<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 1, 1999
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 8, 1999 there were 36,151,608 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)
<TABLE>
<CAPTION>
(In millions, except per share amounts) 13 WEEKS ENDED 39 WEEKS ENDED
-------------------- ------------------------
OCTOBER 1, OCTOBER 2, OCTOBER 1, OCTOBER 2,
1999 1998 1999 1998
--------- --------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales $ 710.4 $ 617.3 $ 1,964.0 $ 1,764.0
Cost of goods sold 548.5 465.4 1,496.9 1,327.2
--------- --------- ----------- -----------
Gross profit 161.9 151.9 467.1 436.8
Operating expenses 126.9 121.3 377.8 357.2
Amortization of goodwill 1.8 1.7 5.6 5.0
--------- --------- ----------- -----------
Operating income 33.2 28.9 83.7 74.6
Interest expense (8.9) (8.6) (25.0) (23.1)
Foreign exchange and other, net (.1) (4.4) (.2) (4.7)
Gain on ANTEC investment - - - 24.3
--------- --------- ----------- -----------
Income before income taxes 24.2 15.9 58.5 71.1
Income tax (benefit) expense (14.1) 6.6 .3 29.6
--------- --------- ----------- -----------
Income from continuing operations 38.3 9.3 58.2 41.5
Discontinued operations:
(Loss) Income from discontinued operations, net of tax (.6) 1.6 (1.1) 6.5
Gain on disposal of discontinued operations, net of tax 6.5 2.1 52.4 13.2
--------- --------- ----------- -----------
Net income $ 44.2 $ 13.0 $ 109.5 $ 61.2
========= ========= =========== ===========
Basic income per common share:
Continuing operations $ 1.06 $ .21 $ 1.53 $ .91
Discontinued operations .17 .09 1.35 .43
--------- --------- ----------- -----------
Net income $ 1.23 $ .30 $ 2.88 $ 1.34
========= ========= =========== ===========
Diluted income per common share:
Continuing operations $ 1.04 $ .21 $ 1.52 $ .90
Discontinued operations .16 .08 1.33 .42
--------- --------- ----------- -----------
Net income $ 1.20 $ .29 $ 2.85 $ 1.32
========= ========= =========== ===========
</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 1, JANUARY 1,
1999 1999
---------- ----------
(UNAUDITED)
<S> <C> <C>
Cash $ 15.7 $ 20.5
Accounts receivable (less allowances of $10.1 in 1999
and $11.0 in 1998) 580.4 455.9
Inventories 517.0 417.2
Income taxes receivable - 5.1
Other current assets 14.9 8.4
---------- ----------
Total current assets 1,128.0 907.1
Property and equipment, at cost 152.7 144.1
Accumulated depreciation (96.7) (86.5)
---------- ----------
Net property and equipment 56.0 57.6
Deferred taxes, net 19.6 -
Goodwill (less accumulated amortization
of $76.6 in 1999 and $71.0 in 1998) 229.5 233.8
Net assets of discontinued operations - 87.3
Other assets 35.0 36.0
---------- ----------
$ 1,468.1 $ 1,321.8
========== ==========
</TABLE>
See accompanying notes to the condensed consolidated financial statements.
3
<PAGE> 4
ANIXTER INTERNATIONAL INC.
CONDENSED CONSOLIDATED BALANCE SHEET
(In millions) OCTOBER 1, JANUARY 1,
1999 1999
---------- ----------
(UNAUDITED)
Current liabilities:
Accounts payable $ 315.3 $ 246.7
Accrued expenses 135.5 94.3
---------- ----------
Total current liabilities 450.8 341.0
Deferred taxes, net - 15.0
Other liabilities 14.2 10.7
Long-term debt 557.2 543.6
---------- ----------
Total liabilities 1,022.2 910.3
Stockholders' equity:
Common stock 36.1 41.8
Accumulated other comprehensive income (36.2) (39.7)
Retained earnings 446.0 409.4
---------- ----------
Total stockholders' equity 445.9 411.5
---------- ----------
$ 1,468.1 $ 1,321.8
========== ==========
See accompanying notes to the condensed consolidated financial statements.
4
<PAGE> 5
ANIXTER INTERNATIONAL INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
(In millions)
39 WEEKS ENDED
------------------------
OCTOBER 1, OCTOBER 2,
1999 1998
---------- ----------
<S> <C> <C>
Operating activities:
Net income $ 109.5 $ 61.2
Adjustments to reconcile net income
to net cash used by operating
activities from continuing operations:
Income from discontinued operations (51.3) (19.7)
Depreciation and amortization 20.0 19.7
Gain on ANTEC investment - (24.3)
Deferred income taxes (28.3) 4.4
Changes in current assets and liabilities, net (105.6) (98.2)
Other, net 2.3 (1.7)
-------- --------
Net cash used for continuing operating activities (53.4) (58.6)
Investing activities:
Capital expenditures (12.8) (21.5)
Proceeds from sale of ANTEC - 104.3
Business acquisitions, net of cash acquired - (38.1)
Other .9 -
-------- --------
Net cash (used) provided by continuing investing activities (11.9) 44.7
-------- --------
Net cash used before financing activities (65.3) (13.9)
Financing activities:
Proceeds from long-term borrowings 728.5 674.9
Repayment of long-term borrowings (714.9) (580.5)
Proceeds from issuance of common stock 7.0 .5
Purchases of treasury stock (85.6) (90.9)
Other, net (5.5) (1.2)
-------- --------
Net cash (used) provided by continuing financing activities (70.5) 2.8
Cash provided by discontinued operations 131.0 16.3
-------- --------
Cash (used) provided (4.8) 5.2
Cash at beginning of period 20.5 10.6
-------- --------
Cash at end of period $ 15.7 $ 15.8
======== ========
</TABLE>
See accompanying notes to the condensed consolidated financial statements.
5
<PAGE> 6
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 1, 1999. The condensed consolidated
financial information furnished herein reflects all adjustments (consisting of
normal recurring accruals and a one-time tax accrual adjustment) 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 and restated to conform to the 1999 presentation and to
reflect the discontinuance of the Integration business. The impact on net income
is not significant.
NOTE 2. INCOME PER SHARE
The following table sets forth the computation of basic and diluted income per
common share from continuing operations:
<TABLE>
<CAPTION>
13 WEEKS ENDED 39 WEEKS ENDED
----------------------- -----------------------
(In millions, except per share amounts) OCTOBER 1, OCTOBER 2, OCTOBER 1, OCTOBER 2,
1999 1998 1999 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Numerator:
Income from continuing operations $ 38.3 $ 9.3 $ 58.2 $ 41.5
Denominator:
Basic common shares outstanding 36.0 44.0 38.0 45.9
Effect of dilutive securities:
Stock options and warrants .9 .4 .4 .4
------ ------ ------ ------
Diluted common shares outstanding 36.9 44.4 38.4 46.3
====== ====== ====== ======
Income per share from continuing operations:
Basic $ 1.06 $ .21 $ 1.53 $ .91
Diluted $ 1.04 $ .21 $ 1.52 $ .90
</TABLE>
6
<PAGE> 7
ANIXTER INTERNATIONAL INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 3. COMPREHENSIVE INCOME
For the 13 and 39 weeks ended October 1, 1999, total comprehensive income
amounted to $44.8 million and $113.0 million, respectively. For the 13 and 39
weeks ended October 2, 1998, total comprehensive income amounted to $3.6 million
and $28.1 million, respectively. The difference between net income and
comprehensive income is the change in cumulative translation adjustments. For
the 39 weeks ended October 2, 1998, the difference also includes unrealized
gains on marketable equity securities.
NOTE 4. DISCONTINUED OPERATIONS
In the fourth quarter of 1998, the Company decided to exit its Integration
segment and accordingly, the Integration segment is reflected as a discontinued
operation in these financial statements. Interest expense has been allocated to
discontinued operations based on the percentage of total identifiable assets.
The sale of the North American Integration business was completed on April 2,
1999, following the sale of the European Integration business in the fourth
quarter of 1998. Total proceeds received were $215.8 million. This resulted in a
one-time after-tax gain in the first quarter of $45.9 million, which is net of
$11.0 million of costs associated primarily with the closing of selected Latin
American and Asian Integration locations and severance costs associated with
staff reductions necessitated by discontinuing the Integration segment. In the
third quarter of 1999, the Company recorded an additional after-tax net
curtailment gain of $2.5 million. The gain resulted from the net decrease in the
Company's pension benefit obligation for employees affected by the sale of the
North American Integration business. On October 20, 1999 the Company entered
into an agreement, which is expected to result in a gain, to sell the final
remaining piece of its Integration business. The sale of that piece of the
business, which is located in Asia Pacific, is expected to close in the fourth
quarter of 1999.
In the third quarter of 1999, the Company recognized a tax benefit of $8.4
million resulting from the reversal of certain tax liabilities associated with
prior years' reported sales of discontinued assets. In addition, a $4.4 million
net loss was recorded for the write-down of certain assets held for sale
anticipated to be sold in the fourth quarter of 1999.
7
<PAGE> 8
In the first quarter of 1998, the Company disposed of certain discontinued
railcar assets which had been classified as assets held for sale. The
disposition of these assets resulted in net proceeds of $29 million and an
after-tax gain of $11.1 million.
Net sales for discontinued operations are as follows:
13 WEEKS ENDED 39 WEEKS ENDED
---------------------- ----------------------
OCTOBER 1, OCTOBER 2, OCTOBER 1, OCTOBER 2,
1999 1998 1999 1998
---------- ---------- ---------- ----------
Net sales $ 12.5 $187.2 $190.4 $572.4
NOTE 5. INCOME TAXES
During the third quarter of 1998, the Internal Revenue Service completed its
examination for the years 1993 to 1995, which included an examination of net
operating losses and credit carryovers dating back to 1979. As a result of the
lapsing, during the third quarter of 1999, of all relevant statutes of
limitations on assessment relating to that 17-year period of time, the Company
recorded a $24.3 million tax benefit in continuing operations for the reversal
of previously established tax liabilities which have been determined to be no
longer necessary. The effect on diluted earnings per share for the third quarter
and the first three quarters of 1999 was $.66 and $.63, respectively.
NOTE 6. INVESTMENT IN ANTEC
During the first quarter of 1998, the Company sold 2.2 million shares of ANTEC
Corporation stock which resulted in net after-tax proceeds of approximately $32
million and an after-tax gain of $5.1 million. The sale reduced the Company's
ownership interest to 12.4% at April 3, 1998. In the second quarter of 1998, the
Company sold its remaining 4.9 million shares of ANTEC stock which resulted in
net after-tax proceeds of approximately $68 million and an after-tax gain of
$9.5 million.
NOTE 7. SUMMARIZED FINANCIAL INFORMATION OF ANIXTER INC.
The Company has an approximate 99% ownership interest in Anixter Inc. at October
1, 1999 and January 1, 1999 which is included in the consolidated financial
statements of the Company. The following summarizes the financial information
for Anixter Inc:
8
<PAGE> 9
ANIXTER INC.
CONDENSED CONSOLIDATED BALANCE SHEET
OCTOBER 1, JANUARY 1,
(In millions) 1999 1999
--------- ---------
(UNAUDITED)
Assets:
Current assets $ 1,127.2 $ 863.0
Property, net 56.0 54.6
Goodwill 229.5 212.1
Net assets of discontinued operations - 98.3
Other assets 36.0 38.2
--------- ---------
$ 1,448.7 $ 1,266.2
========= =========
Liabilities and Stockholders' Equity:
Current liabilities $ 442.1 $ 333.9
Other liabilities 8.9 8.6
Long-term debt 557.2 524.1
Subordinated notes payable to parent 4.2 7.0
Stockholders' equity 436.3 392.6
--------- ---------
$ 1,448.7 $ 1,266.2
========= =========
ANIXTER INC.
CONDENSED CONSOLIDATED STATEMENT OF OPERATION
(UNAUDITED)
<TABLE>
<CAPTION>
13 WEEKS ENDED 39 WEEKS ENDED
------------------------ -------------------------
OCTOBER 1, OCTOBER 2, OCTOBER 1, OCTOBER 2,
1999 1998 1999 1998
---------- ---------- ---------- ----------
(In millions)
<S> <C> <C> <C> <C>
Net sales $ 710.4 $ 578.5 $1,938.9 $1,680.4
Operating income $ 33.5 $ 27.5 $ 85.2 $ 72.6
Income before income tax expense $ 24.3 $ 14.1 $ 60.0 $ 41.6
Income from continuing operations $ 13.3 $ 4.7 $ 32.8 $ 14.0
(Loss) income from discontinued operations, net of tax $ (.6) $ 3.2 $ (1.1) $ 10.8
Gain on disposal of discontinued operations, net of tax $ 2.6 $ - $ 48.5 $ -
Net income $ 15.3 $ 7.9 $ 80.2 $ 24.8
</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 by operating activities from continuing
operations was $53.4 million for the 39 weeks ended October 1, 1999, compared to
$58.6 million for the same period in 1998. Cash used by operating activities was
relatively equal to last year as the increase in income from continuing
operations primarily was generated from a $24.3 million one-time non-cash
transaction to reflect the reversal of certain tax liabilities associated with
completing Internal Revenue Service audits for a number of open tax years. The
Company spent an additional $7.4 million in 1999 to support working capital
requirements. In 1998, income from continuing operations includes a $24.3
million gain on the ANTEC investment. Proceeds are reflected as an investing
activity.
Consolidated cash used by investing activities was $11.9 million for the 39
weeks ended October 1, 1999, versus $44.7 million provided for the same period
in 1998. The decline is a result of $104.3 million of proceeds received from the
sale of ANTEC shares in 1998, partially offset by $38.1 million used for the
acquisition of Pacer Electronics, Inc. ("Pacer") in June of 1998.
Consolidated cash used by financing activities was $70.5 million for the 39
weeks ended October 1, 1999, in comparison to $2.8 million provided in 1998. The
increase in cash used is primarily the result of the net borrowings of the
revolving line of credit of $13.6 million in 1999 versus $94.4 million in 1998.
Treasury stock purchases in the 39 weeks ended October 1, 1999 were $85.6
million versus $90.9 million in 1998.
Cash provided by discontinued operations was $131.0 million in 39 weeks ended
October 1, 1999, compared to $16.3 million in 1998. The increase primarily
relates to cash received from the sale of the North American Integration
business.
FINANCINGS:
At October 1, 1999, $123.8 million was available under the bank revolving lines
of credit at Anixter Inc., of which $15.1 million was available to pay the
Company for intercompany liabilities.
Consolidated interest expense was $8.9 million and $8.6 million for the third
quarter 1999 and 1998, respectively, and was $25.0 million and $23.1 million for
the first 39 weeks of 1999 and 1998, respectively. The increase in interest
expense is due to higher average debt levels resulting from funding higher
working capital levels, partially offset by slightly lower interest rates.
10
<PAGE> 11
As of October 1, 1999, the Company has authorized the repurchase of up to 7
million shares in 1999, 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 the North American and
European Integration businesses. The Company has repurchased 6,225,234 shares
through October 1, 1999, at an average cost of $13.75.
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 $12.8 million and $21.5 million for
the 39 weeks ended October 1, 1999 and October 2, 1998, respectively.
In June 1998, the Company purchased Pacer for $38.1 million, which resulted in
approximately $30 million of goodwill.
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 ownerships as well as other factors.
In addition, the Company's future performance could be affected by economic
downturns and possible rapid changes in applicable technologies.
11
<PAGE> 12
13 WEEKS ENDED OCTOBER 1, 1999: Income from continuing operations for the third
quarter of 1999 was $38.3 million compared with $9.3 million for the third
quarter of 1998.
The Company's sales during the third quarter of 1999 increased 15.1% to $710.4
million from $617.3 million in 1998. Net sales by major geographic market are
presented in the following table:
(In millions) 13 WEEKS ENDED
----------------------------
OCTOBER 1, OCTOBER 2,
1999 1998
---------- ----------
North America $547.4 $452.6
Europe 128.0 127.7
Asia Pacific and Latin America 35.0 37.0
------ ------
$710.4 $617.3
====== ======
North America sales grew 21.0%, resulting from a significant growth in both the
core Private Network Communications and Electrical Wire and Cable product sets
together with significant new volume from the Public Network Communications and
the Integrated Supply business. Europe sales were flat with last year resulting
from falling unit prices in networking products and a stronger U.S. dollar.
Excluding the effect from changes in exchange rates, Europe third quarter 1999
sales improved 4.1% over the corresponding 1998 period. Asia Pacific and Latin
America declined 5.7%, a result of soft local economic conditions combined with
weaker local currencies in Latin America.
Operating income for the third quarter of 1999 increased to $33.2 million from
$28.9 million in 1998. Operating income by major geographic market is presented
in the following table:
(In millions) 13 WEEKS ENDED
----------------------------
OCTOBER 1, OCTOBER 2,
1999 1998
---------- ----------
North America $ 31.1 $ 26.4
Europe 4.6 5.2
Asia Pacific and Latin America (2.5) (2.7)
------ ------
$ 33.2 $ 28.9
====== ======
12
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North America operating income increased 17.9% in the third quarter. The
improvement primarily relates to higher sales volume and better sales and
operations productivity, which has resulted in a reduction in operating expenses
as a percent of sales. This improvement was partially offset by lower gross
margin rates, primarily from significant increases in the lower gross margin
Public Network and Integrated Supply business. Europe operating income decreased
11.6% for the third quarter of 1999, primarily a result of the flat sales volume
and stronger U.S. dollar. Excluding the effect from changes in exchange rates,
operating income for Europe was down 7.3% in the third quarter 1999 compared to
1998. Asia Pacific and Latin America operating loss was reduced by 6.2%, as the
1998 Asia Pacific restructuring produced breakeven operating results for the
quarter.
Net foreign exchange and other improved from a $4.4 million loss in the third
quarter of 1998 to a $.1 million loss in 1999. The improvement primarily relates
to a reduction in foreign exchange losses in Mexico, which was a
hyperinflationary economy in 1998.
The consolidated tax benefit on continuing operations in the third quarter was
$14.1 million in 1999 compared to $6.6 million expense in the third quarter of
1998. As a result of the completion of the Internal Revenue Service review of
previous open tax years, a $24.3 million one-time tax benefit was recorded to
reverse previously established tax liabilities. Excluding the $24.3 million
adjustment, the 1999 effective tax rate of 42% is based on pre-tax book income
adjusted primarily for amortization of nondeductible goodwill and losses of
foreign operations which do not yet provide a tax benefit under Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes".
39 WEEKS ENDED OCTOBER 1, 1999: Income from continuing operations for the first
three quarters of 1999 was $58.2 million as compared to $41.5 million for 1998.
The Company's sales during the first three quarters of 1999 increased 11.3% to
$1,964.0 million from $1,764.0 million in 1998. Net sales by major geographic
market are presented in the following table:
(In millions) 39 WEEKS ENDED
--------------------------
OCTOBER 1, OCTOBER 2,
1999 1998
---------- ----------
North America $1,473.0 $1,268.3
Europe 389.7 384.3
Asia Pacific and Latin America 101.3 111.4
-------- --------
$1,964.0 $1,764.0
======== ========
13
<PAGE> 14
North America sales grew 16.1%, resulting from very strong second and third
quarter growth in the core Private Network Communications and Electrical Wire
and Cable product sets along with significant new volume from the Public Network
Communications and the Integrated Supply business. 1999 results also include
Pacer which was acquired in June 1998. Europe sales grew 1.4% on the strength of
the first quarter as sales continue to be negatively impacted by soft networking
product sales and a stronger dollar. Asia Pacific and Latin America sales
declined 9.1% to $101.3 million due to soft economic conditions along with
weaker local currencies.
Operating income for the first three quarters of 1999 increased $9.1 million
from $74.6 million in 1998. Operating income by major geographic market are
presented in the following table:
(In millions) 39 WEEKS ENDED
--------------------------
OCTOBER 1, OCTOBER 2,
1999 1998
---------- ----------
North America $ 77.9 $ 73.6
Europe 14.8 13.6
Asia Pacific and Latin America (9.0) (12.6)
--------- ---------
$ 83.7 $ 74.6
========= =========
Operating income in North America increased 6.0% from 1998 as the significant
increase in the third quarter sales volume, coupled with better sales and
operations productivity over the last few quarters, more than offset higher
spending on Year 2000 compliance efforts and retained costs associated with the
sale of the North American Integration business. Europe's operating profit
improved 8.7% from $13.6 million in 1998, reflecting savings generated from
headcount reductions. Growth has been limited by flat sales and a stronger U.S.
dollar. Excluding the effect of changes in exchange rates, Europe's operating
profit grew 11.5%. Despite the 9.1% decline in sales, the combined Asia Pacific
and Latin America operating loss was reduced by 28.0% reflecting the
restructuring and expense reduction efforts of 1998.
Net foreign exchange and other improved from a $4.7 million loss in the first
three quarters of 1998 to a $.2 million loss in 1999. The improvement primarily
relates to a reduction in foreign exchange losses in Mexico, which was a
hyperinflationary economy in 1998.
The first three quarters of 1998 includes an after-tax gain of $14.6 million
relating to the sale of the Company's shareholdings of ANTEC Corporation.
14
<PAGE> 15
The consolidated income tax provision on continuing operations for the first
three quarters of 1999 decreased to $.3 million from $29.6 million in 1998. The
decrease was due to a $24.3 million one-time tax benefit recorded to reverse
previously established tax liabilities and lower pre-tax earnings. Excluding the
$24.3 million adjustment, the 1999 effective tax rate of 42% is based on pre-tax
book income adjusted primarily for amortization of nondeductible goodwill and
losses of foreign operations which do not yet provide a tax benefit under
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes".
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 completed an assessment, upgraded the mainframe operating
system and modified software so that computer systems will function properly
with respect to dates in the year 2000 and thereafter. Renovation of all
critical business systems is complete. The Company also completed the assessment
of PC hardware and software systems and non-information technology systems for
Year 2000 compliance. Over the life of the project, the Company incurred and
expensed approximately $4.5 million, primarily for assessment of the Year 2000
issue, mainframe operating system upgrades and code modifications. The time and
expense of the project has not had a material impact on the Company's financial
condition.
The Company initiated formal communications with all of its significant
suppliers to confirm their Year 2000 compliance actions will be sufficient to
avoid any substantial disruptions in the Company's operations. The Company also
put a team together to continue to monitor this situation as the information
evolves. The Company believes most of the responses have been designed to
provide legal protection to the respondent as opposed to supplying direct and
reliable information; as such the Company makes no claim as to the reliability
of these responses. The Company is developing contingency plans 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
15
<PAGE> 16
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.
The planning, assessment, and execution of substantially all of the
mainframe operating system upgrades and code modifications are complete. A new
general ledger system was implemented in April. The remainder of the project,
including verification of its effectiveness, PC hardware and software upgrades,
is estimated to be complete by the end of November 1999. The Company is
currently working on business contingency plans to address non-planned or
controllable Y2K related outages. Many of these plans are already completed. The
remaining plans are progressing towards a scheduled completion of November 30,
1999. The Company believes that with the modifications to existing software and
upgrades to certain hardware, the Year 2000 issue will not pose significant
operational problems for its computer systems.
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 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.
16
<PAGE> 17
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Each management contract or compensation plan required to be filed as
an exhibit is identified by an asterisk (*).
(10) Material contracts
10.21 Financial Advisory Agreement, dated August 4, 1999.
10.22* Employment Agreement with Robert W. Grubbs, dated July 22,
1999.
10.23* Employment Agreement with Dennis J. Letham, dated July 22,
1999.
(27) Financial data schedule
27.1 Financial data schedule
(b) Reports on Form 8-K
None.
17
<PAGE> 18
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 11, 1999 By: /s/ Robert W. Grubbs
----------------- -------------------------------------
Robert W. Grubbs
President and Chief Executive Officer
Date: November 11, 1999 By: /s/ Dennis J. Letham
----------------- -------------------------------------
Dennis J. Letham
Senior Vice President - Finance
and Chief Financial Officer
18
<PAGE> 1
Exhibit 10.21
FINANCIAL ADVISORY AGREEMENT
THIS FINANCIAL ADVISORY AGREEMENT ("Agreement"), dated as of August 4,
1999, is by and between Equity Group Investments, L.L.C. ("EGI") and Anixter
International Inc. (the "Company").
WHEREAS, the Company believes that the experience of EGI in business and
financial management and analysis generally, and merger and acquisition
transactions in particular, as well as EGI's extensive knowledge of the Company
and the Company's business, have been and continue to be of great benefit to the
Company;
WHEREAS, the Company desires to secure the services of EGI in the event
that the Company or any subsidiary is party to or the subject of a merger,
acquisition, disposition or other similar transactions; and
WHEREAS, EGI is willing to provide such services to the Company, and the
Company desires to secure such services from EGI, subject to the compensation
arrangements and other terms set forth in this Agreement.
NOW, THEREFORE, in consideration of the foregoing premises and the
respective agreements hereinafter set forth, and the mutual benefits to be
derived herefrom, EGI and the Company, intending to be legally bound, hereby
agree as follows:
1. Engagement. The Company hereby engages EGI as the Company's
non-exclusive financial advisor, and EGI hereby agrees to provide financial
advisory services to the Company, all on the terms and subject to the conditions
set forth below.
2. Services of EGI to the Company. EGI hereby agrees during the term of
this engagement to consult with the Company's senior management and provide
financial advisory services in such manner and on such business and financial
matters as may be reasonably requested from time to time by management or the
Board of Directors of the Company, with respect to each tender offer, stock or
asset acquisition, stock or asset sale, merger, exchange offer, recapitalization
or other similar transaction involving the Company or any direct or indirect
subsidiary of the Company (a "Transaction"), including but not limited to
analysis of financial and strategic alternatives, valuation of the Company
or/and the target company, evaluation of any offers, including the consideration
offered and the structure of any proposed Transaction, and assistance in
negotiating any proposed Transaction; provided, however, that EGI shall not be
required to issue a fairness opinion in connection with any such Transaction.
3. Personnel. EGI shall provide and devote the services of such officers
and employees of EGI as EGI shall deem appropriate for the performance of this
Agreement; provided, however, that Samuel Zell and Rod Dammeyer shall be
significantly involved in, and one or both of them will personally oversee, the
rendering of such services.
4. Advisory Fees. In consideration for the services to be performed by EGI
hereunder, the Company shall pay EGI a fee in an amount equal to 49 basis points
of the Enterprise Value of any Transaction as to which EGI has rendered services
to the Company at the Company's request, provided that such Enterprise Value is
in excess of $50,000,000. For purposes hereof, "Enterprise Value" means the
total value of the transferred asset(s) or securities, which shall be valued at
the aggregate amount of consideration (including the fair market value of
securities issued or sold) paid or issued in such Transaction plus the amount of
indebtedness, preferred stock or similar liabilities or securities assumed
directly or indirectly by the buyer following the Transaction, but shall not
include any assets ( or proceeds thereof) which have previously been transferred
as part of, or to facilitate, the subject Transaction, and as to which a
separate fee shall have been paid or is payable. In the event the Transaction
involves the issuance of a fairness opinion from another financial advisor, the
cost to the Company of such fairness opinion shall be deducted from the fee
otherwise payable to EGI under this Section 4. Advisory fees
<PAGE> 2
payable pursuant hereto shall in each such case be paid by or on behalf of the
Company at the closing of the relevant Transaction.
5. Expenses. The Company shall promptly reimburse EGI for such reasonable
travel expenses and other reasonable out-of-pocket fees and expenses as may be
incurred by EGI, its officers and employees in connection with the rendering of
services hereunder, regardless of whether the Transaction with respect to which
such expenses and fees were incurred is consummated.
6. Term. This Agreement will continue from the date hereof until
terminated as provided in this Section 6. The Company shall have the right to
terminate this Agreement at any time by giving written notice to EGI. EGI may
terminate this Agreement at any time by giving 30 days' prior written notice to
the Company. No termination of this Agreement by the Company (without cause) or
by EGI (with cause), whether pursuant to this paragraph or otherwise, shall
affect the Company's obligations with respect to the fees payable to EGI in
connection with any completed or uncompleted Transactions, whether or not
pending at the time of termination, in each case with respect to which EGI
rendered any services or performed any work at the Company's request, regardless
of whether or not such Transaction shall have been consummated during the term
of this Agreement, so long as such Transaction shall have been consummated
within 180 days after expiration of such term, and fees, costs and expenses
incurred by or on behalf of EGI in rendering services hereunder and not paid or
reimbursed by the Company as of the effective date of such termination.
7. Liability. None of EGI, its directors, officers, employees,
shareholders, affiliates and agents shall be liable to the Company, any Company
subsidiary or any of their respective affiliates for any loss, liability, damage
or expense arising out of or in connection with the performance of services
contemplated by this Agreement, unless such loss, liability, damage or expense
shall be judicially determined to result directly from their gross negligence,
bad faith or intentional wrongdoing.
8. Indemnification. The Company agrees to indemnify and hold harmless EGI
and its directors, officers, employees, shareholders, affiliates and agents
against and from any and all loss, liability, suits, claims, costs damages and
reasonable expenses (including reasonable attorneys' fees and expenses) arising
from their performance hereunder, except as a result of their judicially
determined gross negligence, bad faith or intentional wrongdoing or except as a
result of injury to persons or tangible property. The Company may elect to
assume the defense of any action or proceeding with counsel reasonably
satisfactory to the indemnified party.
9. EGI as Independent Contractor. EGI and the Company agree that EGI shall
perform services hereunder as an independent contractor, retaining control over
and responsibility for its own operations and personnel. None of EGI and its
officers, employees, affiliates and agents shall be considered officers and
employees of the Company as a result of this Agreement, nor shall any of them
have authority to contract in the name of or bind the Company by reason of this
Agreement, except as expressly agreed to in writing by the Company and EGI.
10. Notices. All notices provided for or permitted to be given under this
Agreement must be in writing and shall be deemed delivered: (a) upon delivery if
delivered in person; (b) three business days after deposit in the United States
mail, addressed to the recipient, postage paid and registered or certified with
return receipt requested; (c) upon transmission if sent via telecopy, with a
confirmation copy sent via overnight mail, provided that confirmation of such
overnight delivery is received; or (d) one business day after deposit with a
national overnight courier provided that confirmation of such overnight delivery
is received. Such notices, demands and other communications shall be sent to
each party at the address or telecopy number indicated below:
2
<PAGE> 3
If to EGI: Equity Group Investments, L.L.C.
Two North Riverside Plaza, Suite 600
Chicago, Illinois 60606
Attn.: Sheli Z. Rosenberg
Fax: (312) 454-0531
If to the
Company: Anixter International Inc.
4711 Golf Road
Skokie, Illinois 60076
Attn.: Dennis Letham
Fax: (847) 715-7518
11. Entire Agreement; Modification. This Agreement (a) contains the
complete and entire understanding and agreement of EGI and the Company with
respect to the subject matter hereof, and (b) supersedes all unperformed prior
understandings, conditions and agreements, oral or written, express or implied,
respecting the engagement of EGI in connection with potential Transactions, and
the other subject matter hereof. This Agreement may be amended or modified in a
writing duly executed by both of the parties hereto and not by any course of
conduct, course of dealing or purported oral amendment or modification.
12. Waiver of Breach. The waiver of either party of a breach of any
provision of this Agreement by the other party shall not operate or be construed
as a waiver of any subsequent breach of that provision or any other provision
hereof.
13. Assignment. Neither EGI nor the Company may assign their rights or
obligations under this Agreement without the express written consent of the
other party hereto, except that EGI may assign (a) this Agreement to any EGI
affiliate reasonably believed by EGI to be capable of adequately performing
hereunder, including but not limited to providing the services of Samuel Zell
and Rod Dammeyer, and (b) any and all of its rights under this Agreement to
receive payment of fees and reimbursement of EGI's expenses as provided in this
Agreement.
14. Successors. Subject to Section 13 hereof, this Agreement and all the
obligations and benefits hereunder shall be binding upon and shall inure to this
successors and permitted assigns of the parties.
15. Counterparts. This Agreement may be executed and delivered by each
party hereto in separate counterparts, each of which when so executed and
delivered shall be deemed an original and both of which taken together shall
constitute one and the same agreement.
16. No Strict Construction. The language used in this Agreement will be
deemed to be the language chosen by the parties hereto to express their mutual
intent, and no rule of strict construction will be applied against any party
hereto.
17. CHOICE OF LAW. ALL ISSUES AND QUESTIONS CONCERNING THE CONSTRUCTION,
VALIDITY, ENFORCEMENT AND INTERPRETATION OF THIS AGREEMENT SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE DOMESTIC LAWS OF THE STATE OF ILLINOIS,
WITHOUT GIVING EFFECT TO ANY CHOICE OF LAW OR CONFLICT OF LAW PROVISION OR RULE
(WHETHER OF THE STATE OF ILLINOIS OR ANY OTHER JURISDICTION) THAT WOULD CAUSE
THE APPLICATION OF THE LAWS OF ANY JURISDICTION OTHER THAN THE STATE OF
ILLINOIS.
3
<PAGE> 4
IN WITNESS WHEREOF, EGI and the Company have caused this Agreement to be
duly executed and delivered on the date and year first above written.
EQUITY GROUP INVESTMENTS, L.L.C.
By: _________________________
Its: _________________________
ANIXTER INTERNATIONAL INC.
By: _________________________
Its: _________________________
4
<PAGE> 1
Exhibit 10.22
EMPLOYMENT AGREEMENT
Anixter Inc., ("Company") and Robert W. Grubbs ("Executive") agree as follows:
1. Company will employ Executive and Executive will work for Company in an
executive capacity until termination of Executive's employment on the date
specified in a written notice of termination delivered by either party to
the other, which date, except in the case of Good Cause for Termination,
shall be at least six months after the delivery of the written notice of
termination.
2. "Good Cause for Termination" shall mean:
- Death of Executive or total disability of Executive as defined in
Company's then long-term disability insurance policy.
- In the case of termination by Executive, Executive is required to
relocate without Executive's concurrence, Executive's then level
of responsibilities are significantly reduced, Executive is no
longer the Chief Executive Officer (with all responsibilities
that normally accompany that position) of the business enterprise
that includes the Company and the Issuer of the stock to be
purchased pursuant to the options to purchase stock that have
been granted to Executive by AXE or Company, or Executive's then
salary, regular bonus opportunity and benefits are significantly
reduced and, in each case, this situation is not corrected by
Company within 15 days of notice from Executive, provided that a
reduction in level of responsibilities during first 6 months or a
failure to continue as Chief Executive Officer as provided above
during the first 12 months following a notice of termination by
Executive or the occurrence of a Change in Control shall not be
considered Good Cause for Termination, during and only during
such 6 or 12 month period as the case may be.
- In the case of termination by Company, repeated material failure
by Executive to follow appropriate instructions, material breach
by Executive of his fiduciary obligations to the Company, or
commission of dishonest acts by Executive that in the reasonable
judgment of Company makes the continuation of Executive's
employment inappropriate.
3. A "Change of Control" shall occur if (a) substantially all the assets of
Company or its parent Anixter International Inc. ("AXE") are sold to a
Third Party or a Third Party becomes the Beneficial Owner of the greater of
(I) 25%, or (ii) the percentage owned by Sam Zell and his affiliates, of
Company's or AXE's securities that vote for
<PAGE> 2
the election of directors or (b) a majority of the Board of Directors of
Company or AXE were not nominated for election by the Board of Directors of
Company or AXE. A "Third Party" is any Person, other than Samuel Zell or
his Affiliates and other than Anixter International Inc. or its
subsidiaries. "Person," "Affiliates," and "Beneficial Owner" shall be
defined as those terms are defined pursuant to the Securities Exchange Act
of 1934, as amended.
4. If within the four year period following a Change of Control, the
employment of Executive is terminated by Company without Good Cause for
Termination or is terminated by Executive with Good Cause for Termination,
Executive will be entitled to the following Severance Benefits (except as
indicated in the case of termination for death or disability):
- All Executive's options to purchase stock of AXE or Company,
which are not already vested, will immediately vest and be
exercisable for the lesser of two years or their remaining life.
(This is not applicable in the case of termination for death or
disability.)
- Executive will be paid at the time of termination a pro rata
portion of the regular annual incentive bonus opportunity for the
partial year in which terminated. The portion of this bonus
dependent on earnings or other objective goals shall be based on
performance through the last completed fiscal quarter and target
performance thereafter. The portion dependent on subjective goals
shall be based on the amount for target performance.
- Executive will be paid the amount being held for Executive under
Company's Enhanced Management Incentive Plan for 1999-2000 as
provided in Section 6 below.
- Executive will be paid monthly for the next two years (`Severance
Period") an amount equal to 140% of Executive's then salary for
the portion of this period prior to 2001 and an amount equal to
180% of Executive's then salary for the portion of this period
after 2000. (This is not applicable in the case of termination
for death or disability.)
- Executive will be provided medical and life insurance coverage
during the Severance Period on same terms as such coverage was
provided prior to the Change of Control. (This is not applicable
in the case of termination for death or disability.)
- All Executive's deferred compensation and earnings thereon under
Company's Deferred Compensation Plan will be paid in accordance
with the terms of that plan
2
<PAGE> 3
These Severance Benefits shall be in lieu of the six-month notice of
termination by Company provided by Section 1. These Severance Benefits
shall not be subject to reduction or offset for any compensation Executive
may earn from others during the Severance Period.
5. A. If in connection with or following a Change of Control, there is a
transaction or a series of related transactions in which 25% or more of
AXE's common stock will be converted to or exchanged for any consideration
other than publicly traded common stock ("Non-stock Consideration"), the
unvested stock options of Executive will be exercisable for the period and
to the extent necessary to enable Executive to receive in such transaction
or series of related transactions the same pro rata portion of such
Non-stock Consideration as Executive would have been able to receive if all
his options were exercisable.
B. Upon the occurrence of either of the following events, all of
Executive's options to purchase stock of AXE or Company or the stock of any
business enterprise that has been substituted for the stock of AXE or
Company will immediately vest and will be exercisable for the lesser of two
years after termination of Executive's employment or for the remaining life
of the options:
- In connection with a Change of Control, Executive is not notified
in writing that for the foreseeable future his responsibilities
are continuing as the Chief Executive Officer (with all the
responsibilities that normally accompany that position) of the
business enterprise that includes the Company and the issuer of
the stock to be purchased pursuant to the options; or
- Following a Change of Control, Executive is not the Chief
Executive Officer of such business enterprise as provided above.
6. A. If a Change of Control shall occur prior to 2000, Executive shall be
cashed out of his rights in Company's Enhanced Management Incentive Plan
for 1999-2000 (the "Plan") as follows: A number of Shares of AXE Stock
("Shares") shall be determined by dividing the greater of $1,440,000 or the
sum of $720,000 plus the amount that would be earned for the current year
based on actual results through the most recent month end prior to the
Change of Control plus the target amount, as defined by the Plan, for the
balance of the year, by the average closing price for the Shares for the
trading days in 1999 prior to the Change of Control in accordance with the
provisions of the Plan. This number of shares shall be multiplied by the
higher of the average price per Share paid by the Third Party at the time
of the Change of Control or the average closing price of the Shares for the
ten trading days preceding the Change of Control. Half this amount shall be
paid to the Executive by January 15, 2000 and the remainder shall be paid
in four equal installments on each anniversary of the Change of Control.
Upon termination pursuant to Section 4 above or death or disability as
provided in Section 1 above, any remaining payments shall be promptly made.
No payment shall be due for any anniversaries
3
<PAGE> 4
following the termination of Executive's employment, other than by death or
disability, by Company with Good Cause for Termination or by Executive
without Good Cause for Termination.
B. If a Change of Control shall occur in 2000, Executive shall be cashed
out of his rights in the Plan for 2000 as follows: A number of Shares of
AXE Stock ("Shares") shall be determined by dividing the higher of
Executive Enhanced Incentive Opportunity for 2000 or, $ 720,000 by the
average closing price for the Shares for the trading days in 2000 prior to
the Change of Control in accordance with the provisions of the Plan. This
number of shares shall be multiplied by the higher of the average price per
Share paid by the Third Party at the time of the Change of Control or the
average closing price of the Shares for the ten trading days preceding the
Change of Control. This amount shall be paid in four equal installments on
each anniversary of the Change of Control. Upon termination pursuant to
Section 4 above or death or disability as provided in Section 1 above, any
remaining payments shall be promptly made. No payment shall be due for any
anniversaries following the termination of Executive's employment, other
than by death or disability, by Company with Good Cause for Termination or
by Executive without Good Cause for Termination.
7. Company will promptly pay to Executive the amount of any excise taxes
imposed on Executive under Section 4999 of the Internal Revenue Code by
reason of payments or benefits under the provisions of this Agreement,
including this provision, and the amount of any federal and state income
taxes imposed on Executive by reason of payments to Executive under this
Section.
8. During the term of Executive' employment and continuing through the later
of the end of the Severance Benefits or two years from a Change of Control,
except on behalf of Company, Executive will not participate individually or
as an employee, consultant, officer, director, agent, investor or otherwise
in any of the following activities:
- The recruitment for employment of any person who was employed by
Company at, or within 60 days prior to, the time of the
termination of Executive's employment if that person at the time
of recruitment is, or was in the preceding 60 days, employed by
Company at an annual salary of more than $60,000.
- The selling to the same customers of any products that perform
substantially the same functions (the "Competing Products) as any
products that Company is selling (the "Protected Products") those
customers. Protected Products and Competing Products shall not
include products that neither (a) perform the same function as
products that Company was distributing at the time of the
termination of Executive's employment nor (b) are replacements
for or
4
<PAGE> 5
enhancements of products that Company was distributing at the
time of the termination of Executive's employment. This
prohibition shall not apply if the then aggregate monthly
revenues from either the Competing Products or the Protected
Products do not exceed $200,000.
Executive shall not be deemed to be in breach of these prohibitions after
termination of Executive's employment merely by reason of employment with a
business that is engaging in prohibited activities as long as Executive is
not supervising or otherwise participating in those activities or by reason
of employment with a business that sells Competing Products solely through
independent distributors. A Beneficial Ownership of less than one percent
shall not be considered a prohibited participation
Executive at any time may submit a written request to the General Counsel
for Company for advice on whether any planned activities of Executive would
violate the provisions of this Section. The details of such request shall
be maintained in confidence and the written advice of the General Counsel
shall be binding on Company. If the General Counsel does not respond to
such a request within 15 days, it shall be deemed that the General Counsel
advised that such activity would not violate this Section.
Executive agrees that non-public information about the activities of
Company that Executive obtained before the term of this Agreement or
obtains during the term of this Agreement is confidential and proprietary
and will not be used or disclosed by Executive except on behalf of Company
until that information otherwise becomes generally known or the fifth
anniversary of the termination of Executive's employment, whichever shall
first occur.
It is the intent of the parties that the provisions of this Section be
interpreted and applied in an enforceable manner. To the extent necessary
to achieve this intent, the parties agree that the provisions of this
Section shall be deemed modified. Executive acknowledges that damages would
not be an adequate remedy for violation of the provisions of this Section
and agrees that Company would be entitled to an injunction to prevent
Executive from engaging in such activities, and in seeking such an
injunction should not be required to post any bond.
9. Any modification or binding interpretation of this Agreement must be in
writing. Any such writing must be approved by the Board of Directors of
Company, except as provided in Section 8 for advice by Company's General
Counsel.
10. The prevailing party in any litigation concerning this Agreement shall be
reimbursed by the party found to be in breach of this Agreement for all
reasonable costs, including attorney fees, incurred by the prevailing
party.
5
<PAGE> 6
11. This Agreement may be assigned by Company to a purchaser of substantially
all of its assets if that purchaser assumes all of Company's obligations
under this Agreement. This Agreement shall be binding on any successor of
Company by merger or consolidation. Any such purchaser or successor shall
be deemed to be "Company."
12. This Agreement shall terminate on the date specified in a written notice of
termination delivered by either party to the other, which date shall be at
least twelve months after the delivery of the written notice of
termination. Termination of this Agreement shall not effect any obligation,
whether or not contingent, that arose under this Agreement prior to its
termination. For example, termination of this Agreement after a Change of
Control will not affect the obligations of Company in the event of a
termination of employment within the provisions of Section 4 even if that
termination of employment occurs after the termination of this Agreement.
Executed this 22nd day of July 1999.
Anixter Inc.
By __________________ _____________________
Executive
6
<PAGE> 1
Exhibit 10.23
EMPLOYMENT AGREEMENT
Anixter Inc., ("Company") and Dennis J. Letham ("Executive") agree as follows:
1. Company will employ Executive and Executive will work for Company in an
executive capacity until termination of Executive's employment on the date
specified in a written notice of termination delivered by either party to
the other, which date, except in the case of Good Cause for Termination,
shall be at least six months after the delivery of the written notice of
termination.
2. "Good Cause for Termination" shall mean:
- Death of Executive or total disability of Executive as defined in
Company's then long-term disability insurance policy.
- In the case of termination by Executive, Executive is required to
relocate without Executive's concurrence, Executive's then level
of responsibilities are significantly reduced, Executive is no
longer the Chief Financial Officer (with all responsibilities
that normally accompany that position) of the business enterprise
that includes the Company and the Issuer of the stock to be
purchased pursuant to the options to purchase stock that have
been granted to Executive by AXE or Company, or Executive's then
salary, regular bonus opportunity and benefits are significantly
reduced and, in each case, this situation is not corrected by
Company within 15 days of notice from Executive, provided that a
reduction in level of responsibilities during first 6 months or a
failure to continue as Chief Financial Officer as provided above
during the first 12 months following a notice of termination by
Executive or the occurrence of a Change in Control shall not be
considered Good Cause for Termination, during and only during
such 6 or 12 month period as the case may be.
- In the case of termination by Company, repeated material failure
by Executive to follow appropriate instructions, material breach
by Executive of his fiduciary obligations to the Company, or
commission of dishonest acts by Executive that in the reasonable
judgment of Company makes the continuation of Executive's
employment inappropriate.
3. A "Change of Control" shall occur if (a) substantially all the assets of
Company or its parent Anixter International Inc. ("AXE") are sold to a
Third Party or a Third Party becomes the Beneficial Owner of the greater of
(I) 25%, or (ii) the percentage owned by Sam Zell and his affiliates, of
Company's or AXE's securities that vote for
<PAGE> 2
the election of directors or (b) a majority of the Board of Directors of
Company or AXE were not nominated for election by the Board of Directors of
Company or AXE. A "Third Party" is any Person, other than Samuel Zell or
his Affiliates and other than Anixter International Inc. or its
subsidiaries. "Person," "Affiliates," and "Beneficial Owner" shall be
defined as those terms are defined pursuant to the Securities Exchange Act
of 1934, as amended.
4. If within the four year period following a Change of Control, the
employment of Executive is terminated by Company without Good Cause for
Termination or is terminated by Executive with Good Cause for Termination,
Executive will be entitled to the following Severance Benefits (except as
indicated in the case of termination for death or disability):
- All Executive's options to purchase stock of AXE or Company,
which are not already vested, will immediately vest and be
exercisable for the lesser of two years or their remaining life.
(This is not applicable in the case of termination for death or
disability.)
- Executive will be paid at the time of termination a pro rata
portion of the regular annual incentive bonus opportunity for the
partial year in which terminated. The portion of this bonus
dependent on earnings or other objective goals shall be based on
performance through the last completed fiscal quarter and target
performance thereafter. The portion dependent on subjective goals
shall be based on the amount for target performance.
- Executive will be paid the amount being held for Executive under
Company's Enhanced Management Incentive Plan for 1999-2000 as
provided in Section 6 below.
- Executive will be paid monthly for the next two years (`Severance
Period") an amount equal to 140.68% of Executive's then salary
for the portion of this period prior to 2001 and an amount equal
to 181.36% of Executive's then salary for the portion of this
period after 2000. (This is not applicable in the case of
termination for death or disability.)
- Executive will be provided medical and life insurance coverage
during the Severance Period on same terms as such coverage was
provided prior to the Change of Control. (This is not applicable
in the case of termination for death or disability.)
- All Executive's deferred compensation and earnings thereon under
Company's Deferred Compensation Plan will be paid in accordance
with the terms of that plan
2
<PAGE> 3
These Severance Benefits shall be in lieu of the six-month notice of
termination by Company provided by Section 1. These Severance Benefits
shall not be subject to reduction or offset for any compensation Executive
may earn from others during the Severance Period.
5. A. If in connection with or following a Change of Control, there is a
transaction or a series of related transactions in which 25% or more of
AXE's common stock will be converted to or exchanged for any consideration
other than publicly traded common stock ("Non-stock Consideration"), the
unvested stock options of Executive will be exercisable for the period and
to the extent necessary to enable Executive to receive in such transaction
or series of related transactions the same pro rata portion of such
Non-stock Consideration as Executive would have been able to receive if all
his options were exercisable.
B. Upon the occurrence of either of the following events, all of
Executive's options to purchase stock of AXE or Company or the stock of any
business enterprise that has been substituted for the stock of AXE or
Company will immediately vest and will be exercisable for the lesser of two
years after termination of Executive's employment or for the remaining life
of the options:
- In connection with a Change of Control, Executive is not notified
in writing that for the foreseeable future his responsibilities
are continuing as the Chief Financial Officer (with all the
responsibilities that normally accompany that position) of the
business enterprise that includes the Company and the issuer of
the stock to be purchased pursuant to the options; or
- Following a Change of Control, Executive is not the Chief
Financial Officer of such business enterprise as provided above.
6. A. If a Change of Control shall occur prior to 2000, Executive shall be
cashed out of his rights in Company's Enhanced Management Incentive Plan
for 1999-2000 (the "Plan") as follows: A number of Shares of AXE Stock
("Shares") shall be determined by dividing the greater of $ 854,000 or the
sum of $427,000 plus the amount that would be earned for the current year
based on actual results through the most recent month end prior to the
Change of Control plus the target amount, as defined by the Plan, for the
balance of the year, by the average closing price for the Shares for the
trading days in 1999 prior to the Change of Control in accordance with the
provisions of the Plan. This number of shares shall be multiplied by the
higher of the average price per Share paid by the Third Party at the time
of the Change of Control or the average closing price of the Shares for the
ten trading days preceding the Change of Control. Half this amount shall be
paid to the Executive by January 15, 2000 and the remainder shall be paid
in four equal installments on each anniversary of the Change of Control.
Upon termination pursuant to Section 4 above or death or disability as
provided in Section 1 above, any remaining payments shall be promptly made.
No payment shall be due for any anniversaries
3
<PAGE> 4
following the termination of Executive's employment, other than by death or
disability, by Company with Good Cause for Termination or by Executive
without Good Cause for Termination.
B. If a Change of Control shall occur in 2000, Executive shall be cashed
out of his rights in the Plan for 2000 as follows: A number of Shares of
AXE Stock ("Shares") shall be determined by dividing the higher of
Executive Enhanced Incentive Opportunity for 2000 or, $ 427,000 by the
average closing price for the Shares for the trading days in 2000 prior to
the Change of Control in accordance with the provisions of the Plan. This
number of shares shall be multiplied by the higher of the average price per
Share paid by the Third Party at the time of the Change of Control or the
average closing price of the Shares for the ten trading days preceding the
Change of Control. This amount shall be paid in four equal installments on
each anniversary of the Change of Control. Upon termination pursuant to
Section 4 above or death or disability as provided in Section 1 above, any
remaining payments shall be promptly made. No payment shall be due for any
anniversaries following the termination of Executive's employment, other
than by death or disability, by Company with Good Cause for Termination or
by Executive without Good Cause for Termination.
7. Company will promptly pay to Executive the amount of any excise taxes
imposed on Executive under Section 4999 of the Internal Revenue Code by
reason of payments or benefits under the provisions of this Agreement,
including this provision, and the amount of any federal and state income
taxes imposed on Executive by reason of payments to Executive under this
Section.
8. During the term of Executive' employment and continuing through the later
of the end of the Severance Benefits or two years from a Change of Control,
except on behalf of Company, Executive will not participate individually or
as an employee, consultant, officer, director, agent, investor or otherwise
in any of the following activities:
- The recruitment for employment of any person who was employed by
Company at, or within 60 days prior to, the time of the
termination of Executive's employment if that person at the time
of recruitment is, or was in the preceding 60 days, employed by
Company at an annual salary of more than $60,000.
- The selling to the same customers of any products that perform
substantially the same functions (the "Competing Products) as any
products that Company is selling (the "Protected Products") those
customers. Protected Products and Competing Products shall not
include products that neither (a) perform the same function as
products that Company was distributing at the time of the
termination of Executive's employment nor (b) are replacements
for or
4
<PAGE> 5
enhancements of products that Company was distributing at the
time of the termination of Executive's employment. This
prohibition shall not apply if the then aggregate monthly
revenues from either the Competing Products or the Protected
Products do not exceed $200,000.
Executive shall not be deemed to be in breach of these prohibitions after
termination of Executive's employment merely by reason of employment with a
business that is engaging in prohibited activities as long as Executive is
not supervising or otherwise participating in those activities or by reason
of employment with a business that sells Competing Products solely through
independent distributors. A Beneficial Ownership of less than one percent
shall not be considered a prohibited participation
Executive at any time may submit a written request to the General Counsel
for Company for advice on whether any planned activities of Executive would
violate the provisions of this Section. The details of such request shall
be maintained in confidence and the written advice of the General Counsel
shall be binding on Company. If the General Counsel does not respond to
such a request within 15 days, it shall be deemed that the General Counsel
advised that such activity would not violate this Section.
Executive agrees that non-public information about the activities of
Company that Executive obtained before the term of this Agreement or
obtains during the term of this Agreement is confidential and proprietary
and will not be used or disclosed by Executive except on behalf of Company
until that information otherwise becomes generally known or the fifth
anniversary of the termination of Executive's employment, whichever shall
first occur.
It is the intent of the parties that the provisions of this Section be
interpreted and applied in an enforceable manner. To the extent necessary
to achieve this intent, the parties agree that the provisions of this
Section shall be deemed modified. Executive acknowledges that damages would
not be an adequate remedy for violation of the provisions of this Section
and agrees that Company would be entitled to an injunction to prevent
Executive from engaging in such activities, and in seeking such an
injunction should not be required to post any bond.
9. Any modification or binding interpretation of this Agreement must be in
writing. Any such writing must be approved by the Board of Directors of
Company, except as provided in Section 8 for advice by Company's General
Counsel.
10. The prevailing party in any litigation concerning this Agreement shall be
reimbursed by the party found to be in breach of this Agreement for all
reasonable costs, including attorney fees, incurred by the prevailing
party.
5
<PAGE> 6
11. This Agreement may be assigned by Company to a purchaser of substantially
all of its assets if that purchaser assumes all of Company's obligations
under this Agreement. This Agreement shall be binding on any successor of
Company by merger or consolidation. Any such purchaser or successor shall
be deemed to be "Company."
12. This Agreement shall terminate on the date specified in a written notice of
termination delivered by either party to the other, which date shall be at
least twelve months after the delivery of the written notice of
termination. Termination of this Agreement shall not effect any obligation,
whether or not contingent, that arose under this Agreement prior to its
termination. For example, termination of this Agreement after a Change of
Control will not affect the obligations of Company in the event of a
termination of employment within the provisions of Section 4 even if that
termination of employment occurs after the termination of this Agreement.
Executed this 22nd day of July 1999.
Anixter Inc.
By __________________ _____________________
Executive
6
<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 1, 1999, AND October 2,
1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS
INCLUDING IN SUCH REPORTS. THE 39 WEEKS ENDED October 2, 1998 HAS BEEN RESTATED
TO REFLECT THE DISCONTINUANCE OF THE INTEGRATION SEGMENT.
</LEGEND>
<CIK> 0000052795
<NAME> ANIXTER INTERNATIONAL INC.
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 9-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1999 JAN-01-1999
<PERIOD-START> JAN-02-1999 JAN-03-1998
<PERIOD-END> OCT-01-1999 OCT-02-1998
<CASH> 15,700 15,800
<SECURITIES> 0 0
<RECEIVABLES> 590,500 495,800
<ALLOWANCES> 10,100 11,600
<INVENTORY> 517,000 421,400
<CURRENT-ASSETS> 1,128,000 935,100
<PP&E> 152,700 147,400
<DEPRECIATION> 96,700 88,600
<TOTAL-ASSETS> 1,468,100 1,376,800
<CURRENT-LIABILITIES> 450,800 348,800
<BONDS> 0 0
0 0
0 0
<COMMON> 36,100 42,700
<OTHER-SE> 409,800 377,200
<TOTAL-LIABILITY-AND-EQUITY> 1,468,100 1,376,800
<SALES> 1,964,000 1,764,000
<TOTAL-REVENUES> 1,964,000 1,764,000
<CGS> 1,496,900 1,327,200
<TOTAL-COSTS> 1,880,300 1,689,400
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 25,000 23,100
<INCOME-PRETAX> 58,500 71,100
<INCOME-TAX> 300 29,600
<INCOME-CONTINUING> 58,200 41,500
<DISCONTINUED> 51,300 19,700
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 109,500 61,200
<EPS-BASIC> 2.88 1.34
<EPS-DILUTED> 2.85 1.32
</TABLE>
