ANIXTER INTERNATIONAL INC - 10-Q Quarterly Report

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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 July 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 of (I.R.S. Employer Identification No.)
incorporation or organization)

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 August 11, 2003, 36,203,955 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 Operation...........13

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 and Use of Proceeds.......................................................*

Item 3. Defaults Upon Senior Securities.................................................................*

Item 4. Submission of Matters to a Vote of Security Holders............................................21

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 "believe", "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 OPERATIONS
(UNAUDITED)

(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)

13 WEEKS ENDED 26 WEEKS ENDED
--------------------------------- ---------------------------------
JULY 4, JUNE 28, JULY 4, JUNE 28,
2003 2002 2003 2002
-------------- -------------- -------------- --------------

NET SALES $ 644.8 $ 617.3 $ 1,307.0 $ 1,232.0
Cost of Operations:
Cost of goods sold 486.8 471.0 988.2 946.1
Operating expenses 136.4 123.8 274.2 242.9
Amortization of intangibles 0.3 - 0.7 -
-------------- -------------- -------------- --------------
Total costs and expenses 623.5 594.8 1,263.1 1,189.0
-------------- -------------- -------------- --------------
OPERATING INCOME 21.3 22.5 43.9 43.0

Other expenses:
Interest expense (3.3) (4.1) (6.7) (8.8)
Extinguishment of debt (5.8) (0.6) (6.2) (1.6)
Other, net 0.6 2.9 (0.7) 2.9
-------------- -------------- -------------- --------------
Income before income taxes 12.8 20.7 30.3 35.5
Income tax expense 5.5 8.3 12.8 14.2
-------------- -------------- -------------- --------------
NET INCOME $ 7.3 $ 12.4 $ 17.5 $ 21.3
============== ============== ============== ==============

BASIC INCOME PER SHARE $ 0.20 $ 0.34 $ 0.48 $ 0.58

DILUTED INCOME PER SHARE $ 0.20 $ 0.33 $ 0.47 $ 0.56

See accompanying notes to the condensed consolidated financial statements.

1

ANIXTER INTERNATIONAL INC.
CONDENSED CONSOLIDATED BALANCE SHEETS

(IN MILLIONS, EXCEPT SHARE AMOUNTS)
JULY 4, JANUARY 3,
ASSETS 2003 2003
---------------- ----------------
(UNAUDITED)

CURRENT ASSETS
Cash $ 27.3 $ 19.1
Accounts receivable (less allowances of
$14.4 and $15.4 in 2003 and 2002, respectively) 227.8 188.2
Bond offering proceeds receivable 121.9 -
Note receivable - unconsolidated subsidiary 42.3 69.6
Inventories 483.4 498.8
Deferred income taxes 26.6 26.5
Income tax receivable 3.2 -
Other current assets 11.7 10.0
---------------- ----------------
Total current assets 944.2 812.2
Property and equipment, at cost 197.4 191.1
Accumulated depreciation (128.3) (132.0)
---------------- ----------------
Property and equipment, net 69.1 59.1
Goodwill (less accumulated amortization of
$97.4 and $96.0 in 2003 and 2002, respectively) 253.1 247.6
Other assets 117.9 107.1
---------------- ----------------
$ 1,384.3 $ 1,226.0
================ ================

LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES
Accounts payable $ 246.1 $ 257.3
Accrued expenses 75.5 83.5
Common stock and bond repurchase payable 85.6 -
Accrued restructuring 3.4 4.2
Income taxes payable - 4.7
---------------- ----------------
Total current liabilities 410.6 349.7

Long-term debt 278.3 195.1
Other liabilities 51.6 46.4
---------------- ----------------
Total liabilities 740.5 591.2
STOCKHOLDERS' EQUITY
Common stock --- $1.00 par value, 100,000,000 shares authorized, 36,039,952
and 37,500,878 shares issued and outstanding
in 2003 and 2002, respectively 36.0 37.5
Capital surplus 15.1 45.2
Foreign currency translation (20.2) (43.9)
Minimum pension liability (0.3) (0.3)
Unrealized loss on foreign exchange contracts (0.6) -
Retained earnings 613.8 596.3
---------------- ----------------
Total stockholders' equity 643.8 634.8
---------------- ----------------
$ 1,384.3 $ 1,226.0
================ ================

See accompanying notes to the condensed consolidated financial statements.

2

ANIXTER INTERNATIONAL INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)

(IN MILLIONS)

26 WEEKS ENDED
---------------------------------
JULY 4, JUNE 28,
2003 2002
------------- -------------

OPERATING ACTIVITIES
Net income $ 17.5 $ 21.3
Adjustments to reconcile net income to net cash
provided by continuing operating activities:
Loss on extinguishment of debt 6.2 1.0
Loss (gain) on sale or disposal of fixed assets and securities 0.2 (3.3)
Depreciation and amortization 11.9 11.5
Accretion of zero-coupon convertible notes 4.3 7.2
Income tax savings from employee stock plans 0.5 2.4
Changes in current assets and liabilities, net (15.8) 60.3
Restructuring and other charges (1.7) (6.5)
Other, net 4.5 4.6
------------- -------------
Net cash provided by continuing operating activities 27.6 98.5

INVESTING ACTIVITIES
Capital expenditures (20.1) (5.4)
Proceeds from the sale of fixed assets 1.5 2.1
Proceeds from the sale of securities - 2.0
------------- -------------
Net cash used in continuing investing activities (18.6) (1.3)

FINANCING ACTIVITIES
Proceeds from long-term borrowings 237.8 46.9
Repayment of long-term borrowings (218.9) (46.9)
Purchases of common stock for treasury (18.4) -
Retirement of notes payable (2.0) (47.9)
Proceeds from issuance of common stock 1.6 5.5
Debt issuance costs (0.4) -
Other, net (0.1) (0.3)
------------- -------------
Net cash used in continuing financing activities (0.4) (42.7)
------------- -------------
INCREASE IN CASH FROM CONTINUING OPERATIONS 8.6 54.5
Net cash (used in) provided by discontinued operations (0.4) 0.4
Cash at beginning of period 19.1 27.2
------------- -------------
Cash at end of period $ 27.3 $ 82.1
============= =============

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 condensed 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 condensed 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 condensed 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 requires 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 other
income or expense 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 for the 13 weeks and 26 weeks ended July 4,
2003 and June 28, 2002, by $2.0 million and $3.9 million, and $1.4 million and
$3.6 million, respectively. As a result, there was no impact on net income.

In April 2003, the FASB issued SFAS No.149, "Amendment of Statement 133
on Derivative Instruments and Hedging Activities." This statement amends and
clarifies financial accounting and reporting for derivative instruments,
including certain derivative instruments embedded in other contracts and for
hedging activities under FASB Statement No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This statement is effective for contracts
entered into or modified after June 30, 2003. The adoption of SFAS No. 149 did
not have an effect on the Company's results of operations, financial position or
debt covenants.

4

In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity." The
standard improves the accounting for certain financial instruments that, under
previous guidance, issuers could account for as equity. The standard requires
that those instruments be classified as liabilities in statements of financial
position. This standard is effective for interim periods beginning after June
15, 2003. The adoption of SFAS No. 150 did not have an effect on the Company's
results of operations, financial position or debt covenants.

In January 2003, the FASB issued Interpretation No. 46, "Consolidation
of Variable Interest Entities." Interpretation No. 46 requires that the assets,
liabilities and results of the activity of variable interest entities be
consolidated into the financial statements of the company that has the
controlling financial interest. Interpretation No. 46 also provides guidance for
determining whether a variable interest entity should be consolidated based on
voting interest or significant financial support provided to it. Interpretation
No. 46 became effective for the Company on February 1, 2003 for variable
interest entities created after January 31, 2003, and on July 5, 2003 for
variable interest entities created prior to February 1, 2003. The adoption of
Interpretation No. 46 did not impact the Company's condensed consolidated
financial statements.

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. During
the 13 and 26 weeks ended July 4, 2003, $0.5 million and $0.7 million was
recognized as expense, respectively. Total expense for fiscal 2003 is expected
to be approximately $1.7 million.

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:

5

13 WEEKS ENDED 26 WEEKS ENDED
---------------------- -----------------------
JULY 4, JUNE 28, JULY 4, JUNE 28,
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS) 2003 2002 2003 2002
------- -------- -------- --------

Net income as reported $ 7.3 $ 12.4 $ 17.5 $ 21.3
Add: Stock-based employee compensation
included in net income, net 0.6 0.5 1.2 1.1
Deduct: Stock-based employee
compensation, net (2.6) (2.6) (5.2) (5.1)
------- -------- -------- --------
Pro forma net income $ 5.3 $ 10.3 $ 13.5 $ 17.3
======= ======== ======== ========
BASIC EARNINGS PER SHARE:
as reported $ 0.20 $ 0.34 $ 0.48 $ 0.58
pro forma $ 0.15 $ 0.28 $ 0.37 $ 0.47

DILUTED EARNINGS PER SHARE
as reported $ 0.20 $ 0.33 $ 0.47 $ 0.56
pro forma $ 0.15 $ 0.28 $ 0.37 $ 0.47

The weighted average fair value of the Company's stock options (which
was $16.56 and $15.03 per share for the 13 weeks and 26 weeks ended June 28,
2002, respectively) 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.

NOTE 2. ACQUISITION

On September 20, 2002, 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 $79.4 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 $16.4
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 condensed
consolidated financial statements from the date of acquisition. In the 13 and 26
weeks ended July 4, 2003, Pentacon contributed sales of $45.5 million and $95.1
million, respectively, and operating income of $0.7 million and $2.5 million,
respectively.

6

NOTE 3. INCOME PER SHARE

The following table sets forth the computation of basic and diluted
income per common share:

13 WEEKS ENDED 26 WEEKS ENDED
------------------------ ------------------------
JULY 4, JUNE 28, JULY 4, JUNE 28,
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS) 2003 2002 2003 2002
-------- -------- -------- --------

BASIC INCOME PER SHARE:

Net income $ 7.3 $ 12.4 $ 17.5 $ 21.3
Weighted-average common shares outstanding 36.4 36.9 36.7 36.8
Net income per share $ 0.20 $ 0.34 $ 0.48 $ 0.58

DILUTED INCOME PER SHARE:

Net income $ 7.3 $ 12.4 $ 17.5 $ 21.3

Weighted-average common shares outstanding 36.4 36.9 36.7 36.8
Effect of dilutive securities:
Stock options and units 0.9 1.3 0.8 1.3
-------- -------- -------- --------
Weighted-average common shares outstanding 37.3 38.2 37.5 38.1
======== ======== ======== ========
Net income per share $ 0.20 $ 0.33 $ 0.47 $ 0.56

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. The 3.25% zero coupon convertible notes
were excluded from the calculation of diluted income per share as they cannot be
converted until after October 3, 2003, contingent on certain conditions. See
Note 6.

NOTE 4. COMPREHENSIVE INCOME

Comprehensive income, net of tax, consisted of the following:

13 WEEKS ENDED 26 WEEKS ENDED
------------------------ ------------------------
JULY 4, JUNE 28, JULY 4, JUNE 28,
(IN MILLIONS) 2003 2002 2003 2002
-------- -------- -------- --------

Net income $ 7.3 $ 12.4 $ 17.5 $ 21.3
Change in cumulative translation adjustment 16.8 10.6 23.7 18.0
Change in fair market value of derivatives (0.4) - (0.6) (5.1)
-------- -------- -------- --------
Comprehensive income $ 23.7 $ 23.0 $ 40.6 $ 34.2
======== ======== ======== ========

7

NOTE 5. 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

ANIXTER INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)

13 WEEKS ENDED 26 WEEKS ENDED
----------------------- ------------------------
JULY 4, JUNE 28, JULY 4, JUNE 28,
(IN MILLIONS) 2003 2002 2003 2002
----------- --------- ---------- ----------

Net sales $ 644.8 $ 617.3 $ 1,307.0 $ 1,232.0
Operating income $ 22.3 $ 22.8 $ 45.0 $ 42.9
Income before income taxes $ 18.4 $ 21.3 $ 36.0 $ 36.3
Net income $ 10.6 $ 12.7 $ 20.8 $ 21.5

8

NOTE 6. CONVERTIBLE NOTES DUE 2033

On July 1, 2003, the Company issued $328.8 million of 3.25% zero coupon
convertible senior notes (together with the overallotment, the "Convertible
Notes") due 2033. Each Convertible Note has a principal value at maturity of
$1,000. The net proceeds from the issue were $121.4 million and were initially
used to (i) fund repurchases of $63.5 million of accreted value of the Company's
outstanding 7% zero coupon convertible senior notes from a limited number of
holders, (ii) to fund repurchases of approximately $17.2 million of the
Company's common stock, and (iii) for general corporate purposes, including the
repayment of working capital borrowings under a floating rate bank line of
credit. The Company expects to reborrow such amounts under the line of credit
from time to time for general corporate purposes. The discount associated with
the issuance is being amortized through June 2033, using the effective interest
rate method. Issuance costs of approximately $3.6 million are being amortized
through June 2033 using the straight-line method.

The Convertible Notes issued on July 1, 2003 and the common stock and
bond repurchases settled on July 7, 2003, subsequent to the second quarter ended
July 4, 2003. As a result, $121.9 million of Convertible Note offering proceeds
is classified as a current receivable and $85.6 million of common stock and bond
repurchase payments are classified as a current liability on the balance sheet.

In connection with the issuance of the Convertible Notes on July 1,
2003, the Company granted the initial purchasers an option to purchase up to an
additional $49.3 million of Convertible Notes to cover overallotments. On July
9, 2003, subsequent to the second quarter ended July 4, 2003, the initial
purchaser exercised its option in full. Net proceeds from the additional
issuance on July 9, 2003 were $18.3 million and were used for general corporate
purposes. Additional issuance costs of $0.5 million related to the exercise of
the overallotment is being amortized through June 2033 using the straight-line
method.

Holders of the Convertible Notes may convert each of them into 12.8773
shares of the Company's common stock in any calendar quarter commencing after
October 3, 2003 if:

o the sales price of our common stock reaches specified thresholds;
o during any period in which the credit rating assigned to the
Convertible Notes is below a specified level;
o the Convertible Notes are called for redemption; or
o specified corporate transactions have occurred.

Upon conversion, the Company has the right to deliver, in lieu of its common
stock, cash or a combination of cash and stock, of which the Company has
reserved 4.9 million shares.

The Company may redeem the Convertible Notes, at any time in whole or
in part, on July 7, 2011 for cash at the accreted value. Additionally, holders
may require the Company to purchase all or a portion of their Convertible Notes
on:

o July 7, 2007 at a price equal to $432.48 per Convertible Note;
o July 7, 2009 at a price equal to $461.29 per Convertible Note;
o July 7, 2011 at a price equal to $492.01 per Convertible Note;
o July 7, 2013 at a price equal to $524.78 per Convertible Note;
o July 7, 2018 at a price equal to $616.57 per Convertible Note;
o July 7, 2023 at a price equal to $724.42 per Convertible Note; and
o July 7, 2028 at a price equal to $851.13 per Convertible Note.

The Company may choose to pay the purchase price in cash or common stock or a
combination of both.

9

The Company must pay contingent cash interest to the holders of the
convertible notes during any six-month period commencing July 7, 2011 if the
average market price of a Convertible Note for a five trading day measurement
period preceding the applicable six-month period equals 120% or more of the sum
of the original issuance price and accrued original issue discount for such
Convertible Note as of the day immediately preceding the relevant six-month
period. The contingent interest payable per Convertible Note in respect of any
six-month period will equal an annual rate of 0.25% of the average market price
of a Convertible Note for the five day trading measurement period and will be
payable on the last day of the relevant six-month period. Except for the
contingent interest described above, the Company will not pay cash interest on
the Convertible Notes prior to maturity. The original issue discount will
continue to accrue at the yield to maturity whether or not contingent interest
is paid.

NOTE 7. SHARE REPURCHASE

In the 26 weeks ended July 4, 2003, the Company repurchased 1,567,650
shares at an average cost of $22.74. Purchases were made in the open market and
were financed from cash generated by operations and the net proceeds ($121.4
million) from the issuance of $328.8 million of 3.25% zero coupon convertible
senior notes. No shares were repurchased in 2002. The Company cannot purchase
any additional shares until it receives further authorization by the board of
directors.

NOTE 8. EXTINGUISHMENT OF DEBT

During the 26 weeks ended July 4, 2003 and June 28, 2002, 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 $115.0 million revolving credit facility. The following
table reflects the repurchase activity during the 13 and 26 weeks ended July 4,
2003 and June 28, 2002:

13 WEEKS ENDED 26 WEEKS ENDED
----------------------------------------- ----------------------------------------------
JULY 4, JUNE 28, JULY 4, JUNE 28,
(IN MILLIONS) 2003 2002 2003 2002
------------------- ------------------ ---------------------- -------------------
FACE FACE FACE FACE
AMOUNT COST AMOUNT COST AMOUNT COST AMOUNT COST
------- -------- ------- ------ ------- -------- ------- ---------

7% zero coupon
notes $ 63.5 $ 67.9 $ 25.1 $ 25.0 $ 63.5 $ 67.9 $ 40.4 $ 40.5
8% senior notes $ - $ - $ - $ - $ 2.0 $ 2.0 $ 7.0 $ 7.4
Debt issuance
costs written off $ 1.4 $ - $ 0.6 $ - $ 1.8 $ - $ 1.1 $ -

Accordingly, for the 13 weeks ended July 4, 2003 and June 28, 2002, the
Company recorded a loss on the early extinguishment of debt in its condensed
consolidated statements of operations of $5.8 million and $0.6 million,
respectively. For the 26 weeks ended July 4, 2003 and June 28, 2002, the Company
recorded a loss on the early extinguishment of debt of $6.2 million and $1.6
million, respectively.

10

NOTE 9. 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 and 26 weeks ended July 4, 2003 and June 28, 2002 was as
follows:

13 WEEKS ENDED 26 WEEKS ENDED
----------------------- -------------------------
JULY 4, JUNE 28, JULY 4, JUNE 28,
(IN MILLIONS) 2003 2002 2003 2002
-------- ---------- ---------- ----------

NET SALES:
United Sates $ 450.3 $ 434.8 $ 907.5 $ 868.4
Canada 61.5 58.0 122.4 112.0
-------- ---------- ---------- ----------
North America 511.8 492.8 1,029.9 980.4
Europe 89.9 84.8 187.8 169.2
Asia Pacific and Latin America 43.1 39.7 89.3 82.4
-------- ---------- ---------- ----------
$ 644.8 $ 617.3 $ 1,307.0 $ 1,232.0
======== ========== ========== ==========

13 WEEKS ENDED 26 WEEKS ENDED
----------------------- -------------------------
JULY 4, JUNE 28, JULY 4, JUNE 28,
2003 2002 2003 2002
-------- ---------- ---------- ----------

OPERATING INCOME (LOSS):
United States $ 15.0 $ 17.5 $ 31.4 $ 32.4
Canada 3.2 3.5 5.9 6.6
-------- ---------- ---------- ----------
North America 18.2 21.0 37.3 39.0
Europe 2.9 1.5 5.9 4.9
Asia Pacific and Latin America 0.2 - 0.7 (0.9)
-------- ---------- ---------- ----------
$ 21.3 $ 22.5 $ 43.9 $ 43.0
======== ========== ========== ==========

11

NOTE 10. RESTRUCTURING COSTS

Due to general economic softness and deteriorating market 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 July 4, 2003, was $5.3 million, of which $3.4 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 - (0.6) - - (0.6)
Foreign exchange and other - 0.1 - - 0.1
------ ------ ------ ------ ------
Balance at July 4, 2003 $ 0.1 $ 3.5 $ 1.4 $ 0.3 $ 5.3
====== ====== ====== ====== ======

Cash payments during 2003 consisted of $0.1 million for severance and
$1.6 million for committed lease payments, net of sublet income.

12

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.

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 $79.4 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 $16.4
million. The acquisition was accounted for as a purchase and the results of
operations of the acquired business are included in the condensed consolidated
financial statements from the date of acquisition. In the 13 and 26 weeks ended
July 4, 2003, Pentacon contributed sales of $45.5 million and $95.1 million,
respectively, and operating income of $0.7 million and $2.5 million,
respectively.

ACCOUNTS RECEIVABLE SECURITIZATION

On October 6, 2000, the Company entered into an account 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 July 4, 2003 and
January 3, 2003, the outstanding balance of accounts receivable sold to ARC
totaled $231.2 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
$27.6 million for the 26 weeks ended July 4, 2003, compared to $98.5 million for
the same period in 2002. Cash provided by operating activities decreased
primarily due to a $50.9 million reduction in inventory in 2002 reflecting the
sharp decline in sales compared to only $15.4 million in 2003. In addition, in
the second quarter of 2003, the Company has taken advantage of early payment
discount terms resulting in accounts payable declining $11.2 million from the
beginning of the year. The Company paid $1.7 million in the current period for
leases, severance and outplacements costs associated with the 2001
restructuring, compared to $6.5 million for the corresponding period in 2002.

13

Consolidated net cash used in investing activities increased to $18.6
million for the 26 weeks ended July 4, 2003 versus $1.3 million for the same
period in 2002, due to an increase in capital expenditures. In the 26 weeks
ended July 4, 2003, the Company spent $17.3 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 $26.0 million in 2003, $18.8 million of which is for the new
corporate headquarters.

Consolidated net cash used in financing activities was $0.4 million for
the 26 weeks ended July 4, 2003 compared to $42.7 million in the corresponding
2002 period. In the 26 weeks ended July 4, 2003, the Company paid $18.4 million
for the purchase of treasury stock and $2.0 million for the purchase of its 8%
senior notes. Net proceeds from borrowing under the revolving credit agreements
were $18.9 million. In the same period of 2002, the Company paid $47.9 million
for the repurchase of its 7% zero coupon convertible notes and 8% senior notes.
In 2003, the Company received $1.6 million for the exercise of employee stock
options as compared to $5.5 million in 2002.

Cash used in discontinued operations was $0.4 million in the 26 weeks
ended July 4, 2003 compared to $0.4 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 July 4, 2003, $211.9 million
was available under the bank revolving lines of credit, under which $25.2
million may be used to pay dividends to the Company. Also, Anixter Inc. may use
cash available under the bank revolving lines of credit to pay the Company for
inter-company liabilities, which were $13.3 million as of July 4, 2003.

On July 1, 2003, the Company issued $328.8 million of 3.25% zero coupon
convertible senior notes (together with the overallotment, the "Convertible
Notes") due 2033. Each Convertible Note has a principal value at maturity of
$1,000. The net proceeds from the issue were $121.4 million and were initially
used to (i) fund repurchases of $63.5 million of accreted value of the Company's
outstanding 7% zero coupon convertible senior notes from a limited number of
holders, (ii) to fund repurchases of approximately $17.2 million of the
Company's common stock, and (iii) for general corporate purposes, including the
repayment of working capital borrowings under a floating rate bank line of
credit. The Company expects to reborrow such amounts under the line of credit
from time to time for general corporate purposes. The discount associated with
the issuance is being amortized through June 2033, using the effective interest
rate method. Issuance costs of approximately $3.6 million are being amortized
through June 2033 using the straight-line method.

The Convertible Notes issued on July 1, 2003 and the common stock and
bond repurchases settled on July 7, 2003, subsequent to the second quarter ended
July 4, 2003. As a result, $121.9 million of Convertible Note offering proceeds
is classified as a current receivable and $85.6 million of common stock and bond
repurchase payments are classified as a current liability on the balance sheet.

In connection with the issuance of the Convertible Notes on July 1,
2003, the Company granted the initial purchasers an option to purchase up to an
additional $49.3 million of Convertible Notes to cover overallotments. On July
9, 2003, subsequent to the second quarter ended July 4, 2003, the initial
purchaser exercised its option in full. Net proceeds from the additional
issuance on July 9, 2003 were $18.3 million and were used for general corporate
purposes. Additional issuance costs of $0.5 million related to the exercise of
the overallotment is being amortized through June 2033 using the straight-line
method.

14

Holders of the Convertible Notes may convert each of them into 12.8773
shares of the Company's common stock in any calendar quarter commencing after
October 3, 2003 if:

o the sales price of our common stock reaches specified thresholds;
o during any period in which the credit rating assigned to the
Convertible Notes is below a specified level;
o the Convertible Notes are called for redemption; or
o specified corporate transactions have occurred.

Upon conversion, the Company has the right to deliver, in lieu of its common
stock, cash or a combination of cash and stock, of which the Company has
reserved 4.9 million shares.

The Company may redeem the Convertible Notes, at any time in whole or
in part, on July 7, 2011 for cash at the accreted value. Additionally, holders
may require the Company to purchase all or a portion of their Convertible Notes
on:

o July 7, 2007 at a price equal to $432.48 per Convertible Note;
o July 7, 2009 at a price equal to $461.29 per Convertible Note;
o July 7, 2011 at a price equal to $492.01 per Convertible Note;
o July 7, 2013 at a price equal to $524.78 per Convertible Note;
o July 7, 2018 at a price equal to $616.57 per Convertible Note;
o July 7, 2023 at a price equal to $724.42 per Convertible Note; and
o July 7, 2028 at a price equal to $851.13 per Convertible Note.

The Company may choose to pay the purchase price in cash or common stock or a
combination of both.

The Company must pay contingent cash interest to the holders of the
convertible notes during any six-month period commencing July 7, 2011 if the
average market price of a Convertible Note for a five trading day measurement
period preceding the applicable six-month period equals 120% or more of the sum
of the original issuance price and accrued original issue discount for such
Convertible Note as of the day immediately preceding the relevant six-month
period. The contingent interest payable per Convertible Note in respect of any
six-month period will equal an annual rate of 0.25% of the average market price
of a Convertible Note for the five day trading measurement period and will be
payable on the last day of the relevant six-month period. Except for the
contingent interest described above, the Company will not pay cash interest on
the Convertible Notes prior to maturity. The original issue discount will
continue to accrue at the yield to maturity whether or not contingent interest
is paid.

During the 26 weeks ended July 4, 2003, the Company recorded a loss of
$6.2 million for the early extinguishment of $63.5 million of its 7% zero coupon
notes, $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 2002, the Company recorded a loss of $1.6 million for the early
extinguishment of $40.4 million of its 7% zero coupon notes and $7.0 million of
its 8% senior notes.

15

Consolidated interest expense was $6.7 million and $8.8 million for the
26 weeks ended July 4, 2003 and June 28, 2002, respectively. The decrease is due
to lower debt levels and reduced interest rates. The average outstanding
long-term debt balance for the first half of 2003 was $215.4 million compared to
$229.8 million in 2002. The effective interest rate for the first half of 2003
and 2002 was 6.22% and 7.69%, respectively. Included in the Condensed
Consolidated Statements of Operations "Other, net" classification, are net
expenses/income incurred by ARC of $1.1 million and $0.9 million of expense for
the 26 weeks ended July 4, 2003 and June 28, 2002, respectively. Included in the
ARC net expense /income amount was interest expense incurred by ARC of $1.4
million and $1.6 million for the first half of 2003 and 2002, respectively.
Generally accepted accounting principles 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 half of 2003 and 2002 was $125.8 million and $126.1
million, respectively. The effective interest rate on the ARC debt was 2.27% and
2.61% for the first half of 2003 and 2002, respectively.

In the 26 weeks ended July 4, 2003, the Company repurchased 1,567,650
shares of its common stock at an average cost of $22.74. Purchases were made in
the open market and were financed from cash generated by operations and the
issuance of the Convertible Notes. No shares were repurchased in 2002. The
Company cannot purchase any additional shares until it receives further
authorization by the board of directors.

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 to competitive factors, future performance could be subject to economic
downturns, possible rapid changes in applicable technologies, or regulatory
changes. Although relationships with its suppliers are good, the loss of a major
supplier could have a temporary adverse effect on the Company's business, but
would not have a lasting impact since comparable products are available from
alternate sources.

Quarter ended July 4, 2003: Net income for the second quarter of 2003
was $7.3 million compared with $12.4 million for the second quarter of 2002. The
Company recorded a loss of $5.8 and $0.6 million in the second quarter of 2003
and 2002, respectively, for the early extinguishment of $63.5 and $25.1 million,
respectively, of its 7% zero coupon convertible notes.

The Company's net sales during the second quarter of 2003 increased
4.5% to $644.8 million from $617.3 million in the same period in 2002. Net sales
by major geographic market are presented in the following table:

16

North America net sales for the second quarter of 2003 increased $19.0
million to $511.8 million from the corresponding period 2002. Excluding Pentacon
sales of $45.5 million (which was acquired in the third quarter of 2002), sales
declined 5.4%. The decrease in sales reflects a decline in sales to telecom
related original equipment manufacturers of $11.4 million and 2 less shipping
days than the second quarter of 2002. Daily sales have remained steady. Pentacon
sales declined 8.4% from the first quarter 2003 due to lower volume.

Europe net sales increased $5.1 million in the second quarter of 2003
to $89.9 million from $84.8 million in 2002. Changes in exchange rates increased
Europe's reported net sales by approximately $15.0 million. The decrease in
local currency sales reflects the continued weak economic conditions and 2 less
shipping days than the second quarter of 2002.

Asia Pacific and Latin America net sales increased $3.4 million, or
8.6%, from the second quarter of 2002, reflecting an overall improvement in
average daily volume. The impact of the changes in exchange rates on Asia
Pacific and Latin America sales was minimal.

Operating income decreased to $21.3 million in 2003 from $22.5 million
in the second quarter of 2002. Operating income by major geographic market is
presented in the following table:

North America operating income for the second quarter of 2003 declined
13.8% from the corresponding period in 2002. The second quarter of 2003 includes
$0.7 million of operating income of Pentacon. The second quarter of 2002
includes the reversal of $0.8 million of excess restructuring accruals. The net
decrease is due to a decline in sales to telecom related original equipment
manufacturers. Gross margins increased to 24.2% in 2003 from 23.4% from the same
period in 2002. The increase is primarily due to the lower percentage of
contract sales to telecom original equipment manufacturers in 2003, which have
lower gross margins. Such sales represented 11.3% of sales in 2003 as compared
to 13.0% for the second quarter of 2002. In addition, Pentacon added five
percentage points to the gross margin in 2003. Operating expenses increased
$11.3 million from the second quarter of 2002. Pentacon added $12.6 million in
operating expenses in 2003. As a result, operating expenses decreased $1.3
million from the second quarter of 2002 excluding the impact of Pentacon. A
reduction in variable costs associated with the decline in sales more than
offset higher pension, healthcare and insurance costs. In addition, the 2002
operating expense includes the reversal of $0.8 million of excess restructuring
accruals. Primarily as a result of lower sales, the operating income margin
decreased to 3.5% from 4.3% in 2002, as both gross margins and operating
expenses had favorable year on year trends. The addition of Pentacon reduced the
operating income margin in 2003 by two percentage points, while the reversal of
excess restructuring accruals increased the operating income margin by two
percentage points in 2002.

Europe operating income increased $1.4 million to $2.9 million in the
second quarter of 2003 from $1.5 million in 2002. Operating income in 2002
includes a $1.4 million restructuring charge incurred in the second quarter of
2002. Europe's gross margins increased from 27.1% in 2002 to 27.7% in 2003. The
improvement is primarily due to the weaker U.S. dollar making U.S. source
inventory more price competitive. Operating income margin for the second quarter
of 2003 was 3.3% compared to 1.8% in 2002. The operating income margin increase
is a result of the $1.4 million restructuring charge in 2002, partially offset
by higher operating expenses in 2003 primarily due to higher compensation
related costs. Operating income increased by $0.3 million in 2003 due to changes
in exchange rates.

17

Asia Pacific and Latin America operating income increased to $0.2
million in the second quarter of 2003. Operating income in 2002 includes a
reversal of excess restructuring accruals of $0.6 million. The improvement
reflects the higher sales levels combined with tight expense controls. Exchange
rate changes had a minimal impact on operating income.

Other, net (expense) includes the following:

The consolidated tax provision decreased to $5.5 million in 2003 from
$8.3 million in the second quarter of 2002, primarily due to lower pre-tax
income. The 2003 effective tax rate is 43.0% 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.

26 weeks ended July 4, 2003: Net income for the 26 weeks ended July 4,
2003 was $17.5 million compared with $21.3 million for the 26 weeks ended June
28, 2002. The company recorded a loss of $6.2 million in 2003 for the early
extinguishment of $63.5 million of its 7% zero coupon notes, $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 2002, the Company
recorded a loss of $1.6 million for the early extinguishment of $40.4 million of
its 7% zero coupon notes and $7.0 million of its 8% senior notes.

The Company's net sales during the 26 weeks ended July 4, 2003
increased 6.1% to $1,307.0 million from $1,232.0 million in the same period in
2002. Net sales by major geographic market are presented in the following table:

When compared to the corresponding period in 2002, North America sales
for the 26 weeks ended July 4, 2003 increased $49.5 million, or 5.0%, to
$1,029.9 million. Excluding Pentacon sales of $95.1 million, sales declined 4.7%
or $45.6 million. The decrease in sales reflects a decline in sales to telecom
related original equipment manufacturers of $46.7 million. Daily sales levels
for the remainder of the business have remained steady.

18

Europe sales increased 11.0% to $187.8 million from $169.2 million,
including a $29.9 million favorable effect from changes in exchange rates. The
decline in local currency sales is primarily due to continued weak economic
conditions.

Asia Pacific and Latin America net sales were up 8.3%, or $6.9 million,
from the first half of 2002, including a $1.9 million unfavorable impact from
changes in exchange rates. The increase reflects an overall improvement in
average daily volume and sales to telecom related original equipment
manufacturers in Asia Pacific.

Operating income for the first half of 2003 increased 2.1%, or $0.9
million, from $43.0 million in the first half of 2002. Operating income (loss)
by major geographic market is presented in the following table:

North America operating income decreased 4.5% for the 26 weeks ended
July 4, 2003 compared to the corresponding period in 2002. The 26 weeks ended
July 4, 2003 includes the operating income of Pentacon ($2.5 million). The 26
weeks ended June 28, 2002 includes the reversal of $0.8 million of excess
restructuring accruals in 2002. The decrease from the corresponding period in
2002 is due to a decline in sales to telecom related original equipment
manufacturers. Gross margins increased to 24.2% in 2003 from 22.9% for the same
period in 2002. The increase is primarily due to a lower percentage of contract
sales to telecom related original equipment manufacturers in 2003, which have
lower gross margins. Sales to telecom related original equipment manufacturers
represented 11.5% of sales in 2003 as compared to 15.7% in 2002. In addition,
Pentacon added five percentage points to the gross margins in 2003. Operating
expenses increased $26.3 million for the 26 weeks ended July 4, 2003 from the
corresponding period in 2002. Pentacon added $25.7 million in operating expense
in 2003. As a result, operating expenses increased slightly from 2002. In
addition, the 2002 operating expense includes the reversal of $0.8 million of
excess restructuring accruals. The reduction in variable costs associated with
the reduced sales levels more than offset higher pension, healthcare and
insurance costs. Primarily as a result of lower sales, operating margins
declined to 3.6% in the first half of 2003 from 4.0% in the same period in 2002,
as both gross margins and operating expenses had favorable year on year trends.

Europe operating income increased 21.0% to $5.9 million for the 26
weeks ended July 4, 2003 from $4.9 million in 2002. Operating income in 2002
includes a $1.4 million restructuring charge. Europe's gross margins increased
to 27.0% from 26.6% in 2002. The improvement is primarily due to the weaker U.S.
dollar making U.S. sourced inventory more price competitive. Operating income
margin for the first half of 2003 was 3.2% compared to 2.9% in 2002. The
operating margin increase is a result of the elimination of the $1.4 million
restructuring charge incurred in 2002, slightly offset by higher operating
expenses primarily due to an increase in compensation related costs. Operating
income increased by $1.0 million in 2003 due to changes in exchange rates.

Asia Pacific and Latin America operating income increased $1.6 million
from a $0.9 million loss in the first half of 2002 to $0.7 million of income in
2003. Operating income in 2002 includes the benefit of a reversal of excess
restructuring accruals of $0.5 million. The $2.1 million improvement reflects
the higher sales levels combined with tight expense controls. Exchange rate
changes had a minimal impact on operating income.

19

Other, net income (expense) includes the following:

The consolidated tax provision decreased to $12.8 million in 2003 from
$14.2 million in the first half of 2002 primarily due to lower pre-tax earnings.
The 2003 effective tax rate is 42.4% 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.

ITEM 4. CONTROLS AND PROCEDURES

The Company maintains a system of controls and procedures designed to
provide reasonable assurance as to the reliability of the financial statements
and other disclosures included in this report, as well as to safeguard assets
from unauthorized use or disposition. The Company's management, including the
Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness
of the design and operation of the Company's disclosure controls and procedures
as of July 4, 2003, pursuant to Exchange Act Rule 13a-15(e) and 15d-15(e). Based
on that evaluation, the Chief Executive Officer and Chief Financial Officer
concluded that the Company's controls and procedures are effective in ensuring
that all material information required to be filed in this quarterly report has
been made known to them in a timely fashion. There have been no significant
changes in internal controls, or in other factors that could significantly
affect internal controls, subsequent to the date the Chief Executive Officer and
Chief Financial Officer completed their evaluation.

20

PART II. OTHER INFORMATION

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

At the Annual Meeting of Stockholders held May 22, 2003, the Directors
of the Company were elected as follows:

Directors

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

a) Exhibits

31.1 Robert W. Grubbs, President and Chief Executive Officer,
Certification Pursuant to Section 302, of the Sarbanes-Oxley Act
of 2002.

31.2 Dennis Letham, Senior Vice President Finance and Chief Financial
Officer, Certification Pursuant to Section 302, of the
Sarbanes-Oxley Act of 2002.

32.1 Robert W. Grubbs, President and Chief Executive Officer,
Certification Pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 Sarbanes-Oxley Act of 2002.

32.2 Dennis 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 of Act of
2002.

b) Reports on Form 8-K

On April 30, 2003, the Company filed a Current Report on Form
8-K under Item 7 "Financial Statements, Pro Forma Financial
Information and Exhibits" and Item 9 "Regulation FD Disclosure"
reporting its results for the fiscal quarter ended April 4, 2003.

21

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.
August 15, 2003
By: /s/ Robert W. Grubbs
-----------------------------------
Robert W. Grubbs
President and Chief Executive Officer

August 15, 2003 By: /s/ Dennis J. Letham
-----------------------------------
Dennis J. Letham
Senior Vice President - Finance
and Chief Financial Officer

22