Form 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 27, 2008
OR
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number: 1-5989
ANIXTER INTERNATIONAL INC.
(Exact name of registrant as specified in its charter)
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| Delaware
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94-1658138 |
| (State or other jurisdiction of incorporation or organization)
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(I.R.S. Employer Identification No.) |
2301 Patriot Blvd.
Glenview, Illinois 60026
(224) 521-8000
(Address and telephone number of principal executive offices)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes þ No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of “large
accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act. (Check one)
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Large Accelerated Filer þ |
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Accelerated Filer o |
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Non-Accelerated Filer o
(Do not check if a smaller reporting company) |
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Smaller Reporting Company o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Exchange Act).
Yes o No þ
At July 25, 2008, 35,134,925 shares of the registrant’s Common Stock, $1.00 par value, were
outstanding.
ANIXTER INTERNATIONAL INC.
TABLE OF CONTENTS
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| * |
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No reportable information under this item. |
This report may contain various “forward-looking statements” within the meaning of Section
27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange
Act of 1934, as amended. The statements can be identified by the use of forward-looking
terminology such as “believe,” “expects,” “intends,” “anticipates,” “completes,”
“estimates,” “plans,” “projects,” “should,” “may” or the negative thereof or other
variations thereon or comparable terminology indicating the Company’s expectations or
beliefs concerning future events. The Company cautions that such statements are qualified by
important factors that could cause actual results to differ materially from those in the
forward-looking statements, a number of which are identified in this report. Other factors
could also cause actual results to differ materially from expected results included in these
statements. These factors include changes in supplier or customer relationships, technology
changes, economic and currency risks, new or changed competitors, risks associated with
inventory, commodity price fluctuations and risks associated with the integration of
recently acquired companies.
i
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
ANIXTER INTERNATIONAL INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
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13 Weeks Ended |
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26 Weeks Ended |
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June 27, |
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June 29, |
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June 27, |
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June 29, |
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| (In millions, except per share amounts) |
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2008 |
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2007 |
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2008 |
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2007 |
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Net sales |
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$ |
1,616.8 |
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$ |
1,511.5 |
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$ |
3,088.4 |
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$ |
2,840.2 |
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Cost of operations: |
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Cost of goods sold |
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1,232.7 |
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1,148.2 |
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2,355.8 |
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2,158.5 |
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Operating expenses |
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262.3 |
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247.2 |
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509.3 |
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475.2 |
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Total costs and expenses |
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1,495.0 |
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1,395.4 |
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2,865.1 |
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2,633.7 |
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Operating income |
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121.8 |
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116.1 |
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223.3 |
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206.5 |
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Other (expense) income: |
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Interest expense |
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(11.1 |
) |
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(11.1 |
) |
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(22.6 |
) |
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(22.0 |
) |
Other, net |
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(3.6 |
) |
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2.4 |
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(3.9 |
) |
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3.1 |
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Income before income taxes |
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107.1 |
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107.4 |
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196.8 |
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187.6 |
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Income tax expense |
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40.2 |
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42.8 |
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72.2 |
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69.4 |
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Net income |
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$ |
66.9 |
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$ |
64.6 |
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$ |
124.6 |
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$ |
118.2 |
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Net income per share: |
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Basic |
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$ |
1.89 |
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$ |
1.74 |
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$ |
3.50 |
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$ |
3.16 |
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Diluted |
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$ |
1.71 |
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$ |
1.53 |
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$ |
3.16 |
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$ |
2.81 |
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See accompanying notes to the condensed consolidated financial statements.
1
ANIXTER INTERNATIONAL INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
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June 27, |
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December 28, |
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2008 |
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2007 |
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| (In millions, except share amounts) |
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(Unaudited) |
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ASSETS
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Current assets: |
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Cash and cash equivalents |
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$ |
48.9 |
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$ |
42.2 |
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Accounts receivable (less allowances of $27.2 and $25.6
in 2008 and 2007, respectively) |
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1,274.0 |
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1,215.9 |
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Inventories |
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1,102.4 |
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1,065.0 |
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Deferred income taxes |
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38.0 |
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37.6 |
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Other current assets |
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20.7 |
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18.2 |
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Total current assets |
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2,484.0 |
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2,378.9 |
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Property and equipment, at cost |
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251.3 |
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235.2 |
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Accumulated depreciation |
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(167.7 |
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(157.1 |
) |
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Net property and equipment |
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83.6 |
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78.1 |
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Goodwill |
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407.8 |
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403.2 |
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Other assets |
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156.7 |
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156.0 |
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$ |
3,132.1 |
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$ |
3,016.2 |
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LIABILITIES AND STOCKHOLDERS’ EQUITY
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Current liabilities: |
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Accounts payable |
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$ |
724.3 |
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$ |
654.8 |
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Accrued expenses |
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162.4 |
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201.0 |
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Short-term debt |
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123.1 |
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84.1 |
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Total current liabilities |
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1,009.8 |
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939.9 |
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Long-term debt |
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932.1 |
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937.2 |
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Other liabilities |
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93.2 |
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91.3 |
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Total liabilities |
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2,035.1 |
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1,968.4 |
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Stockholders’ equity: |
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Common stock — $1.00 par value, 100,000,000 shares
authorized, 35,011,214 and 36,335,448 shares issued and
outstanding in 2008 and 2007, respectively |
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35.0 |
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36.3 |
|
Capital surplus |
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165.4 |
|
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145.2 |
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Retained earnings |
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837.2 |
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|
815.4 |
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Accumulated other comprehensive income: |
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Foreign currency translation |
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64.2 |
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58.1 |
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Unrecognized pension liability |
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(7.8 |
) |
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(8.7 |
) |
Unrealized gain on derivatives |
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3.0 |
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1.5 |
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Total accumulated other comprehensive income |
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59.4 |
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50.9 |
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Total stockholders’ equity |
|
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1,097.0 |
|
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|
1,047.8 |
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$ |
3,132.1 |
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$ |
3,016.2 |
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See accompanying notes to the condensed consolidated financial statements.
2
ANIXTER INTERNATIONAL INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
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26 Weeks Ended |
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June 27, |
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June 29, |
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2008 |
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2007 |
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(In millions) |
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Operating activities: |
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Net income |
|
$ |
124.6 |
|
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$ |
118.2 |
|
Adjustments to reconcile net income to net cash provided by
operating activities: |
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|
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Depreciation |
|
|
12.3 |
|
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|
10.7 |
|
Stock-based compensation |
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11.7 |
|
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5.8 |
|
Amortization of intangible assets |
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4.2 |
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|
3.8 |
|
Accretion of zero coupon convertible notes |
|
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2.6 |
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2.6 |
|
Amortization of deferred financing costs |
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1.0 |
|
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|
0.8 |
|
Deferred income taxes |
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— |
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|
(1.7 |
) |
Excess income tax benefit from employee stock plans |
|
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(5.8 |
) |
|
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(8.6 |
) |
Changes in current assets and liabilities, net |
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(53.6 |
) |
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(96.7 |
) |
Other, net |
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1.9 |
|
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|
0.4 |
|
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|
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|
|
|
Net cash provided by operating activities |
|
|
98.9 |
|
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|
35.3 |
|
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Investing activities: |
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Capital expenditures |
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(17.3 |
) |
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(15.4 |
) |
Acquisition of business, net of cash acquired |
|
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— |
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|
(38.2 |
) |
Other |
|
|
0.2 |
|
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0.1 |
|
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Net cash used in investing activities |
|
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(17.1 |
) |
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(53.5 |
) |
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Financing activities: |
|
|
|
|
|
|
|
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Proceeds from borrowings |
|
|
452.5 |
|
|
|
351.3 |
|
Repayment of borrowings |
|
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(432.5 |
) |
|
|
(444.5 |
) |
Purchases of common stock for treasury |
|
|
(104.6 |
) |
|
|
(162.7 |
) |
Excess income tax benefit from employee stock plans |
|
|
5.8 |
|
|
|
8.6 |
|
Proceeds from issuance of common stock |
|
|
4.4 |
|
|
|
5.7 |
|
Bond proceeds |
|
|
— |
|
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|
300.0 |
|
Purchased call option |
|
|
— |
|
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(88.8 |
) |
Proceeds from sale of warrant |
|
|
— |
|
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|
52.0 |
|
Deferred financing costs |
|
|
— |
|
|
|
(8.1 |
) |
Other |
|
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(0.7
|
) |
|
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(1.1 |
) |
|
|
|
|
|
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|
Net cash (used in) provided by financing activities |
|
|
(75.1 |
) |
|
|
12.4 |
|
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|
|
|
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Increase (decrease) in cash and cash equivalents |
|
|
6.7 |
|
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|
(5.8 |
) |
Cash and cash equivalents at beginning of period |
|
|
42.2 |
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|
50.9 |
|
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Cash and cash equivalents at end of period |
|
$ |
48.9 |
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$ |
45.1 |
|
|
|
|
|
|
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|
See accompanying notes to the condensed consolidated financial statements.
3
ANIXTER INTERNATIONAL INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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 (“the Company”) Annual Report on Form 10-K for the year ended December 28, 2007. 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. Certain
reclassifications have been made to conform to the current year presentation. The results of
operations of any interim period are not necessarily indicative of the results that may be expected
for a full fiscal year.
Recently issued accounting pronouncements: In September 2006, the Financial Accounting
Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 157, Fair
Value Measurements (“SFAS No. 157”). SFAS No. 157 defines fair value, establishes a framework for
measuring fair value and expands disclosure requirements about fair value measurements but does not
change existing guidance as to whether or not an instrument is carried at fair value. In February
2008, the FASB released a FASB Staff Position, which delayed the effective date of SFAS No. 157 for
all nonfinancial assets and nonfinancial liabilities, except those that are recognized or disclosed
at fair value in the condensed consolidated financial statements on a recurring basis. SFAS No. 157
was first effective for the Company on December 29, 2007 (the beginning of fiscal 2008 for the
Company). The adoption of SFAS No. 157 on the Company’s financial assets and liabilities, which are
principally comprised of cash equivalents and derivatives, did not have a significant impact on
their fair value measurements or require expanded disclosures since the fair value of its financial
assets and liabilities outstanding during the 26 weeks ended June 27, 2008 was not material.
In December 2007, the FASB issued SFAS No. 141(R), Business Combinations (“SFAS No. 141(R)”),
which replaces SFAS No. 141 and establishes principles and requirements for how an acquirer
recognizes and measures in its financial statements the identifiable assets acquired, the
liabilities assumed, any non-controlling interest in the acquiree and the goodwill acquired. SFAS
No. 141(R) also establishes disclosure requirements which will enable users to evaluate the nature
and financial effects of the business combination. SFAS No. 141(R) is effective as of the beginning
of an entity’s fiscal year that begins after December 15, 2008, which will be fiscal year 2009 for
the Company. The Company is currently evaluating the potential impact, if any, of the adoption of
SFAS No. 141(R) on the Company’s condensed consolidated financial statements.
In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and
Hedging Activities, an amendment of Financial Accounting Standards Board Statement No. 133 (“SFAS
No. 161”). The objective of this Statement is to expand the disclosure requirements in SFAS No.
133, Accounting for Derivative Instruments and Hedging Activities (“SFAS No. 133”) and provide an
enhanced understanding of why an entity uses derivative instruments, how the entity accounts for
derivative instruments and related hedged items and how derivative instruments and related hedged
items affect the entity’s financial statements. SFAS No. 161 is effective as of the beginning of an
entity’s fiscal year or interim period that begins after November 15, 2008, which will be fiscal
year 2009 for the Company. The Company is currently evaluating the potential impact, if any, of the
adoption of SFAS No. 161 on the Company’s condensed consolidated financial statements.
4
ANIXTER INTERNATIONAL INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
In May 2008, the FASB issued Staff Position No. APB 14-1, Accounting for Convertible Debt
Instruments that May be Settled in Cash Upon Conversion (Including Partial Cash Settlement) (“FSP
APB 14-1”). FSP APB 14-1 requires that the liability and equity components of convertible debt
instruments that may be settled in cash upon conversion (including partial cash settlement) be
separately accounted for in a manner that reflects an issuer’s nonconvertible debt borrowing rate.
The FSP APB 14-1 requires bifurcation of a component of the debt, classification of that component
in equity and the accretion of the resulting discount on the debt to be recognized as part of
interest expense in the Company’s consolidated statement of operations. FSP APB 14-1 is effective
for financial statements issued for fiscal years beginning after December 15, 2008 (fiscal 2009 for
the Company), and interim periods within those fiscal years. Retrospective application is required
to be applied to the terms of instruments as they existed for all periods presented.
The Company is currently evaluating the potential impact of the
adoption of FSP APB 14-1 on the Company’s condensed consolidated financial statements.
NOTE 2. COMPREHENSIVE INCOME
Comprehensive income, net of tax, consisted of the following:
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|
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|
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|
| |
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13 Weeks Ended |
|
|
26 Weeks Ended |
|
| |
|
June 27, |
|
|
June 29, |
|
|
June 27, |
|
|
June 29, |
|
| (In millions) |
|
2008 |
|
|
2007 |
|
|
2008 |
|
|
2007 |
|
Net income |
|
$ |
66.9 |
|
|
$ |
64.6 |
|
|
$ |
124.6 |
|
|
$ |
118.2 |
|
Change in cumulative translation adjustment |
|
|
1.5 |
|
|
|
16.3 |
|
|
|
6.1 |
|
|
|
17.6 |
|
Change in unrecognized pension liability |
|
|
— |
|
|
|
2.2 |
|
|
|
0.9 |
|
|
|
2.6 |
|
Change in fair market value of derivatives |
|
|
2.2 |
|
|
|
1.4 |
|
|
|
1.5 |
|
|
|
1.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income |
|
$ |
70.6 |
|
|
$ |
84.5 |
|
|
$ |
133.1 |
|
|
$ |
140.1 |
|
|
|
|
|
|
|
|
|
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|
5
ANIXTER INTERNATIONAL INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 3. INCOME PER SHARE
The following table sets forth the computation of basic and diluted income per share:
| |
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
13 Weeks Ended |
|
|
26 Weeks Ended |
|
| |
|
June 27, |
|
|
June 29, |
|
|
June 27, |
|
|
June 29, |
|
| (In millions, except per share data) |
|
2008 |
|
|
2007 |
|
|
2008 |
|
|
2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic Income per Share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
66.9 |
|
|
$ |
64.6 |
|
|
$ |
124.6 |
|
|
$ |
118.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average common shares outstanding |
|
|
35.4 |
|
|
|
37.1 |
|
|
|
35.6 |
|
|
|
37.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per basic share |
|
$ |
1.89 |
|
|
$ |
1.74 |
|
|
$ |
3.50 |
|
|
$ |
3.16 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted Income per Share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
66.9 |
|
|
$ |
64.6 |
|
|
$ |
124.6 |
|
|
$ |
118.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average common shares outstanding |
|
|
35.4 |
|
|
|
37.1 |
|
|
|
35.6 |
|
|
|
37.4 |
|
Effect of dilutive securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options and units |
|
|
0.8 |
|
|
|
1.2 |
|
|
|
0.9 |
|
|
|
1.3 |
|
Convertible notes due 2033 |
|
|
2.9 |
|
|
|
3.4 |
|
|
|
3.0 |
|
|
|
3.1 |
|
Convertible notes due 2013 |
|
|
— |
|
|
|
0.5 |
|
|
|
— |
|
|
|
0.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average common shares outstanding |
|
|
39.1 |
|
|
|
42.2 |
|
|
|
39.5 |
|
|
|
42.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per diluted share |
|
$ |
1.71 |
|
|
$ |
1.53 |
|
|
$ |
3.16 |
|
|
$ |
2.81 |
|
The Notes due 2013 were originally issued in February of 2007. Upon conversion, holders will
receive cash up to the principal amount, and any excess conversion value will be delivered, at the
Company’s election in cash, common stock or a combination of cash and common stock. When the
Company’s average stock price for the reporting period exceeds the conversion price of $63.48,
additional shares are required to be included in the diluted weighted-average common shares
outstanding. No shares have been included in the diluted weighted-average common shares outstanding
for both the 13 and 26 weeks ended June 27, 2008 as the Notes due 2013 were not dilutive. As a
result of the Company’s average stock price exceeding the conversion price in the corresponding
periods in 2007, 0.5 million and 0.3 million additional shares related to the Notes due 2013 have
been included, respectively, in the diluted weighted-average common shares outstanding.
The Convertible Notes due 2033 (“Notes due 2033”) were originally issued in July of 2003 and
were convertible into 15.067 shares of the Company’s common stock during both the 13 and 26 weeks
ended June 27, 2008 and June 29, 2007. As a result of the conversion value exceeding the accreted
principal, 2.9 million and 3.0 million additional shares related to the Notes due 2033 have been
included in the diluted weighted-average common shares outstanding for the 13 and 26 weeks ended
June 27, 2008, respectively. In the corresponding periods in 2007, 3.4 million and 3.1 million
additional shares related to the Notes due 2033 have been included, respectively, in the diluted
weighted-average common shares outstanding. Upon conversion, the Company is required to deliver an
amount of cash equal to the accreted principal amount and a number of common stock shares with a
value equal to the amount, if any, by which the conversion value exceeds the accreted principal
amount at the time of the conversion.
In the 13 weeks ended June 27, 2008 and June 29, 2007, the Company issued 0.1 million and 0.4
million shares, respectively, due to stock option exercises and vesting of stock units. In the 26
weeks ended June 27, 2008 and June
29, 2007, the Company issued 0.4 million and 0.7 million shares, respectively, due to stock
option exercises and vesting of stock units.
6
ANIXTER INTERNATIONAL INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Primarily as a result of the Company’s share repurchases during the last year, the diluted
weighted-average common shares outstanding declined by 7% and 6% during the 13 and 26 weeks ended
June 27, 2008, respectively, as compared to the corresponding periods in the prior year. The
reduction in the diluted weighted-average common shares outstanding produced a favorable impact on
net income per diluted share of $0.09 and $0.12 in the 13 and 26 weeks ended June 27, 2008,
respectively.
NOTE 4. INCOME TAXES
The effective tax rate for the 13 weeks ended June 27, 2008 is 37.5%, as compared to 39.8% for
the corresponding period in 2007. The 2007 period included $2.1 million, or $0.05 per diluted
share, of additional income tax provision primarily related to a change in the Company’s projected
earnings by tax jurisdiction and the settlement of several tax audits. Excluding the $2.1 million
of additional income tax provision, the Company’s effective tax rate in the 13 weeks ended June 29,
2007 was 37.9%.
The effective tax rate for the 26 weeks ended June 27, 2008 is 36.7%, inclusive of $1.6
million of net tax benefits, or $0.04 per diluted share, related to reversal of valuation
allowances associated with certain foreign net operating loss carryforwards in the first quarter of
2008. The effective tax rate for the 26 weeks ended June 29, 2007 was 37.0%, inclusive of net tax
benefits $1.7 million, or $0.04 per diluted share, primarily related to the settlement of certain
income tax audits. Excluding these tax benefits, the Company’s effective tax rate in the 26 weeks
ended June 27, 2008 and June 29, 2007 was 37.5% and 37.9%, respectively.
NOTE 5. PENSION PLANS
The Company has various defined benefit and defined contribution pension plans. The defined
benefit plans are the Anixter Inc. Pension Plan, Executive Benefit Plan and Supplemental Executive
Retirement Plan (together the “Domestic Plans”) and various pension plans covering employees of
foreign subsidiaries (“Foreign Plans”). The majority of the Company’s pension plans are
non-contributory and cover substantially all full-time domestic employees and certain employees in
other countries. Retirement benefits are provided based on compensation as defined in both the
Domestic and Foreign Plans. The Company’s policy is to fund all plans as required by the Employee
Retirement Income Security Act of 1974 (“ERISA”), the IRS and applicable foreign laws. Assets in
the various plans consisted primarily of equity securities and fixed income investments.
Components of net periodic pension cost are as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
13 Weeks Ended |
|
| |
|
Domestic |
|
|
Foreign |
|
|
Total |
|
| |
|
June 27, |
|
|
June 29, |
|
|
June 27, |
|
|
June 29, |
|
|
June 27, |
|
|
June 29, |
|
| |
|
2008 |
|
|
2007 |
|
|
2008 |
|
|
2007 |
|
|
2008 |
|
|
2007 |
|
| |
|
(In millions) |
|
Service cost |
|
$ |
1.4 |
|
|
$ |
1.3 |
|
|
$ |
1.5 |
|
|
$ |
1.5 |
|
|
$ |
2.9 |
|
|
$ |
2.8 |
|
Interest cost |
|
|
2.5 |
|
|
|
2.2 |
|
|
|
2.7 |
|
|
|
2.3 |
|
|
|
5.2 |
|
|
|
4.5 |
|
Expected return on plan assets |
|
|
(3.0 |
) |
|
|
(2.6 |
) |
|
|
(2.9 |
) |
|
|
(2.5 |
) |
|
|
(5.9 |
) |
|
|
(5.1 |
) |
Net amortization |
|
|
0.1 |
|
|
|
(0.1 |
) |
|
|
— |
|
|
|
0.1 |
|
|
|
0.1 |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic cost |
|
$ |
1.0 |
|
|
$ |
0.8 |
|
|
$ |
1.3 |
|
|
$ |
1.4 |
|
|
$ |
2.3 |
|
|
$ |
2.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7
ANIXTER INTERNATIONAL INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
26 Weeks Ended |
|
| |
|
Domestic |
|
|
Foreign |
|
|
Total |
|
| |
|
June 27, |
|
|
June 29, |
|
|
June 27, |
|
|
June 29, |
|
|
June 27, |
|
|
June 29, |
|
| |
|
2008 |
|
|
2007 |
|
|
2008 |
|
|
2007 |
|
|
2008 |
|
|
2007 |
|
| |
|
(In millions) |
|
Service cost |
|
$ |
2.8 |
|
|
$ |
2.8 |
|
|
$ |
2.9 |
|
|
$ |
2.8 |
|
|
$ |
5.7 |
|
|
$ |
5.6 |
|
Interest cost |
|
|
5.0 |
|
|
|
4.5 |
|
|
|
5.4 |
|
|
|
4.6 |
|
|
|
10.4 |
|
|
|
9.1 |
|
Expected return on plan assets |
|
|
(5.9 |
) |
|
|
(5.3 |
) |
|
|
(5.8 |
) |
|
|
(4.9 |
) |
|
|
(11.7 |
) |
|
|
(10.2 |
) |
Net amortization |
|
|
0.2 |
|
|
|
0.3 |
|
|
|
— |
|
|
|
0.2 |
|
|
|
0.2 |
|
|
|
0.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic cost |
|
$ |
2.1 |
|
|
$ |
2.3 |
|
|
$ |
2.5 |
|
|
$ |
2.7 |
|
|
$ |
4.6 |
|
|
$ |
5.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTE 6. SUMMARIZED FINANCIAL INFORMATION OF ANIXTER INC.
The Company guarantees, fully and unconditionally, substantially all of the debt of its
subsidiaries, which include Anixter Inc. The Company has no independent assets or operations and
all other subsidiaries other than Anixter Inc. are minor. The following summarizes the financial
information for Anixter Inc. (in millions):
ANIXTER INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
| |
|
|
|
|
|
|
|
|
| |
|
June 27, |
|
|
December 28, |
|
| |
|
2008 |
|
|
2007 |
|
| |
|
(Unaudited) |
|
|
|
|
|
Assets: |
|
|
|
|
|
|
|
|
Current assets |
|
$ |
2,483.5 |
|
|
$ |
2,379.0 |
|
Property, equipment and capital leases, net |
|
|
101.7 |
|
|
|
96.8 |
|
Goodwill |
|
|
407.8 |
|
|
|
403.2 |
|
Other assets |
|
|
145.1 |
|
|
|
146.0 |
|
|
|
|
|
|
|
|
|
|
$ |
3,138.1 |
|
|
$ |
3,025.0 |
|
|
|
|
|
|
|
|
Liabilities and Stockholder’s Equity: |
|
|
|
|
|
|
|
|
Current liabilities |
|
$ |
1,008.2 |
|
|
$ |
935.3 |
|
Subordinated notes payable to parent |
|
|
9.5 |
|
|
|
112.5 |
|
Long-term debt |
|
|
487.5 |
|
|
|
495.5 |
|
Other liabilities |
|
|
93.2 |
|
|
|
90.9 |
|
Stockholder’s equity |
|
|
1,539.7 |
|
|
|
1,390.8 |
|
|
|
|
|
|
|
|
|
|
$ |
3,138.1 |
|
|
$ |
3,025.0 |
|
|
|
|
|
|
|
|
8
ANIXTER INTERNATIONAL INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
ANIXTER INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
13 Weeks Ended |
|
26 Weeks Ended |
| |
|
June 27, |
|
June 29, |
|
June 27, |
|
June 29, |
| |
|
2008 |
|
2007 |
|
2008 |
|
2007 |
Net sales |
|
$ |
1,616.8 |
|
|
$ |
1,511.5 |
|
|
$ |
3,088.4 |
|
|
$ |
2,840.2 |
|
Operating income |
|
$ |
123.0 |
|
|
$ |
117.4 |
|
|
$ |
225.6 |
|
|
$ |
208.9 |
|
Income before income taxes |
|
$ |
109.9 |
|
|
$ |
107.6 |
|
|
$ |
201.6 |
|
|
$ |
188.9 |
|
Net income |
|
$ |
69.8 |
|
|
$ |
64.9 |
|
|
$ |
122.2 |
|
|
$ |
119.5 |
|
NOTE 7. STOCKHOLDERS’ EQUITY
Share Repurchase
In the 13 and 26 weeks ended June 27, 2008, the Company repurchased 1.0 million and 1.7
million, respectively, of its outstanding shares at an average cost of $62.84 and $59.76,
respectively. Purchases were made in the open market and were financed primarily from cash
provided by operations. In the corresponding 13 and 26 week periods of 2007, the Company
repurchased 3.0 million common shares at an average cost of $54.23 per share. The 2007 purchases
were made in the open market and were financed from cash provided by operations and the net
proceeds from the issuance of the Notes due 2013.
Stock-Based Compensation
The Company has historically granted stock options and stock units under the Company’s Stock
Incentive Plan (“Incentive Plan”). At June 27, 2008, there were 1.2 million shares reserved from
the 2006 Stock Incentive Plan and 0.1 million shares reserved from the previous plans for
additional stock option awards or stock grants. The Company’s Director Stock Unit Plan allows the
Company to pay its non-employee directors annual retainer fees and, at their election, meeting fees
in the form of stock units. Employee and director stock units are included in common stock
outstanding on the date of vesting and stock options are included in common stock outstanding upon
exercise by the participant. In accordance with SFAS 123(R), Share-Based Payment, the fair value
of stock options and stock units is amortized over the respective vesting period representing the
requisite service period.
During the 13 and 26 weeks ended June 27, 2008, compensation expense associated with stock
options and stock units was $8.2 million and $11.7 million, respectively. During the 13 and 26
weeks ended June 29, 2007, compensation expense associated with stock options and stock units was
$3.1 million and $5.8 million, respectively. The 13 and 26 week periods of 2008 results include
additional stock compensation expense of $4.2 million related to amendments made to the employment
contract of the Company’s recently retired Chief Executive Officer (“CEO”), which extended the
terms of his non-competition and non-solicitation restrictions in exchange for extended vesting and
termination provisions of previously granted equity awards.
During the second quarter of 2008, the Company granted directors approximately 7,000 stock
units with a grant-date fair value of $64.04.
9
ANIXTER INTERNATIONAL INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 8. BUSINESS SEGMENTS
The Company is engaged in the distribution of communications and specialty wire and cable
products and “C” Class inventory components from top suppliers to contractors and installers, and
also to end users including manufacturers, natural resources companies, utilities and original
equipment manufacturers who use the Company’s products as a component in their end product. The
Company is organized by geographic regions, and accordingly, has identified North America (United
States and Canada), Europe and Emerging Markets (Asia Pacific and Latin America) as reportable
segments. The Company obtains and coordinates on a centralized basis financing, tax, information
technology, legal and other related services, certain of which are rebilled to subsidiaries.
Certain corporate expenses are allocated to the segments based primarily on specific
identification, projected sales and estimated use of time. Interest expense and other non-operating
items are not allocated to the segments or reviewed on a segment basis. Intercompany transactions
are not significant.
Segment information for the 13 and 26 weeks ended June 27, 2008 and June 29, 2007 was as
follows (in millions):
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
13 Weeks Ended |
|
|
26 Weeks Ended |
|
| |
|
June 27, |
|
|
June 29, |
|
|
June 27, |
|
|
June 29, |
|
| |
|
2008 |
|
|
2007 |
|
|
2008 |
|
|
2007 |
|
Net sales: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States |
|
$ |
925.2 |
|
|
$ |
907.1 |
|
|
$ |
1,783.6 |
|
|
$ |
1,702.7 |
|
Canada |
|
|
185.1 |
|
|
|
164.3 |
|
|
|
343.5 |
|
|
|
295.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America |
|
|
1,110.3 |
|
|
|
1,071.4 |
|
|
|
2,127.1 |
|
|
|
1,998.4 |
|
Europe |
|
|
366.0 |
|
|
|
326.2 |
|
|
|
706.0 |
|
|
|
631.3 |
|
Emerging Markets |
|
|
140.5 |
|
|
|
113.9 |
|
|
|
255.3 |
|
|
|
210.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
1,616.8 |
|
|
$ |
1,511.5 |
|
|
$ |
3,088.4 |
|
|
$ |
2,840.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States |
|
$ |
72.0 |
|
|
$ |
74.0 |
|
|
$ |
140.0 |
|
|
$ |
132.7 |
|
Canada |
|
|
19.6 |
|
|
|
18.4 |
|
|
|
32.2 |
|
|
|
30.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America |
|
|
91.6 |
|
|
|
92.4 |
|
|
|
172.2 |
|
|
|
163.2 |
|
Europe |
|
|
19.5 |
|
|
|
15.0 |
|
|
|
33.4 |
|
|
|
29.0 |
|
Emerging Markets |
|
|
10.7 |
|
|
|
8.7 |
|
|
|
17.7 |
|
|
|
14.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
121.8 |
|
|
$ |
116.1 |
|
|
$ |
223.3 |
|
|
$ |
206.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
| |
|
June 27, |
|
|
December 28, |
|
| |
|
2008 |
|
|
2007 |
|
Total assets: |
|
|
|
|
|
|
|
|
United States |
|
$ |
1,675.3 |
|
|
$ |
1,653.1 |
|
Canada |
|
|
281.4 |
|
|
|
267.2 |
|
|
|
|
|
|
|
|
North America |
|
|
1,956.7 |
|
|
|
1,920.3 |
|
Europe |
|
|
897.7 |
|
|
|
825.0 |
|
Emerging Markets |
|
|
277.7 |
|
|
|
270.9 |
|
|
|
|
|
|
|
|
|
|
$ |
3,132.1 |
|
|
$ |
3,016.2 |
|
|
|
|
|
|
|
|
10
ANIXTER INTERNATIONAL INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The following table presents the changes in goodwill allocated to the Company’s reportable
segments during the 26 weeks ended June 27, 2008 (in millions):
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
| |
|
December 28, |
|
|
Acquisition |
|
|
(Primarily Foreign |
|
|
June 27, |
|
| |
|
2007 |
|
|
Related |
|
|
Exchange) |
|
|
2008 |
|
United States |
|
$ |
266.6 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
266.6 |
|
Canada |
|
|
16.9 |
|
|
|
— |
|
|
|
(0.5 |
) |
|
|
16.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America |
|
|
283.5 |
|
|
|
— |
|
|
|
(0.5 |
) |
|
|
283.0 |
|
Europe |
|
|
111.8 |
|
|
|
1.1 |
|
|
|
3.3 |
|
|
|
116.2 |
|
Emerging Markets |
|
|
7.9 |
|
|
|
— |
|
|
|
0.7 |
|
|
|
8.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
403.2 |
|
|
$ |
1.1 |
|
|
$ |
3.5 |
|
|
$ |
407.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTE 9. LEGAL CONTINGENCY
In April 2008, the Company voluntarily disclosed to the U.S. Departments of Treasury and
Commerce that one of its foreign subsidiaries may have violated U.S. export control laws and
regulations in connection with re-exports of goods to prohibited parties or destinations.
The Company has performed a thorough review of its export and re-export transactions and did
not identify any other potentially significant violations. The Company is also determining
appropriate corrective actions. Upon completion, the Company will submit the results and its
corrective action plan to the applicable U.S. government agencies.
While civil penalties may be assessed against the Company in connection with any violations
that are determined to have occurred, based on information currently available, an estimate of loss
cannot be made at this time and, therefore, nothing has been accrued. However, management does not
believe that the ultimate resolution of this matter will have a material effect on the business,
operations or financial condition of the Company.
11
ANIXTER INTERNATIONAL INC.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
The following is a discussion of the historical results of operations and financial condition
of the Company and factors affecting the Company’s financial resources. This report includes
certain financial measures computed using non-Generally Accepted Accounting Principles (“non-GAAP”)
components as defined by the Securities and Exchange Commission (“SEC”). The Company believes this
information is useful to investors in order to provide a better understanding of the organic growth
trends of the Company on a comparable basis. Management does not use non-GAAP financial measures
for any purpose other than the reason stated above. This discussion should be read in conjunction
with the condensed consolidated financial statements, including the notes thereto, set forth herein
under “Financial Statements” and the Company’s Annual Report on Form 10-K for the year ended
December 28, 2007.
Acquisition of Businesses
In April and May of 2007, respectively, the Company acquired all of the outstanding shares of
Total Supply Solutions Limited (“TSS”), a Manchester, U.K.-based fastener distributor, and Eurofast
SAS (“Eurofast”), an aerospace fastener distributor based in France. During the first half of 2007,
the Company paid approximately $35.1 million for these businesses and made additional payments of
$3.1 million related to acquisitions made in 2006. As a result of these acquisitions, sales were
favorably affected in the 13 and 26 weeks ended June 27, 2008 by $4.2 and $16.5 million,
respectively, as well as operating income by $0.2 and $0.9 million, respectively, as compared to
the corresponding periods in the prior year.
These acquisitions were accounted for as purchases and their respective results of operations
are included in the condensed consolidated financial statements from the dates of acquisition. Had
these acquisitions occurred at the beginning of the year of each acquisition, the Company’s
operating results would not have been significantly different.
Financial Liquidity and Capital Resources
Overview
As a distributor, the Company’s use of capital is largely for working capital to support its
revenue base. Capital commitments for property, plant and equipment are limited to information
technology assets, warehouse equipment, office furniture and fixtures and leasehold improvements,
since the Company operates almost entirely from leased facilities. Therefore, in any given
reporting period, the amount of cash consumed or generated by operations will primarily be due to
changes in working capital as a result of the rate of sales increase or decline.
In periods when sales are increasing, the expanded working capital needs will be funded first
by cash from operations, secondly from additional borrowings and lastly from additional equity
offerings. Also, the Company will, from time to time, issue or retire borrowings or equity in an
effort to maintain a cost-effective capital structure consistent with its anticipated capital
requirements. The Company believes that these sources of liquidity are sufficient to meet its
operating needs and to continue to invest in the business.
Cash Flow
Net cash provided by operating activities was $98.9 million in the 26 weeks ended June 27,
2008 compared to $35.3 million in the corresponding period in 2007. The increase in cash provided
by operating activities was primarily related to lower working capital requirements (accounts
receivable, inventory, accounts payable and other current assets and liabilities) associated with
slower sales growth in 2008. In the 26 weeks ended June 27, 2008, working capital changes
represented a use of operating cash of $53.6 million as compared to $96.7 million in the 26 weeks
ended June 29, 2007.
12
ANIXTER INTERNATIONAL INC.
Consolidated net cash used in investing activities decreased to $17.1 million in the 26 weeks
ended June 27, 2008 from $53.5 million in the 26 weeks ended June 29, 2007. The Company spent
$35.1 million in the first half of 2007 to acquire TSS and Eurofast and made additional payments of
$3.1 million related to acquisitions made in 2006. Capital expenditures of $17.3 million increased
$1.9 million during the 26 weeks ended June 27, 2008 from $15.4 million in the corresponding period
in the prior year. Capital expenditures are expected to be approximately $37.1 million in 2008 as
the Company continues to invest in the consolidation of certain acquired facilities in North
America and Europe, invests in system upgrades and new software to support its infrastructure and
warehouse equipment to meet expanding growth of the business.
Net cash used in financing activities was $75.1 million in the 26 weeks ended June 27, 2008
compared to $12.4 million provided by financing activities in the corresponding period in 2007. In
the 26 weeks ended June 27, 2008 the Company increased borrowings, primarily bank revolving lines
of credit and borrowings under the accounts receivable securitization facility, by $20.0 million
compared to a decrease of $93.2 million in the corresponding period of the prior year. The Company
repurchased approximately 1.7 million of its outstanding common shares during the 26 weeks ended
June 27, 2008 at a total cost of $104.6 million. The 26 weeks ended June 27, 2008 include $5.8
million of cash from the excess income tax benefit associated with employee stock plans compared to
$8.6 million of cash from the excess income tax benefit in the corresponding period in 2007.
Proceeds from the issuance of common stock relating to the exercise of stock options were $4.4
million in the 26 weeks ended June 27, 2008 compared to $5.7 million in the corresponding period in
2007. In the 26 weeks ended June 29, 2007, the Company issued $300 million of 1% Convertible Senior
Notes due 2013 (“Notes due 2013”) and amended its revolving credit facility. Issuance costs related
to the Notes due 2013 and amended revolving credit facility totaled $8.1 million. The net proceeds
of $292.5 million from the issuance of the Notes due 2013 were used to purchase shares of the
Company’s common stock ($110.4 million) and fund the net cost of the purchased call option and sold
warrant transactions ($36.8 million) which were entered into concurrently with the issuance of the
Notes due 2013. Prior to the note offering described above, the Company purchased shares of its
common stock at a total cost of $52.3 million.
Financing
There were no material changes to the Company’s financing arrangements since the filing of the
Company’s 2007 Form 10-K. As of June 27, 2008 and December 28, 2007, the Company’s short-term debt
outstanding was $123.1 million and $84.1 million, respectively, and the Company’s long-term debt
outstanding was $932.1 million and $937.2 million, respectively.
Consolidated interest expense was $11.1 million and $22.6 million in the 13 and 26 weeks ended
June 27, 2008, respectively, as compared to $11.1 million and $22.0 million in the corresponding
periods in 2007. While interest rates on approximately 75% of the Company’s borrowings were fixed
(either by their terms or through hedging contracts) at the end of the second quarter of 2008, the
Company’s weighted-average cost of borrowings declined to 4.0% in the 13 weeks ended June 27, 2008
from 4.2% in the corresponding period in the prior year. The Company’s debt-to-total capitalization
decreased to 49.0% at June 27, 2008 from 49.4% at December 28, 2007.
Share Repurchases
In the 13 and 26 weeks ended June 27, 2008, the Company repurchased 1.0 million and 1.7
million of its outstanding shares, respectively, at an average cost of $62.84 and $59.76,
respectively. Purchases were made in the open market and were financed primarily from cash
provided by operations. In the corresponding 13 and 26 week periods of 2007, the Company
repurchased a total of 3.0 million common shares at an average cost of $54.23 per share. Purchases
were made in the open market and were financed from cash provided by operations and the net
proceeds from the issuance of the Notes due 2013.
13
ANIXTER INTERNATIONAL INC.
Second Quarter 2008 Results of Operations
Overview
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.
Although relationships with suppliers are good, the loss of a major supplier could have a temporary
adverse effect on the Company’s business, but would not have a lasting impact since comparable
products are available from alternate sources. In addition to competitive factors, future
performance could be subject to economic downturns and possible rapid changes in applicable
technologies. For further information, see Item 1A “Risk Factors” in the Company’s Annual Report on
Form 10-K for the year ended December 28, 2007.
Sales of $1,616.8 million in the second quarter of 2008 increased $105.3 million, or 7.0%,
from $1,511.5 million in the same period in 2007. The sales increase represents an organic growth
rate of 3.8% after adjusting for acquisitions completed in the last year, which contributed $4.2
million to 2008 second quarter sales, as well as a favorable foreign exchange impact of $43.1
million. Although the second quarter of 2008 sales growth was modest due to the difficult
comparison to the exceptionally strong second quarter of 2007, the Company was able to exceed the
longer-term seasonal trend of a mid-to-high single digit growth rate from the first to second
quarter. The Company’s consecutive quarter sales growth from the first to second quarter of 2008 of
9.9% was generated despite the macroeconomic uncertainty that existed during the quarter. The 2007
consecutive quarter growth from the first to second quarter was 13.8% which was well above that
historical trend line. Importantly, the Company continued to make significant progress on its
major initiatives during the quarter, which include growing the Company’s security and OEM supply
sales, initiating a factory automation network sales effort, adding to the supply chain services
offering, enlarging the geographic presence of the electrical wire and cable business, expanding
the Company’s product offering and continuing to expand business in the Emerging Markets.
Operating income in the second quarter of 2008 increased 4.8% to $121.8 million as compared to
$116.1 million in the year ago quarter. Operating margins were 7.5% during the second quarter of
2008 compared to 7.7% in the second quarter of 2007. The current quarter results include a pre-tax
charge of $4.2 million related to amendments made to the employment contract of the Company’s
recently retired Chief Executive Officer (“CEO”), which extended the terms of his non-competition
and non-solicitation restrictions in exchange for extended vesting and termination provisions of
previously granted equity awards. Excluding the former CEO’s retirement-related pre-tax costs
recorded in the second quarter of 2008, operating income growth would have been 8.4% and operating
margins would have been 7.8%.
Net income in the second quarter of 2008 was $66.9 million, or $1.71 per diluted share,
compared to $64.6 million, or $1.53 per diluted share, in the prior year period. Primarily as a
result of the Company’s share repurchases during the last year, the diluted weighted-average common
shares declined by 7% during the second quarter of 2008 versus the respective prior year period
which produced a favorable impact on net income per diluted share of $0.09. The current quarter
results include an after tax charge of $2.6 million, or $0.07 cents per diluted share, related to
the former CEO’s retirement.
The Company’s operating results can be affected by changes in prices of commodities, primarily
copper, which are components in some of the products sold. Generally, as the costs of current
inventory purchases increase due to higher commodity prices, the Company’s mark-up percentage to
customers remains relatively constant, which results in higher sales revenue and gross profit. In
addition, existing inventory purchased at previously lower prices and sold as prices increase
results in a higher gross profit margin. Conversely, a decrease in commodity prices in a short
period of time would have the opposite effect, negatively affecting financial results.
Market-based copper prices averaged approximately $3.80 per pound during the second quarter of 2008
compared to $3.46 per pound in the second quarter of 2007. The increase in copper prices, when
combined with intra-quarter volatility of spot market copper prices, did not have a meaningful
effect on financial results in the second quarter of 2008.
14
ANIXTER INTERNATIONAL INC.
Consolidated Results of Operations
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
13 Weeks Ended |
| |
|
June 27, |
|
June 29, |
|
Percent |
| |
|
2008 |
|
2007 |
|
Change |
| |
|
(In millions) |
Net sales |
|
$ |
1,616.8 |
|
|
$ |
1,511.5 |
|
|
|
7.0 |
% |
Gross profit |
|
$ |
384.1 |
|
|
$ |
363.3 |
|
|
|
5.7 |
% |
Operating expenses |
|
$ |
262.3 |
|
|
$ |
247.2 |
|
|
|
6.1 |
% |
Operating income |
|
$ |
121.8 |
|
|
$ |
116.1 |
|
|
|
4.8 |
% |
Net Sales: The Company’s net sales during the second quarter of 2008 increased $105.3 million,
or 7.0%, to $1,616.8 million from $1,511.5 million in the same period in 2007. Recently completed
acquisitions accounted for $4.2 million of the increase while the favorable effects of foreign
exchange rates contributed $43.1 million to sales. Excluding the acquisitions and the favorable
effects of foreign exchange rates, the Company’s net sales increased $58.0 million, or
approximately 3.8%, in the second quarter of 2008 as compared to the corresponding period in the
prior year. The Company experienced growth in new markets, continued success in expanding the
Company’s presence in the security market and geographic expansion of its electrical wire and cable
presence in Europe.
Gross Margins: Gross margins decreased in the second quarter of 2008 to 23.8% from 24.0% in
the corresponding period in 2007 mainly due to pricing pressure from rising steel and specialty
metal prices in the Company’s OEM supply business and the effects of lower supplier volume
incentives that resulted from lower year-on-year sales growth rates.
Operating Expenses: Operating expenses increased $15.1 million, or 6.1%, in the second quarter
of 2008 from the corresponding period in 2007. The second quarter of 2008 operating expenses
include $4.2 million of non-cash costs associated with the retirement of the Company’s former CEO
and an incremental $1.1 million related to a series of recently-completed acquisitions. Changes in
foreign exchange rates increased operating expenses by $7.3 million as compared to the second
quarter of 2007. Excluding the operating expenses related to the previously noted CEO retirement,
acquisitions and the effects of foreign exchange rates, operating expenses increased approximately
$2.5 million, or 1.0%, primarily due to variable costs associated with the 3.8% organic growth in
sales. Core operating expenses remain very tightly controlled relative to sales growth so that the
Company can continue to invest in its strategic initiatives which include growing the security
business, expanding the geographic presence of the electrical wire and cable business in
Continental Europe and the Middle East, developing a presence in the factory automation market and
continuing to expand business in the Emerging Markets. The low rate of expense growth in the
quarter also reflects the positive effect of lower management incentive expense due to the
Company’s earnings being less than the incentive plan targets.
Operating Income: Operating margins were 7.5% in the second quarter of 2008 as compared to
7.7% in the second quarter of 2007. As a result of sales growth and tight expense controls,
operating income of $121.8 million increased $5.7 million, or 4.8%, in the second quarter of 2008
from $116.1 million in the corresponding period in 2007. Excluding the former CEO’s
retirement-related pre-tax costs, operating income growth would have been $9.9 million, or 8.4%,
and operating margins would have been 7.8%. Recent acquisitions accounted for $0.2 million of the
increase while the favorable foreign exchange rates added $3.1 million to operating income.
Excluding the previously mentioned costs associated with the retirement of the Company’s former
CEO, acquisitions and the favorable effects of foreign exchange rates, operating income increased
$6.6 million, or 5.7%, in the second quarter of 2008 as compared to the corresponding period in
2007.
Interest Expense: Consolidated interest expense was $11.1 million in both the second quarters
of 2008 and 2007. The weighted-average debt outstanding during the second quarter of 2008 was
$1,107.6 million as compared to $1,041.9 million in the corresponding period in 2007. With the
interest rates on approximately 75% of the Company’s borrowings fixed, its weighted-average cost of
borrowings was 4.0% in the second quarter of 2008 as compared to 4.2% in the corresponding period
of the prior year.
15
ANIXTER INTERNATIONAL INC.
Other, net:
| |
|
|
|
|
|
|
|
|
| |
|
13 Weeks Ended |
|
| |
|
June 27, |
|
|
June 29, |
|
| |
|
2008 |
|
|
2007 |
|
| |
|
(In millions) |
|
Foreign exchange |
|
$ |
(2.4 |
) |
|
$ |
1.7 |
|
Cash surrender value of life insurance policies |
|
|
(0.6 |
) |
|
|
0.6 |
|
Other |
|
|
(0.6 |
) |
|
|
0.1 |
|
|
|
|
|
|
|
|
|
|
$ |
(3.6 |
) |
|
$ |
2.4 |
|
|
|
|
|
|
|
|
Primarily due to the weakening of the Chilean peso, Venezuelan bolivar and the Euro, changes
in foreign exchange rates resulted in a loss of $2.4 million in the second quarter of 2008 compared
to a gain of $1.7 million in the corresponding period in 2007. Due to the weaker equity market
performance, the value of Company-owned life insurance policies declined resulting in a loss of
$0.6 million in the second quarter of 2008 as compared to a gain in the corresponding period in
2007. In the second quarter of 2007, the Company recorded other interest income related to tax
settlements in the U.S. and Canada.
Income Taxes: The Company’s income tax expense for the 13 weeks ended June 27, 2008 reflects
an effective tax rate of 37.5% as compared to 39.8% in the corresponding period in the prior year.
The effective tax rate for the corresponding period in 2007 includes $2.1 million of additional tax
provision primarily related to a change in the Company’s projected earnings by tax jurisdiction and
the settlement of several tax audits. Without the additional income tax provision, the Company’s
effective tax rate in the 13 weeks ended June 29, 2007 was 37.9%. The year-on-year change in the
core effective tax rate reflects changes in the country level mix of pre-tax earnings.
North America Results of Operations
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
13 Weeks Ended |
| |
|
June 27, |
|
June 29, |
|
Percent |
| |
|
2008 |
|
2007 |
|
Change |
| |
|
(In millions) |
Net sales |
|
$ |
1,110.3 |
|
|
$ |
1,071.4 |
|
|
|
3.6 |
% |
Gross profit |
|
$ |
259.3 |
|
|
$ |
253.7 |
|
|
|
2.2 |
% |
Operating expenses |
|
$ |
167.7 |
|
|
$ |
161.3 |
|
|
|
3.9 |
% |
Operating income |
|
$ |
91.6 |
|
|
$ |
92.4 |
|
|
|
(0.8 |
%) |
Net Sales: When compared to the second quarter of 2007, North America net sales in the second
quarter of 2008 increased 3.6% to $1,110.3 million from $1,071.4 million. Excluding the favorable
effects of foreign exchange rate changes of $16.1 million, North America net sales were $1,094.2
million in the 13 weeks ended June 27, 2008, which represents an increase of $22.8 million, or
approximately 2.1%, over the 13 weeks ended June 29, 2007.
Sales of enterprise cabling and security solutions in North America increased $10.7 million in
the second quarter of 2008, or 1.8%, compared to the second quarter of 2007. The increase was
primarily due to strong growth in the security market of 16% offset by a decline in larger projects
as compared to the very strong project environment in the second quarter of 2007. Favorable foreign
exchange rates on Canadian sales accounted for $5.4 million of the sales growth versus the prior
year. North America electrical wire and cable sales of $395.6 million increased $28.1 million, or
7.6%, in the second quarter of 2008 from $367.5 million in the second quarter of 2007. The
increase was achieved despite a difficult comparison to very strong sales in the year ago quarter,
as project activity, particularly in the energy and natural resources vertical end markets,
remained strong. Favorable foreign exchange rates on Canadian sales accounted for $10.2 million of
the sales growth in the second quarter of 2008. Excluding foreign exchange, electrical and
electronic wire and cable sales were up $17.9 million, or approximately 4.9%, in the second quarter
of 2008 as compared to the second quarter of 2007. In the OEM supply market, sales increased 4.8%,
or $5.7 million, with strong sales growth to aerospace and defense customers offsetting continuing
weakness with certain customers in the industrial portion of this market who have experienced
production slowdowns that have negatively impacted the Company’s sales.
16
ANIXTER INTERNATIONAL INC.
Gross Margins: Gross margins decreased to 23.4% in the second quarter of 2008 from 23.7% in
the second quarter of 2007 mainly due to pricing pressure from rising steel and specialty metal
prices in the Company’s OEM supply business and the effects of lower supplier volume incentives
that resulted from lower year-on-year sales growth rates.
Operating Expenses: Including the $4.2 million of costs associated with the retirement of the
Company’s former CEO, operating expenses increased $6.4 million, or 3.9%, in the second quarter of
2008 from the second quarter of 2007. Foreign exchange rate changes increased operating expenses by
$2.1 million. Excluding the costs associated with the retirement of the Company’s former CEO and
the effects from changes in foreign exchange rates, operating expenses were essentially equal to
the second quarter of 2007.
Operating Income: Operating margins were 8.3% in the second quarter of 2008 as compared to
8.6% in the second quarter of 2007. As a result of the costs associated with the retirement of the
Company’s former CEO, operating income declined by $0.8 million, or 0.8%, in the second quarter of
2008 as compared to the second quarter of 2007. Favorable foreign exchange rate changes added $1.7
million to operating income. Excluding the costs associated with the retirement of the Company’s
former CEO and the favorable effects of foreign exchange rates, operating income in the second
quarter of 2008 increased $1.7 million, or 1.8%. Operating margins, excluding the expense
associated with the retirement of the Company’s former CEO, were equal to the 8.6% margins reported
in the second quarter of 2007.
Europe Results of Operations
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
13 Weeks Ended |
| |
|
June 27, |
|
June 29, |
|
Percent |
| |
|
2008 |
|
2007 |
|
Change |
| |
|
(In millions) |
| |
Net sales |
|
$ |
366.0 |
|
|
$ |
326.2 |
|
|
|
12.2 |
% |
Gross profit |
|
$ |
94.0 |
|
|
$ |
85.2 |
|
|
|
10.2 |
% |
Operating expenses |
|
$ |
74.5 |
|
|
$ |
70.2 |
|
|
|
6.1 |
% |
Operating income |
|
$ |
19.5 |
|
|
$ |
15.0 |
|
|
|
29.4 |
% |
Net Sales: When compared to the second quarter of 2007, Europe net sales for the second
quarter of 2008 increased 12.2% to $366.0 million, including $4.2 million due to recent
acquisitions and $21.2 million due to favorable foreign exchange rate changes. Excluding
acquisitions and the favorable effects of foreign exchange rate changes, Europe net sales were
$340.6 million in the second quarter of 2008, which represents an increase of $14.4 million, or
approximately 4.4%, over the second quarter of 2007. The Company’s efforts to expand its presence
in the electrical wire and cable market in Europe resulted in sales of $68.5 million in the second
quarter of 2008 as compared to $61.3 million in the corresponding period in the prior year.
Exclusive of $3.1 million of favorable foreign exchange effects, sales in the European electrical
wire and cable market were 6.6% higher than 2007. Europe OEM supply sales in the second quarter of
2008 of $172.4 million increased $24.1 million, or 16.2%, from $148.3 million in the second quarter
of 2007. Exclusive of $5.8 million of favorable foreign exchange effects and the sales of $4.2
million from recent acquisitions, sales in the European OEM supply market were 9.5% greater in the
second quarter of 2008 as compared to the corresponding period in 2007. The enterprise cabling and
security solutions sales growth in Europe continues to be affected by the difficult comparison to
very strong market conditions that existed from the middle of 2006 to the middle of 2007.
Enterprise cabling and security solutions sales in Europe increased 7.3% to $125.1 million in the
second quarter of 2008 as compared to sales of $116.6 million in the second quarter of 2007.
Exclusive of $12.3 million of favorable foreign exchange effects, sales in the Europe enterprise
cabling and security solutions market were 3.3% lower in the second quarter of 2008 as compared to
the corresponding period in 2007.
Gross Margins: Gross margins in the second quarter of 2008 were 25.7% compared to 26.1% in the
corresponding period in 2007. The decline in gross margins is primarily due to lower gross margins
in the OEM supply market versus the prior year due to pricing pressure from rising steel and
specialty metal prices in the Company’s OEM supply business.
17
ANIXTER INTERNATIONAL INC.
Operating Expenses: Operating expenses increased $4.3 million, or 6.1%, in the second quarter
of 2008 as compared to the second quarter of 2007. Recent acquisitions increased operating expenses
by $1.1 million, while foreign exchange rate changes increased operating expenses by $4.4 million.
Excluding acquisitions and the effects from changes in foreign exchange rates, operating expenses
decreased approximately $1.2 million, or 1.7%.
Operating Income: Operating margins were 5.3% in the second quarter of 2008 as compared to
4.6% in the second quarter of 2007. Improved operating margins on higher sales generated an
increase in operating income of $4.5 million, or 29.4%, in the second quarter of 2008 as compared
to the second quarter of 2007. Recent acquisitions accounted for $0.2 million of the increase while
the favorable foreign exchange effects added $0.9 million to operating income. Excluding
acquisitions and the favorable effects of foreign exchange rates, operating income increased $3.4
million, or 22.3%, in the second quarter of 2008 as compared to the corresponding period in 2007.
The improvement in European operating profit reflects good sales growth and expense controls, which
offset gross margin pressure in the OEM supply market.
Emerging Markets Results of Operations
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
13 Weeks Ended |
| |
|
June 27, |
|
June 29, |
|
Percent |
| |
|
2008 |
|
2007 |
|
Change |
| |
|
(In millions) |
| |
Net sales |
|
$ |
140.5 |
|
|
$ |
113.9 |
|
|
|
23.4 |
% |
Gross profit |
|
$ |
30.8 |
|
|
$ |
24.4 |
|
|
|
26.2 |
% |
Operating expenses |
|
$ |
20.1 |
|
|
$ |
15.7 |
|
|
|
28.7 |
% |
Operating income |
|
$ |
10.7 |
|
|
$ |
8.7 |
|
|
|
21.8 |
% |
Net Sales: Emerging Markets (Asia Pacific and Latin America) net sales in the second quarter
of 2008 increased 23.4% to $140.5 million from $113.9 million in the second quarter of 2007.
Excluding the $5.8 million favorable impact from changes in foreign exchange rates, the Emerging
Markets net sales growth was 18.4%. Asia Pacific sales grew 22.4%, while Latin America sales
increased 24.0% in the second quarter of 2008 compared to the corresponding period in 2007. The
Company continues to experience overall economic growth in most countries which, combined with
increased market penetration and expanding product lines, is driving good year-on-year growth.
Gross Margins: During the 13 weeks ended June 27, 2008, Emerging Markets gross margins
increased to 21.9% from 21.4% in the corresponding period in 2007, primarily due to a favorable
product mix between countries.
Operating Expenses: Operating expenses increased $4.4 million in the second quarter of 2008,
or 28.7% compared to the second quarter of 2007. Foreign exchange rate changes increased operating
expenses by $0.8 million as compared to the year ago period in 2007.
Operating Income: Emerging Markets operating income increased $2.0 million, or 21.8%, in the
second quarter of 2008 compared to the second quarter of 2007. Exchange rate changes had a $0.5
million favorable impact on operating income. Operating margins in the second quarter of 2008 were
7.6% compared to 7.7% in the corresponding period in the prior year. The slight decrease reflects
higher operating costs associated with investments for future growth in this segment.
Year-to-Date 2008 Results of Operations
Overview
Sales, gross profits, operating expenses and operating income, all showed year-on-year
increases from a combination of a series of recently-completed acquisitions, combined unit growth
and exchange rate changes related to the weaker U.S. dollar. During the 26 weeks ended June 27,
2008, sales of $3,088.4 million represented an increase of 8.7% over the prior year period sales of
$2,840.2 million. Included in the 26 week results for 2008 were incremental sales of $16.5 million
from acquisitions completed in the past year. After adjusting for acquisitions and the favorable
foreign exchange impact of $86.6 million, sales in the first six months grew at a year-over-year
organic rate of 5.1%.
18
ANIXTER INTERNATIONAL INC.
Operating income in the 26 weeks ended June 27, 2008 were $223.3 million versus $206.5 million
in the year-ago period. Operating margins were 7.2% in the first six months of 2008 as compared to
7.3% in the year ago period. Excluding the CEO retirement-related expense of $4.2 million in the
first half of 2008, operating income was $227.5 million, or an increase of 10.1% over the prior
six-month period in 2007, and operating margins were 7.4%.
Net income in the 26 weeks ended June 27, 2008 was $124.6 million, or $3.16 per diluted share,
compared to $118.2 million, or $2.81 per diluted share, in the prior year period. Primarily as a
result of the Company’s share repurchases during the last year, the diluted weighted-average common
shares declined by 6% during the six-month period versus the respective prior year period which
produced a favorable impact on net income per diluted share of $0.12.
Earnings in the 26 weeks ended June 27, 2008 were affected by the previously noted after-tax
expense of $2.6 million, or $0.07 per diluted share, related to the retirement of the Company’s
former CEO and favorable tax adjustments of $1.6 million, or $0.04 per diluted share, associated
with recognition of foreign net operating loss carryforwards recorded in the first quarter of 2008.
Excluding these items, net income in the first half of 2008 would have been $125.6 million, or
$3.18 per diluted share. Earnings in the year ago period were favorably affected by $2.0 million,
or $0.05 per diluted share, related to net tax benefits related to the settlement of certain income
tax audits. Excluding these tax benefits, net income in the year ago period would have been $116.2
million, or $2.76 per diluted share. After excluding the above noted unusual tax items from both
years and the former CEO retirement-related costs in 2008, net income and diluted earnings per
share in the first half of 2008 increased 8.1% and 15.2%, respectively, versus the year ago period.
Market-based copper prices averaged approximately $3.67 per pound during the first half of
2008 compared to $3.09 per pound in the corresponding period in 2007. When combined with
intra-quarter volatility of spot market copper prices, the softer economy created an environment
where the commodity price change was not always passed through by the manufacturers to the
distribution channel and, in turn, the distribution channel was not always able to pass through the
increase to the ultimate customer. As a result, even though average copper prices were up 18.8%
year-on-year, they had a minimal effect on financial results in the first half of 2008. These
amounts reflect the Company’s best estimates of the effects of higher copper prices. There is no
exact measure of the effect of higher copper prices, as there are thousands of transactions in any
given quarter, each of which has various factors involved in the individual pricing decisions. For
further information on the effect copper prices may have on the Company’s future results of
operations, see the “Second Quarter 2008 Results of Operations.”
Consolidated Results of Operations
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
26 Weeks Ended |
| |
|
June 28, |
|
June 29, |
|
Percent |
| |
|
2008 |
|
2007 |
|
Change |
| |
|
(In millions) |
Net sales |
|
$ |
3,088.4 |
|
|
$ |
2,840.2 |
|
|
|
8.7 |
% |
Gross profit |
|
$ |
732.6 |
|
|
$ |
681.7 |
|
|
|
7.5 |
% |
Operating expenses |
|
$ |
509.3 |
|
|
$ |
475.2 |
|
|
|
7.2 |
% |
Operating income |
|
$ |
223.3 |
|
|
$ |
206.5 |
|
|
|
8.1 |
% |
Net Sales: The Company’s net sales during the first half of 2008 increased $248.2 million, or
8.7%, to $3,088.4 million from $2,840.2 million in the same period in 2007. A series of
recently-completed acquisitions accounted for $16.5 million of the increase while favorable effects
of foreign exchange rates contributed $86.6 million to sales in the 26 weeks ended June 27, 2008 as
compared to the year ago period. Excluding the acquisitions and the favorable effects of foreign
exchange rates, the Company’s net sales increased $145.1 million, or approximately 5.1%, in the 26
weeks ended June 27, 2008 as compared to the prior year. The Company experienced growth in new
markets, continued success in expanding the Company’s presence in the security market and
geographic expansion of its electrical wire and cable presence in Europe.
19
ANIXTER INTERNATIONAL INC.
Gross Margins: Gross margins decreased in the 26 weeks ended June 27, 2008 to 23.7% compared
to 24.0% in the corresponding period in 2007 due to pricing pressure from rising steel and
specialty metal prices in the Company’s OEM supply business, the effects of lower supplier volume
incentives that resulted from lower year-on-year sales growth rates and pricing pressure on certain
products sold in the North America Wire and Cable market.
Operating Expenses: Operating expenses increased $34.1 million, or 7.2%, in the first half of
2008 from the corresponding period in 2007. The 2008 operating expenses include $4.2 million of
non-cash costs associated with the retirement of the Company’s former CEO and an incremental $4.0
million related to a series of recently-completed acquisitions. Changes in foreign exchange rates
increased operating expenses by $14.9 million as compared to the year ago period in 2007.
Excluding the operating expenses related to the previously noted CEO retirement, acquisitions and
the effects of foreign exchange rates, operating expenses increased approximately $11.0 million, or
2.3%, primarily due to variable costs associated with the 5.1% organic growth in sales. Core
operating expenses remain very tightly controlled relative to sales growth so that the Company can
continue to invest in its strategic initiatives which include growing the security business,
expanding the geographic presence of the electrical wire and cable business in Continental Europe
and the Middle East, developing a presence in the factory automation market and continuing to
expand business in the Emerging Markets. The low rate of expense growth also
reflects the positive effect of lower management incentive expense due to the Company’s earnings
being less than the incentive plan targets.
Operating Income: Operating margins were 7.2% in the first half of 2008 as compared to 7.3% in
the corresponding period in 2007. As a result of sales growth and tight expense controls,
operating income of $223.3 million increased $16.8 million, or 8.1%, in the first half of 2008 as
compared to $206.5 million of operating income in the first half of 2007. Excluding the former
CEO’s retirement-related pre-tax costs, operating income growth would have been $21.0 million, or
10.1%, and operating margins would have been 7.4%. Recent acquisitions accounted for $0.9 million
of the increase while the favorable foreign exchange effects added $5.7 million to operating
income. Excluding the previously mentioned costs associated with the retirement of the Company’s
former CEO, acquisitions and the favorable effects of foreign exchange rates, operating income
increased $14.4 million, or 7.0%, in the first half of 2008 as compared to the corresponding period
in 2007.
Interest Expense: Consolidated interest expense was $22.6 million for the first half of 2008
as compared to $22.0 million in 2007. The weighted-average debt outstanding during the first half
of 2008 was $1,103.8 million as compared to $979.2 million in the corresponding period in 2007. The
increase is driven by the working capital requirements associated with strong organic growth over
the past year, the repurchase of approximately 8.0% of the Company’s outstanding shares during the
last year and a series of recently-completed acquisitions. With the interest rates on approximately
75% of the Company’s borrowings fixed, its average cost of borrowings were 4.1% in the 26 weeks
ended June 27, 2008 as compared to 4.5% in the corresponding period of the prior year.
Other, net expense:
| |
|
|
|
|
|
|
|
|
| |
|
26 Weeks Ended |
|
| |
|
June 28, |
|
|
June 29, |
|
| |
|
2008 |
|
|
2007 |
|
| |
|
(In millions) |
|
Foreign exchange |
|
$ |
(1.7 |
) |
|
$ |
1.6 |
|
Cash surrender value of life insurance policies |
|
|
(1.3 |
) |
|
|
1.3 |
|
Other |
|
|
(0.9 |
) |
|
|
0.2 |
|
|
|
|
|
|
|
|
|
|
$ |
(3.9 |
) |
|
$ |
3.1 |
|
|
|
|
|
|
|
|
Primarily due to the weakening of the Chilean peso, Venezuelan bolivar and the Euro, these
changes in foreign exchange rates resulted in a loss of $1.7 million in the 26 weeks ended June 27,
2008 as compared to a gain of $1.6 million in the corresponding period in 2007. Due to the weaker
equity market performance, the value of Company-owned life insurance policies declined resulting in
a loss of $1.3 million in the first half of 2008 as compared to a gain of $1.3 million in the
corresponding period in 2007. In the first half of 2007, the Company recorded other interest income
related to tax settlements in the U.S. and Canada.
20
ANIXTER INTERNATIONAL INC.
Income Taxes: The consolidated tax provision increased to $72.2 million in the 26 weeks ended
June 27, 2008 from $69.4 million in the same period in 2007. The effective tax rate for the 26
weeks ended June 27, 2008 is 36.7%, inclusive of $1.6 million of net tax benefits related to the
reversal of valuation allowances associated with certain foreign net operating loss carryforwards
in the first quarter of 2008. The effective tax rate for the 26 weeks ended June 29, 2007 was
37.0%, inclusive of net tax benefits of $1.7 million primarily related to the settlement of certain
income tax audits. Excluding these tax benefits, the Company’s effective tax rate in the 26 weeks
ended June 27, 2008 and June 29, 2007 was 37.5% and 37.9%, respectively. The year-on-year change
in the core effective tax rate reflects changes in the country level mix of pre-tax earnings.
North America Results of Operations
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
26 Weeks Ended |
| |
|
June 27, |
|
June 29, |
|
Percent |
| |
|
2008 |
|
2007 |
|
Change |
| |
|
(In millions) |
Net sales |
|
$ |
2,127.1 |
|
|
$ |
1,998.4 |
|
|
|
6.4 |
% |
Gross profit |
|
$ |
497.6 |
|
|
$ |
475.2 |
|
|
|
4.7 |
% |
Operating expenses |
|
$ |
325.4 |
|
|
$ |
312.0 |
|
|
|
4.3 |
% |
Operating income |
|
$ |
172.2 |
|
|
$ |
163.2 |
|
|
|
5.6 |
% |
Net Sales: When compared to the corresponding period in 2007, North America net sales for the
26 weeks ended June 27, 2008 increased 6.4% to $2,127.1 million. Excluding the favorable effects
of foreign exchange rate changes of $37.8 million, North America net sales were $2,089.3 million in
the 26 weeks ended June 27, 2008, which represents an increase of $90.9 million, or approximately
4.6%, over the corresponding period in 2007.
Sales of enterprise cabling and security solutions in North America increased $37.2 million in
the first half of 2008, or 3.4%, compared to the year ago period in 2007. The increase was
primarily due to strong growth in the security market of 23% offset by a decline in larger projects
as compared to the very strong project environment in the second quarter of 2007. Favorable foreign
exchange rates on Canadian sales accounted for $12.4 million of the sales growth versus the prior
year. North America electrical wire and cable sales of $757.9 million increased $82.4 million, or
12.2%, in the first half of 2008 from $675.5 million in the corresponding period in 2007. The
increase was achieved despite a difficult comparison to very strong sales in the year ago period,
as project activity, particularly in the energy and natural resources vertical end markets,
remained strong. Favorable foreign exchange rates on Canadian sales accounted for $24.3 million of
the sales growth in the first half of 2008. Excluding the effects of foreign exchange rates,
electrical wire and cable sales were up $58.1 million, or approximately 8.6%, in the 26 weeks ended
June 27, 2008 as compared to the corresponding period in 2007. In the OEM supply market, sales
increased 6.6%, or $15.2 million, with strong sales growth to aerospace and defense customers
offsetting continuing weakness with certain customers in the industrial portion of this market who
have experienced production slowdowns that have negatively impacted the Company’s sales.
Gross Margins: Gross margins decreased to 23.4% in the 26 weeks ended June 27, 2008 from 23.8%
mainly due to pricing pressure from rising steel and specialty metal prices in the Company’s OEM
supply business, the effects of lower supplier volume incentives that resulted from lower
year-on-year sales growth rates and pricing pressure on certain products sold in the North American
wire and cable market during the first quarter.
Operating Expenses: Including the $4.2 million of costs associated with the retirement of the
Company’s former CEO, operating expenses increased $13.4 million, or 4.3%, in the first half of
2008 from the year ago period in 2007. Foreign exchange rate changes increased operating expenses
by $5.2 million. Excluding the costs associated with the retirement of the Company’s former CEO and
the effects from changes in foreign exchange rates, operating expenses increased $4.0 million, or
1.3%, in the first half of 2008 as compared to the corresponding period in 2007.
21
ANIXTER INTERNATIONAL INC.
Operating Income: Operating margins were 8.1% in the 26 weeks ended June 27, 2008 as compared
to 8.2% in the corresponding period in 2007. Operating income increased $9.0 million, or 5.6%, in
the first half of 2008 as compared to the corresponding period in 2007. Favorable foreign exchange
rate changes added $3.4 million to operating income. Excluding the costs associated with the
retirement of the Company’s former CEO and the favorable effects of foreign exchange rates,
operating income in the first half of 2008 increased $9.8 million, or 6.0%. Operating margins,
excluding the expense associated with the retirement of the Company’s former CEO, increased to 8.3%
from the operating margins of 8.2% reported in the first half of 2007.
Europe Results of Operations
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
26 Weeks Ended |
| |
|
June 27, |
|
June 29, |
|
Percent |
| |
|
2008 |
|
2007 |
|
Change |
| |
|
(In millions) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales |
|
$ |
706.0 |
|
|
$ |
631.3 |
|
|
|
11.8 |
% |
Gross profit |
|
$ |
179.6 |
|
|
$ |
162.0 |
|
|
|
10.8 |
% |
Operating expenses |
|
$ |
146.2 |
|
|
$ |
133.0 |
|
|
|
10.0 |
% |
Operating income |
|
$ |
33.4 |
|
|
$ |
29.0 |
|
|
|
14.9 |
% |
Net Sales: When compared to the corresponding period in 2007, Europe net sales for the 26
weeks ended June 27, 2008 increased 11.8% to $706.0 million, including $16.5 million due to recent
acquisitions and $39.0 million due to favorable foreign exchange rate changes. Excluding
acquisitions and the favorable effects of foreign exchange rate changes, Europe net sales were
$650.5 million in the 26 weeks ended June 27, 2008, which represents an increase of $19.2 million,
or approximately 3.0%, over the corresponding period in 2007. The Company’s efforts to expand its
presence in the electrical wire and cable market in Europe resulted in sales of $134.8 million in
the 26 weeks ended June 27, 2008 as compared to $107.2 million in the corresponding period in the
prior year. Exclusive of $5.9 million of favorable foreign exchange effects, sales in the European
electrical wire and cable market were 20.2% higher than 2007. Europe OEM supply sales in the first
half of 2008 of $334.4 million increased $46.5 million, or 16.1%, from $287.9 million in the first
half of 2007. Exclusive of $11.5 million of favorable foreign exchange effects and the sales of
$16.5 million from recent acquisitions, sales in the European OEM supply market were 6.4% greater
in the first half of 2008 as compared to the corresponding period in 2007. The enterprise cabling
and security solutions sales growth in Europe continues to be affected by the difficult comparison
to very strong market conditions that existed from the middle of 2006 to the middle of 2007.
Enterprise cabling and security solutions sales in Europe increased 0.3% to $236.8 million in the
26 weeks ended June 27, 2008 as compared to sales of $236.2 million in the corresponding period in
2007. Exclusive of $21.6 million of favorable foreign exchange effects, sales in the Europe
enterprise cabling and security solutions market were 8.9% lower in the first half of 2008 as
compared to the corresponding period in 2007.
Gross Margins: Gross margins decreased to 25.4% in the 26 weeks ended June 27, 2008 from 25.7%
for the same period in 2007. The decline in gross margins is primarily due to lower gross margins
in the OEM supply market versus the prior year due to pricing pressure from rising steel and
specialty metal prices in the Company’s OEM supply business.
Operating Expenses: Operating expenses increased $13.2 million, or 10.0%, in 2008 as compared
to the first half of 2007. Recent acquisitions increased operating expenses by $4.0 million, while
foreign exchange rate changes increased operating expenses by $8.3 million. Excluding acquisitions
and the effects from changes in foreign exchange rates, operating expenses decreased approximately
$0.9 million, or 0.7%.
Operating Income: Operating margins were 4.7% in the first half of 2008 as compared to 4.6% in
the corresponding period in 2007. Improved operating margins on higher sales contributed to the
increase in operating income of $4.4 million, or 14.9%, in the 26 weeks ended June 27, 2008 as
compared to the year ago period in 2007. Recent acquisitions accounted for $0.9 million of the
increase while the favorable foreign exchange effects added $1.5 million to operating income.
Excluding acquisitions and the favorable effects of foreign exchange rates, operating income
increased $2.0 million, or 6.5%, in the first half of 2008 as compared to the corresponding period
in 2007. The improvement in European operating profit reflects good sales growth and expense
controls, which offset gross margin pressure in the OEM supply market.
22
ANIXTER INTERNATIONAL INC.
Emerging Markets Results of Operations
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
26 Weeks Ended |
| |
|
June 27, |
|
June 29, |
|
Percent |
| |
|
2008 |
|
2007 |
|
Change |
| |
|
(In millions) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales |
|
$ |
255.3 |
|
|
$ |
210.5 |
|
|
|
21.3 |
% |
Gross profit |
|
$ |
55.4 |
|
|
$ |
44.5 |
|
|
|
24.6 |
% |
Operating expenses |
|
$ |
37.7 |
|
|
$ |
30.2 |
|
|
|
25.1 |
% |
Operating income |
|
$ |
17.7 |
|
|
$ |
14.3 |
|
|
|
23.5 |
% |
Net Sales: Emerging Markets (Asia Pacific and Latin America) net sales in the first half of
2008 increased 21.3% to $255.3 million from $210.5 million in the corresponding period of 2007.
Excluding the $9.8 million favorable impact from changes in foreign exchange rates, the Emerging
Markets net sales growth was 16.7%. Asia Pacific sales grew 16.1%, while Latin America sales
increased 24.0% in the first half of 2008 compared to the prior corresponding period in 2007. The
sales growth in Emerging Markets reflects an expanding base of global account business and strong
project demand.
Gross Margins: During the 26 weeks ended June 27, 2008, Emerging Markets’ gross margins
increased to 21.7% from 21.1% in the corresponding period in 2007, primarily due to a favorable
product mix between countries.
Operating Expenses: Operating expenses increased $7.5 million in the 26 weeks ended June 27,
2008, or 25.1% compared to the prior year period. Favorable foreign exchange rate changes increased
operating expenses by $1.4 million in the first half of 2008 as compared to the corresponding
period in 2007.
Operating Income: Emerging Markets operating income increased $3.4 million, or 23.5%, in the
26 weeks ended June 27, 2008 compared to the corresponding period in 2007. Primarily as a result of
the sales growth and resulting leveraging of the expense structure, operating margins increased to
6.9% from 6.8% in 2007. Exchange rate changes had a $0.8 million favorable impact on operating
income.
Critical Accounting Policies and New Accounting Pronouncements
There were no material changes in the Company’s critical accounting policies since the filing
of its 2007 Form 10-K. For further information, see Note 1. “Summary of Significant Accounting
Policies” in the Notes to the Condensed Consolidated Financial Statements for information about
recently issued accounting pronouncements. As discussed in the 2007 Form 10-K, the preparation of
the consolidated financial statements in conformity with accounting principles generally accepted
in the United States requires management to make certain estimates and assumptions that affect the
amount of reported assets and liabilities and disclosure of contingent assets and liabilities at
the date of the consolidated financial statements and revenues and expenses during the periods
reported. Actual results may differ from those estimates.
ITEM 4. CONTROLS AND PROCEDURES.
Under the supervision and with the participation of our management, including our principal
executive officer and principal financial officer, we conducted an evaluation as of June 27, 2008
of the effectiveness of the design and operation of our disclosure controls and procedures, as such
term is defined under Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as
amended (“Exchange Act”). Based on this evaluation, our principal executive officer and our
principal financial officer concluded that our disclosure controls and procedures were effective as
of June 27, 2008. There was no change in the Company’s internal control over financial reporting
that occurred during the 13 weeks ended June 27, 2008 that has materially affected, or is
reasonably likely to materially affect, the Company’s internal control over financial reporting.
23
ANIXTER INTERNATIONAL INC.
PART II. OTHER INFORMATION
|
|
|
| ITEM 1. |
|
LEGAL PROCEEDINGS. |
In April 2008, the Company voluntarily disclosed to the U.S. Departments of Treasury and
Commerce that one of its foreign subsidiaries may have violated U.S. export control laws and
regulations in connection with re-exports of goods to prohibited parties or destinations.
The Company has performed a thorough review of its export and re-export transactions and did
not identify any other potentially significant violations. The Company is also determining
appropriate corrective actions. Upon completion, the Company will submit the results and its
corrective action plan to the applicable U.S. government agencies.
While civil penalties may be assessed against the Company in connection with any violations
that are determined to have occurred, based on information currently available, an estimate of loss
cannot be made at this time and, therefore, nothing has been accrued. However, management does not
believe that the ultimate resolution of this matter will have a material effect on the business,
operations or financial condition of the Company.
|
|
|
| ITEM 2. |
|
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS AND ISSUER PURCHASES OF EQUITY
SECURITIES. |
The following table provides information about the shares repurchased by the Company during
the second quarter of fiscal year 2008:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
Total Number of |
|
Maximum Number |
| |
|
|
|
|
|
|
|
|
|
Shares Purchased as |
|
of Shares That May |
| |
|
|
|
|
|
|
|
|
|
Part of Publicly |
|
Yet Be Purchased |
| |
|
Total Number of |
|
Average Price |
|
Announced |
|
Under the |
| Fiscal Reporting Period |
|
Shares Purchased |
|
Paid per Share |
|
Programs |
|
Programs (1) |
Four week period ending April 25 |
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
Four week period ending May 23 |
|
|
1,000,000 |
|
|
$ |
62.84 |
|
|
|
1,000,000 |
|
|
|
|
|
Five week period ending June 27 |
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
1,000,000 |
|
|
$ |
62.84 |
|
|
|
1,000,000 |
|
|
|
0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
| (1) |
|
On May 2, 2008, the Company announced a share repurchase program under which the Company
may repurchase up to 1 million of its outstanding shares with the exact volume and timing dependent
on market conditions. All previously announced share repurchase programs had been completed prior
to the end of the first quarter of 2008. The purchase of 1,000,000 shares was completed in the
fiscal month of May, 2008. The program expired upon acquisition of all shares authorized to be
repurchased. |
24
ANIXTER INTERNATIONAL INC.
|
|
|
| ITEM 4. |
|
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. |
At the Annual Meeting of Stockholders held May 13, 2008, the Directors of the Company were
elected as follows:
| |
|
|
|
|
|
|
|
|
| |
|
VOTES |
| |
|
FOR |
|
WITHHELD |
Lord James Blyth |
|
|
31,862,718 |
|
|
|
245,564 |
|
Linda Walker Bynoe |
|
|
32,005,492 |
|
|
|
102,790 |
|
Robert L. Crandall |
|
|
32,037,632 |
|
|
|
70,650 |
|
Robert J. Eck |
|
|
31,869,202 |
|
|
|
239,080 |
|
Robert W. Grubbs, Jr. |
|
|
31,868,864 |
|
|
|
239,418 |
|
F. Philip Handy |
|
|
31,476,230 |
|
|
|
632,052 |
|
Melvyn N. Klein |
|
|
31,868,026 |
|
|
|
240,256 |
|
George Munoz |
|
|
32,046,674 |
|
|
|
61,608 |
|
Stuart M. Sloan |
|
|
31,865,097 |
|
|
|
243,185 |
|
Thomas C. Theobald |
|
|
31,520,897 |
|
|
|
587,385 |
|
Matthew Zell |
|
|
32,042,409 |
|
|
|
65,873 |
|
Samuel Zell |
|
|
30,948,742 |
|
|
|
1,159,540 |
|
At this Annual Meeting, the Company’s ratification of Ernst & Young LLP as the Company’s
independent auditors for the fiscal year 2008 was approved by a vote of 31,726,323 shares “for” and
280,379 shares “against” with 101,582 shares abstaining.
ITEM 6. EXHIBITS.
| |
(31) |
|
Rule 13a — 14(a) / 15d — 14(a) Certifications. |
| |
31.1 |
|
Robert J. Eck, President and Chief Executive Officer,
Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
| |
| |
31.2 |
|
Dennis J. Letham, Executive Vice President-Finance and
Chief Financial Officer, Certification Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002. |
| |
(32) |
|
Section 1350 Certifications. |
| |
32.1 |
|
Robert J. Eck, President and Chief Executive Officer,
Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002. |
| |
| |
32.2 |
|
Dennis J. Letham, Executive Vice President-Finance and
Chief Financial Officer, Certification Pursuant to 18 U.S.C. Section 1350,
as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
25
ANIXTER INTERNATIONAL INC.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| |
|
|
|
|
| |
ANIXTER INTERNATIONAL INC.
|
|
| July 31, 2008 |
By: |
/s/ Robert J. Eck
|
|
| |
|
Robert J. Eck |
|
| |
|
President and Chief Executive Officer |
|
| |
| |
|
|
| July 31, 2008 |
By: |
/s/ Dennis J. Letham
|
|
| |
|
Dennis J. Letham |
|
| |
|
Executive Vice President — Finance
and Chief
Financial Officer |
|
| |
26