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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 April 4, 2003
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 (I.R.S. Employer
of incorporation or organization) Identification No.)
2301 PATRIOT BLVD.
GLENVIEW, ILLINOIS 60025
(224) 521-8000
(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
--- ---
Indicate by check mark whether the registrant is an accelerated filer
(as defined in Exchange Act Rule 12b-2).
Yes X No
--- ---
At May 8, 2003, 36,731,524 shares of the registrant's Common Stock,
$1.00 par value, were outstanding.
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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................ *
Item 4. Controls and Procedures................................................... 14
PART II. OTHER INFORMATION
Item 1. Legal Proceedings........................................................ *
Item 2. Changes in Securities and Use of Proceeds................................. *
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.......................................... 15
- ----------
* 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.
i
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
ANIXTER INTERNATIONAL INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATION
(Unaudited)
13 WEEKS ENDED
----------------------------------
APRIL 4, MARCH 29,
(In millions, except per share amounts) 2003 2002
-------------- ---------------
NET SALES $ 662.2 $ 614.7
Cost of operations:
Cost of goods sold 501.4 475.1
Operating expenses 137.8 119.1
Amortization of intangibles 0.4 -
-------------- ---------------
Total costs and expenses 639.6 594.2
-------------- ---------------
OPERATING INCOME 22.6 20.5
Other expenses:
Interest expense (3.4) (4.7)
Extinguishment of debt (0.4) (1.0)
Other, net (1.3) -
-------------- ---------------
Income before income taxes 17.5 14.8
Income tax expense 7.3 5.9
-------------- ---------------
NET INCOME $ 10.2 $ 8.9
============== ===============
BASIC INCOME PER SHARE $ 0.28 $ 0.24
DILUTED INCOME PER SHARE $ 0.27 $ 0.23
See accompanying notes to the condensed consolidated financial statements.
1
ANIXTER INTERNATIONAL INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
APRIL 4, JANUARY 3,
(IN MILLIONS, EXCEPT SHARE AMOUNTS) 2003 2003
--------------- --------------
(UNAUDITED)
ASSETS
CURRENT ASSETS
Cash $ 24.0 $ 19.1
Accounts receivable (less allowances of
$15.0 and $15.4 in 2003 and 2002, respectively) 206.4 188.2
Note receivable - unconsolidated subsidiary 62.2 69.6
Inventories 492.5 498.8
Deferred income taxes 26.5 26.5
Other current assets 12.0 10.0
--------------- --------------
Total current assets 823.6 812.2
Property and equipment, at cost 197.2 191.1
Accumulated depreciation (129.9) (132.0)
--------------- --------------
Net property and equipment 67.3 59.1
Goodwill (less accumulated amortization of
$96.6 and $96.0 in 2003 and 2002, respectively) 248.9 247.6
Other assets 109.7 107.1
--------------- --------------
$ 1,249.5 $ 1,226.0
=============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 281.6 $ 257.3
Accrued expenses 77.2 83.5
Accrued restructuring 3.5 4.2
Income taxes payable 3.7 4.7
--------------- --------------
Total current liabilities 366.0 349.7
Long-term debt 200.2 195.1
Other liabilities 48.6 46.4
--------------- --------------
Total liabilities 614.8 591.2
STOCKHOLDERS' EQUITY
Common stock - - $1.00 par value, 100,000,000 shares
authorized, 36,705,774 and 37,500,878 shares issued
and outstanding in 2003 and 2002, respectively 36.7 37.5
Capital surplus 29.0 45.2
Foreign currency translation (37.0) (43.9)
Minimum pension liability (0.3) (0.3)
Unrealized loss on foreign exchange contracts (0.2) -
Retained earnings 606.5 596.3
--------------- --------------
Total stockholders' equity 634.7 634.8
--------------- --------------
$ 1,249.5 $ 1,226.0
=============== ==============
See accompanying notes to the condensed consolidated financial statements.
2
ANIXTER INTERNATIONAL INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
13 WEEKS ENDED
------------------------------------
APRIL 4, MARCH 29,
(IN MILLIONS) 2003 2002
----------------- -----------------
OPERATING ACTIVITIES
Net income $ 10.2 $ 8.9
Adjustments to reconcile net income to net cash
provided by continuing operating activities:
Loss on extinguishment of debt 0.4 1.0
Loss (gain) on sale or disposal of fixed assets and securities 0.1 (1.2)
Depreciation and amortization 5.9 5.9
Accretion of zero-coupon convertible notes 2.2 3.8
Deferred income taxes (0.1) -
Changes in current assets and liabilities, net 12.1 25.1
Restructuring and other charges (1.1) (3.1)
Other, net 2.6 2.1
----------------- -----------------
Net cash provided by continuing operating activities 32.3 42.5
INVESTING ACTIVITIES
Capital expenditures (12.6) (1.5)
----------------- -----------------
Net cash used in continuing investing activities (12.6) (1.5)
FINANCING ACTIVITIES
Proceeds from long-term borrowings 121.4 43.6
Repayment of long-term borrowings (116.7) (43.6)
Purchases of common stock for treasury (17.3) -
Retirement of notes payable (2.0) (22.9)
Proceeds from issuance of common stock 0.5 2.2
Debt issuance costs (0.4) -
Other, net - (0.1)
----------------- -----------------
Net cash used in continuing financing activities (14.5) (20.8)
----------------- -----------------
INCREASE IN CASH FROM CONTINUING OPERATIONS 5.2 20.2
Net cash (used in) provided by discontinued operations (0.3) 0.3
Cash at beginning of period 19.1 27.2
----------------- -----------------
Cash at end of period $ 24.0 $ 47.7
================= =================
See accompanying notes to the condensed consolidated financial statements.
3
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 January 3, 2003. 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 2003 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 adopted SFAS No. 145 as required on January 4, 2003. As a
result, any gain or loss from the extinguishment of debt is recorded as a
non-operating item, "Extinguishment of debt," from continuing operations before
income taxes. Any gain or loss on extinguishment of debt that was classified as
an extraordinary item in prior periods has been reclassified in accordance with
this statement. The adoption of SFAS No. 145 did not have a material effect on
the Company's results of operations, financial position or debt covenants.
In the first quarter 2003, the Company adopted Emerging Issues Task
Force ("EITF") Issue 02-16, Accounting by a Customer (Including a Reseller) for
Certain Consideration Received from a Vendor. Under the new accounting guidance,
cash consideration for reimbursement of specific, identifiable and incremental
costs incurred by the Company to sell the vendor's products should be
characterized as a reduction of the associated cost when recognized in the
Company's income statement. Previously, all reimbursements from vendors were
classified as a reduction of costs of sales, while the associated costs were
classified as operating expenses. Accordingly, the Company reclassified the
prior corresponding period amount. This change in accounting increased cost of
sales and reduced operating expenses by $1.9 million and $2.2 million for the
first quarter ending April 4, 2003 and March 29, 2002, respectively. As a
result, there was no impact on net income.
Stock based compensation
Beginning in 2003, the Company granted restricted employee stock units
in lieu of employee stock options. The fair value of the restricted stock units
are amortized over the four year vesting period from the date of grant. In the
first quarter of 2003, $0.2 million was recognized as expense. Total expense for
fiscal 2003 is expected to be approximately $1.8 million.
4
Under the provisions of SFAS No. 123, "Accounting for Stock-Based
Compensation," and SFAS No. 148, "Accounting for Stock-Based
Compensation-Transition and Disclosure," an amendment of SFAS No. 123, the
Company has elected to continue to apply the intrinsic value method of
Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued
to Employees," and its related interpretations in accounting for its stock-based
compensation plans. In accordance with the APB Opinion 25, compensation cost of
stock options issued were measured as the excess, if any, of the quoted market
price of the Company's stock at the date of the grant over the option exercise
price and is charged to operations over the vesting period. The Company applied
the disclosure-only provisions of SFAS No. 123. Accordingly, no compensation
expense has been recognized in the Condensed Consolidated Statements of
Operations for the stock option plans.
The Black-Scholes option pricing model was developed for estimating the
fair value of traded options, which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including the expected stock price volatility. Because
the Company's stock options have characteristics significantly different from
those of traded options, and because changes in the subjective input assumptions
can materially affect the fair value estimate, in management's opinion, the
existing models do not necessarily provide a reliable single measure of the fair
value of the Company's stock options. Had compensation costs for the plans been
determined based on the fair value at the grant date using the Black-Scholes
option pricing model and amortized over the respective vesting period, the
Company's net income would have been reduced to the pro forma amounts indicated
below:
13 WEEKS ENDED
---------------------
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS) APRIL 4, MARCH 29,
2003 2002
-------- --------
Net income as reported $ 10.2 $ 8.9
Add: Stock-based employee compensation expense included in
net income, net 0.6 0.6
Deduct: Stock-based employee compensation expense, net (2.6) (2.5)
------ ------
Pro forma net income $ 8.2 $ 7.0
====== ======
Basic earnings per share:
as reported $ 0.28 $ 0.24
pro forma $ 0.22 $ 0.19
Diluted earnings per share:
as reported $ 0.27 $ 0.23
pro forma $ 0.22 $ 0.19
The weighted average fair value of the Company's stock options (which
was $15.02 per share at March 29, 2002) was estimated at the date of grant using
the Black-Scholes option pricing model with the following assumptions: expected
stock price volatility of 46%; expected dividend yield of zero; risk-free
interest rate of 4.8%; and an average expected life of 8 years.
5
NOTE 2. INCOME PER SHARE
The following table sets forth the computation of basic and diluted
income per common share:
13 WEEKS ENDED
---------------------
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS) APRIL 4, MARCH 29,
2003 2002
-------- --------
BASIC INCOME PER SHARE:
Net income $ 10.2 $ 8.9
Weighted-average common shares outstanding 36.9 36.6
Net income per share $ 0.28 $ 0.24
DILUTED INCOME PER SHARE:
Net income $ 10.2 $ 8.9
Weighted-average common shares outstanding 36.9 36.6
Effect of dilutive securities:
Stock options and units 0.9 1.4
-------- --------
Weighted-average common shares outstanding 37.8 38.0
======== ========
Net income per share $ 0.27 $ 0.23
Common stock equivalents relating to the 7% zero-coupon convertible
notes were excluded from the calculation of diluted income per share because the
effect would have been antidilutive.
NOTE 3. COMPREHENSIVE INCOME
Comprehensive income, net of tax, consisted of the following:
13 WEEKS ENDED
---------------------
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS) APRIL 4, MARCH 29,
2003 2002
-------- --------
Net income $ 10.2 $ 8.9
Change in cumulative translation adjustment 6.9 7.4
Change in fair market value of derivatives (0.2) (5.1)
-------- --------
Comprehensive income $ 16.9 $ 11.2
======== ========
6
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, EXCEPT PER SHARE AMOUNTS) APRIL 4, JANUARY 3,
2003 2003
---------- ---------
(UNAUDITED)
Current assets $ 819.7 $ 813.4
Property, net 67.3 59.1
Goodwill, net 248.9 247.6
Other assets 107.0 104.1
-------- --------
$1,242.9 $1,224.2
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities $ 359.8 $ 347.3
Subordinated notes payable to parent 140.2 210.2
Long-term debt 74.1 71.1
Other liabilities 48.5 46.2
Stockholders' equity 620.3 549.4
-------- --------
$1,242.9 $1,224.2
======== ========
ANIXTER INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
13 WEEKS ENDED
--------------------
(IN MILLIONS) APRIL 4, MARCH 29,
2003 2002
------- ---------
Net sales $662.2 $614.7
Operating income $ 22.7 $ 20.1
Income before income taxes $ 17.6 $ 15.0
Net income $ 10.2 $ 8.8
7
NOTE 5. ACQUISITION
On September 20, 2002, the Company completed the purchase of the
operations and assets of Pentacon, Inc. ("Pentacon"), pursuant to Pentacon's
plan of reorganization filed under Chapter 11 of the United States Bankruptcy
Code. Pentacon is a leading distributor of fasteners and other small parts to
original equipment manufacturers and provider of inventory management services
and has 21 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 $111.4 million, including transaction-related costs, for
tangible assets with a fair value of approximately $81.7 million. The tangible
net assets primarily consist of accounts receivable, inventory, office and
warehouse equipment and furnishings, accounts payable and select operating
liabilities. Based upon a third party valuation, intangible assets have also
been recorded at an estimated fair value as follows: $13.8 million of intangible
assets with finite lives (customer relationships) and a $1.8 million intangible
asset with an indefinite life (trade name). Goodwill resulting from the
transaction totaled $14.1 million. Customer relationships are being amortized on
a straight-line basis over approximately 9 years. 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.
In the first quarter 2003, Pentacon contributed $49.6 million of sales and $1.8
million of operating income.
NOTE 6. RESTRUCTURING COSTS
Due to general economic softness and deteriorating market conditions in
the communications products market, during the third quarter of 2001 the Board
of Directors approved a restructuring plan and the Company incurred unusual
restructuring and other charges of $31.7 million. The Company's remaining
liability at April 4, 2003, was $5.8 million, of which $3.5 million was
classified as short-term. As of September 27, 2002, the Company had implemented
all of the restructuring initiatives.
Activity related to the accrued costs during 2003 is identified below:
STAFF FACILITY KOREA
(IN MILLIONS) REDUCTIONS RESTRUCTURING CLOSURE OTHER TOTAL
---------- ------------- ------- ----- -----
Balance at January 3, 2003 $ 0.2 $ 5.0 $ 1.4 $ 0.3 $ 6.9
Cash payments (0.1) (1.0) -- - (1.1)
--------- -------- -------- -------- -----
Balance at April 4, 2003 $ 0.1 $ 4.0 $ 1.4 $ 0.3 $ 5.8
========= ========= ======== ======== =====
Cash payments during 2003 consisted of $0.1 million for severance and
$1.0 million for committed lease payments, net of sublet income.
NOTE 7. SHARE REPURCHASE
In the first quarter of 2003, the Company repurchased 832,200 shares at
an average cost of $22.12. 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 0.4 million additional shares with
the volume and timing to depend on market conditions.
8
NOTE 8. BUSINESS SEGMENTS
The Company is engaged in the distribution of communications and
specialty wire and cable products, fasteners and small parts from top suppliers
to contractors and installers, and also to end users including manufacturers,
natural resources companies, utilities and 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 reportable segments. The Company obtains and coordinates financing,
tax, information technology, legal and other related services, certain of 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 weeks ended April 4, 2003 and March 29, 2002 was as
follows:
13 WEEKS ENDED
----------------------
(IN MILLIONS) APRIL 4, MARCH 29,
2003 2002
-------- ---------
Net sales
United States $ 457.2 $ 433.5
Canada 60.9 54.1
-------- --------
North America 518.1 487.6
Europe 97.9 84.4
Asia Pacific and Latin America 46.2 42.7
-------- --------
$ 662.2 $ 614.7
======== ========
Operating income (loss)
United States $ 16.4 $ 14.9
Canada 2.7 3.1
-------- --------
North America 19.1 18.0
Europe 3.0 3.4
Asia Pacific and Latin America 0.5 (0.9)
-------- --------
$ 22.6 $ 20.5
======== ========
APRIL 4, JANUARY 3,
2003 2003
-------- ---------
Total assets
United States $ 857.8 $ 842.7
Canada 107.8 96.8
-------- --------
North America 965.6 939.5
Europe 168.8 171.2
Asia Pacific and Latin America 115.1 115.3
-------- --------
$1,249.5 $1,226.0
======== ========
9
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 January 3, 2003. 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
On September 20, 2002, the Company completed the purchase of the
operations and assets of Pentacon, Inc. ("Pentacon"), pursuant to Pentacon's
plan of reorganization filed under Chapter 11 of the United States Bankruptcy
Code. Pentacon is a leading distributor of fasteners and other small parts to
original equipment manufacturers and provider of inventory management services
and has 21 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 $111.4 million, including transaction-related costs, for
tangible assets with a fair value of approximately $81.7 million. The tangible
net assets primarily consist of accounts receivable, inventory, office and
warehouse equipment and furnishings, accounts payable and select operating
liabilities. Based upon a third party valuation, intangible assets have also
been recorded at an estimated fair value as follows: $13.8 million of intangible
assets with finite lives (customer relationships) and a $1.8 million intangible
asset with an indefinite life (trade name). Goodwill resulting from the
transaction totaled $14.1 million. 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. In the first
quarter 2003, Pentacon contributed $49.6 million of sales and $1.8 million of
operating income.
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 April 4, 2003 and
January 3, 2003, the outstanding balance of accounts receivable sold to ARC
totaled $243.7 million and $248.6 million, respectively. Accordingly, these
accounts receivable were removed from the balance sheet.
FINANCIAL LIQUIDITY AND CAPITAL RESOURCES
Cash Flow
Consolidated net cash provided by continuing operating activities was
$32.3 million for the first quarter of 2003 compared to $42.5 million for the
same period in 2002. Cash provided by operating activities decreased primarily
because the decline in working capital in 2003 was less than the decline in
2002, a result of the stabilization of sales. In 2003, the Company paid $1.1
million for leases, severance and outplacement costs associated with the 2001
restructuring, compared to $3.1 million for the corresponding period in 2002.
Consolidated net cash used in investing activities was $12.6 million
for the first quarter of 2003 versus $1.5 million for the same period in 2002,
due to an increase in capital expenditures. In the first quarter of 2003, the
10
Company spent $11.2 million for the continued construction of the new corporate
headquarters building. The Company anticipates recovering the capital invested
in this project in the second half of 2003 through a sale and leaseback
transaction. Capital expenditures are expected to be approximately $24.0 million
in 2003, $18.0 million of which is for the new corporate headquarters.
Consolidated net cash used in financing activities was $14.5 million
for the first quarter of 2003 in comparison to $20.8 million in the
corresponding 2002 period. In the first quarter of 2003, the Company paid $17.3
million for the purchase of treasury stock and $2.0 million for the repurchase
of the 8% senior notes. Net proceeds from borrowing under the revolving credit
agreements were $4.7 million. In the first quarter of 2002, the Company paid
$22.9 million for the repurchase of its 7% zero-coupon convertible notes and 8%
senior notes. In 2002, the Company received $2.2 million for the exercise of
employee stock options.
Cash used in discontinued operations was $0.3 million in the first
quarter of 2003 compared to $0.3 million provided in the corresponding 2002
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 April 4, 2003, $224.9 million
was available under the bank revolving lines of credit at Anixter Inc., of which
$14.0 million was available to pay the Company for intercompany liabilities.
Additionally, as of April 4, 2003, the maximum dividend Anixter Inc. can declare
to the Company is $21.0 million.
During the first quarter of 2003, the Company retired $2.0 million of
the 8% senior notes and cancelled $115.0 million of its available revolving
credit facility in order to reduce costs associated with the excess
availability. As a result, the Company recorded a loss on extinguishment of debt
of $0.4 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 $3.4 million and $4.7 million for the
first quarter of 2003 and 2002, respectively. The decrease is due to lower debt
levels and reduced interest rates. The average outstanding long-term debt
balance for the first quarter of 2003 and 2002 was $212.9 million and $239.4
million, respectively. The effective interest rate for the first quarter of 2003
and 2002 was 6.3% and 7.9%, respectively. Included in the Condensed Consolidated
Statements of Operations "Other, net" classification, are net expenses/income
incurred by ARC of $1.1 million of expense and $0.1 million of income, for the
first quarter of 2003 and 2002, respectively. Included in the ARC net
expense/income amount was interest expense incurred by ARC of $0.7 million and
$0.8 million for the first quarter of 2003 and 2002, 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 first quarter of
2003 and 2002 was $121.3 million and $132.9 million, respectively. The effective
interest rate on the ARC debt was 2.3% and 2.6% for the first quarter of 2003
and 2002, respectively.
In the first quarter of 2003, the Company repurchased 832,200 shares at
an average cost of $22.12. 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 0.4 million additional shares with
the volume and timing to depend on market conditions.
11
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, regulatory
changes or liquidity problems that may be experienced by the Company's two
largest customers.
Quarter ended April 4, 2003: Net income for the first quarter of 2003
was $10.2 million compared with $8.9 million for the first quarter of 2002. On
September 20, 2002, the Company completed the purchase of the operations and
certain assets and liabilities of Pentacon, Inc. Net sales and operating income
for the acquired business were $49.6 million and $1.8 million, respectively, for
the first quarter of 2003. The Company incurred a loss of $0.4 million in the
first quarter of 2003 for the early extinguishment of $2.0 million of its 8%
senior notes and debt issuance costs associated with the cancellation of $115.0
million of its available revolving credit facility. In the first quarter of
2002, the Company incurred a $1.0 million loss for the early extinguishment of
$15.3 million of the 7% zero-coupon convertible notes and $7.0 million of its 8%
senior notes.
The Company's net sales during the first quarter of 2003 increased 7.7%
to $662.2 million from $614.7 million in the same period in 2002. Net sales by
major geographic market are presented in the following table:
13 WEEKS ENDED
---------------------
(IN MILLIONS) APRIL 4, MARCH 29,
2003 2002
-------- --------
North America $ 518.1 $ 487.6
Europe 97.9 84.4
Asia Pacific and Latin America 46.2 42.7
------- -------
$ 662.2 $ 614.7
======= =======
North America net sales for the first quarter of 2003 increased 6.2% to
$518.1 million from the corresponding period in 2002. Excluding Pentacon, sales
declined 3.9%. The decrease in sales reflects the decline in telecom spending
which continued to fall during the first half of 2002. While such sales firmed
in the later months of 2002, the first half of 2003 will have some difficult
sales comparisons with sales for telecom related integrated supply down $35.3
million in the first quarter from 2002. The sales volume for the remainder of
the North American communications, industrial wire and cable and OEM supply
customers grew $16.1 million, or 3.3%, from the first quarter of 2002. Pentacon
sales grew 11.6% to $49.6 million from the fourth quarter of 2002.
While Europe net sales increased 16.0% in the first quarter to $97.9
million from $84.4 million in 2002, the increase was driven by the change in
exchange rates. Excluding the effects of changes in the exchange rates, Europe's
sales declined 1.7% as Europe continues to experience weak economic conditions.
Asia Pacific and Latin America net sales increased 8.0% to $46.2
million from $42.7 million in 2002. Excluding the effect of changes in exchange
rates, sales increased 11.9%. The improvement is primarily due to increases on
telecom related integrated supply sales in Asia.
12
Operating income increased to $22.6 million in 2003 from $20.5 million
in the first quarter of 2002. Operating income (loss) by major geographic market
is presented in the following table:
13 WEEKS ENDED
-----------------------------
(IN MILLIONS) APRIL 4, MARCH 29,
2003 2002
--------- ---------
North America $ 19.1 $ 18.0
Europe 3.0 3.4
Asia Pacific and Latin America 0.5 (0.9)
-------- ------
$ 22.6 $ 20.5
======== ======
Excluding the results of Pentacon, North America operating income for
the first quarter declined 3.5% to $17.3 million from the corresponding period
in 2002 due to the decline in telecom related integrated supply sales. Gross
margins increased to 23.7% in 2003 from 22.4% from the same period in 2002. The
increase is primarily due to the lower percentage of integrated supply sales in
2003, which have lower gross margins. Integrated supply sales represented 11.6%
of sales in 2003 as compared to 18.4% for the first quarter of 2002. Operating
expenses increased $2.0 million from the first quarter of 2002, primarily due to
higher pension, healthcare and insurance costs. As a result, the operating
margin improved slightly to 3.8% from 3.7% in 2002.
Europe operating income decreased 13.1% to $3.0 million in the first
quarter of 2003 from $3.4 million in 2002. Excluding the effect of exchange rate
changes, operating income decreased 28.4%. The decline primarily reflects the
lower sales level along with higher benefit expenses.
Asia Pacific and Latin America operating income increased to $0.5
million in the first quarter of 2003 from an operating loss of $0.9 million in
2002. The improvement reflects the higher sales levels combined with tight
expense controls. Excluding the effect of exchange rate changes, operating
income increased by $1.3 million.
Other, net income (expense) includes the following:
13 WEEKS ENDED
---------------------------
(IN MILLIONS) APRIL 4, MARCH 29,
2003 2002
-------- ---------
Accounts receivable securitization $ (1.1) $ 0.1
Foreign exchange -- (1.3)
Gain on sale of real estate -- 1.2
Other (0.2) --
-------- ------
$ (1.3) $ --
======== ======
In the first quarter of 2002, the Company's Argentina subsidiary
incurred $1.6 million of foreign exchange losses.
The consolidated tax provision increased to $7.3 million in 2003 from
$5.9 million in the first quarter of 2002. The increase is a result of higher
pre-tax income along with an increase in the effective tax rate. The 2003
effective tax rate is 42.0% compared to 40.0% in 2002. The increase in the
effective tax rate is primarily a result of an increase in non-deductible losses
in certain foreign entities.
13
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.
14
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.1 Anixter International Inc. 2003 Restricted Stock Unit Grant
Agreement.
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
None.
15
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: May 15, 2003 By: /s/ Robert W. Grubbs
--------------------------------------
Robert W. Grubbs
President and Chief Executive Officer
Date: May 15, 2003 By: /s/ Dennis J. Letham
--------------------------------------
Dennis J. Letham
Senior Vice President - Finance
and Chief Financial Officer
16
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.
May 15, 2003 /s/ Robert W. Grubbs
---------------------------------------
Robert W. Grubbs
President and Chief Executive Officer
17
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.
May 15, 2003 /s/ Dennis J. Letham
--------------------------------------
Dennis J. Letham
Senior Vice President-Finance and
Chief Financial Officer
18