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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 September 27, 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 November 4, 2002, 37,433,698 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-------------------------------------------12
Item 3. Quantitative and Qualitative Disclosures About Market Risk------------*
Item 4. Controls and Procedures----------------------------------------------20
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-------------------*
Item 5. Other Information-----------------------------------------------------*
Item 6. Exhibits and Reports on Form 8-K-------------------------------------21
________________
* 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 39 Weeks Ended
------------------------------ ------------------------------
September 27, September 28, September 27, September 28,
2002 2001 2002 2001
------------- ------------- ------------- -------------
Net sales $ 626.3 $ 761.5 $ 1,858.3 $ 2,481.6
Cost of goods sold 476.4 590.8 1,418.9 1,898.4
------------- ------------- ------------- -------------
Gross profit 149.9 170.7 439.4 583.2
Operating expenses 126.8 146.8 373.3 461.9
Goodwill amortization - 2.2 - 6.7
Restructuring costs - 31.7 - 31.7
------------- ------------- ------------- -------------
Operating income (loss) 23.1 (10.0) 66.1 82.9
Interest expense (3.1) (6.5) (11.9) (24.7)
Other, net (2.0) (3.2) 0.9 (11.4)
------------- ------------- ------------- -------------
Income (loss) before income taxes and
extraordinary item 18.0 (19.7) 55.1 46.8
Income tax expense (benefit) 7.2 (8.0) 22.0 18.9
------------- ------------- ------------- -------------
Income (loss) before extraordinary item 10.8 (11.7) 33.1 27.9
Extraordinary gain (loss) on early
extinguishment of debt, net 0.8 (0.2) (0.2) (1.0)
------------- ------------- ------------- -------------
Net income (loss) $ 11.6 $ (11.9) $ 32.9 $ 26.9
============= ============= ============= =============
Basic income (loss) per share:
Income (loss) before extraordinary item $ 0.29 $ (0.32) $ 0.90 $ 0.76
Extraordinary gain (loss) $ 0.02 $ (0.01) $ (0.01) $ (0.03)
Net income (loss) $ 0.31 $ (0.33) $ 0.89 $ 0.74
Diluted income (loss) per share:
Income (loss) before extraordinary item $ 0.28 $ (0.32) $ 0.87 $ 0.74
Extraordinary gain (loss) $ 0.02 $ (0.01) $ (0.01) $ (0.03)
Net income (loss) $ 0.30 $ (0.33) $ 0.86 $ 0.71
See accompanying notes to the consolidated financial statements.
ANIXTER INTERNATIONAL INC.
CONSOLIDATED BALANCE SHEETS
(In millions, except share amounts)
September 27, December 28,
2002 2001
ASSETS ------------- ------------
(Unaudited)
Current assets
Cash $ 5.0 $ 27.2
Accounts receivable (less allowances of
$17.8 and $20.9 in 2002 and 2001, respectively) 234.4 154.1
Note receivable - unconsolidated subsidiary 69.1 111.4
Inventories 498.2 495.7
Deferred income taxes 32.0 32.0
Other current assets 10.0 8.6
------------- ------------
Total current assets 848.7 829.0
Property and equipment, at cost 191.4 167.4
Accumulated depreciation (131.7) (112.4)
------------- ------------
Property and equipment, net 59.7 55.0
Goodwill (less accumulated amortization of
$95.8 and $95.4 in 2002 and 2001, respectively) 257.4 231.6
Other assets 79.5 83.2
------------- ------------
$ 1,245.3 $ 1,198.8
============= ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $ 285.1 $ 251.0
Accrued expenses 85.8 86.2
Accrued restructuring 5.3 11.1
Income taxes payable 4.8 4.4
------------- ------------
Total current liabilities 381.0 352.7
Long-term debt 201.3 241.1
Other liabilities 45.2 41.9
------------- ------------
Total liabilities 627.5 635.7
Stockholders' equity
Common stock --- $1.00 par value, 100,000,000 shares authorized,
37,418,574 and 36,917,313 shares issued and outstanding
in 2002 and 2001, respectively 37.4 36.9
Capital surplus 44.0 32.5
Accumulated other comprehensive income (49.7) (59.5)
Retained earnings 586.1 553.2
------------- ------------
Total stockholders' equity 617.8 563.1
------------- ------------
$ 1,245.3 $ 1,198.8
============= ============
See accompanying notes to the consolidated financial statements.
ANIXTER INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In millions)
39 Weeks Ended
--------------------------------
September 27, September 28,
2002 2001
------------- -------------
Operating activities
Net income $ 32.9 $ 26.9
Adjustments to reconcile net income to net cash
provided by continuing operating activities:
Extraordinary loss 0.2 1.0
Non-cash restructuring costs - 6.6
(Gain) loss on sale or disposal of fixed assets and securities (3.1) 0.3
Depreciation and amortization 17.0 24.4
Accretion of zero-coupon convertible notes 9.6 11.0
Income tax savings from employee stock plans 2.4 -
Changes in current assets and liabilities, net 76.3 99.7
Restructuring costs (9.2) 23.3
Other, net 8.9 4.3
------------- -------------
Net cash provided by continuing operating activities 135.0 197.5
Investing activities
Capital expenditures (10.2) (19.5)
Acquisition of business (110.4) -
Proceeds from the sale of fixed assets 2.9 -
Proceeds from the sale of securities 2.0 -
------------- -------------
Net cash used in continuing investing activities (115.7) (19.5)
Financing activities
Proceeds from long-term borrowings 110.4 743.5
Repayment of long-term borrowings (58.4) (868.6)
Retirement of notes payable (99.3) (33.6)
Proceeds from issuance of common stock 7.1 20.3
Purchases of common stock for treasury - (46.9)
Other, net (0.6) (2.3)
------------- -------------
Net cash used in continuing financing activities (40.8) (187.6)
------------- -------------
Decrease in cash from continuing operations (21.5) (9.6)
Net cash used in discontinued operations (0.7) (4.6)
Cash at beginning of period 27.2 20.8
------------- -------------
Cash at end of period $ 5.0 $ 6.6
============= =============
See accompanying notes to the consolidated financial statements.
ANIXTER INTERNATIONAL INC.
NOTES TO UNAUDITED 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. See Note
8 for information regarding the Company's extinguishment of debt.
In June 2002, the FASB issued SFAS 146, "Accounting for Costs Associated
with Exit or Disposal Activities". SFAS 146 nullifies Emerging Issues Task Force
Issue No. 94-3 ("EITF 94-3"), "Liability Recognition for Certain Employee
Termination Benefits and Other Costs to Exit an Activity (including Certain
Costs Incurred in a Restructuring)". SFAS 146 requires that a liability for a
cost associated with an exit or disposal activity be recognized when the
liability is incurred. Therefore, SFAS 146 eliminates the definition and
requirements for recognition of exit costs in EITF 94-3. The provisions of SFAS
146 are effective for exit or disposal activities that are initiated after
December 31, 2002. The adoption of SFAS No. 146 is not expected to have a
material effect on the Company's results of operations, financial position or
debt covenants.
Note 2. Acquisition
On September 20, 2002, the Company completed the purchase of the operations
and assets of Pentacon, Inc., ("Pentacon") a leading distributor of fasteners
and other small parts to original equipment manufacturers and provider of
inventory management services, pursuant to Pentacon's plan of reorganization
filed under Chapter 11 of the United States Bankruptcy Code. Pentacon has 30
distribution and sales facilities in the United States, along with sales offices
and agents in Europe, Canada, Mexico and Australia. The Company paid a total of
$108.2 million for assets with a net book value of approximately $87.1 million.
The net assets primarily consist of accounts receivable, inventory, office and
warehouse equipment and furnishings, accounts payable and select operating
liabilities. The Company agreed to hire the existing Pentacon employees and
assume the lease obligations for current operating facilities. The acquired
assets will be used in substantially the same manner in which they were utilized
by Pentacon. The Company will incur approximately $3.2 million of
transaction-related costs that will be capitalized as part of the acquisition.
In addition, the Company agreed to pay $1.2 million in retention bonuses of
which $1.0 million will be expensed in the fourth quarter of 2002 and $0.1
million in each of 2003 and 2004. The acquisition was accounted for as a
purchase and the results of operations of the acquired business are included in
the consolidated financial statements from the date of acquisition. Assets and
liabilities have been recorded at estimated fair value based on a preliminary
allocation of the purchase price which resulted in the recognition of $24.3
million of goodwill. The valuation of Pentacon will be completed during the
fourth quarter. The valuation will identify the intangible assets with finite
lives, intangible assets with indefinite lives and goodwill. The intangible
assets with finite lives will be amortized over their useful lives. Goodwill and
intangible assets with indefinite useful lives will not be amortized. The
acquisition was accretive to earnings in the current quarter and is expected to
be accretive to earnings for the three months ending January 3, 2003.
The following unaudited consolidated pro forma information reflects the
results of the Company's operations for the 13 and 39 weeks ended September 27,
2002 and September 28, 2001 as though the Pentacon acquisition had occurred on
December 30, 2000. The pro forma results are not necessarily indicative of the
actual results that would have occurred had the purchase been made at the
beginning of the period presented, nor do they purport to indicate the result of
the future operations of the Company.
13 weeks ended 39 weeks ended
------------------------------ ------------------------------
(In millions, except September 27, September 28, September 27, September 28,
per share amounts) 2002 2001 2002 2001
------------- ------------- ------------- -------------
Net sales $ 672.0 $ 826.1 $ 2,012.1 $ 2,687.7
Income (loss) before extra-
ordinary item $ 10.6 $ (9.1) $ 36.1 $ 32.2
Net income (loss) $ 11.4 $ (9.3) $ 35.9 $ 31.2
Income (loss) per diluted share before
extraordinary item $ 0.28 $ (0.25) $ 0.95 $ 0.85
Net income (loss) per diluted share $ 0.30 $ (0.26) $ 0.94 $ 0.83
The pro forma adjustments (before income taxes and extraordinary item) that
were made as if the purchase had occurred at the beginning of each of the
periods presented are as follows:
13 weeks ended 39 weeks ended
------------------------------ ------------------------------
(In millions) September 27, September 28, September 27, September 28,
2002 2001 2002 2001
------------- ------------- ------------- -------------
Rental expense $ 0.1 $ 0.3 $ 0.7 $ 0.9
Legal and professional fees 0.9 - 4.5 -
Amortization of goodwill - 0.7 - 2.0
Interest expense, net - 3.0 4.9 9.5
------------- ------------- ------------- -------------
Income before taxes and
extraordinary item $ 1.0 $ 4.0 $ 10.1 $ 12.4
============= ============= ============= =============
The pro forma adjustments included in each of the periods presented above
related to; 1) rental expense for leased facilities that were not acquired, 2)
legal and professional fees that were directly related to the bankruptcy
proceedings, 3) the exclusion of the total interest expense incurred by Pentacon
which is partially offset by the interest expense incurred by Anixter resulting
from $110.4 million of borrowings used to fund the acquisition at an annualized
interest rate of 4.75% over the respective period, 4) the exclusion of the 2001
goodwill expense incurred by Pentacon which is partially offset by the Anixter
amortization of the $24.3 million of goodwill on a straight-line basis over 30
years.
Note 3. Income (Loss) per Share
The following table sets forth the computation of basic and diluted income
per common share:
13 weeks ended 39 weeks ended
------------------------------ -------------------------------
(In millions, except per share amounts) September 27, September 28, September 27, September 28,
2002 2001 2002 2001
------------- ------------- ------------- --------------
Basic Income (Loss) Per Share:
Reported income (loss) before extraordinary item $ 10.8 $ (11.7) $ 33.1 $ 27.9
Goodwill amortization - 2.2 - 6.7
------------- ------------- ------------- --------------
Adjusted income (loss) before extraordinary item 10.8 (9.5) 33.1 34.6
Extraordinary gain (loss) 0.8 (0.2) (0.2) (1.0)
------------- ------------- ------------- --------------
Adjusted net income (loss) $ 11.6 $ (9.7) $ 32.9 $ 33.6
============= ============= ============= ==============
Weighted-average common shares outstanding 37.1 36.4 36.9 36.5
Reported income (loss) per share before
extraordinary item $ 0.29 $ (0.32) $ 0.90 $ 0.76
Goodwill amortization per share - 0.06 - 0.18
Adjusted income (loss) per share before
extraordinary item 0.29 (0.26) 0.90 0.95
Extraordinary gain (loss) 0.02 (0.01) (0.01) (0.03)
Adjusted net income (loss) per share $ 0.31 $ (0.27) $ 0.89 $ 0.92
Diluted Income (Loss) Per Share:
Reported income (loss) before extraordinary item $ 10.8 $ (11.7) $ 33.1 $ 27.9
Goodwill amortization - 2.2 - 6.7
------------- ------------- ------------- --------------
Adjusted net income (loss) before extraordinary item 10.8 (9.5) 33.1 34.6
Extraordinary gain (loss) 0.8 (0.2) (0.2) (1.0)
------------- ------------- ------------- --------------
Adjusted net income (loss) $ 11.6 $ (9.7) $ 32.9 $ 33.6
============= ============= ============= ==============
Weighted average common shares outstanding 37.1 36.4 36.9 36.5
Effect of dilutive securities:
Stock options and warrants 0.9 - 1.1 1.3
------------- ------------- ------------- --------------
Weighted-average common shares outstanding 38.0 36.4 38.0 37.8
============= ============= ============= ==============
Reported income (loss) per share before
extraordinary item $ 0.28 $ (0.32) $ 0.87 $ 0.74
Goodwill amortization per share - 0.06 - 0.18
Adjusted income (loss) per share before
extraordinary item 0.28 (0.26) 0.87 0.92
Extraordinary gain (loss) per share 0.02 (0.01) (0.01) (0.03)
Adjusted net income (loss) per share $ 0.30 $ (0.27) $ 0.86 $ 0.89
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) September 27, December 28,
2002 2001
------------- ------------
Assets: (Unaudited)
Current assets $ 847.5 $ 827.1
Property, net 59.7 55.0
Goodwill, net 257.4 231.6
Other assets 82.9 83.1
------------- ------------
$ 1,247.5 $ 1,196.8
============= ============
Liabilities and Stockholders' Equity:
Current liabilities $ 374.8 $ 352.9
Other liabilities 44.8 41.5
Long-term debt 60.6 19.3
Subordinated notes payable to parent 208.3 244.8
Stockholders' equity 559.0 538.3
------------- ------------
$ 1,247.5 $ 1,196.8
============= ============
ANIXTER INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
13 weeks ended 39 weeks ended
------------------------------ ------------------------------
(In millions) September 27, September 28, September 27, September 28,
2002 2001 2002 2001
------------- ------------- ------------- -------------
Net sales $ 626.3 $ 761.5 $ 1,858.3 $ 2,481.6
Operating income (loss) $ 23.2 $ (9.4) $ 66.1 $ 84.1
Income (loss) before income taxes
and extraordinary loss $ 17.3 $ (19.1) $ 54.0 $ 47.2
Income (loss) before
extraordinary loss $ 10.2 $ (11.2) $ 32.0 $ 27.5
Extraordinary loss $ - $ 0.2 $ 0.3 $ 1.0
Net income (loss) $ 10.2 $ (11.4) $ 31.7 $ 26.5
Note 5. Restructuring and Other Charges
Due to increased general economic softness and deteriorating market
conditions in the communications products market, during the third quarter of
2001 the Board of Directors approved the restructuring plan (as outlined below)
and the Company incurred unusual restructuring and other charges of $31.7
million. As of September 27, 2002, the Company has 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 and 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 39 weeks
ended September 27, 2002, the Company paid $0.6 million and $3.8 million,
respectively, in severance and outplacement benefits. As of September 27, 2002,
the Company has completed all staff reductions associated with this initiative,
resulting in estimated savings of $10.0 million and $29.6 million for the 13 and
39 weeks ended September 27, 2002. During the second quarter of 2002, 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 39 weeks ended September 27, 2002, the Company paid $2.1 million and
$5.1 million, respectively, associated with the facility restructuring. As of
September 27, 2002, the Company has vacated all of the space, resulting in
estimated operating expense savings of $2.0 million and $5.8 million for the 13
and 39 weeks ended September 27, 2002. In addition, the remaining accrued
expense of $6.2 million for the facility restructuring is reasonable given our
current understanding of our sublet income opportunities. During the second
quarter of 2002, 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 $3.5 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 Korea.
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. The remaining accrual balance of $0.3 million is needed for
legal costs associated with the restructuring.
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
Accrual adjustments 0.4 1.0 (0.4) (0.7) 0.3
Cash payments (3.2) (3.0) - (0.3) (6.5)
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
Cash payments (0.6) (2.1) - - (2.7)
Foreign exchange and other - (0.2) - - (0.2)
---------- ------------- ------- ------- -------
Balance at September 27, 2002 $ 0.9 $ 6.2 $ 1.4 $ 0.3 $ 8.8
========== ============= ======= ======= =======
The Company's remaining liability at September 27, 2002 was $8.8 million,
of which $5.3 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 $3.8
million for severance, $5.1 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:
13 weeks ended 39 weeks ended
------------------------------ ------------------------------
(In millions) September 27, September 28, September 27, September 28,
2002 2001 2002 2001
------------- ------------- ------------- -------------
Net income (loss) $ 11.6 $ (11.9) $ 32.9 $ 26.9
Cumulative effect of adoption of
SFAS No. 133 - - - 2.7
Change in cumulative translation
adjustment (3.0) (1.4) 15.0 (8.6)
Change in fair market value
of derivatives (0.1) 0.8 (5.2) 1.9
------------- ------------- ------------- -------------
Comprehensive income (loss) $ 8.5 $ (12.5) $ 42.7 $ 22.9
============= ============= ============= =============
Note 7. Business Segments
The Company is engaged in the distribution of communications and specialty
wire and cable products from top suppliers to contractors, installers and end
users, including manufacturing, natural resources companies, utilities and is
also a leading distributor of "C" Class inventory components to original
equipment manufacturers. The Company is organized by geographic regions, and
accordingly, has identified North America (United States and Canada), Europe and
Asia Pacific and Latin America as operating segments. The Company obtains and
coordinates financing, legal and other related services which are rebilled to
subsidiaries. Interest expense and other non-operating items are not allocated
to the segments or reviewed on a segment basis. Segment information for the 13
and 39 weeks ended September 27, 2002 and September 28, 2001 was as follows:
13 weeks ended 39 weeks ended
------------------------------ -------------------------------
(In millions) September 27, September 28, September 27, September 28,
2002 2001 2002 2001
------------- ------------- ------------- --------------
Net sales:
North America $ 496.5 $ 601.1 $ 1,476.9 $ 1,920.1
Europe 86.2 107.4 255.4 400.4
Asia Pacific and Latin America 43.6 53.0 126.0 161.1
------------- ------------- ------------- --------------
$ 626.3 $ 761.5 $ 1,858.3 $ 2,481.6
============= ============= ============= ==============
Operating income (loss)*:
North America $ 23.8 $ (5.9) $ 62.8 $ 70.5
Europe (0.3) 1.6 4.6 16.2
Asia Pacific and Latin America (0.4) (5.7) (1.3) (3.8)
------------- ------------- ------------- -------------
$ 23.1 $ (10.0) $ 66.1 $ 82.9
============= ============= ============= =============
(In millions) September 27, December 28,
2002 2001
------------- -------------
Total assets:
North America $ 959.3 $ 875.4
Europe 173.1 197.9
Asia Pacific and Latin America 112.9 125.5
------------- -------------
$ 1,245.3 $ 1,198.8
============= =============
*The 13 and 39 weeks ended September 28 2001, includes goodwill
amortization expense of $2.1 million and $6.3 million, respectively, for North
America and $0.1 million and $0.2 million, respectively, for Asia Pacific.
Europe had $0.2 million for the 39 weeks ended September 28, 2001. Additionally,
2001 includes restructuring costs for North America, Europe and Asia Pacific and
Latin America of $23.1 million, $2.3 million and $6.3 million, respectively.
Note 8. Extinguishment of Debt
During the 39 weeks ended September 27, 2002 and September 28, 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 39 weeks ended September 27, 2002 and September 28, 2001:
13 weeks ended 39 weeks ended
----------------------------------------- ----------------------------------------
(In millions) September 27, September 28, September 27, September 28,
2002 2001 2002 2001
------------------ ------------------- ------------------ ------------------
Face Face Face Face
Amount Cost Amount Cost Amount Cost Amount Cost
-------- ------ -------- ------ -------- ------ -------- ------
8% Senior notes $ 3.6 $ 3.7 $ 6.0 $ 6.3 $ 10.6 $ 11.1 $ 32.2 $ 33.6
7% Zero-coupon notes $ 50.3 $ 47.7 $ - $ - $ 90.7 $ 88.2 $ - $ -
Debt issuance costs
written-off $ 1.3 $ - $ - $ - $ 2.3 $ - $ 0.3 $ -
Accordingly, for the 13 weeks ended September 27, 2002, the Company
recorded an extraordinary gain on the early extinguishment of debt in its
consolidated statements of operations of $1.2 million ($0.8 million, net of
tax). For the 13 weeks ended September 28, 2001, the Company recorded an
extraordinary loss on the early extinguishment of debt of $0.3 million ($0.2
million, net of tax). For the 39 weeks ended September 27, 2002 and September
28, 2001, the Company recorded an extraordinary loss on the early extinguishment
of debt of $0.3 million and $1.7 million ($0.2 million and $1.0 million, net of
tax), respectively.
Note 9. Subsequent Event
Subsequent to September 27, 2002, the Company has repurchased an additional
$8.8 million of its 7% zero-coupon convertible notes that mature June, 2020 for
$8.5 million. The Company will write-off $0.2 million of debt issuance costs
associated with the convertible notes. As a result, after related income taxes,
the Company will realize a net extraordinary gain of $0.1 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.
Acquisition of Pentacon, Inc.
On September 20, 2002, the Company completed the purchase of the operations
and assets of Pentacon, Inc., ("Pentacon") a leading distributor of fasteners
and other small parts to original equipment manufacturers and provider of
inventory management services, pursuant to Pentacon's plan of reorganization
filed under Chapter 11 of the United States Bankruptcy Code. Pentacon has 30
distribution and sales facilities in the United States, along with sales offices
and agents in Europe, Canada, Mexico and Australia. The Company paid a total of
$108.2 million for assets with a net book value of approximately $87.1 million.
The net assets primarily consist of accounts receivable, inventory, office and
warehouse equipment and furnishings, accounts payable and select operating
liabilities. The Company agreed to hire the existing Pentacon employees and
assume the lease obligations for current operating facilities. The acquired
assets will be used in substantially the same manner in which they were utilized
by Pentacon. The Company will incur approximately $3.2 million of
transaction-related costs that will be capitalized as part of the acquisition.
In addition, the Company agreed to pay $1.2 million in retention bonuses of
which $1.0 million will be expensed in the fourth quarter of 2002 and $0.1
million in each of 2003 and 2004. The acquisition was accounted for as a
purchase and the results of operations of the acquired business are included in
the consolidated financial statements from the date of acquisition. Assets and
liabilities have been recorded at estimated fair value based on a preliminary
allocation of the purchase price which resulted in the recognition of $24.3
million of goodwill. The valuation of Pentacon will be completed during the
fourth quarter. The valuation will identify the intangible assets with finite
lives, intangible assets with indefinite lives and goodwill. The intangible
assets with finite lives will be amortized over their useful lives. Goodwill and
intangible assets with indefinite useful lives will not be amortized. Pentacon's
annual sales are approximately $200 million. The acquisition was accretive to
earnings in the current quarter and is expected to be accretive to earnings for
the three months ending January 3, 2003.
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 September 27, 2002 and
December 28, 2001, the outstanding balance of accounts receivable sold to ARC
totaled $264.7 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 39 weeks ended September 27, 2002, the Company paid $0.6
million and $3.8 million, respectively, in severance and termination benefits.
During the second quarter of 2002, the Company recorded an additional charge of
$0.4 million for severance associated with headcount reductions in Europe. The
Company's 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. The
Company estimates that staff reductions resulted in savings of $10.0 million and
$29.6 million for the 13 and 39 weeks ended September 27, 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 39
weeks ended September 27, 2002, the Company paid out $2.1 million and $5.1
million, respectively, related to exit costs for these facilities. The Company
estimates that operating expense savings were $2.0 million and $5.8 million for
the 13 and 39 weeks ended September 27, 2002. During the second 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 the charge, as it was offset by the reduction of excess accruals
in North America and Asia Pacific.
Korea - The Company closed operations in Korea during the fourth quarter of
2001. The remaining accrued expense of $1.4 million is needed to cover the legal
proceedings against Anixter Korea.
Other Items -The remaining accrued expense of $0.3 million is needed for
legal costs associated with the restructuring.
Financial Liquidity and Capital Resources
Cash Flow
Consolidated net cash provided by continuing operating activities was
$135.0 million for the 39 weeks ended September 27, 2002 compared to $197.5
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 provided $76.3 million in 2002
compared to reductions of $99.7 million in 2001. In 2002, $9.2 million was paid
in conjunction with restructuring charges recorded for the 13 weeks ended
September 28, 2001. Consolidated net cash used in investing activities was
$115.7 million for the 39 weeks ended September 27, 2002 versus $19.5 million
for the same period in 2001. In the third quarter of 2002, the Company completed
the acquisition of certain assets and liabilities of Pentacon, Inc. for $110.4
million. In 2002, $2.9 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 $9.3 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 $20.0 million in 2002 with the
majority being related to the construction of a new headquarters building.
Consolidated net cash used in financing activities was $40.8 million for the 39
weeks ended September 27, 2002 in comparison to $187.6 million in the
corresponding 2001 period. This change is primarily the result of a net decrease
in long-term borrowings of $47.3 million in 2002 as compared to a $158.7 million
decrease in 2001. In addition, 2001 includes $46.9 million of treasury stock
purchases partially offset by proceeds of $20.3 million received from the
exercise of 1,167,027 stock options and the employee stock purchase program. In
2002, the Company did not repurchase stock, but received proceeds of $7.1
million from the exercise of 501,261 stock options and the employee stock
purchase program. Cash used by discontinued operations was $0.7 million in the
39 weeks ended September 27, 2002 compared to $4.6 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 September 27, 2002, $357.0
million was available under the bank revolving lines of credit at Anixter Inc.,
of which $12.9 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 $50.1 million.
During the 39 weeks ended September 27, 2002, the Company retired $90.7
million of the 7% zero-coupon convertible notes and $10.6 million of the 8%
senior notes. As a result, the Company recorded an extraordinary loss of $0.01
per diluted share. Subsequent to September 27, 2002, the Company repurchased an
additional $8.8 million of its 7% zero-coupon convertible notes that mature
June, 2020 for $8.5 million. 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 $11.9 million and $24.7 million for the
39 weeks ended September 27, 2002 and September 28, 2001, respectively. The
decrease is due to lower debt levels. 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 for the 39 weeks ended September 27,
2002 and September 28, 2001 was $208.4 million and $402.7 million, respectively.
The effective interest rate for the 39 weeks ended September 27, 2002 and
September 28, 2001 was 7.6%. Included in the Consolidated Statements of
Operations "other, net" classification, are net expenses incurred by ARC, a
wholly owned unconsolidated subsidiary, of $1.5 million and $9.1 million, for
the 39 weeks ended September 27, 2002 and September 28, 2001, respectively.
Included in the ARC net expense amount was interest expense, incurred by ARC, of
$2.5 million and $8.6 million for the 39 weeks ended September 27, 2002 and
September 28, 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 for the 39 weeks ended September 27, 2002 and September 28, 2001 was
$127.1 million and $208.8 million, respectively. The effective interest rate on
the ARC debt was 2.5% and 5.4% for the 39 weeks ended September 27, 2002 and
September 28, 2001, respectively.
In the 39 weeks ended September 28, 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
2002. The Company has the authorization to purchase 0.6 million additional
shares with the volume and timing to depend on market conditions.
Liquidity Considerations and Other
With the deterioration of market conditions in the communication products
industry, the Company's two largest customers have experienced significant
downturns in their business. This has resulted in each of them incurring large
losses and multiple restructuring charges. If these conditions persist for an
extended period of time, these customers may experience future liquidity
problems. The Company holds a significant amount of accounts receivable and
inventory relating to these customers. The Company believes that the inventory
and logistics services that it provides to these two customers are critical to
their on-going operations. While the Company believes the current risk is
minimal, if these customers were to default on their obligations to the Company,
the effect could be material.
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 September 27, 2002: Net income for the third quarter of 2002
was $11.6 million compared with a net loss of $11.9 million for the third
quarter of 2001. On September 20, 2002, the Company completed the purchase of
the operations and certain assets and liabilities of Pentacon, Inc. The results
of operations of the acquired business are included in the consolidated
financial statements from the date of acquisition. Net sales and operating
profit for the acquired business were $7.0 million and $0.4 million,
respectively, and are included in the North America geographic market. In the
third quarter of 2001, due to a combination of increased economic softness and
continued deterioration of market conditions in the communication products
industry, the Company incurred unusual restructuring and other charges of $31.7
million associated with reducing its workforce, closing or consolidating certain
facilities and exiting the Korean market. In addition, the Company recorded an
after-tax gain of $0.8 million in the third quarter of 2002 for the early
extinguishment of $50.3 million of its 7% zero-coupon convertible notes and $3.6
million of its 8% senior notes compared to a loss of $0.2 million in the third
quarter of 2001 for the early extinguishment of $6.0 million of the 8% senior
notes.
The Company's net sales during the third quarter of 2002 decreased 17.8% to
$626.3 million from $761.5 million in the same period in 2001. Net sales by
major geographic market are presented in the following table:
13 weeks ended
-------------------------------
(In millions) September 27, September 28,
2002 2001
------------- -------------
North America $ 496.5 $ 601.1
Europe 86.2 107.4
Asia Pacific and Latin America 43.6 53.0
-------------- -------------
$ 626.3 $ 761.5
============== =============
Sales declined in every geographic region as the economic softness
experienced in the first half of the year continued in the third quarter. When
compared to the corresponding period in 2001, North America sales for the third
quarter of 2002 decreased 17.4% to $496.5 million. Sales fell across all
customer markets, with enterprise, wire and cable and integrated supply sales
down 10.5%, 13.3% and 44.8%, respectively. In 2001, sales included $22.2 million
of service provider sales of which $12.6 million and $9.6 million, respectively,
are now included in wire and cable and integrated supply 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.
Europe sales decreased 19.7% due to declining sales in all customer
markets. In 2001, sales for Europe included $5.4 million to the service provider
market which did not repeat in 2002. Excluding the effect of changes in exchange
rates, Europe sales decreased 28.7%.
Asia Pacific and Latin America net sales were down 17.6% from the third
quarter of 2001, due to general economic softness in both regions. Excluding the
effect of changes in exchange rates, Asia Pacific and Latin America sales
decreased 16.7%.
Operating income increased to $23.1 million in 2002 from an operating loss
of $10.0 million in the third quarter of 2001. In 2001, due to a combination of
increased economic softness and continued deterioration of market conditions in
the telecom and technology related products industry, the Company incurred
unusual restructuring and other charges of $31.7 million associated with
reducing its workforce, closing or consolidating some facilities and exiting the
Korean market. Operating income (loss) by major geographic market is presented
in the following table:
13 weeks ended
-------------------------------
(In millions) September 27, September 28,
2002 2001
------------- -------------
North America* $ 23.8 $ (5.9)
Europe* (0.3) 1.6
Asia Pacific and Latin America* (0.4) (5.7)
------------- -------------
$ 23.1 $ (10.0)
============= =============
*The 13 weeks ended September 28, 2001 includes goodwill amortization
expense of $2.1 million for North America and $0.1 million for Asia Pacific and
Latin America. Additionally, 2001 includes restructuring costs for North
America, Europe and Asia Pacific and Latin America of $23.1 million, $2.3
million and $6.3 million, respectively.
Excluding 2001 goodwill amortization, North America reported operating
income of $23.8 million for the third quarter of 2002 compared to a net loss of
$3.8 million in the corresponding period of 2001. Gross margins increased to
24.0% in 2002 from 22.1% for the same period of 2001. In 2001, sales to
integrated supply customers, which have lower gross margins, accounted for a
larger percentage of the overall sales mix. Excluding 2001 goodwill amortization
and restructuring costs, operating profit increased 23.3% in 2002 from $19.3
million in the corresponding period of 2001. Excluding 2001 goodwill
amortization and restructuring costs, operating margins increased to 4.8% from
3.2% in 2001. Operating expenses declined 15.9%, primarily due to a reduction in
headcount and facility expenses resulting from the third quarter 2001
restructuring along with lower variable costs associated with the lower sales
volume. Headcount declined 11.7%.
Europe reported an operating loss of $0.3 million in the third quarter of
2002 reflecting the decline in sales. Excluding 2001 goodwill amortization and
restructuring costs, Europe had net operating income of $3.9 million in the
corresponding period of 2001. Europe's gross margins increased from 24.8% in
2001, to 25.0% in 2002, as 2001 included $5.4 million of low margin service
provider sales. While cost savings from the 2001 restructuring were achieved,
operating expenses declined by only 3.8% reflecting the minimal operating costs
incurred on the 2001 service provider sales and the impact of changes in
exchange rates. In addition, due to the lower sales base in 2002, fixed costs
are a greater percentage of the cost structure. Excluding the effect of changes
in exchange rates, operating expenses declined 11.4%. Changes in exchange rates
had a minimal effect on operating income.
Excluding 2001 goodwill amortization of and restructuring costs, Asia
Pacific and Latin America operating income decreased $1.1 million, from $0.7
million in the third quarter of 2001 to $0.4 million loss in 2002. The decrease
in operating profit is the result of a 17.6% decrease in sales partially offset
by a 9.5% decrease in operating expenses reflecting the decline in variable
costs associated with the reduction in sales. Changes in exchange rates had a
minimal effect on operating loss.
Other, net income (expense) includes the following:
13 weeks ended
-------------------------------
(In millions) September 27, September 28,
2002 2001
------------- -------------
Accounts receivable securitization $ (0.6) $ (1.7)
Foreign exchange (0.2) (1.3)
Other (1.2) (0.2)
------------- -------------
$ (2.0) $ (3.2)
============= ============
The consolidated tax provision on continuing operations increased to $7.2
million in 2002 from an income tax benefit of $8.0 million in the third quarter
of 2001. As previously mentioned, due to a combination of increased economic
softness and continued deterioration of market conditions in the communication
products industry, the Company incurred unusual restructuring and other charges
of $31.7 million in the third quarter of 2001 which generated a tax benefit of
$12.7 million. The 2002 effective tax rate is 40% compared to 40.5% 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.
39 weeks ended September 27, 2002: Net income for the 39 weeks ended
September 27, 2002 was $32.9 million compared with $26.9 million for the 39
weeks ended September 28, 2001. On September 20, 2002, the Company completed the
purchase of the operations and certain assets and liabilities of Pentacon, Inc.
The results of operations of the acquired business are included in the
consolidated financial statements from the date of acquisition. Net sales and
operating profit for the acquired business were $7.0 million and $0.4 million,
respectively, and are included in the North America geographic market. In the
third quarter of 2001, due to a combination of increased economic softness and
continued deterioration of market conditions in the communication products
industry, the Company incurred unusual restructuring and other charges of $31.7
million associated with reducing its workforce, closing or consolidating certain
facilities and exiting the Korean market. The Company recorded an after-tax
extraordinary loss of $0.2 million in 2002 for the early extinguishment of $90.7
million of its 7% zero-coupon notes and $10.6 million of its 8% senior notes
compared to a loss of $1.0 million in 2001 for the early extinguishment of $32.2
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 39 weeks ended September 27, 2002
decreased 25.1% to $1,858.3 million from $2,481.6 million in the same period in
2001. Net sales by major geographic market are presented in the following table:
39 weeks ended
-------------------------------
(In millions) September 27, September 28,
2002 2001
------------- -------------
North America $ 1,476.9 $ 1,920.1
Europe 255.4 400.4
Asia Pacific and Latin America 126.0 161.1
------------- -------------
$ 1,858.3 $ 2,481.6
============= =============
When compared to the corresponding period in 2001, North America sales for
the 39 weeks ended September 27, 2002 decreased 23.1% to $1,476.9 million. Sales
fell across all customer markets, with enterprise, wire and cable and integrated
supply sales down 14.7%, 25.0% and 43.0%, respectively. In 2001, sales included
$128.8 million of service provider sales of which $93.2 million and $35.6
million, respectively, are now included in wire and cable and integrated supply
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.
Europe sales decreased 36.2% due to declining sales in all customer
markets. 2001 sales for Europe includes $44.2 million to the service provider
market which did not repeat in 2002. Excluding the effects of changes in
exchange rates, Europe sales declined by 38.8%.
Asia Pacific and Latin America sales for the 39 weeks ended September 27,
2002 were down 21.7% from the corresponding period of 2001, due to continued
general economic softness in both regions. The effect of changes in exchange
rates on sales in these geographies was insignificant.
Operating income for the 39 weeks ended September 27, 2002 decreased 20.3%,
or $16.8 million, from $82.9 million in the corresponding period of 2001. In
2001, due to a combination of increased economic softness and continued
deterioration of market conditions in the telecom and technology related
products industry, the Company incurred unusual restructuring and other charges
of $31.7 million associated with reducing its workforce, closing or
consolidating some facilities and exiting the Korean market.
Operating income (loss) by major geographic market is presented in the
following table:
39 weeks ended
-------------------------------
(In millions) September 27, September 28,
2002 2001
------------- -------------
North America* $ 62.8 $ 70.5
Europe* 4.6 16.2
Asia Pacific and Latin America* (1.3) (3.8)
------------- ------------
$ 66.1 $ 82.9
============= ============
*The 39 weeks ended September 28, 2001 includes goodwill amortization
expense of $6.3 million for North America, $0.2 million for Europe and $0.2
million for Asia Pacific and Latin America. Additionally, 2001 includes
restructuring costs for North America, Europe and Asia Pacific and Latin America
of $23.1 million, $2.3 million and $6.3 million, respectively.
Excluding 2001 goodwill amortization expense and restructuring costs, North
America operating income for the 39 weeks ended September 27, 2002 decreased
38.0% from the corresponding period in 2001. Due to competitive pricing
pressures and a one-time high margin sale in 2001, partially offset by a lower
mix of low margin integrated supply sales, North America gross margins declined
slightly to 23.5% in 2002 from 23.9% for the same period in 2001. Primarily as a
result of the decline in sales volume, operating margins (excluding goodwill
amortization and restructuring costs) declined to 4.2% in 2002 from 5.2% in the
same period in 2001. The 2002 operating income includes a reversal of $0.9
million of excess restructuring accruals. Operating expenses declined 20.3%,
primarily due to a reduction in headcount and facility expenses resulting from
the third quarter 2001 restructuring along with lower variable costs associated
with the lower sales volume. Headcount declined 11.7%.
Excluding restructuring costs of $1.4 million in 2002 and goodwill
amortization and restructuring costs in 2001, Europe operating income decreased
67.8% reflecting the decline in sales. Europe's gross margins increased from
22.4% in 2001 to 26.4% in 2002, as 2001 included $44.2 million of low margin
service provider sales. While cost savings from the 2001 restructuring were
achieved, operating expenses declined by only 13.6% reflecting the minimal
operating costs incurred on the 2001 service provider sales and the impact of
changes in exchange rates. In addition, due to the lower sales base in 2002,
fixed costs are a greater percentage of the cost structure. Excluding the effect
of changes in exchange rates, Europe operating expenses declined 16.3% and
operating income declined 69.2%.
Excluding 2001 goodwill amortization and restructuring costs, Asia Pacific
and Latin America operating income decreased $4.0 million, from $2.7 million
income in the 39 weeks ended September 28, 2001 to $1.3 million loss in the
corresponding period of 2002. Excluding a reversal of net excess restructuring
accruals of $0.5 million in the second quarter of 2002, Asia Pacific and Latin
America would have lost $1.8 million in the 39 weeks ended September 27, 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:
39 weeks ended
-------------------------------
(In millions) September 27, September 28,
2002 2001
------------- -------------
Gain on sale of fixed assets and securities $ 3.3 $ -
Accounts receivable securitization (1.5) (9.1)
Foreign exchange 0.2 (2.3)
Other (1.1) -
------------- -------------
$ 0.9 $ (11.4)
============= =============
The consolidated tax provision on continuing operations increased to $22.0
million in 2002 from $18.9 million in 2001. As previously mentioned, due to a
combination of increased economic softness and continued deterioration of market
conditions in the communication products industry, the Company incurred unusual
restructuring and other charges of $31.7 million in the third quarter of 2001
which generated a tax benefit of $12.7 million. The 2002 effective tax rate is
40.0% compared to 40.5% 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.
Item 4. Controls and Procedures
Within the 90 day period prior to the filing of this report, evaluations
were carried out under the supervision and with the participation of the
Company's management, including our Chief Executive Officer and Chief Financial
Officer, of the effectiveness of the design and operation of our disclosure
controls and procedures (as defined in Rule 13a-14 (c) and 15d-14 (c) under the
Securities Exchange Act of 1934). Based upon those evaluations, the Chief
Executive Officer and Chief Financial Officer concluded that the design and
operation of these disclosure controls and procedures were effective. No
significant changes have been made in our internal controls or in the other
factors that could significantly affect these controls subsequent to the date of
the evaluations.
PART II. OTHER INFORMATION
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 September 20, 2002, the Company filed a Current Report on Form 8-K
announcing the completion of the purchase of 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: November 7, 2002 By: /s/ Robert W. Grubbs
-----------------------------------------
Robert W. Grubbs
President and Chief Executive Officer
Date: November 7, 2002 By: /s/ Dennis J. Letham
------------------------------------------
Dennis J. Letham
Senior Vice President - Finance
and Chief Financial Officer
President and Chief Executive Officer Certification
I, Robert W. Grubbs, certify that:
(1) I have reviewed this quarterly report on Form 10-Q of Anixter
International Inc.;
(2) Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of circumstances under
which such statements were made, not misleading with respect to the
period covered by this quarterly report;
(3) Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
(4) The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
we have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report (the "Evaluation
Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
(5) The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent functions):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
(6) The registrant's other certifying officers and I have indicated in this
quarterly report whether there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
November 7, 2002 /s/ Robert W. Grubbs
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Robert W. Grubbs
President and Chief Executive Officer
Senior Vice President - Finance and
Chief Financial Officer Certification
I, Dennis J. Letham, certify that:
(1) I have reviewed this quarterly report on Form 10-Q of Anixter
International Inc.;
(2) Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of circumstances under
which such statements were made, not misleading with respect to the
period covered by this quarterly report;
(3) Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
(4) The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
we have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report (the "Evaluation
Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
(5) The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent functions):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
(6) The registrant's other certifying officers and I have indicated in this
quarterly report whether there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
November 7, 2002 /s/ Dennis J. Letham
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Dennis J. Letham
Senior Vice President-Finance and
Chief Financial Officer