<PAGE> 1
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 OCTOBER 2, 1998
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- --- EXCHANGE ACT OF 1934
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
incorporation or organization) Identification No.)
4711 Golf Road
Skokie, Illinois 60076
----------------------
(Address of principal executive offices and Zip Code)
Registrant's telephone number, including area code:(847) 677-2600
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
---
At November 10, 1998 there were 41,873,750 shares of Common Stock, $1.00 par
value, of the registrant outstanding.
<PAGE> 2
PART I.
ITEM 1. FINANCIAL STATEMENTS
ANIXTER INTERNATIONAL INC.
CONDENSED CONSOLIDATED STATEMENT OF OPERATION
(UNAUDITED)
(In millions, except per share amounts)
<TABLE>
<CAPTION>
13 WEEKS ENDED 39 WEEKS ENDED
---------------------------- -------------------------------
OCTOBER 2, OCTOBER 3, OCTOBER 2, OCTOBER 3,
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales $ 804.5 $ 726.5 $ 2,336.4 $ 2,067.8
Cost of goods sold 606.5 547.8 1,761.4 1,557.0
--------- --------- ----------- -----------
Gross profit 198.0 178.7 575.0 510.8
Operating expenses 163.0 147.8 479.4 425.8
Amortization of goodwill 1.7 1.6 5.0 4.7
--------- --------- ----------- -----------
Operating income 33.3 29.3 90.6 80.3
Interest expense, net (9.2) (8.3) (25.1) (24.2)
Foreign exchange and other, net (5.2) (0.7) (6.2) 0.6
Gain on ANTEC investment -- -- 24.3 2.2
--------- --------- ----------- -----------
Income before income taxes 18.9 20.3 83.6 58.9
Income tax expense 8.0 9.0 34.8 26.1
--------- --------- ----------- -----------
Income from continuing operations 10.9 11.3 48.8 32.8
Income from discontinued operations 2.1 -- 13.2 --
--------- --------- ----------- -----------
Net income $ 13.0 $ 11.3 $ 62.0 $ 32.8
========= ========= =========== ===========
Basic income per common share:
Continuing operations $ .25 $ .24 $ 1.06 $ .69
Discontinued operations .05 -- .29 --
--------- --------- ---------- -----------
Net income $ .30 $ .24 $ 1.35 $ .69
========= ========= =========== ===========
Diluted income per common share:
Continuing operations $ .24 $ .24 $ 1.05
$ .69
Discontinued operations .05 -- .29 --
--------- --------- ----------- -----------
Net income $ .29 $ .24 $ 1.34 $ .69
========= ========= =========== ===========
</TABLE>
See accompanying notes to the condensed consolidated financial statements.
2
<PAGE> 3
ANIXTER INTERNATIONAL INC.
CONDENSED CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
(In millions) OCTOBER 2, JANUARY 2,
1998 1998
-------------- ---------------
ASSETS (UNAUDITED)
<S> <C> <C>
Current assets:
Cash $ 15.8 $ 10.6
Accounts receivable (less allowances of $13.8 at
October 2, 1998 and $11.3 at January 2, 1998) 642.6 551.1
Inventories 463.1 440.7
Other current assets 14.4 11.6
---------- ----------
Total current assets 1,135.9 1,014.0
Property and equipment, at cost 174.7 152.1
Accumulated depreciation (104.1) (87.8)
---------- ----------
Net property and equipment 70.6 64.3
Goodwill (less accumulated amortization of $64.2
at October 2, 1998 and $59.2 at January 2, 1998) 231.9 203.1
Assets held for sale, net 13.4 20.6
Investment in ANTEC -- 112.0
Other assets 30.2 26.7
---------- ----------
$ 1,482.0 $ 1,440.7
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 331.8 $ 324.3
Accrued expenses 118.7 110.3
Income taxes payable 4.8 13.5
---------- ----------
Total current liabilities 455.3 448.1
Deferred taxes, net 25.5 33.4
Other liabilities 14.2 13.4
Long-term debt 567.1 468.8
---------- ----------
Total liabilities 1,062.1 963.7
Stockholders' equity:
Common stock 42.7 47.3
Capital surplus - 47.1
Retained earnings 417.6 389.9
Accumulated other comprehensive income (40.4) (7.3)
---------- ----------
Total stockholders' equity 419.9 477.0
---------- ----------
$ 1,482.0 $ 1,440.7
========== ==========
</TABLE>
See accompanying notes to the condensed consolidated financial statements.
3
<PAGE> 4
ANIXTER INTERNATIONAL INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
(In millions)
39 WEEKS ENDED
--------------
OCTOBER 2, OCTOBER 3,
1998 1997
----------- -----------
<S> <C> <C>
Operating activities:
Net income $ 62.0 $ 32.8
Adjustments to reconcile net income
to net cash (used for) provided by operating
activities from continuing operations:
Income from discontinued operations (13.2) --
Depreciation and amortization 24.3 23.9
Gain on ANTEC investment (24.3) (2.2)
Deferred income taxes 4.2 (2.7)
Changes in current assets and liabilities, net (110.1) (41.0)
Other, net (1.9) (1.0)
---------- --------
Net cash (used for) provided by operating
activities from continuing operations (59.0) 9.8
Investing activities:
Capital expenditures, net (25.3) (21.0)
Proceeds from sale of ANTEC 104.3 --
Business acquisition, net of cash acquired (38.1) (28.6)
---------- --------
Net cash provided by (used for) investing activities
from continuing operations 40.9 (49.6)
Financing activities:
Proceeds from long-term borrowings 1,268.8 935.7
Repayment of long-term borrowings (1,174.4) (901.7)
Purchases of treasury stock (90.9) (9.9)
Other, net (.6) (.2)
---------- --------
Net cash provided by financing activities
from continuing operations 2.9 24.4
Cash provided by discontinued operations 20.4 12.7
---------- --------
Net increase (decrease) in cash 5.2 (2.7)
Cash at the beginning of the year 10.6 18.2
---------- --------
Cash at the end of the period $ 15.8 $ 15.5
========== ========
</TABLE>
See accompanying notes to the condensed consolidated financial statements.
4
<PAGE> 5
ANIXTER INTERNATIONAL INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION: The accompanying condensed consolidated financial
statements should be read in conjunction with the consolidated financial
statements included in Anixter International Inc.'s (Company) Annual Report on
Form 10-K for the year ended January 2, 1998. 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 1998 presentation.
COMPREHENSIVE INCOME: In 1998, the Company adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income", (SFAS No. 130).
SFAS No. 130 requires companies to report all changes in equity during a period,
except those resulting from investment by owners, in a financial statement for
the period in which they are recognized. The Company has chosen to disclose
comprehensive income, which encompasses net income, foreign currency translation
adjustments and unrealized gains and losses on marketable equity securities, in
the year-end Consolidated Statement of Stockholders' Equity. The prior year has
been restated to conform to the SFAS No. 130 requirements.
5
<PAGE> 6
ANIXTER INTERNATIONAL INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 2. INCOME PER SHARE
<TABLE>
<CAPTION>
13 WEEKS ENDED 39 WEEKS ENDED
------------------------------ ----------------------------
(In millions, except per share amounts) OCTOBER 2, OCTOBER 3, OCTOBER 2, OCTOBER 3,
1998 1997 1998 1997
--------- -------- --------- ---------
<S> <C> <C> <C> <C>
Numerator:
Income from continuing operations $ 10.9 $ 11.3 $ 48.8 $ 32.8
=========== ========== ========== =========
Denominator:
Basic common shares outstanding 44.0 47.5 45.9 47.6
Effect of dilutive securities:
Stock options and warrants .4 .3 .4 .2
----------- ---------- ---------- ---------
Diluted common shares outstanding 44.4 47.8 46.3 47.8
=========== ========== ========== =========
Basic income per share
from continuing operations $ .25 $ .24 $ 1.06 $ .69
=========== ========== ========== =========
Diluted income per share from
continuing operations $ .24 $ .24 $ 1.05 $ .69
=========== ========== ========== =========
</TABLE>
NOTE 3. COMPREHENSIVE INCOME
SFAS No. 130 establishes new rules for the reporting and display of
comprehensive income and its components; however, the adoption of this Statement
had no impact on the Company's net income or shareholder's equity. SFAS No. 130
requires unrealized gains or losses on the Company's marketable equity
securities and foreign currency translation adjustments, which prior to adoption
were reported separately in shareholder's equity, to be included in other
comprehensive income. Prior year financial statements have been reclassified to
conform to the requirements of SFAS No. 130.
For the 13 and 39 weeks ended October 2, 1998, total comprehensive income
amounted to $3.6 million and $28.9 million respectively. For the 13 and 39 weeks
ended October 3, 1997, total comprehensive income amounted to $12.7 million and
$27.0 million, respectively. The difference between net income and comprehensive
income is the change in both the unrealized gains on marketable equity
securities and cumulative translation adjustments.
6
<PAGE> 7
ANIXTER INTERNATIONAL INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 4. INVESTMENT IN ANTEC
On February 6, 1997 a wholly owned subsidiary of ANTEC was merged into TSX
Corporation. Under the terms of the transaction, TSX Corporation shareholders
received one share of ANTEC Corporation stock for each share of TSX Corporation
stock that they owned. The transaction was accounted for as a pooling of
interests. Upon consummation of this transaction the Company's ownership
interest in ANTEC was reduced to approximately 19% which resulted in the
cessation of equity method accounting for this investment after that date. Prior
to the merger, equity earnings of $1.2 million were recorded in the first
quarter of 1997.
In 1998, the Company sold its remaining 7.1 million shares of ANTEC stock which
resulted in net after tax proceeds of approximately $100 million and an after
tax gain of $14.6 million.
NOTE 5: ACQUISITION OF PACER ELECTRONICS, INC.
In June 1998, the Company purchased Pacer Electronics, Inc. ("Pacer") for
approximately $38 million. Operating results for Pacer in the second and third
quarter were not significant. Pacer is an electrical and data cabling
distributor largely centered in the Northeast portion of the United States, with
additional locations in North Carolina, Florida and California. The majority of
Pacer's revenues come from the sale of wire, cable, connectors and related
products and value added services to original equipment manufacturers in the
electronics industry.
NOTE 6: SALE OF ANIXTER COMMUNICATIONS AND INTEGRATION (ACI)
In September 1998, the Company announced an agreement to sell ACI, its European
network integration business unit. The all-cash transaction closed in October
1998 and the purchase price is expected to be finalized during the fourth
quarter 1998. Completion is subject to certain matters of due diligence and
certain regulatory approvals.
7
<PAGE> 8
NOTE 7: SUMMARIZED FINANCIAL INFORMATION OF ANIXTER INC.
The Company had an approximate 99% ownership interest in Anixter Inc. at October
2, 1998 and January 2, 1998 which was included in the consolidated financial
statements of the Company. The following summarizes the financial information
for Anixter Inc:
ANIXTER INC.
CONDENSED CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
OCTOBER 2, JANUARY 2,
(In millions) 1998 1998
-------------- ----------
(UNAUDITED)
<S> <C> <C>
Assets:
Current assets $ 1,099.7 $ 980.4
Property, net 66.8 61.0
Goodwill, net 210.0 181.1
Other assets 39.5 36.6
------------- -------------
$ 1,416.0 $ 1,259.1
============= =============
Liabilities and Stockholders' Equity:
Current liabilities $ 427.4 $ 423.7
Other liabilities 22.0 10.7
Long-term debt 548.6 450.4
Subordinated notes payable to parent 26.5 19.0
Stockholders' equity 391.5 355.3
------------- -------------
$ 1,416.0 $ 1,259.1
============= =============
</TABLE>
ANIXTER INC.
CONDENSED CONSOLIDATED STATEMENT OF OPERATION
(UNAUDITED)
<TABLE>
<CAPTION>
13 WEEKS ENDED 39 WEEKS ENDED
------------------------------- ------------------------------
OCTOBER 2, OCTOBER 3, OCTOBER 2, OCTOBER 3,
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales $ 765.6 $ 719.4 $ 2,252.7 $ 2,060.7
Operating income $ 31.9 $ 26.7 $ 88.6 $ 74.8
Income before income tax expense $ 17.2 $ 17.4 $ 54.1 $ 50.0
Net income $ 7.9 $ 8.3 $ 24.8 $ 24.7
</TABLE>
8
<PAGE> 9
NOTE 8: BUSINESS SEGMENTS
Over the past three years, the Company has been investing in the business of
providing services for the design, deployment and support of network
infrastructures. Beginning in 1998, in order to align its business segments with
the strategic focus of the Company, operating results are now reported in two
segments: Distribution and Integration. The largest segment, Distribution, sells
specialty wire and cable and structured wiring from top suppliers to contractors
and installers and to end users, including manufacturers, natural resources
companies, utilities and original equipment manufacturers. The Integration
segment sells products and services for the assessment, design, implementation
and support of networking technologies to end users.
The Company obtains and coordinates financing, legal and other related services,
certain of which are rebilled to subsidiaries. Corporate expenses are items not
related to the operations of the segments. Corporate assets consist of cash,
goodwill, assets held for sale, investment in ANTEC in 1997 and miscellaneous
assets maintained for general corporate purposes.
<TABLE>
<CAPTION>
13 WEEKS ENDED 39 WEEKS ENDED
------------------------------ -------------------------------
(In millions) OCTOBER 2, OCTOBER 3, OCTOBER 2, OCTOBER 3,
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
BUSINESS SEGMENTS
Net sales:
Distribution $ 617.3 $ 544.8 $ 1,764.0 $ 1,545.3
Integration 187.2 181.7 572.4 522.5
---------- ---------- ---------- ----------
$ 804.5 $ 726.5 $ 2,336.4 $ 2,067.8
========== ========== ========== ==========
Operating income:
Distribution $ 34.1 $ 26.7 $ 90.4 $ 78.1
Integration (0.9) 0.2 0.6 (3.1)
Corporate 0.1 2.4 (0.4) 5.3
---------- ---------- ---------- ----------
$ 33.3 $ 29.3 $ 90.6 $ 80.3
========== ========== ========== ==========
Identifiable assets:
Distribution $ 991.1 $ 844.6
Integration 211.1 205.6
Corporate 279.8 356.7
---------- ----------
$ 1,482.0 $ 1,406.9
========== ==========
GEOGRAPHIC SEGMENTS
Net sales:
North America $ 608.9 $ 544.5 $ 1,748.2 $ 1,525.4
Europe 145.3 135.6 441.7 408.6
Asia and Latin America 50.3 46.4 146.5 133.8
---------- ---------- ---------- ----------
$ 804.5 $ 726.5 $ 2,336.4 $ 2,067.8
========== ========== ========== ==========
Operating income:
North America $ 35.5 $ 34.4 $ 99.2 $ 96.3
Europe 2.3 0.1 7.0 0.4
Asia and Latin America (4.5) (5.2) (15.6) (16.4)
---------- ---------- ---------- ----------
$ 33.3 $ 29.3 $ 90.6 $ 80.3
========== ========== ========== ==========
</TABLE>
9
<PAGE> 10
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FINANCIAL LIQUIDITY AND CAPITAL RESOURCES
CASH FLOW: Consolidated net cash used for operating activities from continuing
operations was $59.0 million for the 39 weeks ended October 2, 1998, compared to
$9.8 million provided by operations in the same period in 1997. The increase in
net cash used for operating activities from continuing operations was primarily
due to increases in working capital related to the growth of the business.
Consolidated net cash provided by investing activities was $40.9 million for the
first three quarters of 1998 compared to $49.6 million used for investing
activities in the same period in 1997. The sale of the investment in ANTEC
resulted in cash proceeds of $104.3 million. This was partially offset by the
acquisition of Pacer Electronics, Inc. for $38.1 million. In 1997, cash used for
business acquisitions was $28.6 million. Accu-Tech was purchased in the 1997
third quarter for $27.6 million cash and assumption of $13.9 million of debt.
Consolidated net cash provided by financing activities was $2.9 million for the
first three quarters of 1998 as compared to $24.4 million in 1997. The decline
was due to the repurchase of 4.8 million shares for $90.9 million in 1998
partially offset by an increase in net debt proceeds of $60.4 million from 1997.
As a result of the sale of certain assets held for sale, net cash provided by
discontinued operations was $20.4 million and $12.7 million for the first three
quarters of 1998 and 1997, respectively.
FINANCINGS:
At October 2, 1998, $130.0 million was available under the bank revolving lines
of credit at Anixter Inc., of which $23.7 million was available to pay the
Company for intercompany liabilities. Future cash flows and lines of credit are
expected to be adequate to fund operating and investing activities.
Consolidated net interest expense was $9.2 million and $8.3 million for the
third quarter 1998 and 1997, respectively, and was $25.1 million and $24.2
million for the first three quarters of 1998 and 1997, respectively. The
increase is due to higher debt levels required to fund the increase in working
capital requirements.
In the 1998 third quarter, the Company announced it would increase its ongoing
program to repurchase its common stock by up to 3 million shares, with the
volume and timing to depend on market conditions. Purchases were made in the
open market or through other transactions and were financed through available
cash from the sale of nonoperating assets. Under this program in 1998, the
Company repurchased 4,834,009 shares and 5,648,009 shares, as of October 2,
1998, and October 9, 1998, respectively, at an average cost of $18.80 and
$18.03.
10
<PAGE> 11
OTHER LIQUIDITY CONSIDERATIONS: 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.
CAPITAL EXPENDITURES AND ACQUISITIONS
Consolidated net capital expenditures, were $25.3 million and $21.0 million for
the 39 weeks ended October 2, 1998 and October 3, 1997, respectively.
In June 1998, the Company purchased Pacer for $38.1 million, which resulted in
the addition of approximately $30 million to goodwill. Operating results of
Pacer in the second and third quarter were not significant.
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, exchange rate fluctuations, new or changed competitors and possible
rapid changes in applicable technologies.
QUARTER ENDED OCTOBER 2, 1998: Income from continuing operations for the quarter
ended October 2, 1998 was $10.9 million as compared to $11.3 million in 1997.
The Company's sales during the third quarter of 1998 increased 10.7% to $804.5
million from $726.5 million in 1997. Distribution sales were up 13.3% over last
year reflecting a solid increase in structured wiring sales in North America
primarily on the strength of Level 6 and Level 7 data cables and the recent
acquisition of two small regional distributors. The growth was partially offset
by a decrease in wire and cable sales resulting from lower copper prices.
Integration sales increased 3.0% over last year, a result of a 43% growth in
service sales. Product sales growth in the Integration segment continues to be
constrained by falling prices on all products and lower unit sales of shared
media hubs.
Sales for North America, Europe and Emerging Markets (Latin America and Asia
Pacific) increased 11.8%, 7.3% and 8.0%, respectively. Excluding the impact of
foreign exchange, Europe and Emerging Markets are up 6.2% and 21.0%,
respectively. North America sales were driven by significant gains in Level 6
and Level 7 cabling products along with good growth in Integration service
revenues. Europe's sales growth continues to be affected by soft sales growth in
the U.K., which represents approximately 33% of the European volume. Emerging
Markets continue to be impacted by soft economic conditions.
11
<PAGE> 12
Operating income for the third quarter of 1998 increased to $33.3 million from
$29.3 million in 1997. Distribution operating income grew 27.7%, a result of
higher sales volumes and an improvement in the operating expense ratio to 19.1%
compared to 19.5% in 1997. Higher gross margins in Europe and significant cost
savings in Emerging Markets lead to the improvement. As a result, the
Distribution operating profit margin for the third quarter 1998 was 5.5% as
compared to 4.9% in 1997. Integration operating income for the third quarter
1998 declined to a loss of $.9 million versus $.2 million income in 1997. The
decrease is a result of significant losses in Asia partially offset by a 49.8%
improvement in North America reflecting strong service revenues.
Operating income in North America increased 3.2% to $35.5 million for the third
quarter 1998 from $34.4 million in 1997. Despite the good sales growth,
operating profit growth was hindered by the effects of lower copper prices on
electrical wire and cable products, higher facility costs associated with newly
opened or expanded warehouses and lower corporate segment income. Third quarter
operating income in Europe increased to $2.3 million from $.1 million in 1997.
The improvement is the result of higher sales and improved gross margins
relating to both Integration service revenues and Distribution sales. Emerging
Markets operating loss for the third quarter improved 16.3% from $5.2 million in
1997 to $4.5 million in 1998, a result of improved volumes and expense controls
in Latin America. Excluding the impact of foreign exchange, third quarter
Emerging Markets operating loss is 7.8% lower than 1997.
The consolidated income tax provision on continuing operations for the third
quarter 1998 decreased to $8.0 million from $9.0 million in 1997. The decrease
was primarily due to lower pre-tax earnings, in addition to a decrease in the
effective tax rate from the third quarter of 1997. The 1998 effective tax rate
of 42%, which is based on pre-tax book income adjusted primarily for
amortization of nondeductible goodwill and losses of foreign operations which
are not currently deductible, approximates the expected overall rate for all of
1998.
12
<PAGE> 13
39 WEEKS ENDED OCTOBER 2, 1998: Including an after tax gain of $14.6 million
relating to the sale of ANTEC, income from continuing operations for the first
three quarters of 1998 was $48.8 million as compared to $32.8 million for 1997.
The Company's sales during the first three quarters of 1998 increased 13.0% to
$2,336.4 million from $2,067.8 million in 1997. Distribution sales were up 14.2%
over last year reflecting sales growth in all sectors of the business except
Asia Pacific. Excluding Accu-Tech and Pacer, which were acquired in August 1997
and June 1998, respectively, Distribution sales were up 9.2%. Integration sales
increased 9.6% over last year with significant improvement in the service
business and strategic products, partially offset by declines in unit sales of
shared media hubs and product price declines.
Sales for North America, Europe and Emerging Markets increased 14.6%, 8.1% and
9.4%, respectively. Excluding the impact of foreign exchange, Europe and
Emerging Markets were up 10.4% and 16.6%, respectively.
Operating income for the first three quarters of 1998 increased $10.3 million
from $80.3 million in 1997. Distribution operating income grew 15.8%, resulting
in a 5.1% operating profit margin for the first three quarters of 1998 as
compared to 5.0% in 1997. Margins grew slightly year-over-year due to higher
volumes and a small increase in gross margins, partially offset by a reduction
in wire and cable prices due to lower copper prices. Integration operating
income for the first three quarters of 1998 improved $3.7 million from a loss of
$3.1 million in 1997, due to a 62% increase in higher margin service revenues
and better utilization and productivity from the engineering and technical
staffs.
Operating income in North America increased 3.0% to $99.2 million for the first
three quarters of 1998 when compared to 1997. Despite the strong sales growth,
operating profit growth was hindered by the effects of lower copper prices on
electrical wire and cable products, higher facility costs and increased
headcount in pursuing greater market share. In addition, 1997 includes $3.3
million of income in Corporate due to a one-time gain on sale of assets.
Operating income in Europe for the first three quarters of 1998 increased $6.6
million from $.4 million in 1997. The improvement was the result of the sales
growth, improved gross margins and lower Integration operating expenses.
Emerging Markets experienced a decline in operating losses from $16.4 million
for the first three quarters of 1997 to $15.6 million in 1998. Operating results
continue to be affected by soft market conditions in Southeast Asia and Latin
America. In Asia, operating expense reductions offset the effects of lower
volumes, while improved sales and expense controls in Latin America resulted in
lower operating losses. Excluding the impact of foreign exchange, operating
losses for Emerging Markets were down 3.6% in the first three quarters of 1998
compared to 1997.
13
<PAGE> 14
The consolidated income tax provision on continuing operations for the first
three quarters of 1998 increased to $34.8 million from $26.1 million in 1997.
The increase was primarily due to higher pre-tax earnings, partially offset by a
decrease in the effective tax rate from 1997. The 1998 effective tax rate of
42%, which is based on pre-tax book income adjusted primarily for amortization
of nondeductible goodwill and losses of foreign operations which are not
currently deductible, approximates the expected overall rate for all of 1998.
FOREIGN EXCHANGE
Consolidated net foreign exchange gain or (loss) was ($4.8) million and ($.2)
million for the third quarter of 1998 and 1997, respectively, and was ($7.9)
million and $1.2 million for the first three quarters of 1998 and 1997,
respectively. Foreign exchange losses and gains result from foreign currency
transactions and the translation of the financial statements of Mexico, which
operates in high inflationary economy. The majority of the 1998 foreign exchange
losses were related to the Mexico operations
IMPACT OF YEAR 2000
Some of the Company's older computer programs were written using two digits
rather than four to define the applicable year. As a result, those computer
programs have time-sensitive software that recognizes a date using "00" as the
year 1900 rather than the year 2000. This could cause a system failure or
miscalculations causing disruptions of operations, including, among other
things, a temporary inability to process transactions, send invoices, or engage
in similar normal business activities.
The Company has completed an assessment and developed a plan to modify its
software so that its computer systems will function properly with respect to
dates in the year 2000 and thereafter. The Company is also assessing hardware,
systems software and non-information technology ("IT") systems for Year 2000
compliance. The total Year 2000 project cost is estimated at approximately
$6.0 million, of which an estimated $1.2 million will be capitalized. To date,
the Company has incurred and expensed approximately $2.0 million, primarily for
assessment of the Year 2000 issue, the development of a modification plan and
code modifications. The project is funded through the Company's IT budget, and
represents less than six percent of that budget. The time and expense of the
project has not had, and is not expected to have, a material impact on the
Company's financial condition.
The company has initiated formal communications with all of its significant
suppliers to confirm that their actions to be Year 2000 compliant will be
sufficient to avoid any substantial disruptions in the Company's operations.
The Company plans to continue to monitor this situation and as the information
evolves, the Company intends to develop contingency plans if and to the extent
believed to be appropriate. The Company's total Year 2000 project cost and
estimates to complete that project assume no significant costs from the impact
of third party Year 2000 issues based on presently available information.
However, there can be no guarantee the other companies on which the Company
relies will be Year 2000 compliant, and their failure to do so, could adversely
impact the Company as described below.
14
<PAGE> 15
The planning, assessment and pilot conversion phases have been completed. The
remainder of the project, including verification of its effectiveness and the
development of contingency plans, is estimated to be completed by September,
1999, which is prior to any anticipated impact on its operating systems. The
Company believes that with modifications to existing software and upgrades to
certain hardware the Year 2000 issue will not pose significant operational
problems for its computer systems. However, if such modifications and upgrades
are not made, or are not completed timely, the Year 2000 issue could have a
material impact on the operations of the Company.
The severity of a failure of the Company or key suppliers to be Year 2000
compliant would depend on the nature of the problem and how quickly it could be
corrected or an alternative implemented, which is unknown at this time. In the
extreme, such failures could bring the Company to a standstill. Some risks
related to Year 2000 issues are beyond the control of the Company and its
suppliers. For example, no preparations or contingency plan will protect the
Company from a downturn in economic activity caused by the possible ripple
effect throughout the entire economy that could be caused by problems with Year
2000 issues.
The costs of the project and the date on which the Company believes it will
complete the Year 2000 modifications are based on management's best estimates,
which were derived utilizing numerous assumptions of future events, including
the continued availability of certain resources and other factors. However,
there can be no guarantee that these estimates will be achieved and actual
results could differ materially from those anticipated. Specific factors that
might cause such material differences include, but are not limited to, the
availability and cost of personnel trained in this area, the ability to locate
and correct all relevant computer codes, the success of third parties in
modifying their own systems and similar uncertainties.
The Company believes it should have no material exposure to contingencies
related to the Year 2000 issue for the products it has sold. The Company's
belief is based on the Company's practice of giving to its customers only those
warranties that the Company receives from its suppliers. To the extent such
warranties are breached, liability resulting therefrom will be the ultimate
responsibility of the Company's suppliers. However, there can be no guarantee
that such suppliers will be able to defend and indemnify the Company. Specific
factors that might cause the Company to incur liability include, but are not
limited to, insolvency of its suppliers, the existence of contractual
limitations on the suppliers' liability, and uncertainties regarding judicial
interpretation of the law regarding implied warranties.
15
<PAGE> 16
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27.1 Financial Data Schedule
(b) Reports on Form 8-K
None
* Management compensation plan required to be filed as an
exhibit.
16
<PAGE> 17
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
ANIXTER INTERNATIONAL INC.
Date: November 16, 1998 By: /s/ Robert W. Grubbs
----------------- ----------------------------------------
Robert W. Grubbs
President and Chief Executive Officer
Date: November 16, 1998 By: /s/ Dennis J. Letham
----------------- -----------------------------------------
Dennis J. Letham
Senior Vice President - Finance
and Chief Financial Officer
17
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANT'S FORM 10-Q FOR THE 39 WEEKS ENDED OCTOBER 2, 1998 AND OCTOBER 3,
1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH STATEMENTS INC.
</LEGEND>
<CIK>0000052795
<NAME>ANIXTER INTERNATIONAL INC.
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 9-MOS 9-MOS
<FISCAL-YEAR-END> JAN-01-1999 JAN-02-1998
<PERIOD-START> JAN-03-1998 JAN-04-1997
<PERIOD-END> OCT-02-1998 OCT-03-1997
<CASH> 15,800 15,500
<SECURITIES> 0 0
<RECEIVABLES> 642,600 552,100
<ALLOWANCES> 13,800 10,000
<INVENTORY> 463,100 411,400
<CURRENT-ASSETS> 1,135,900 988,000
<PP&E> 174,700 148,600
<DEPRECIATION> 104,100 84,000
<TOTAL-ASSETS> 1,482,000 1,406,900
<CURRENT-LIABILITIES> 455,300 396,100
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0 0
0 0
<COMMON> 42,700 47,500
<OTHER-SE> 377,200 403,300
<TOTAL-LIABILITY-AND-EQUITY> 1,482,000 1,408,900
<SALES> 2,336,400 2,067,800
<TOTAL-REVENUES> 2,336,400 2,067,800
<CGS> 1,761,400 1,557,000
<TOTAL-COSTS> 2,245,800 1,987,500
<OTHER-EXPENSES> (18,100) (2,800)
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<INTEREST-EXPENSE> 25,100 24,200
<INCOME-PRETAX> 83,600 58,900
<INCOME-TAX> 34,800 26,100
<INCOME-CONTINUING> 48,800 32,800
<DISCONTINUED> 13,200 0
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