, and June 29, 2001, respectively. The accounting rules require that the
interest expense be classified as other expense as it is recorded as part of the
Company's investment adjustment related to its 100% ownership of ARC. However,
it is considered to be part of the Company's financing strategy and therefore is
viewed as interest expense by the Company. The average outstanding debt incurred
by ARC in the first half of the year was $126.1 million and $217.1 million for
2002 and 2001, respectively. The effective interest rate on the ARC debt was
2.6% and 5.8% for the first half of 2002 and 2001, respectively.
During the first half of 2001, the Company repurchased 2,079,000 shares at
an average cost of $22.57. Purchases were made in the open market and were
financed from cash generated by operations. No shares were repurchased in the
first half of 2002. The Company has the authorization to purchase 0.6 million
additional shares with the volume and timing to depend on market conditions.
Status of Pending Acquisition
On May 23, 2002, the Company executed a definitive agreement to acquire the
operations and assets of Pentacon, Inc. The Company has agreed to pay $121
million, subject to certain potential purchase price adjustments, for the
operations and assets and to assume the trade obligations, active employees and
active facility leases of Pentacon, Inc. The Company intends to pay for the
acquisition through a combination of current cash balances and added working
capital borrowings. The purchase is part of a plan of reorganization filed by
Pentacon, Inc. in the United States Bankruptcy court for the Southern District
of Texas and is conditioned upon a number of factors including approval by the
Bankruptcy Court and anti-trust clearance. The acquisition is proceeding
according to the Company's originally anticipated timetable, and is expected to
close near the end of September.
Results of Operations
The Company competes with distributors and manufacturers who sell products
directly or through existing distribution channels to end users or other
resellers. The Company's relationship with the manufacturers for which it
distributes products could be affected by decisions made by these manufacturers
as the result of changes in management or ownership as well as other factors. In
addition, the Company's future performance could be affected by economic
downturns, potentially rapid changes in applicable technologies or regulatory
changes that substantially change the cost and/or availability of public
networking bandwidth.
Quarter ended June 28, 2002: Net income for the second quarter of 2002 was
$12.4 million compared with $17.9 million for the second quarter of 2001. The
Company recorded an after-tax extraordinary loss of $0.4 million in the second
quarter of 2002 for the early extinguishment of $25.1 million of its 7%
zero-coupon convertible notes compared to a loss of $0.8 million in the second
quarter of 2001 for the early extinguishment of $26.2 million of the 8% senior
notes and debt issuance costs associated with the cancellation of a $110.0
million revolving credit agreement due 2001.
The Company's net sales during the second quarter of 2002 decreased 26.5%
to $617.3 million from $839.8 million in the same period in 2001. Net sales by
major geographic market are presented in the following table:
13 weeks ended
--------------------------
(In millions) June 28, June 29,
2002 2001
----------- -----------
North America $ 492.8 $ 656.7
Europe 84.8 130.6
Asia Pacific and Latin America 39.7 52.5
----------- -----------
$ 617.3 $ 839.8
=========== ===========
Sales declined in every geographic region as the economic softness
experienced in the first quarter continued in the second quarter. When compared
to the corresponding period in 2001, North America sales for the second quarter
of 2002 decreased 25.0% to $492.8 million. Sales fell across all customer
markets, with enterprise, wire and cable and integrated supply sales down 12.5%,
24.7% and 54.3%, respectively. 2001 included $59.4 million of service provider
sales which is now primarily reported in the wire and cable sales for that year.
Due to the significant fall in spending in the telecommunications industry,
sales to the service provider market in 2002 were minimal. Integrated supply
sales declined 28.5% from the first quarter due to the continued decline in
spending by the telecommunications industry.
Europe sales decreased 35.1% due to declining sales in all customer
markets. 2001 sales for Europe includes $11.7 million to the service provider
market which did not repeat in 2002. Excluding the effect of changes in exchange
rates, Europe sales decreased 39.4%. Asia Pacific and Latin America net sales
were down 24.4% from the second quarter of 2001, due to general economic
softness in both regions. The effect of changes in exchange rates on Asia
Pacific and Latin America sales was insignificant.
Operating income decreased to $22.5 million in 2002 from $43.2 million in
the second quarter of 2001. Operating income by major geographic market is
presented in the following table:
13 weeks ended
--------------------------
(In millions) June 28, June 29,
2002 2001
----------- -----------
North America* $ 21.0 $ 35.4
Europe* 1.5 6.9
Asia Pacific and Latin America* - 0.9
----------- -----------
$ 22.5 $ 43.2
=========== ===========
*The 13 weeks ended June 29, 2001 includes goodwill amortization expense of
$2.1 million for North America and $0.2 million for Europe.
Excluding 2001 goodwill amortization, North America operating income for
the second quarter of 2002 decreased 43.8% from the corresponding period in
2001. Gross margins declined to 23.6% in 2002 from 24.1% for the same period in
2001. The decline is a result of a one-time high margin sale in 2001 which did
not occur in 2002. Primarily as a result of the decline in sales volume,
operating margins (excluding goodwill amortization in 2001) declined to 4.3% in
the second quarter of 2002 from 5.7% in the same period in 2001. In the second
quarter of 2002, North America reversed $0.8 million of excess restructuring
accruals. Excluding restructuring, operating margins would have been 4.1%.
Excluding goodwill amortization and restructuring, operating expenses declined
20.4% as variable costs were reduced in line with the reduction in sales.
Headcount and facility expenses were also reduced, resulting from the third
quarter 2001 restructuring.
Excluding goodwill amortization, Europe operating income decreased 78.5%
reflecting the decline in sales and an additional restructuring charge of $1.4
million. Europe's gross margins increased significantly from 23.3% in 2001 to
27.7% in 2002, as 2001 included $11.7 million of low margin service provider
sales. Operating expenses, excluding 2002 restructuring charges, decreased 12.3%
reflecting a decline in variable costs associated with the sales decline and
cost savings from the 2001 restructuring. The reduction in service provider
sales had minimal impact on operating expenses. Excluding the effect of changes
in exchange rates, Europe operating income decreased 82.3%.
Asia Pacific and Latin America operating income broke even for the quarter
compared to $0.9 million of income in the second quarter of 2001. Excluding a
reversal of excess restructuring accruals of $0.6 million, Asia Pacific and
Latin America would have lost $0.6 million in the second quarter of 2002, due to
the significant decline in sales. Changes in exchange rates had a minimal effect
on operating income.
Other, net income (expense) includes the following:
13 weeks ended
--------------------------
June 28, June 29,
(In millions) 2002 2001
----------- -----------
Foreign exchange $ 1.8 $ (0.2)
Gain on sale of securities 2.0 -
Accounts receivable securitization (1.0) (3.4)
Other 0.1 0.2
----------- -----------
$ 2.9 $ (3.4)
=========== ===========
The consolidated tax provision on continuing operations decreased to $8.5
million in 2002 from $12.2 million in the second quarter of 2001, primarily due
to lower pre-tax income. The 2002 effective tax rate is 40% compared to 39.5% in
2001. Non-deductible losses in certain foreign entities in 2002 more than offset
the benefit of no longer having non-deductible goodwill amortization which was
recorded in 2001.
26 weeks ended June 28, 2002: Net income for the 26 weeks ended June 28,
2002 was $21.3 million compared with $38.8 million for the 26 weeks ended June
29, 2001. The Company recorded an after-tax extraordinary loss of $1.0 million
in 2002 for the early extinguishment of $40.4 million of its 7% zero-coupon
notes and $7.0 million of its 8% senior notes compared to a loss of $0.8 million
in 2001 for the early extinguishment of $26.2 million of the 8% senior notes and
debt issuance costs associated with the cancellation of a $110.0 million
revolving credit agreement due 2001.
The Company's net sales during the 26 weeks ended June 28, 2002 decreased
28.4% to $1,232.0 million from $1,720.1 million in the same period in 2001. Net
sales by major geographic market are presented in the following table:
26 weeks ended
--------------------------
(In millions) June 28, June 29,
2002 2001
----------- -----------
North America $ 980.4 $ 1,319.0
Europe 169.2 293.0
Asia Pacific and Latin America 82.4 108.1
----------- -----------
$ 1,232.0 $ 1,720.1
=========== ===========
When compared to the corresponding period in 2001, North America sales for
the 26 weeks ended June 28, 2002 decreased 25.7% to $980.4 million. Sales fell
across all customer markets, with enterprise, wire and cable and integrated
supply sales down 16.7%, 29.7% and 42.1%, respectively. 2001 included $106.6
million of service provider sales which is now primarily reported in the wire
and cable sales for last year. Due to the significant fall in spending in the
telecommunications industry, sales to the service provider market in 2002 were
minimal.
Europe sales decreased 42.3% due to declining sales in all customer
markets. 2001 sales for Europe includes $38.8 million to the service provider
market which did not repeat in 2002.
Asia Pacific and Latin America net sales were down 23.8% from the first
half of 2001, due to general economic softness in both regions. The effect of
changes in exchange rates on international sales was insignificant.
Operating income for the first half of 2002 decreased 53.7%, or $49.9
million, from $92.9 million in the first half of 2001. Operating income (loss)
by major geographic market is presented in the following table:
26 weeks ended
--------------------------
(In millions) June 28, June 29,
2002 2001
----------- -----------
North America* $ 39.0 $ 76.4
Europe* 4.9 14.6
Asia Pacific and Latin America* (0.9) 1.9
----------- ----------
$ 43.0 $ 92.9
=========== ==========
*The 26 weeks ended June 29, 2001 includes goodwill amortization expense of
$4.2 million for North America, $0.2 million for Europe and $0.1 million for
Asia Pacific and Latin America.
Excluding 2001 goodwill amortization, North America operating income for
the 26 weeks ended June 28, 2002 decreased 51.6% from the corresponding period
in 2001. Due to competitive pricing pressures and a one-time high margin sale in
2001, gross margins declined to 23.2% in 2002 from 24.7% for the same period in
2001. Primarily as a result of the decline in sales volume, operating margins
(excluding goodwill amortization in 2001) declined to 4.0% in the first half of
2002 from 6.1% in the same period in 2001. Included in operating profit is a
reversal of $0.9 million of excess restructuring accruals. Excluding the
restructuring income, operating margins would have been 3.9%. Excluding goodwill
amortization and restructuring, operating expenses declined 22.7% as variable
costs were reduced in line with the reduction in sales and headcount and
facility expenses were reduced as a result of the third quarter 2001
restructuring.
Excluding goodwill amortization, Europe operating income decreased 66.8%
reflecting the decline in sales and a restructuring charge of $1.4 million.
Europe's gross margins increased significantly from 21.5% in 2001 to 27.1% in
2002, as 2001 included $38.8 million of low margin service provider sales.
Operating expenses, excluding 2002 restructuring charges, decreased 18.3%
reflecting a decline in variable costs associated with the sales decline and
cost savings from the 2001 restructuring. The reduction in service provider
sales had minimal impact on operating expenses. The effect of changes in
exchange rates on Europe operating income was insignificant.
Excluding goodwill amortization, Asia Pacific and Latin America operating
income decreased $2.9 million, from $2.0 million income in the first half of
2001 to $0.9 million loss in 2002. Excluding a reversal of net excess
restructuring accruals of $0.5 million, Asia Pacific and Latin America would
have lost $1.4 million in the first half of 2002 due to the significant decline
in sales. Changes in exchange rates had a minimal effect on operating income.
Other, net income (expense) includes the following:
26 weeks ended
--------------------------
June 28, June 29,
(In millions) 2002 2001
----------- -----------
Foreign exchange $ 0.4 $ (1.0)
Gain on sale of fixed assets and securities 3.3 -
Accounts receivable securitization (0.9) (7.4)
Other 0.1 0.2
----------- -----------
$ 2.9 $ (8.2)
=========== ===========
The consolidated tax provision on continuing operations decreased to $14.8
million in 2002 from $26.9 million in the first half of 2001 primarily due to
lower pre-tax earnings. The 2002 effective tax rate is 40.0% compared to 40.6%
in 2001. Non-deductible losses in certain foreign entities in 2002 offset the
benefit of no longer having non-deductible goodwill amortization which was
recorded in 2001.
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
At the Annual Meeting of Stockholders held May 23, 2002 the Directors of the
Company were elected as follows:
DIRECTORS VOTES
- ---------------- ------------------------------------
FOR WITHHELD
------------ ------------
Lord James Blyth 33,835,661 551,241
Robert L. Crandall 26,687,383 7,699,519
Robert W. Grubbs, Jr. 28,791,611 5,595,291
F. Phillip Handy 33,835,737 551,165
Melvyn N. Klein 33,829,277 557,625
John R. Petty 33,828,521 558,381
Stuart M. Sloan 33,701,255 685,647
Thomas C. Theobald 33,829,103 557,799
Mary A. Wilderotter 33,827,178 559,724
Matthew Zell 33,590,114 796,788
Samuel Zell 33,719,265 667,637
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
99.1 Robert W. Grubbs, President and Chief Executive Officer,
Certification Pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
99.2 Dennis J. Letham, Senior Vice President Finance and Chief
Financial Officer, Certification Pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.
(b) Reports on Form 8-K
On May 23, 2002, the Company filed a Current Report on Form 8-K
announcing the execution of a definitive agreement to acquire the
operations and assets of Pentacon, Inc.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
ANIXTER INTERNATIONAL INC.
Date: August 12, 2002 By: /s/ Robert W. Grubbs
--------------------------------------
Robert W. Grubbs
President and Chief Executive Officer
Date: August 12, 2002 By: /s/ Dennis J. Letham
------------------------------------------
Dennis J. Letham
Senior Vice President - Finance
and Chief Financial Officer
Exhibit 99.1
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION
906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Anixter International Inc. (the
"Company") on Form 10-Q for the period ending June 28, 2002 as filed with the
Securities and Exchange Commission on the date hereof (the "Report"), I, Robert
W. Grubbs, President and Chief Executive Officer of the Company, certify,
pursuant to 18 U.S.C. Sec. 1350, as adopted pursuant to Sec. 906 of the
Sarbanes-Oxley Act of 2002, that to my knowledge:
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of
the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material
respects, the financial condition and result of operations of the Company.
/s/ Robert W. Grubbs
- ------------------------------
Robert W. Grubbs
President and Chief Executive Officer
August 12, 2002
Exhibit 99.2
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION
906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Anixter International Inc. (the
"Company") on Form 10-Q for the period ending June 28, 2002 as filed with the
Securities and Exchange Commission on the date hereof (the "Report"), I, Dennis
J. Letham, Senior Vice President Finance and Chief Financial Officer of the
Company, certify, pursuant to 18 U.S.C. Sec. 1350, as adopted pursuant to Sec.
906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of
the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material
respects, the financial condition and result of operations of the Company.
/s/ Dennis J. Letham
- ------------------------------
Dennis J. Letham
Senior Vice President Finance and Chief Financial Officer
August 12, 2002