e10vq
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
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| þ |
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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 29, 2007
OR
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| o |
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TRANSACTION 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
(State or other jurisdiction of incorporation or organization)
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94-1658138
(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, or a non-accelerated filer (as defined in Exchange Act Rule 12b-2).
Large Accelerated Filer þ Accelerated Filer o Non-Accelerated Filer o
Indicate by check mark whether the registrant is a shell company (as defined in
Exchange Act Rule 12b-2).
Yes
o No þ
At July 26, 2007, 37,295,585 shares of the registrant’s Common Stock, $1.00 par
value, were outstanding.
ANIXTER INTERNATIONAL INC.
TABLE OF CONTENTS
*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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|
|
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|
|
|
|
|
|
|
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13 Weeks Ended |
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26 Weeks Ended |
|
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June 29, |
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June 30, |
|
|
June 29, |
|
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June 30, |
|
| (In millions, except per share amounts) |
|
2007 |
|
|
2006 |
|
|
2007 |
|
|
2006 |
|
Net sales |
|
$ |
1,511.5 |
|
|
$ |
1,239.8 |
|
|
$ |
2,840.2 |
|
|
$ |
2,310.3 |
|
Cost of operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of goods sold |
|
|
1,148.2 |
|
|
|
932.7 |
|
|
|
2,158.5 |
|
|
|
1,746.0 |
|
Operating expenses |
|
|
245.3 |
|
|
|
215.0 |
|
|
|
471.4 |
|
|
|
411.7 |
|
Amortization of intangibles |
|
|
1.9 |
|
|
|
1.1 |
|
|
|
3.8 |
|
|
|
2.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
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Total costs and expenses |
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|
1,395.4 |
|
|
|
1,148.8 |
|
|
|
2,633.7 |
|
|
|
2,159.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
116.1 |
|
|
|
91.0 |
|
|
|
206.5 |
|
|
|
150.6 |
|
Other (expense) income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
(11.1 |
) |
|
|
(9.0 |
) |
|
|
(22.0 |
) |
|
|
(17.5 |
) |
Other, net |
|
|
2.4 |
|
|
|
(1.5 |
) |
|
|
3.1 |
|
|
|
(1.6 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes |
|
|
107.4 |
|
|
|
80.5 |
|
|
|
187.6 |
|
|
|
131.5 |
|
Income tax expense |
|
|
42.8 |
|
|
|
31.1 |
|
|
|
69.4 |
|
|
|
50.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
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Net income |
|
$ |
64.6 |
|
|
$ |
49.4 |
|
|
$ |
118.2 |
|
|
$ |
80.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
1.74 |
|
|
$ |
1.27 |
|
|
$ |
3.16 |
|
|
$ |
2.08 |
|
Diluted |
|
$ |
1.53 |
|
|
$ |
1.15 |
|
|
$ |
2.81 |
|
|
$ |
1.89 |
|
See accompanying notes to the condensed consolidated financial statements.
1
ANIXTER INTERNATIONAL INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
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June 29, |
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December 29, |
|
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2007 |
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2006 |
|
| (In millions, except share amounts) |
|
(Unaudited) |
|
ASSETS
|
Current assets |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
45.1 |
|
|
$ |
50.9 |
|
Accounts receivable (less allowances of $23.1 and $20.6
in 2007 and 2006, respectively) |
|
|
1,171.3 |
|
|
|
1,016.1 |
|
Inventories |
|
|
1,006.2 |
|
|
|
904.9 |
|
Deferred income taxes |
|
|
40.5 |
|
|
|
32.0 |
|
Other current assets |
|
|
22.1 |
|
|
|
16.4 |
|
|
|
|
|
|
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Total current assets |
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2,285.2 |
|
|
|
2,020.3 |
|
Property and equipment, at cost |
|
|
224.2 |
|
|
|
205.0 |
|
Accumulated depreciation |
|
|
(155.0 |
) |
|
|
(143.0 |
) |
|
|
|
|
|
|
|
Net property and equipment |
|
|
69.2 |
|
|
|
62.0 |
|
Goodwill |
|
|
399.5 |
|
|
|
364.8 |
|
Other assets |
|
|
161.5 |
|
|
|
119.1 |
|
|
|
|
|
|
|
|
|
|
$ |
2,915.4 |
|
|
$ |
2,566.2 |
|
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|
|
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LIABILITIES AND STOCKHOLDERS’ EQUITY
|
Current liabilities |
|
|
|
|
|
|
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Accounts payable |
|
$ |
649.6 |
|
|
$ |
506.8 |
|
Accrued expenses |
|
|
181.2 |
|
|
|
203.4 |
|
Short-term debt |
|
|
127.0 |
|
|
|
212.3 |
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
957.8 |
|
|
|
922.5 |
|
Long-term debt |
|
|
898.5 |
|
|
|
597.0 |
|
Other liabilities |
|
|
105.5 |
|
|
|
84.7 |
|
|
|
|
|
|
|
|
Total liabilities |
|
|
1,961.8 |
|
|
|
1,604.2 |
|
Stockholders’ equity |
|
|
|
|
|
|
|
|
Common stock — $1.00 par value, 100,000,000 shares
authorized, 37,186,930 and 39,500,734 shares issued
and outstanding in 2007 and 2006, respectively |
|
|
37.2 |
|
|
|
39.5 |
|
Capital surplus |
|
|
127.4 |
|
|
|
113.0 |
|
Retained earnings |
|
|
760.9 |
|
|
|
803.3 |
|
Accumulated other comprehensive income: |
|
|
|
|
|
|
|
|
Foreign currency translation |
|
|
41.0 |
|
|
|
23.4 |
|
Pension liability |
|
|
(17.0 |
) |
|
|
(19.6 |
) |
Unrealized gain on derivatives |
|
|
4.1 |
|
|
|
2.4 |
|
|
|
|
|
|
|
|
Total accumulated other comprehensive income |
|
|
28.1 |
|
|
|
6.2 |
|
|
|
|
|
|
|
|
Total stockholders’ equity |
|
|
953.6 |
|
|
|
962.0 |
|
|
|
|
|
|
|
|
|
|
$ |
2,915.4 |
|
|
$ |
2,566.2 |
|
|
|
|
|
|
|
|
See accompanying notes to the condensed consolidated financial statements.
2
ANIXTER INTERNATIONAL INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
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|
|
|
|
|
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|
| |
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26 weeks Ended |
|
| |
|
June 29, |
|
|
June 30, |
|
| |
|
2007 |
|
|
2006 |
|
| |
|
(In millions) |
|
Operating activities |
|
|
|
|
|
|
|
|
Net income |
|
$ |
118.2 |
|
|
$ |
80.7 |
|
Adjustments to reconcile net income to net cash provided by (used in) operating activities: |
|
|
|
|
|
|
|
|
Depreciation |
|
|
10.7 |
|
|
|
9.6 |
|
Amortization of stock compensation |
|
|
5.8 |
|
|
|
5.0 |
|
Amortization of intangible assets and deferred financing costs |
|
|
4.6 |
|
|
|
2.3 |
|
Accretion of zero coupon convertible notes |
|
|
2.6 |
|
|
|
2.5 |
|
Deferred income taxes |
|
|
(1.7 |
) |
|
|
1.0 |
|
Excess income tax benefit from employee stock plans |
|
|
(8.6 |
) |
|
|
(6.2 |
) |
Changes in current assets and liabilities, net |
|
|
(96.7 |
) |
|
|
(131.1 |
) |
Other, net |
|
|
0.4 |
|
|
|
(3.4 |
) |
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities |
|
|
35.3 |
|
|
|
(39.6 |
) |
|
|
|
|
|
|
|
|
|
Investing activities |
|
|
|
|
|
|
|
|
Acquisition of businesses |
|
|
(38.2 |
) |
|
|
(29.1 |
) |
Capital expenditures |
|
|
(15.4 |
) |
|
|
(11.5 |
) |
Other |
|
|
0.1 |
|
|
|
— |
|
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(53.5 |
) |
|
|
(40.6 |
) |
|
|
|
|
|
|
|
|
|
Financing activities |
|
|
|
|
|
|
|
|
Repayment of borrowings |
|
|
(444.5 |
) |
|
|
(259.8 |
) |
Proceeds from borrowings |
|
|
351.3 |
|
|
|
323.9 |
|
Proceeds from issuance of convertible senior notes |
|
|
300.0 |
|
|
|
— |
|
Purchases of common stock for treasury |
|
|
(162.7 |
) |
|
|
— |
|
Purchased call option |
|
|
(88.8 |
) |
|
|
— |
|
Proceeds from sale of warrant |
|
|
52.0 |
|
|
|
— |
|
Excess income tax benefit from employee stock plans |
|
|
8.6 |
|
|
|
6.2 |
|
Deferred financing costs |
|
|
(8.1 |
) |
|
|
— |
|
Proceeds from issuance of common stock |
|
|
5.7 |
|
|
|
9.8 |
|
Other |
|
|
(1.1 |
) |
|
|
(0.8 |
) |
|
|
|
|
|
|
|
Net cash provided by financing activities |
|
|
12.4 |
|
|
|
79.3 |
|
|
|
|
|
|
|
|
|
|
Decrease in cash and cash equivalents from operations |
|
|
(5.8 |
) |
|
|
(0.9 |
) |
Cash and cash equivalents at beginning of period |
|
|
50.9 |
|
|
|
21.8 |
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period |
|
$ |
45.1 |
|
|
$ |
20.9 |
|
|
|
|
|
|
|
|
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 29, 2006. 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 June 2006, the Financial Accounting Standards
Board (“FASB”) issued FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes – an
interpretation of FASB Statement No. 109 (“FIN 48”). The recognition and disclosure provisions of
FIN 48 were effective for the Company on December 30, 2006 (the beginning of fiscal 2007 for the
Company). Accordingly, the cumulative effect of applying FIN 48 to preexisting tax positions of
$0.9 million has been recorded as a decrease in the opening balance of retained earnings. See Note
4. “Income Taxes” for further discussion of the effect of adopting FIN 48 on the Company’s
condensed consolidated financial statements.
In September 2006, the FASB issued Statement of Financial Accounting Standard (“SFAS”) No.
157, Fair Value Measurements (“SFAS No. 157”). SFAS No. 157 defines fair value, establishes a
framework for measuring fair value and expands the disclosures about fair value measurements but
does not change existing guidance as to whether or not an instrument is carried at fair value. SFAS
No. 157 is effective for financial statements issued for fiscal years beginning after November 15,
2007 (fiscal 2008 for the Company), and interim periods within those fiscal years. The Company is
evaluating the provisions of SFAS No. 157 to determine the impact, if any, on the Company’s
condensed consolidated financial statements.
In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and
Financial Liabilities (“SFAS No. 159”). SFAS No. 159 permits entities to elect to measure financial
instruments and other eligible items at fair value at specified election dates. SFAS No. 159
allows entities to report unrealized gains and losses on items for which the fair value option has
been elected in earnings at each subsequent reporting date. SFAS No. 159 is effective for
financial statements issued for fiscal years beginning after November 15, 2007 (fiscal 2008 for the
Company). The Company does not anticipate the provisions of SFAS No. 159 will have a material
impact on its condensed consolidated financial statements.
NOTE 2. COMPREHENSIVE INCOME
Comprehensive income, net of tax, consisted of the following:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
13 Weeks Ended |
|
|
26 Weeks Ended |
|
| |
|
June 29, |
|
|
June 30, |
|
|
June 29, |
|
|
June 30, |
|
| (In millions) |
|
2007 |
|
|
2006 |
|
|
2007 |
|
|
2006 |
|
Net income |
|
$ |
64.6 |
|
|
$ |
49.4 |
|
|
$ |
118.2 |
|
|
$ |
80.7 |
|
Change in cumulative translation adjustment |
|
|
16.3 |
|
|
|
10.9 |
|
|
|
17.6 |
|
|
|
13.2 |
|
Change in pension liability |
|
|
2.2 |
|
|
|
— |
|
|
|
2.6 |
|
|
|
— |
|
Change in fair market value of derivatives |
|
|
1.4 |
|
|
|
1.3 |
|
|
|
1.7 |
|
|
|
2.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income |
|
$ |
84.5 |
|
|
$ |
61.6 |
|
|
$ |
140.1 |
|
|
$ |
95.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4
ANIXTER INTERNATIONAL INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(cont)
NOTE 3. INCOME PER SHARE
The following table sets forth the computation of basic and diluted income per share:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
13 Weeks Ended |
|
|
26 Weeks Ended |
|
| |
|
June 29, |
|
|
June 30, |
|
|
June 29, |
|
|
June 30, |
|
| |
|
2007 |
|
|
2006 |
|
|
2007 |
|
|
2006 |
|
| (In millions, except per share data) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic Income per Share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
64.6 |
|
|
$ |
49.4 |
|
|
$ |
118.2 |
|
|
$ |
80.7 |
|
Weighted-average common shares outstanding |
|
|
37.1 |
|
|
|
39.0 |
|
|
|
37.4 |
|
|
|
38.8 |
|
Net income per share |
|
$ |
1.74 |
|
|
$ |
1.27 |
|
|
$ |
3.16 |
|
|
$ |
2.08 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted Income per Share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
64.6 |
|
|
$ |
49.4 |
|
|
$ |
118.2 |
|
|
$ |
80.7 |
|
Weighted-average common shares outstanding |
|
|
37.1 |
|
|
|
39.0 |
|
|
|
37.4 |
|
|
|
38.8 |
|
Effect of dilutive securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options and units |
|
|
1.2 |
|
|
|
1.5 |
|
|
|
1.3 |
|
|
|
1.5 |
|
Convertible notes due 2033 |
|
|
3.4 |
|
|
|
2.4 |
|
|
|
3.1 |
|
|
|
2.3 |
|
Convertible notes due 2013 |
|
|
0.5 |
|
|
|
— |
|
|
|
0.3 |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average common shares outstanding |
|
|
42.2 |
|
|
|
42.9 |
|
|
|
42.1 |
|
|
|
42.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share |
|
$ |
1.53 |
|
|
$ |
1.15 |
|
|
$ |
2.81 |
|
|
$ |
1.89 |
|
On February 16, 2007, the Company issued $300.0 million of Convertible Senior Notes due 2013.
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. As a result of the Company’s average stock price exceeding the conversion price
of $63.48 per share, 0.5 million and 0.3 million additional shares have been included in the
diluted weighted-average common shares outstanding for the 13 and 26 weeks ended June 29, 2007,
respectively.
The Convertible 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 29,
2007 and June 30, 2006. As a result of the conversion value exceeding the accreted principal, 3.4
million and 3.1 million additional shares related to the Convertible Notes due 2033 have been
included in the diluted weighted average common shares outstanding for the 13 and 26 weeks ended
June 29, 2007, respectively. In the corresponding periods in 2006, 2.4 million and 2.3 million
additional shares related to the Convertible Notes due 2033 have been included 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 29, 2007 and June 30, 2006, the Company issued 0.4 million and 0.2
million shares, respectively, due to stock option exercises and vesting of stock units. In both the
26 weeks ended June 29, 2007 and June 30, 2006, the Company issued 0.7 million shares due to stock
option exercises and vesting of stock units.
5
ANIXTER INTERNATIONAL INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(cont)
NOTE 4. INCOME TAXES
The effective tax rate for the 13 weeks ended June 29, 2007 is 39.8%, inclusive of $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 effective tax rate for the second quarter of 2007 was 37.9% as compared to 38.6% for the
corresponding period in 2006. Excluding the additional tax provision, the change in the effective
tax rate increased net income $0.8 million, or $0.02 per diluted share, for the 13 weeks ended June
29, 2007 compared to the corresponding period in 2006.
The effective tax rate for the 26 weeks ended June 29, 2007 is 37.0%, inclusive of $1.7 million of
net tax benefits primarily related to the settlement of certain income tax audits. Without the
additional income tax benefits, the effective tax rate for the 26 weeks ended June 29, 2007 was
37.9% as compared to 38.6% for the corresponding period in 2006. Excluding the additional net tax
benefits, the change in the effective tax rate increased net income $1.3 million, or $0.03 per
diluted share, for the 26 weeks ended June 29, 2007 compared to the corresponding period in 2006.
On December 30, 2006 (the beginning of fiscal 2007 for the Company), the provisions of FIN 48
were adopted. As a result of the implementation of FIN 48, the Company recorded a $0.9 million
increase in the liability for unrecognized tax benefits, which was accounted for as a reduction to
the opening balance of retained earnings. At December 30, 2006, the total amount of unrecognized
tax benefits was $12.1 million ($11.3 million, if recognized, would affect the effective tax rate).
During the 26 weeks ended June 29, 2007, the Company settled certain income tax audits and reversed
a net amount of $3.8 million of unrecognized tax benefits that existed at December 30, 2006. The
Company estimates that the June 29, 2007 unrecognized tax benefit balance of $8.3 million ($7.5
million, if recognized, would affect the effective tax rate) will not change significantly within
the next twelve months.
After the settlements with the IRS in 2006 and the first quarter of 2007, only the returns for
fiscal tax years 2005 and later remain subject to examination by the IRS, which is the most
significant tax jurisdiction for the Company. For most states, fiscal tax years 2003 and later
remain subject to examination, although for some states that are currently in the midst of
examinations or in various stages of appeal, the period subject to examination ranges back to as
early as fiscal tax year 1999. In Canada, the fiscal tax years 2002 and later are still subject to
examination, while in the United Kingdom, the fiscal tax years 2001 and later remain subject to
examination.
During the 13 and 26 weeks ended June 29, 2007, interest and penalties related to taxes were
$0.1 million and $0.3 million, respectively. During the 13 and 26 weeks ended June 30, 2006,
interest and penalties related to taxes were $0.2 million and $0.4 million, respectively. Interest
and penalties are reflected in the “Other, net” line in the condensed consolidated statement of
operations. Included in the unrecognized tax benefit balance of $8.3 million and $12.1 million at
June 29, 2007 and December 30, 2006, respectively, are accruals of $2.5 million and $2.7 million,
respectively, for the payment of interest and penalties.
NOTE 5. DEBT
At June 29, 2007, the Company’s total debt outstanding was $1,025.5 million as compared to
$809.3 million at December 29, 2006. The Company’s weighted-average cost of borrowings was 4.2% and
5.3% for the 13 weeks ended June 29, 2007 and June 30, 2006, respectively, and 4.5% and 5.2% for
the 26 weeks ended June 29, 2007 and June 30, 2006, respectively.
On April 20, 2007, the Company’s primary operating subsidiary, Anixter Inc., entered into an
amended and restated senior unsecured revolving credit agreement. As amended and restated, the
revolving credit agreement will allow for borrowings of up to $350.0 million (or the equivalent in
Euros) for a 5-year period ending April 2012. The key changes to the terms and conditions of the
agreement include the elimination of limitations on foreign acquisitions, elimination of the
minimum net worth requirements and elimination of the restriction on the amount of dividends that
Anixter Inc. can pay to the Company. The current pricing for borrowings under the agreement has
been reduced to LIBOR plus 60 basis points and the facility fee payable on the full amount of the
agreement has been reduced to 15
basis points. The agreement, which is guaranteed by the Company, contains financial covenants
(all of which have been met) that restrict the amount of leverage and set a minimum fixed charge
coverage ratio similar to the prior agreement.
6
ANIXTER INTERNATIONAL INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(cont)
On February 16, 2007, the Company completed the issuance of $300.0 million principal
amount of Convertible Senior Notes due 2013 (the “Notes due 2013”). The Notes due 2013 were
originally sold in a private placement to qualified institutional buyers pursuant to Rule 144A
under the Securities Act of 1933. In May 2007, the Company registered the Notes due 2013 and shares
of the Company’s common stock issueable upon conversion of the Notes due 2013 for resale by certain
selling security holders.
The Notes due 2013 pay interest semiannually at a rate of 1.00% per annum. The Notes due 2013
will be convertible, at the holders option, at an initial conversion rate of 15.753 shares per
$1,000 principal amount of Notes due 2013, equivalent to a conversion price of $63.48 per share,
which represents a 15 percent conversion premium based on the last reported sale price of $55.20
per share of the Company’s common stock on February 12, 2007. The Notes due 2013 are convertible,
under certain circumstances (as described below), into 4,725,900 shares of the Company’s common
stock, subject to customary anti-dilution adjustments. 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.
Net proceeds from this offering were approximately $292.6 million after deducting discounts,
commissions and estimated expenses. Concurrent with the issuance of the Notes due 2013, the Company
entered into a convertible note hedge transaction, comprised of a purchased call option and a sold
warrant, with an affiliate of one of the initial purchasers. The transaction will generally have
the effect of increasing the conversion price of the Notes due 2013. The net cost to the Company
was approximately $36.8 million. Concurrent with the sale of these convertible notes, the Company
also repurchased 2 million shares of common stock at a cost of $55.20 per share with the net
proceeds from the issuance of the Notes due 2013. The remaining proceeds from the transactions were
used for general corporate purposes, including reducing funding under the Company’s accounts
receivable securitization program and to reduce borrowings under its revolving credit facilities.
The Company paid $88.8 million ($54.9 million net of tax) for a call option that will cover
4,725,900 shares of its common stock, subject to customary anti-dilution adjustments. The purchased
call option has an exercise price that is 15% higher than the closing price of $55.20 per share of
the Company’s common stock at issuance (or $63.48).
Concurrently with purchasing the call option, the Company sold to the counterparty for $52.0
million a warrant to purchase 4,725,900 shares of its common stock, subject to customary
anti-dilution adjustments. The sold warrant has an exercise price that is 50% higher than the
closing price of $55.20 per share of the Company’s common stock at issuance (or $82.80) and may not
be exercised prior to the maturity of the notes.
Holders of the Notes due 2013 may convert them prior to the close of business on the business
day before the maturity date based on the applicable conversion rate only under the following
circumstances:
Conversion Based on Common Stock Price
Holders may convert during any fiscal quarter beginning after March 30, 2007, and only during
such fiscal quarter, if the closing price of the Company’s common stock for at least 20 trading
days in the 30 consecutive trading days ending on the last trading day of the immediately preceding
fiscal quarter is more than 130% of the conversion price per share, or $82.52. The conversion price
per share is equal to $1,000 divided by the then applicable conversion rate (currently 15.753
shares per $1,000 principal amount).
Conversion Based on Trading Price of Notes
Holders may convert during the five business day period after any period of five consecutive
trading days in which the trading price per $1,000 principal amount of Notes due 2013 for each
trading day of that period was less than 98% of the product of the closing price of the Company’s
common stock for each trading day of that period and the then applicable conversion rate.
7
ANIXTER INTERNATIONAL INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(cont)
Conversion Upon Certain Distributions
If the Company elects to:
| |
• |
|
distribute, to all holders of the Company’s common stock, any rights entitling them to
purchase, for a period expiring within 45 days of distribution, common stock, or
securities convertible into common stock, at less than, or having a conversion price per
share less than, the closing price of the Company’s common stock; or |
| |
| |
• |
|
distribute, to all holders of the Company’s common stock, assets, cash, debt securities
or rights to purchase the Company’s securities, which distribution has a per share value
exceeding 15% of the closing price of such common stock, |
holders may surrender their Notes due 2013 for conversion at any time until the earlier of the
close of business on the business day prior to the ex-dividend date or the Company’s announcement
that such distribution will not take place.
Conversion Upon a Fundamental Change
Holders may surrender Notes due 2013 for conversion at any time beginning 15 days before the
anticipated effective date of a fundamental change and until the Company makes any required
purchase of the Notes due 2013 as a result of the fundamental change. A “fundamental change” means
the occurrence of a change of control or a termination of trading of the Company’s common stock.
Certain change of control events may give rise to a make whole premium.
Conversion at Maturity
Holders may surrender their Notes due 2013 for conversion at any time beginning on January 15,
2013 and ending at the close of business on the business day immediately preceding the maturity
date.
The “conversion rate” is 15.753 shares of the Company’s common stock, subject to certain
customary anti-dilution adjustments. These adjustments consist of adjustments for:
| |
• |
|
stock dividends and distributions, share splits and share combinations, |
| |
| |
• |
|
the issuance of any rights to all holders of the Company’s common stock to purchase
shares of such stock at an issuance price of less than the closing price of such stock,
exercisable within 45 days of issuance, |
| |
| |
• |
|
the distribution of stock, debt or other assets, to all holders of the Company’s common
stock, other than distributions covered above, and |
| |
| |
• |
|
issuer tender offers at a premium to the closing price of the Company’s common stock. |
The “conversion value” of the Notes due 2013 means the average of the daily conversion values,
as defined below, for each of the 20 consecutive trading days of the conversion reference period.
The “daily conversion value” means, with respect to any trading day, the product of (1) the
applicable conversion rate and (2) the volume weighted average price per share of the Company’s
common stock on such trading day.
The “conversion reference period” means:
| |
• |
|
for Notes due 2013 that are converted during the one month period prior to maturity
date of the notes, the 20 consecutive trading days preceding and ending on the maturity
date, subject to any extension due to a market disruption event, and |
| |
| |
• |
|
in all other instances, the 20 consecutive trading days beginning on the third trading
day following the conversion date. |
The “conversion date” with respect to the Notes due 2013 means the date on which the holder of
the Notes due 2013 has complied with all the requirements under the indenture to convert such Notes
due 2013.
8
ANIXTER INTERNATIONAL INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(cont)
NOTE 6. PENSION PLANS
The Company has various defined benefit and defined contribution pension plans. The defined
benefit plans of the Company 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 Internal Revenue Service 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 29, |
|
|
June 30, |
|
|
June 29, |
|
|
June 30, |
|
|
June 29, |
|
|
June 30, |
|
| |
|
2007 |
|
|
2006 |
|
|
2007 |
|
|
2006 |
|
|
2007 |
|
|
2006 |
|
| |
|
|
|
|
|
|
|
|
|
(In millions) |
|
|
|
|
|
|
|
|
|
Service cost |
|
$ |
1.3 |
|
|
$ |
1.6 |
|
|
$ |
1.5 |
|
|
$ |
1.5 |
|
|
$ |
2.8 |
|
|
$ |
3.1 |
|
Interest cost |
|
|
2.2 |
|
|
|
2.0 |
|
|
|
2.3 |
|
|
|
3.2 |
|
|
|
4.5 |
|
|
|
5.2 |
|
Expected return on plan assets |
|
|
(2.6 |
) |
|
|
(2.2 |
) |
|
|
(2.5 |
) |
|
|
(3.2 |
) |
|
|
(5.1 |
) |
|
|
(5.4 |
) |
Net amortization |
|
|
(0.1 |
) |
|
|
0.4 |
|
|
|
0.1 |
|
|
|
0.1 |
|
|
|
— |
|
|
|
0.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic cost |
|
$ |
0.8 |
|
|
$ |
1.8 |
|
|
$ |
1.4 |
|
|
$ |
1.6 |
|
|
$ |
2.2 |
|
|
$ |
3.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
26 Weeks Ended |
|
| |
|
Domestic |
|
|
Foreign |
|
|
Total |
|
| |
|
June 29, |
|
|
June 30, |
|
|
June 29, |
|
|
June 30, |
|
|
June 29, |
|
|
June 30, |
|
| |
|
2007 |
|
|
2006 |
|
|
2007 |
|
|
2006 |
|
|
2007 |
|
|
2006 |
|
| |
|
|
|
|
|
|
|
|
|
(In millions) |
|
|
|
|
|
|
|
|
|
Service cost |
|
$ |
2.8 |
|
|
$ |
3.2 |
|
|
$ |
2.8 |
|
|
$ |
2.8 |
|
|
$ |
5.6 |
|
|
$ |
6.0 |
|
Interest cost |
|
|
4.5 |
|
|
|
4.1 |
|
|
|
4.6 |
|
|
|
5.0 |
|
|
|
9.1 |
|
|
|
9.1 |
|
Expected return on plan assets |
|
|
(5.3 |
) |
|
|
(4.4 |
) |
|
|
(4.9 |
) |
|
|
(5.0 |
) |
|
|
(10.2 |
) |
|
|
(9.4 |
) |
Net amortization |
|
|
0.3 |
|
|
|
0.8 |
|
|
|
0.2 |
|
|
|
0.4 |
|
|
|
0.5 |
|
|
|
1.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic cost |
|
$ |
2.3 |
|
|
$ |
3.7 |
|
|
$ |
2.7 |
|
|
$ |
3.2 |
|
|
$ |
5.0 |
|
|
$ |
6.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTE 7. SUMMARIZED FINANCIAL INFORMATION OF ANIXTER INC.
The Company guarantees, fully and unconditionally, substantially all of the debt of its
subsidiaries, which includes Anixter Inc. The Company has no independent assets or operations and
all other subsidiaries other than Anixter Inc. are minor. At December 29, 2006, certain debt
agreements entered into by Anixter Inc. contained various restrictions on payments to the Company.
Such restrictions did not have an adverse impact on the Company’s ability to meet its cash
obligations. In April of 2007, the restriction on the amount of dividends that Anixter Inc. can pay
to the Company was eliminated in connection with amending and restating certain debt agreements.
The following summarizes the financial information for Anixter Inc.:
9
ANIXTER INTERNATIONAL INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(cont)
ANIXTER INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
| |
|
|
|
|
|
|
|
|
| |
|
June 29, |
|
|
December 29, |
|
| (In millions) |
|
2007 |
|
|
2006 |
|
| |
|
(Unaudited) |
|
|
|
|
|
Assets: |
|
|
|
|
|
|
|
|
Current assets |
|
$ |
2,305.1 |
|
|
$ |
2,024.4 |
|
Property, net |
|
|
69.2 |
|
|
|
62.0 |
|
Goodwill |
|
|
399.5 |
|
|
|
364.8 |
|
Other assets |
|
|
139.6 |
|
|
|
133.8 |
|
|
|
|
|
|
|
|
|
|
$ |
2,913.4 |
|
|
$ |
2,585.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders’ Equity: |
|
|
|
|
|
|
|
|
Current liabilities |
|
$ |
959.2 |
|
|
$ |
919.7 |
|
Subordinated notes payable to parent |
|
|
180.5 |
|
|
|
22.0 |
|
Long-term debt |
|
|
437.1 |
|
|
|
438.2 |
|
Other liabilities |
|
|
126.0 |
|
|
|
104.8 |
|
Stockholders’ equity |
|
|
1,210.6 |
|
|
|
1,100.3 |
|
|
|
|
|
|
|
|
|
|
$ |
2,913.4 |
|
|
$ |
2,585.0 |
|
|
|
|
|
|
|
|
ANIXTER INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
13 Weeks Ended |
|
|
26 Weeks Ended |
|
| |
|
June 29, |
|
|
June 30, |
|
|
June 29, |
|
|
June 30, |
|
| (In millions) |
|
2007 |
|
|
2006 |
|
|
2007 |
|
|
2006 |
|
Net sales |
|
$ |
1,511.5 |
|
|
$ |
1,239.8 |
|
|
$ |
2,840.2 |
|
|
$ |
2,310.3 |
|
Operating income |
|
$ |
117.4 |
|
|
$ |
92.2 |
|
|
$ |
208.9 |
|
|
$ |
153.1 |
|
Income before income taxes |
|
$ |
107.6 |
|
|
$ |
81.7 |
|
|
$ |
188.9 |
|
|
$ |
134.4 |
|
Net income |
|
$ |
64.9 |
|
|
$ |
49.8 |
|
|
$ |
119.5 |
|
|
$ |
82.0 |
|
NOTE 8. STOCKHOLDERS’ EQUITY
Purchased Call and Warrant
Concurrently with the issuance of the Notes due 2013 (as more fully described in Note 5.
“Debt”), the Company entered into a convertible note hedge transaction, comprised of a purchased
call option and a sold warrant, with an affiliate of one of the initial purchasers of the Notes due
2013. The net cost of the purchased call option and the sold warrant was approximately $36.8
million and is reflected in the Company’s condensed consolidated financial statements as an
increase in deferred tax assets of $33.9 million and a reduction to capital surplus of $2.9
million.
Share Repurchase
In the first quarter of 2007, the Company repurchased 3 million shares at an average cost of
$54.23 per share. Purchases were made in the open market and were financed from cash generated by
operations and the net proceeds from the issuance of the Notes due 2013. No shares were repurchased
during the 26 weeks ended June 29, 2006.
10
ANIXTER INTERNATIONAL INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(cont)
For further information regarding these transactions, see Note 5. “Debt.”
Adoption of FIN 48
As discussed in more detail in Note 1. “Summary of Significant Accounting Policies” and Note
4. “Income Taxes,” the recognition and disclosure provisions of FIN 48 were effective for the
Company for the fiscal year beginning December 30, 2006 (the beginning of fiscal 2007 for the
Company). Accordingly, the cumulative effect of applying FIN 48 to preexisting tax positions of
$0.9 million has been recorded as a decrease in the opening balance of retained earnings.
Stock-Based Compensation
The Company granted 157,026 and 232,346 stock units to employees during the 26 weeks ending
June 29, 2007 and June 30, 2006, respectively, with a grant-date fair value of $60.95 and $46.29
per share, respectively. The grant-date value of the stock units is amortized and converted to
outstanding shares of common stock on a one-for-one basis over either a four-year or six-year
vesting period from the date of grant based on the specific terms of the grant. During the 13 and
26 weeks ended June 29, 2007, compensation expense associated with the stock units was $2.2 million
and $4.4 million, respectively. During the 13 and 26 weeks ended June 30, 2006, compensation
expense associated with the stock units was $2.2 million and $4.1 million, respectively.
The Company’s Director Stock Unit Plan is used to pay its non-employee directors annual
retainer fees and, at their election, meeting fees in the form of stock units. Currently, these
units are granted quarterly. The Company includes these units in its common stock outstanding on
the date of vesting as the conditions for conversion are met. However, the actual issuance of these
units are deferred until a pre-arranged time selected by each director. Stock units were granted to
ten directors in the 13 and 26 weeks ended June 29, 2007 and June 30, 2006, respectively. The
aggregate value at grant date was $0.3 million in the 13 weeks ended June 29, 2007 and June 30,
2006. The aggregate value at grant date was $0.7 million in the 26 week period ending June 29, 2007
and June 30, 2006. Compensation expense associated with the director stock units was $0.4 million
and $0.3 million for the 13 weeks ended June 29, 2007 and June 30, 2006, respectively. During the
26 weeks ended June 29, 2007 and June 30, 2006, compensation expense associated with the director
stock units was $0.8 million and $0.7 million, respectively.
During the 26 weeks ending June 29, 2007 and June 30, 2006, the Company granted 158,283 and
168,000 stock options to employees and began amortizing the grant-date fair market value of
approximately $4.4 million and $3.5 million, respectively, over either a four-year or six-year
vesting period representing the requisite service period. The weighted-average fair value of the
2007 stock option grant was $27.53 per share which was estimated at the date of grant using the
Black-Scholes option pricing model with the following assumptions: expected stock price volatility
of 34%; expected dividend yield of zero; risk-free interest rate of 4.5%; and an average expected
life of 7 years. Total compensation expense associated with the option grants was $0.4 million and
$0.6 million for the 13 and 26 weeks ended June 29, 2007, respectively. Total compensation expense
for the corresponding periods ending June 30, 2006 was $0.2 million and $0.8 million, respectively.
At June 29, 2007, the Company had 1.5 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. Options previously granted under these plans have been granted with exercise prices
at, or higher than, the fair market value of the common stock on the date of grant. All options
expire ten years after the date of grant. The Company generally issues new shares to satisfy stock
option exercises as opposed to adjusting treasury shares. In accordance with SFAS 123(R),
Share-Based Payment, the fair value of stock option grants is amortized over the respective vesting
period representing the requisite service period.
11
ANIXTER INTERNATIONAL INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (cont)
NOTE 9. 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. 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 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 29, 2007 and June 30, 2006 was as
follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
13 Weeks Ended |
|
|
26 Weeks Ended |
|
| |
|
June 29, |
|
|
June 30, |
|
|
June 29, |
|
|
June 30, |
|
| (In millions) |
|
2007 |
|
|
2006 |
|
|
2007 |
|
|
2006 |
|
Net sales: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States |
|
$ |
907.1 |
|
|
$ |
776.9 |
|
|
$ |
1,702.7 |
|
|
$ |
1,445.2 |
|
Canada |
|
|
164.3 |
|
|
|
145.8 |
|
|
|
295.7 |
|
|
|
256.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America |
|
|
1,071.4 |
|
|
|
922.7 |
|
|
|
1,998.4 |
|
|
|
1,701.5 |
|
Europe |
|
|
326.2 |
|
|
|
240.7 |
|
|
|
631.3 |
|
|
|
460.1 |
|
Emerging Markets |
|
|
113.9 |
|
|
|
76.4 |
|
|
|
210.5 |
|
|
|
148.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
1,511.5 |
|
|
$ |
1,239.8 |
|
|
$ |
2,840.2 |
|
|
$ |
2,310.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States |
|
$ |
74.0 |
|
|
$ |
57.6 |
|
|
$ |
132.7 |
|
|
$ |
95.5 |
|
Canada |
|
|
18.4 |
|
|
|
18.7 |
|
|
|
30.5 |
|
|
|
27.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America |
|
|
92.4 |
|
|
|
76.3 |
|
|
|
163.2 |
|
|
|
123.2 |
|
Europe |
|
|
15.0 |
|
|
|
10.5 |
|
|
|
29.0 |
|
|
|
17.9 |
|
Emerging Markets |
|
|
8.7 |
|
|
|
4.2 |
|
|
|
14.3 |
|
|
|
9.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
116.1 |
|
|
$ |
91.0 |
|
|
$ |
206.5 |
|
|
$ |
150.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
| |
|
June 29, |
|
|
December 29, |
|
| |
|
2007 |
|
|
2006 |
|
Total assets: |
|
|
|
|
|
|
|
|
United States |
|
$ |
1,608.8 |
|
|
$ |
1,487.4 |
|
Canada |
|
|
250.9 |
|
|
|
218.1 |
|
|
|
|
|
|
|
|
North America |
|
|
1,859.7 |
|
|
|
1,705.5 |
|
Europe |
|
|
828.6 |
|
|
|
669.9 |
|
Emerging Markets |
|
|
227.1 |
|
|
|
190.8 |
|
|
|
|
|
|
|
|
|
|
$ |
2,915.4 |
|
|
$ |
2,566.2 |
|
|
|
|
|
|
|
|
12
ANIXTER INTERNATIONAL INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(cont)
The following table presents the changes in goodwill allocated to the Company’s reportable
segments during the 26 weeks ended June 29, 2007:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
December 29, |
|
|
Acquisition |
|
|
|
|
|
|
June 29, |
|
| |
|
2006 |
|
|
Related |
|
|
Other |
|
|
2007 |
|
| |
|
(In millions) |
|
United States |
|
$ |
260.6 |
|
|
$ |
6.1 |
|
|
$ |
— |
|
|
$ |
266.7 |
|
Canada |
|
|
14.3 |
|
|
|
— |
|
|
|
1.3 |
|
|
|
15.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America |
|
|
274.9 |
|
|
|
6.1 |
|
|
|
1.3 |
|
|
|
282.3 |
|
Europe |
|
|
82.8 |
|
|
|
25.1 |
|
|
|
1.7 |
|
|
|
109.6 |
|
Emerging Markets |
|
|
7.1 |
|
|
|
— |
|
|
|
0.5 |
|
|
|
7.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
364.8 |
|
|
$ |
31.2 |
|
|
$ |
3.5 |
|
|
$ |
399.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTE 10. SUBSEQUENT EVENT
In July 2007, the Company amended its $40.0 million (Canadian dollar) unsecured revolving
credit facility. The key changes to the terms and conditions were a reduction in borrowing costs
and the extension of the maturity to April of 2012.
13
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 this non-GAAP financial
measure for any additional 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 29, 2006.
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”), a France-based aerospace fastener distributor. The Company paid approximately
$35.1 million for these businesses and assumed debt of $6.6 million. 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. As a result of these acquisitions,
sales and operating income were favorably affected in the second quarter of 2007 by $8.3 million
and $0.7 million, respectively, as compared to the corresponding period in the prior year. Had
these acquisitions occurred at the beginning of the year, the impact on the Company’s operating
results would not have been significant.
In May and October of 2006, respectively, the Company acquired all of the outstanding shares
of IMS, Inc. (“IMS”), a wire and cable distributor in the U.S., and MFU Holding S.p.A. (“MFU”), a
fastener distributor based in Italy. The Company also acquired a small company in Eastern Europe
during 2006. The Company paid approximately $93.6 million for these businesses ($90.5 million in
2006 and additional payments of $3.1 million in 2007) and assumed debt of $5.8 million. 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. As a
result of these acquisitions, sales and operating income were favorably affected in the second
quarter of 2007 by $31.4 million and $3.2 million, respectively, as compared to the corresponding
period in the prior year. Sales and operating income were favorably affected during the 26 weeks
ended June 29, 2007 by $65.0 million and $6.3 million, respectively, as compared to the
corresponding period in the prior year. Had these acquisitions occurred at the beginning of 2006,
the impact on the Company’s operating results would not have been significant.
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 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.
14
ANIXTER INTERNATIONAL INC.
Cash Flow
Consolidated net cash provided by operating activities was $35.3 million in the 26 weeks ended
June 29, 2007 compared to cash used in operating activities of $39.6 million in the same period in
2006. The increase in cash provided by operating activities was primarily related to changes in
working capital (accounts receivable, inventory, accounts payable and other current assets and
liabilities). In the 26 weeks ended June 29, 2007, working capital changes represented a use of
operating cash of $96.7 million as compared to $131.1 million in the same period in 2006. Net
income also contributed to the increase in cash provided by operating activities. Net income
increased $37.5 million in the 26 weeks ended June 29, 2007 as compared to the corresponding period
in 2006.
Consolidated net cash used in investing activities was $53.5 million in the 26 weeks ended
June 29, 2007 compared to $40.6 million in the corresponding period in 2006. 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 for IMS and MFU. In the prior corresponding period of 2006, the Company spent $29.1
million to acquire IMS and a small business in Eastern Europe. Capital expenditures increased $3.9
million in the 26 weeks ended June 29, 2007 compared to the same period in 2006. Capital
expenditures are expected to be approximately $39 million in 2007 as the Company continues to
invest in the consolidation of certain acquired facilities in North America and Europe and invests
in system upgrades and new software to support its infrastructure.
Consolidated net cash provided by financing activities was $12.4 million in the 26 weeks ended
June 29, 2007 compared to $79.3 million in the corresponding period in 2006. In the 26 weeks ended
June 29, 2007, the Company issued $300.0 million of 1% convertible senior notes due 2013 and
amended its revolving credit facility. Issuance costs related to the senior notes due 2013 and
amended revolving credit facility were $7.4 million and $0.7 million, respectively. The net
proceeds of $292.6 million from the issuance of the $300.0 million senior notes 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 convertible senior notes. Prior to the note offering
described above, the Company purchased shares of its common stock at a total cost of $52.3 million.
In the 26 weeks ended June 29, 2007, the Company decreased borrowings under its bank revolving
lines of credit and accounts receivable securitization facility by $93.2 million compared to an
increase of $64.1 million in the corresponding period in 2006. Proceeds from the issuance of common
stock relating to the exercise of stock options were $5.7 million in the 26 weeks ended June 29,
2007 compared to $9.8 million in the corresponding period in 2006. The 26 weeks ended June 29, 2007
and June 30, 2006 include $8.6 million and $6.2 million, respectively, of cash provided from the
income tax benefit associated with employee stock plans.
Financings
Convertible Notes
On February 16, 2007, the Company completed the issuance of $300.0 million principal
amount of Convertible Senior Notes due 2013 (the “Notes due 2013”). The Notes due 2013 pay interest
semiannually at a rate of 1.00% per annum and will be convertible, at the holders option, at an
initial conversion rate of 15.753 shares per $1,000 principal amount of the Notes due 2013,
equivalent to a conversion price of $63.48 per share, which represents a 15 percent conversion
premium based on the last reported sale price of $55.20 per share of the Company’s common stock on
February 12, 2007. The Notes due 2013 will be convertible, under certain circumstances, into
4,725,900 shares of the Company’s common stock, subject to customary anti-dilution adjustments.
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.
Net proceeds from this offering were approximately $292.6 million after deducting discounts,
commissions and estimated expenses. Concurrently with the issuance of the Notes due 2013, the
Company entered into a convertible note hedge transaction, comprised of a purchased call option and
a sold warrant, with an affiliate of one of the initial purchasers. The transaction will generally
have the effect of increasing the conversion price of the Notes due 2013. The net cost to the
Company was approximately $36.8 million. Concurrent with the sale of these convertible notes, the
Company also repurchased 2 million shares at a cost of $55.20 per share with the net proceeds from
the issuance of the Notes due 2013. The remaining proceeds from the transactions were used for
general corporate purposes, including
15
ANIXTER INTERNATIONAL INC.
reducing funding under the Company’s accounts receivable securitization program and to reduce
borrowings under its revolving credit facilities.
The Company’s Convertible Notes due 2033 (the “Notes due 2033”) have an aggregate principal
amount at maturity of $378.1 million. Based on the Company’s stock price at the end of the second
quarter of 2007, the Notes due 2033 were convertible. The conversion of the Notes due 2033 will be
settled in cash up to the accreted principal amount. If the conversion value exceeds the accreted
principal amount of the Notes due 2033 at the time of conversion, the amount in excess of the
accreted value will be settled in stock. The Company may redeem the Notes due 2033, in whole or in
part, on July 7, 2011 for cash at the accreted value. Additionally, holders may require the Company
to purchase, in cash, all or a portion of their Notes due 2033 at the accreted principal amount on
July 7, 2009.
Although the Notes due 2033 were convertible at the end of the second quarter of 2007, they
are classified as long-term as the Company has the intent and ability to refinance the accreted
value under existing long-term financing agreements available at June 29, 2007. The book value of
the Notes due 2033 was $161.4 million and $158.8 million at June 29, 2007 and December 29, 2006,
respectively.
The Notes due 2013 and 2033 are structurally subordinated to the indebtedness of Anixter Inc.
For further information regarding the convertible notes, see Note 3. “Income Per Share” and Note 5.
“Debt” in the notes to the condensed consolidated financial statements.
Revolving Lines of Credit
On April 20, 2007, Anixter Inc., the Company’s primary operating subsidiary, entered into an
amended and restated senior unsecured revolving credit agreement. As amended and restated, the
revolving credit agreement will allow for borrowings of up to $350.0 million (or the equivalent in
Euros) for a 5-year period ending April 2012. The new facility replaced the $275.0 million
agreement that was set to expire in June of 2009. The key changes to the terms and conditions of
the agreement include the elimination of limitations on foreign acquisitions, elimination of the
minimum net worth requirements and elimination of the restriction on the amount of dividends that
Anixter Inc. can pay to the Company. The current pricing for borrowings under the agreement has
been reduced to LIBOR plus 60 basis points while the facility fee payable on the full amount of
credit available under the agreement has been reduced to 15 basis points. The agreement, which is
guaranteed by the Company, contains financial covenants that restrict the amount of leverage and
set a minimum fixed charge coverage ratio similar to the prior agreement. The Company is in
compliance with all of these covenant ratios and believes that there is adequate margin between the
covenant ratios and the actual ratios given the current trends of the business. Under the leverage
ratio, as of June 29, 2007, the total availability of all revolving lines of credit at Anixter Inc.
would be permitted to be borrowed. At June 29, 2007, long-term borrowings under the new facility
were $174.4 million as compared to $176.8 million of outstanding long-term borrowings at December
29, 2006 under the former facility. Facility fees totaled $0.4 million in both the 26 weeks ended
June 29, 2007 and June 30, 2006 and were included in interest expense in the condensed consolidated
results of operations.
Anixter Canada Inc.’s $40.0 million (Canadian dollar) unsecured revolving credit facility in
place on June 29, 2007 was scheduled to mature on June 18, 2009 and was used for general corporate
purposes. The Canadian dollar-borrowing rate under the agreement was the Banker
Acceptance/Canadian Dollar Offered Rate (“BA/CDOR”) plus the applicable bankers’ acceptance fee
(currently 125.0 basis points) for Canadian dollar advances or the prime rate plus the applicable
margin (currently 27.5 basis points). The borrowing rate for U.S. dollar advances was the base rate
plus the applicable margin. In addition, there were standby fees on the unadvanced balance
currently equal to 27.5 basis points. At June 29, 2007 and December 29, 2006, $22.0 million and
$19.0 million (U.S. dollar) was borrowed, respectively, under the facility and included in
long-term debt outstanding. In July 2007, the Company amended this facility. The key changes to the
terms and conditions were a reduction in borrowing costs and the extension of the maturity to April
of 2012. For further information, see Note 10. “Subsequent Event” in the notes to the condensed
consolidated financial statements.
Excluding the primary revolving credit facility and the $40.0 million (Canadian dollar)
facility at June 29, 2007 and December 29, 2006, certain subsidiaries had long-term borrowings
under other bank revolving lines of credit and miscellaneous facilities of $40.7 million and $42.4
million, respectively.
16
ANIXTER INTERNATIONAL INC.
Senior Notes Due 2015
Anixter Inc. has $200.0 million of Senior Notes due 2015, which are fully and unconditionally
guaranteed by the Company. Interest of 5.95% on the Senior Notes is payable semi-annually on March
1 and September 1 of each year.
Accounts Receivable Securitization Program
Anixter Inc.’s accounts receivable securitization program allows it to sell, on an ongoing
basis without recourse, a majority of the accounts receivable originating in the United States to
Anixter Receivables Corporation (“ARC”), a wholly-owned, bankruptcy-remote special purpose entity.
The assets of ARC are not available to creditors of Anixter Inc. in the event of bankruptcy or
insolvency proceedings. ARC may in turn sell an interest in these receivables to a financial
institution for proceeds of up to $225.0 million. The program is set to expire within one year,
therefore, the funding is considered short-term at June 29, 2007. ARC is consolidated for
accounting purposes only in the financial statements of the Company. The average outstanding
funding extended to ARC during the first half of 2007 and 2006 was approximately $138.8 million and
$156.5 million, respectively. The effective rate on the ARC funding was 6.0% and 5.4% in the first
half of 2007 and 2006, respectively.
Short-term Borrowings
As of June 29, 2007 and December 29, 2006, the Company’s short-term debt outstanding was
$127.0 million and $212.3 million, respectively. Short-term debt consists primarily of the funding
related to the securitization facility as the program is set to expire within one year of June 29,
2007.
Interest Expense
Consolidated interest expense was $11.1 million and $9.0 million in the 13 weeks ended June
29, 2007 and June 30, 2006, respectively, and $22.0 million and $17.5 million in the first half of
2007 and 2006, respectively. The increase in interest expense is primarily due to a combination of
higher debt levels as a result of a series of recent acquisitions, the working capital requirements
associated with strong organic growth and the repurchase of shares completed during the first
quarter of 2007. Partially offsetting the increase in borrowings have been refinancings,
particularly the issuance of $300.0 million of 1% senior convertible notes in the first quarter of
2007 that have lowered the Company’s average cost of borrowings. While interest rates on
approximately 78% of the Company’s borrowings were fixed at the end of the second quarter in 2007,
its weighted-average cost of borrowings declined to 4.2% in the second quarter of 2007 from 5.3% in
the same period in 2006. The Company’s debt-to-total capitalization increased from 45.7% at
December 29, 2006 to 51.8% at June 29, 2007.
Second Quarter 2007 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 29, 2006.
17
ANIXTER INTERNATIONAL INC.
Sales of $1,511.5 million in the second quarter of 2007 increased $271.7 million from $1,239.8
million in the same period in 2006. The sales increase year-over-year represents an organic growth
rate of 16.5% after adjusting for a series of acquisitions completed in the last year, which
contributed $39.7 million to second quarter sales, as well as the favorable foreign exchange impact
of $27.0 million. This organic growth clearly exceeded the Company’s target of 8 to 12 percent as
the Company once again saw very strong customer demand across a broad mix of end markets. The
factors driving the Company’s organic growth were consistent with those seen during the past year.
In the most recent quarter, the Company again saw strong larger project business, particularly as
it relates to data center builds in the enterprise cabling market and energy/natural resources
customers within the electrical wire & cable market. At the same time, the Company has continued to
experience strong growth in the security and OEM markets.
The Company’s recent operating results have also been favorably affected by the rise in
commodity prices, primarily copper, which are components in some of the products sold. As current
inventory purchase costs increase due to higher commodity prices, the Company’s percentage mark-up
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
would result 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 results.
Consolidated Results of Operations
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
13 Weeks Ended |
|
| |
|
June 29, |
|
|
June 30, |
|
|
Percent |
|
| |
|
2007 |
|
|
2006 |
|
|
Change |
|
| |
|
(In millions) |
|
Net sales |
|
$ |
1,511.5 |
|
|
$ |
1,239.8 |
|
|
|
21.9 |
% |
Gross profit |
|
$ |
363.3 |
|
|
$ |
307.1 |
|
|
|
18.3 |
% |
Operating expenses |
|
$ |
247.2 |
|
|
$ |
216.1 |
|
|
|
14.4 |
% |
Operating income |
|
$ |
116.1 |
|
|
$ |
91.0 |
|
|
|
27.7 |
% |
Net Sales: The Company’s net sales during the second quarter of 2007 increased $271.7 million,
or 21.9%, to $1,511.5 million from $1,239.8 million in the same period in 2006. A series of
recently completed acquisitions accounted for $39.7 million of the increase while favorable effects
of foreign exchange rates contributed $27.0 million to second quarter sales as compared to the year
ago period. Excluding the acquisitions and the favorable effects of foreign exchange rates, the
Company’s net sales increased $205.0 million, or approximately 16.5%, in the second quarter of 2007
as compared to the prior year. The factors driving the Company’s strong organic growth were
consistent with those the Company has seen during the past year. In the most recent quarter, the
Company experienced very strong growth in larger project business, as it relates to data center
builds in the enterprise cabling market and particularly within the energy/natural resources
customers in the electrical and electronic wire and cable market. At the same time, the Company
continues to experience strong growth in security and OEM supply sales. Copper prices had only a
marginal impact (just over 1%) on the Company’s organic growth in the most recent quarter as
year-on-year price fluctuations stabilized. The Company estimates higher copper prices accounted
for approximately $15.9 million of the year-on-year increase in sales within the electrical wire
and cable market.
Gross Margins: Gross margins decreased in the second quarter of 2007 to 24.0% compared to
24.8% in the corresponding period in 2006 due to a higher mix of large projects and a decline in
the inventory gains realized from the fluctuations of copper prices.
Operating Income: As a result of very strong sales growth and tight expense controls,
operating margins were 7.7% in the second quarter of 2007 as compared to 7.3% in the second quarter
of 2006. Operating expenses increased $31.1 million, or 14.4%, in the second quarter of 2007 from
the corresponding period in 2006. A series of recently completed acquisitions have increased
operating expenses by $10.1 million, while changes in foreign exchange rates increased operating
expenses by $5.1 million. Excluding the acquisitions and the effects from changes in foreign
exchange rates, operating expenses increased approximately $15.9 million, or 7.4%, primarily due to
variable costs associated with the 16.5% organic growth in sales. Included in the current quarter
operating expenses is $3.5 million of expenses incurred in Europe in conjunction with the
consolidation of certain facilities and reductions in staff. Overall, operating expenses remain
well controlled relative to sales growth and, as a result, the Company is generating improved
operating leverage.
18
ANIXTER INTERNATIONAL INC.
Improved operating margins on higher sales generated an increase in operating income of $25.1
million, or 27.7%, in the 13 weeks ended June 29, 2007 as compared to the corresponding period in
2006. Recent acquisitions accounted for $3.9 million of the increase while favorable foreign
exchange added $1.5 million to operating income in the second quarter of 2007 as compared to the
year ago period. Excluding the acquisitions and the favorable effects of foreign exchange rates,
operating income increased $19.7 million in the 13 weeks ended June 29, 2007 as compared to the
same period in 2006. The year ago quarter benefited from a sharp increase in copper prices between
the first and second quarter of 2006. The sharp increase in copper prices of approximately 51%
resulted in gains of $6.0 million as lower cost inventory acquired in the first quarter of 2006 was
sold in the second quarter of 2006. In 2007, spot market copper prices increased approximately 28%
from the first quarter to the second quarter. As a result, the Company recorded some gain in the
second quarter of 2007 from the sell through of lower cost inventory acquired in the previous first
quarter. However, the inventory gain in the second quarter of 2007 was lower than the gain in the
corresponding period in 2006. Therefore, although sales benefited from the year-on-year change in
copper prices, margins declined from the second quarter of 2006 which resulted in a $2.4 million
reduction in operating income in the second quarter of 2007 as compared to the same period in 2006.
Interest Expense: Consolidated interest expense was $11.1 million in the second quarter of
2007 as compared to $9.0 million in 2006. The average long-term debt balance in the second quarter
of 2007 was $1,041.9 million as compared to $679.2 million in the corresponding period in 2006. The
increase was driven by the working capital requirements associated with strong organic growth over
the past year, the repurchase of approximately 7.6% of the Company’s outstanding shares during the
first quarter of 2007 and recently completed acquisitions. Partially offsetting the increase in
borrowings have been refinancings, particularly the issuance of $300.0 million of 1% senior
convertible notes in the first quarter of 2007 that have lowered the Company’s average cost of
borrowings. With the interest rates on approximately 78% of the Company’s borrowings fixed, its
average cost of borrowings were 4.2% in the second quarter of 2007 as compared to 5.3% in the
corresponding period of the prior year.
Other, net:
| |
|
|
|
|
|
|
|
|
| |
|
13 Weeks Ended |
|
| |
|
June 29, |
|
|
June 30, |
|
| |
|
2007 |
|
|
2006 |
|
| |
|
(In millions) |
|
Foreign exchange |
|
$ |
1.7 |
|
|
$ |
(1.1 |
) |
Cash surrender value of life insurance policies |
|
|
0.6 |
|
|
|
(0.2 |
) |
Other |
|
|
0.1 |
|
|
|
(0.2 |
) |
|
|
|
|
|
|
|
|
|
$ |
2.4 |
|
|
$ |
(1.5 |
) |
|
|
|
|
|
|
|
Due to the strengthening of the Canadian dollar, Brazilian real and Colombian peso, these
changes in foreign exchange rates resulted in a gain of $1.7 million in the second quarter of 2007
as compared to a foreign exchange loss of $1.1 million in the corresponding period in 2006.
Income Taxes: The consolidated tax provision increased to $42.8 million in the second quarter
of 2007 from $31.1 million in the second quarter of 2006, primarily due to an increase in income
before taxes. The effective tax rate for the 13 weeks ended June 29, 2007 is 39.8% inclusive of
$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 effective tax rate for the second quarter of 2007 was 37.9% as compared
to the 38.6% effective tax rate for the corresponding period of 2006.
19
ANIXTER INTERNATIONAL INC.
North America Results of Operations
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
13 Weeks Ended |
|
| |
|
June 29, |
|
|
June 30, |
|
|
Percent |
|
| |
|
2007 |
|
|
2006 |
|
|
Change |
|
| |
|
(In millions) |
|
Net sales |
|
$ |
1,071.4 |
|
|
$ |
922.7 |
|
|
|
16.1 |
% |
Gross profit |
|
$ |
253.7 |
|
|
$ |
228.5 |
|
|
|
11.0 |
% |
Operating expenses |
|
$ |
161.3 |
|
|
$ |
152.2 |
|
|
|
6.0 |
% |
Operating income |
|
$ |
92.4 |
|
|
$ |
76.3 |
|
|
|
21.0 |
% |
Net Sales: When compared to the corresponding period in 2006, North America net sales for the
13 weeks ended June 29, 2007 increased 16.1% to $1,071.4 million, including approximately $7.9
million due to the acquisition of IMS and $2.8 million due to favorable foreign exchange rate
changes. Excluding the acquisition of IMS and the favorable effects of foreign exchange rate
changes, North America net sales were $1,060.7 million in the 13 weeks ended June 29, 2007, which
represents an increase of $138.0 million, or approximately 14.9%, over the corresponding quarter in
2006. Sales of enterprise cabling and security solutions in North America increased $63.5 million
in the second quarter of 2007, or 14.0%, compared to the corresponding period in the prior year.
The increase represents improved demand from both new and existing customers, continued strong
growth in the security market, an expanded supply chain services offering and product line
expansion. Favorable foreign exchange rates on Canadian sales accounted for $0.9 million of the
sales growth versus the prior year quarter. North America electrical and electronic wire and cable
sales of $368.7 million increased $66.1 million, or 21.9%, due to a combination of increased
demand, especially with larger projects from both new and existing customers, the effects of higher
copper prices (which added approximately $13.2 million to sales) and the acquisition of IMS (which
added approximately $7.9 million to sales). Foreign exchange rates on Canadian sales accounted for
$1.9 million of the year-on-year sales growth. Excluding the effects of copper, the acquisition of
IMS and foreign exchange, electrical and electronic wire and cable sales were up approximately
14.2% in the second quarter of 2007 as compared to the corresponding period in 2006. In the OEM
supply market, sales increased 13.3%, or $14.1 million, with strong sales growth to aerospace and
defense customers. The Company continues to experience variability in sales to telecom original
equipment manufacturers related to the capital spending patterns of their customers. Sales to this
end market decreased 4.8% in the second quarter of 2007 as compared to the second quarter of 2006.
Gross Margins: Gross margins decreased to 23.7% in the second quarter of 2007 from 24.8% for
the same period in 2006 due to a higher mix of large projects and a decline in the inventory gains
realized from the fluctuations of copper prices.
Operating Income: As a result of the sales growth of 16.1% and better leveraging of the
expense structure, operating margins were 8.6% in the second quarter of 2007 as compared to 8.3% in
the second quarter of 2006. Operating expenses increased $9.1 million, or 6.0%, in the second
quarter of 2007 from the corresponding period in 2006. The acquisition of IMS increased operating
expenses by $1.5 million, while foreign exchange rate changes increased operating expenses by $0.4
million. Excluding IMS and the effects from changes in foreign exchange rates, operating expenses
increased approximately $7.2 million, or 4.8%, primarily due to variable costs associated with the
14.9% organic growth in sales.
Improved operating margins on higher sales generated an increase in operating income of $16.1
million, or 21.0%, in the 13 weeks ended June 29, 2007 as compared to the corresponding period in
2006. The IMS acquisition accounted for $0.8 million of the increase while favorable foreign
exchange rate changes added $0.4 million to operating income in the second quarter of 2007 as
compared to the year ago period. Excluding IMS and the favorable effects of foreign exchange rates,
operating income increased $14.9 million in the 13 weeks ended June 29, 2007 as compared to the
same period in 2006. As previously discussed, the year ago quarter benefited from a sharp increase
in copper prices between the first and second quarter of 2006. The sharp increase in copper prices
of approximately 51% resulted in gains as lower cost inventory acquired in the first quarter of
2006 was sold in the second quarter of 2006. In 2007, spot market copper prices increased
approximately 28% from the first to second quarter. As a result, the Company recorded a gain in the
second quarter of 2007 from the sell-through of lower cost inventory acquired in the previous first
quarter of 2007. However, the inventory gain in the second quarter of 2007 was lower than the gain
in the corresponding period in 2006.
20
ANIXTER INTERNATIONAL INC.
Europe Results of Operations
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
13 Weeks Ended |
|
| |
|
June 29, |
|
|
June 30, |
|
|
Percent |
|
| |
|
2007 |
|
|
2006 |
|
|
Change |
|
| |
|
(In millions) |
|
Net sales |
|
$ |
326.2 |
|
|
$ |
240.7 |
|
|
|
35.6 |
% |
Gross profit |
|
$ |
85.2 |
|
|
$ |
61.8 |
|
|
|
38.1 |
% |
Operating expenses |
|
$ |
70.2 |
|
|
$ |
51.3 |
|
|
|
37.0 |
% |
Operating income |
|
$ |
15.0 |
|
|
$ |
10.5 |
|
|
|
43.4 |
% |
Net Sales: When compared to the corresponding period in 2006, Europe net sales for the 13
weeks ended June 29, 2007 increased 35.6% to $326.2 million, including $31.8 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
$273.2 million in the 13 weeks ended June 29, 2007, which represents an increase of $32.5 million,
or approximately 13.5%, over the corresponding quarter in 2006. This strong organic growth reflects
a continuation of improving economic conditions since the second half of 2006, solid large project
growth, especially in the electrical wire and cable market, an expanding base of global account
projects, continued progress in expanding the geographical scope of the electrical wire and cable
business and strong growth in the Middle East. More specifically, the Company’s efforts to expand
its presence in the electrical wire & cable market in Europe resulted in sales of $61.7 million in
the second quarter of 2007 as compared to $37.0 million in the year ago quarter. Exclusive of $4.4
million of favorable foreign exchange effects, sales in the European electrical wire & cable market
were 55.1% higher than the year ago quarter.
Gross Margins: Gross margins increased to 26.1% in the second quarter of 2007 from 25.7% for
the same period in 2006. The increase in margins is attributable to changes in the sales mix
between end markets.
Operating Income: As a result of the sales growth of 35.6% and better leveraging of the
expense structure, operating margins were 4.6% in the second quarter of 2007 as compared to 4.3% in
the second quarter of 2006. This improvement in operating margins reflects the operating leverage the Company gained as a result of strong organic sales growth and acquisitions. Operating expenses increased
$18.9 million, or 37.0%, in the second quarter of 2007 from the corresponding period in 2006.
Recent acquisitions increased operating expenses by $8.6 million, while foreign exchange rate
changes increased operating expenses by $4.3 million. Excluding acquisitions and the effects from
changes in foreign exchange rates, operating expenses increased approximately $6.0 million, or
11.7%, primarily due to variable costs associated with the 13.5% organic growth in sales. Included
in the current quarter operating expenses are $3.5 million of expenses incurred in Europe in
conjunction with the consolidation of certain facilities and reductions in staff. Overall,
operating expenses remain well controlled relative to sales growth and, as a result, Europe is
generating improved operating leverage.
Improved operating margins on higher sales generated an increase in operating income of $4.5
million, or 43.4%, in the 13 weeks ended June 29, 2007 as compared to the corresponding period in
2006. The recent acquisitions accounted for $3.1 million of the increase while favorable foreign
exchange rate changes added $0.9 million to operating income in the second quarter of 2007 as
compared to the year ago period. Excluding acquisitions and the favorable effects of foreign
exchange rates, operating income increased $0.5 million in the 13 weeks ended June 29, 2007 as
compared to the same period in 2006. Operating income in the quarter was, however, negatively
impacted by the $3.5 million of expenses incurred in conjunction with the consolidation of certain
facilities and reductions in staff. These expenses, which will result in a favorable effect on
future earnings through lower operating costs, reduced operating margins by approximately 100 basis
points in the current quarter.
21
ANIXTER INTERNATIONAL INC.
Emerging Markets Results of Operations
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
13 Weeks Ended |
|
| |
|
June 29, |
|
|
June 30, |
|
|
Percent |
|
| |
|
2007 |
|
|
2006 |
|
|
Change |
|
| |
|
(In millions) |
|
Net sales |
|
$ |
113.9 |
|
|
$ |
76.4 |
|
|
|
49.0 |
% |
Gross profit |
|
$ |
24.4 |
|
|
$ |
16.8 |
|
|
|
45.0 |
% |
Operating expenses |
|
$ |
15.7 |
|
|
$ |
12.6 |
|
|
|
23.7 |
% |
Operating income |
|
$ |
8.7 |
|
|
$ |
4.2 |
|
|
|
108.9 |
% |
Net Sales: Emerging Markets (Asia Pacific and Latin America) net sales in the second quarter
of 2007 increased 49.0% to $113.9 million from $76.4 million in the second quarter of 2006.
Excluding the $3.0 million favorable impact from changes in foreign exchange rates, the Emerging
Markets net sales growth was 45.0%. Asia Pacific sales grew 83.9%, while Latin America sales
increased 35.4% in the second quarter of 2007 compared to the prior corresponding quarter. The
sales growth in Emerging Markets reflects an expanding base of global account business and strong
project demand.
Gross Margins: During the second quarter of 2007, Emerging Markets’ gross margins decreased to
21.4% from 22.0% in the corresponding period in 2006, primarily due to larger projects at lower
margins.
Operating Income: Emerging Markets operating income increased $4.5 million, or 108.9%, in the
second quarter of 2007 compared to the prior year ago quarter. Operating expenses increased $3.1
million (inclusive of $0.4 million due to changes in foreign exchange rates) in the second quarter
of 2007, or 23.7%, compared to organic sales growth of 45.0% over the prior period in 2006.
Primarily as a result of the sales growth and resulting leveraging of the expense structure,
operating margins increased to 7.7% from 5.5% in 2006. Exchange rate changes had $0.2 million
favorable impact on operating income.
Year-to-Date 2007 Results of Operations
Overview
In the 26 weeks ended June 29, 2007, sales increased 22.9% and produced net income of $118.2
million as compared to $80.7 million in the corresponding period in 2006. Sales, gross profits,
operating expense and operating profits, all showed year-on-year increases from a combination of a
series of recently completed acquisitions, combined unit growth, commodity-driven price increases
(primarily copper) and exchange rate changes related to the weaker U.S. dollar.
The Company estimates that higher copper prices added $50.9 million to its electrical and
electronic wire and cable sales and $2.5 million to operating income in the 26 weeks ended June 29,
2007. 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 2007 Results of Operations.”
As a result of strong sales growth and the Company’s ability to further leverage its operating
expense structure, operating margins increased 80 basis points to 7.3% in the 26 weeks ended June
29, 2007 as compared to 6.5% in the corresponding period in 2006.
22
ANIXTER INTERNATIONAL INC.
Consolidated Results of Operations
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
26 Weeks Ended |
|
| |
|
June 29, |
|
|
June 30, |
|
|
Percent |
|
| |
|
2007 |
|
|
2006 |
|
|
Change |
|
| |
|
(In millions) |
|
Net sales |
|
$ |
2,840.2 |
|
|
$ |
2,310.3 |
|
|
|
22.9 |
% |
Gross profit |
|
$ |
681.7 |
|
|
$ |
564.3 |
|
|
|
20.8 |
% |
Operating expenses |
|
$ |
475.2 |
|
|
$ |
413.7 |
|
|
|
14.9 |
% |
Operating income |
|
$ |
206.5 |
|
|
$ |
150.6 |
|
|
|
37.2 |
% |
Net Sales: The Company’s net sales during the first half of 2007 increased $529.9 million, or
22.9%, to $2,840.2 million from $2,310.3 million in the same period in 2006. A series of
recently-completed acquisitions accounted for $73.3 million of the increase while favorable effects
of foreign exchange rates contributed $52.9 million to sales in the 26 weeks ended June 29, 2007 as
compared to the year ago period. Excluding the acquisitions and the favorable effects of foreign
exchange rates, the Company’s net sales increased $403.7 million, or approximately 17.5%, in the 26
weeks ended June 29, 2007 as compared to the prior year. The factors driving the Company’s strong
organic growth were consistent with those the Company has seen during the past year. In the 26
weeks ended June 29, 2007 the Company experienced very strong growth in larger project business, as
it relates to data center builds in the enterprise cabling market and particularly within the
energy/natural resources customers in the electrical and electronic wire and cable market. At the
same time, the Company continues to experience strong growth in security and OEM supply sales. The
Company estimates higher copper prices accounted for approximately $50.9 million of year-on-year
increase in sales within the electrical wire and cable market. Copper prices increased the organic
growth rate by 2.2 %.
Gross Margins: Gross margins decreased in the 26 weeks ended June 29, 2007 to 24.0% compared
to 24.4% in the corresponding period in 2006 due to the higher mix of large projects.
Operating Income: As a result of very strong sales growth and tight expense controls,
operating margins were 7.3% in the 26 weeks ended June 29, 2007 as compared to 6.5% in the same
period in 2006. Operating expenses increased $61.5 million, or 14.9%, in the 26 weeks ended June
29, 2007 from the corresponding period in 2006. A series of recently-completed acquisitions have
increased operating expenses by $18.5 million, while changes in foreign exchange rates increased
operating expenses by $10.1 million. Excluding the acquisitions and the effects from changes in
foreign exchange rates, operating expenses increased approximately $32.9 million, or 8.0%,
primarily due to variable costs associated with the 17.5% organic growth in sales. Included in the
operating expenses are $3.5 million of expenses incurred in Europe in
conjunction with the consolidation of certain facilities and reductions in staff. Overall,
operating expenses remain well controlled relative to sales growth and, as a result, the Company is
generating improved operating leverage.
Improved operating margins on higher sales generated an increase in operating income of $55.9
million, or 37.2%, in the 26 weeks ended June 29, 2007 as compared to the corresponding period in
2006. Recent acquisitions accounted for $7.0 million of the increase while favorable foreign
exchange added $2.8 million to operating income in the 26 weeks ended June 29, 2007 as compared to
the year ago period. Excluding the acquisitions and the favorable effects of foreign exchange
rates, operating income increased $46.1 million in the 26 weeks ended June 29, 2007 as compared to
the same period in 2006. Included in the $46.1 million increase in operating income is an estimated
$2.5 million due to higher copper prices in the first half of 2007 as compared to the corresponding
period in 2006.
Interest Expense: Consolidated interest expense was $22.0 million for the first half of 2007
as compared to $17.5 million in 2006. The average long-term debt balance in the 26 weeks ended June
29, 2007 was $979.2 million as compared to $669.9 million in the corresponding period in 2006. The
increase is driven by the working capital requirements associated with strong organic growth over
the past year, the repurchase of approximately 7.6% of the Company’s outstanding shares during the
first quarter of 2007 and a series of recently-completed acquisitions. Partially offsetting the
increase in borrowings have been refinancings, particularly the issuance of $300.0 million of 1%
senior convertible notes in the first quarter of 2007 that have lowered the Company’s average cost
of borrowings. With the interest rates on approximately 78% of the Company’s borrowings fixed, its
average cost of borrowings were 4.5% in the 26 weeks ended June 29, 2007 as compared to 5.2% in the
corresponding period of the prior year.
23
ANIXTER INTERNATIONAL INC.
Other, net expense:
| |
|
|
|
|
|
|
|
|
| |
|
26 Weeks Ended |
|
| |
|
June 29, |
|
|
June 30, |
|
| |
|
2007 |
|
|
2006 |
|
| |
|
(In millions) |
|
Foreign exchange |
|
$ |
1.6 |
|
|
$ |
(1.7 |
) |
Cash surrender value of life insurance policies |
|
|
1.3 |
|
|
|
0.6 |
|
Other |
|
|
0.2 |
|
|
|
(0.5 |
) |
|
|
|
|
|
|
|
|
|
$ |
3.1 |
|
|
$ |
(1.6 |
) |
|
|
|
|
|
|
|
Primarily due to the strengthening of the Canadian dollar, Brazilian real and Colombian peso,
these changes in foreign exchange rates resulted in a gain of $1.6 million in the 26 weeks ended
June 29, 2007 as compared to a foreign exchange loss of $1.7 million in the corresponding period in
2006.
Income Taxes: The consolidated tax provision increased to $69.4 million in the 26 weeks ended
June 29, 2007 from $50.8 million in the same period in 2006, primarily due to an increase in income
before taxes. The effective tax rate for the 26 weeks ended June 29, 2007 is 37.0% inclusive of
$1.7 million of net tax benefits primarily related to the settlement of certain income tax audits.
Without the net tax benefits, the effective tax rate for the 26 weeks ended June 29, 2007 was 37.9%
as compared to the 38.6% effective tax rate for the corresponding period of 2006.
North America Results of Operations
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
26 Weeks Ended |
|
| |
|
June 29, |
|
|
June 30, |
|
|
Percent |
|
| |
|
2007 |
|
|
2006 |
|
|
Change |
|
| |
|
(In millions) |
|
Net sales |
|
$ |
1,998.4 |
|
|
$ |
1,701.5 |
|
|
|
17.4 |
% |
Gross profit |
|
$ |
475.2 |
|
|
$ |
414.5 |
|
|
|
14.7 |
% |
Operating expenses |
|
$ |
312.0 |
|
|
$ |
291.3 |
|
|
|
7.2 |
% |
Operating income |
|
$ |
163.2 |
|
|
$ |
123.2 |
|
|
|
32.4 |
% |
Net Sales: When compared to the corresponding period in 2006, North America net sales for the
26 weeks ended June 29, 2007 increased 17.4% to $1,998.4 million, including $20.1 million due to
the acquisition of IMS and $1.5 million due to favorable foreign exchange rate changes. Excluding
the acquisition of IMS and the favorable effects of foreign exchange rate changes, North America
net sales were $1,976.8 million in the 26 weeks ended June 29, 2007, which represents an increase
of $275.3 million, or approximately 16.2%, over the corresponding period in 2006. Sales of
enterprise cabling and security solutions in North America increased $141.3 million in the 26 weeks
ended June 29, 2007, or 17.1%, compared to the corresponding period in the prior year. The increase
represents improved demand from both new and existing customers, continued strong growth in the
security market, an expanded supply chain services offering and product line expansion. Favorable
foreign exchange rates on Canadian sales accounted for $0.4 million of the sales growth versus the
prior year. North America electrical and electronic wire and cable sales of $667.6 million
increased $131.9 million, or 24.2%, due to a combination of increased demand, especially with
larger projects from both new and existing customers, the effects of higher copper prices (which
added approximately $44.6 million to sales) and the acquisition of IMS (which added approximately
$20.1 million to sales). Foreign exchange rates on Canadian sales accounted for $1.1 million of the
year-on-year sales growth. Excluding the effects of copper, the acquisition of IMS and foreign
exchange, electrical and electronic wire and cable sales were up approximately 12.1% in the 26
weeks ended June 29, 2007 as compared to the corresponding period in 2006. In the OEM supply
market, sales increased 10.0%, or $20.9 million, with strong sales growth to aerospace and defense
customers. The Company continues to experience variability in sales to telecom original equipment
manufacturers related to the capital spending patterns of their customers. Sales to this end market
decreased 8.6% in the 26 weeks ended June 29, 2007 as compared to the same period in 2006.
Gross Margins: Gross margins decreased to 23.8% in the 26 weeks ended June 29, 2007 from 24.4%
due to a higher mix of large projects and a decline in the inventory gains realized from the
fluctuations of copper prices.
24
ANIXTER INTERNATIONAL INC.
Operating Income: As a result of the sales growth of 17.4% and better leveraging of the
expense structure, operating margins were 8.2% in the 26 weeks ended June 29, 2007 as compared to
7.2% in the corresponding period in 2006. Operating expenses increased $20.7 million, or 7.2%, in
the 26 weeks ended June 29, 2007 from the corresponding period in 2006. The acquisition of IMS
increased operating expenses by $3.9 million, while foreign exchange rate changes increased
operating expenses by $0.2 million. Excluding IMS and the effects from changes in foreign exchange
rates, operating expenses increased approximately $16.6 million, or 5.7%, primarily due to variable
costs associated with the 16.2% organic growth in sales.
Improved operating margins on higher sales generated an increase in operating income of $40.0
million, or 32.4%, in the 26 weeks ended June 29, 2007 as compared to the corresponding period in
2006. The IMS acquisition accounted for $2.0 million of the increase while favorable foreign
exchange rate changes added $0.3 million to operating income in the 26 weeks ended June 29, 2007 as
compared to the year ago period. Excluding IMS and the favorable effects of foreign exchange rates,
operating income increased $37.7 million in the 26 weeks ended June 29, 2007 as compared to the
same period in 2006.
Europe Results of Operations
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
26 Weeks Ended |
|
| |
|
June 29, |
|
|
June 30, |
|
|
Percent |
|
| |
|
2007 |
|
|
2006 |
|
|
Change |
|
| |
|
(In millions) |
|
Net sales |
|
$ |
631.3 |
|
|
$ |
460.1 |
|
|
|
37.2 |
% |
Gross profit |
|
$ |
162.0 |
|
|
$ |
117.7 |
|
|
|
37.7 |
% |
Operating expenses |
|
$ |
133.0 |
|
|
$ |
99.8 |
|
|
|
33.2 |
% |
Operating income |
|
$ |
29.0 |
|
|
$ |
17.9 |
|
|
|
62.9 |
% |
Net Sales: When compared to the corresponding period in 2006, Europe net sales for the 26
weeks ended June 29, 2007 increased 37.2% to $631.3 million, including $53.2 million due to recent
acquisitions and $47.6 million due to favorable foreign exchange rate changes. Excluding
acquisitions and the favorable effects of foreign exchange rate changes, Europe net sales were
$530.5 million in the 26 weeks ended June 29, 2007, which represents an increase of $70.4 million,
or approximately 15.3%, over the corresponding period in 2006. This strong organic growth reflects
a continuation of improving economic conditions since the second half of 2006, solid large project
growth, especially in the electrical wire and cable market, an expanding base of global account
projects, continued progress in expanding the geographical scope of the electrical wire and cable
business and strong growth in the Middle East. More specifically, the Company’s efforts to expand
its presence in the electrical wire & cable market in Europe resulted in sales of $107.7 million in
the first half of 2007 as compared to $66.7 million in the prior year period. Exclusive of $8.8
million of favorable foreign exchange effects, sales in the European electrical wire & cable market
were 48.3% higher than the first half of 2006.
Gross Margins: Gross margins increased to 25.7% in the 26 weeks ended June 29, 2007 from 25.6%
for the same period in 2006.
Operating Income: As a result of the sales growth of 37.2% and better leveraging of the
expense structure, operating margins were 4.6% in the 26 weeks ended June 29, 2007 as compared to
3.9% in the corresponding period in 2006. This improvement in operating margins reflects the
operating leverage the Company gained as a result of strong organic sales growth and acquisitions.
Operating expenses increased $33.2 million, or 33.2%, in the 26 weeks ended June 29, 2007 from the
corresponding period in 2006. Recent acquisitions increased operating expenses by $14.6 million,
while foreign exchange rate changes increased operating expenses by $9.4 million. Excluding
acquisitions and the effects from changes in foreign exchange rates, operating expenses increased
approximately $9.2 million, or 9.2%, primarily due to variable costs associated with the 15.3%
organic growth in sales. Included in the operating expenses is $3.5 million of expenses incurred in
Europe in conjunction with the consolidation of certain facilities and reductions in staff.
Overall, operating expenses remain well controlled relative to sales growth and, as a result,
Europe is generating improved operating leverage.
25
ANIXTER INTERNATIONAL INC.
Improved operating margins on higher sales generated an increase in operating income of $11.1
million, or 62.9%, in the 26 weeks ended June 29, 2007 as compared to the corresponding period in
2006. The recent acquisitions accounted for $5.0 million of the increase while favorable foreign
exchange rate changes added $2.2 million to operating income in the first half of 2007 as compared
to the year ago period. Excluding acquisitions and the favorable effects of foreign exchange rates,
operating income increased $3.9 million in the 26 weeks ended June 29, 2007 as compared to the same
period in 2006. Operating income in the first half of 2007 was, however, negatively impacted by the
$3.5 million of expenses incurred in conjunction with the consolidation of certain facilities and
reductions in staff. These expenses, which will result in a favorable effect on future earnings
through lower operating costs, reduced operating margins by approximately 60 basis points in the 26
weeks ended June 29, 2007.
Emerging Markets Results of Operations
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
26 Weeks Ended |
|
| |
|
June 29, |
|
|
June 30, |
|
|
Percent |
|
| |
|
2007 |
|
|
2006 |
|
|
Change |
|
| |
|
(In millions) |
|
Net sales |
|
$ |
210.5 |
|
|
$ |
148.7 |
|
|
|
41.5 |
% |
Gross profit |
|
$ |
44.5 |
|
|
$ |
32.1 |
|
|
|
38.4 |
% |
Operating expenses |
|
$ |
30.2 |
|
|
$ |
22.6 |
|
|
|
33.3 |
% |
Operating income |
|
$ |
14.3 |
|
|
$ |
9.5 |
|
|
|
50.4 |
% |
Net Sales: Emerging Markets (Asia Pacific and Latin America) net sales in the first half of
2007 increased 41.5% to $210.5 million from $148.7 million in the corresponding period of 2006.
Excluding the $3.8 million favorable impact from changes in foreign exchange rates, the Emerging
Markets net sales growth was 38.9%. Asia Pacific sales grew 81.7%, while Latin America sales
increased 27.2% in the first half of 2007 compared to the prior corresponding period in 2006. 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 29, 2007, Emerging Markets’ gross margins
decreased to 21.1% from 21.6% in the corresponding period in 2006, primarily due to larger projects
at lower margins.
Operating Income: Emerging Markets operating income increased $4.8 million, or 50.4%, in the
26 weeks ended June 29, 2007 compared to the corresponding period in 2006. Operating expenses increased
$7.6 million (inclusive of $0.5 million due to changes in foreign exchange rates) in the 26 weeks
ended June 29, 2007, or 33.3% compared to the prior year period. Results in the first half of 2006 were affected by a favorable sales
tax-related settlement in Australia, which reduced operating expenses by $2.2 million. Excluding
the sales tax-related settlement, operating expenses increased $5.4 million, or 21.8% from the
first half of 2006. Primarily as a result of the sales growth and resulting leveraging of the
expense structure, operating margins increased to 6.8% from 4.9% (excluding the favorable effect of
sales tax-related settlement of $2.2 million) in 2006. Exchange rate changes had a $0.3 million
favorable impact on operating income.
Critical Accounting Policies and New Accounting Pronouncements
Other than the adoption of Financial Accounting Standards Board Interpretation No. 48,
Accounting Uncertainty in Income Taxes – an interpretation of FASB Statement No. 109 (“FIN 48”),
there were no material changes in the Company’s critical accounting policies since the filing of
its 2006 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 2006 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.
26
ANIXTER INTERNATIONAL INC.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The Company is exposed to the impact of interest rate changes and fluctuations in foreign
currencies, as well as changes in the market value of its financial instruments. The Company’s
5.95% senior notes bear interest at a fixed rate. Therefore, changes in interest rates do not
affect interest expense incurred on the 5.95% senior notes but do affect their fair values. A
hypothetical change in interest rates of 10% relative to interest rates at June 29, 2007 and
December 29, 2006 would not have a material impact on the fair value of the 5.95% senior notes.
The Company also has outstanding debt that may be converted into the Company’s common stock.
Accordingly, the price of its common stock may affect the fair value of the Company’s convertible
debt. The estimated fair value of the Company’s outstanding convertible debt increased to $803.1
million at June 29, 2007 from $299.4 million at December 29, 2006, primarily due to the issuance of
$300.0 million of convertible senior notes, as well as the increase in the Company’s stock price
during the 26 weeks ended June 29, 2007. A hypothetical 10% decrease in the price of the Company’s
common stock from the price at June 29, 2007 and December 29, 2006 would have reduced the fair
value of its then outstanding convertible debt by $80.3 million and $29.9 million, respectively.
Changes in the market value of the Company’s debt do not affect the reported results of
operations unless the Company is retiring such obligations prior to their maturity. This analysis
did not consider the effects of a changed level of economic activity that could exist in such an
environment and certain other factors. Further, in the event of a change of this magnitude,
management would likely take actions to further mitigate its exposure to possible changes. However,
due to the uncertainty of the specific actions that would be taken and their possible effects, this
sensitivity analysis assumes no changes in the Company’s financial structure.
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 29, 2007
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 (the “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 29, 2007. There was no change in the Company’s internal control over financial reporting
that occurred during the 13 weeks ended June 29, 2007 that has materially affected, or is
reasonably likely to materially affect, the Company’s internal control over financial reporting.
27
ANIXTER INTERNATIONAL INC.
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
At the Annual Meeting of Stockholders held May 17, 2007, the Directors of the Company were
elected as follows:
| |
|
|
|
|
|
|
|
|
| |
|
VOTES |
| |
|
FOR |
|
WITHHELD |
Lord James Blyth |
|
|
34,018,549 |
|
|
|
209,275 |
|
Linda Walker Bynoe |
|
|
34,184,345 |
|
|
|
43,479 |
|
Robert L. Crandall |
|
|
34,182,976 |
|
|
|
44,484 |
|
Robert W. Grubbs, Jr. |
|
|
34,022,741 |
|
|
|
205,083 |
|
F. Philip Handy |
|
|
33,776,973 |
|
|
|
450,851 |
|
Melvyn N. Klein |
|
|
34,020,361 |
|
|
|
207,463 |
|
George Munoz |
|
|
34,166,200 |
|
|
|
61,624 |
|
Stuart M. Sloan |
|
|
33,813,090 |
|
|
|
414,734 |
|
Thomas C. Theobald |
|
|
33,871,633 |
|
|
|
356,191 |
|
Matthew Zell |
|
|
34,019,346 |
|
|
|
208,478 |
|
Samuel Zell |
|
|
33,655,319 |
|
|
|
572,505 |
|
At this Annual Meeting, the Company’s ratification of Ernst & Young LLP as the Company’s
independent auditors for the fiscal year 2007 was approved by a vote of 33,906,471 shares “for” and
211,825 shares “against” with 109,530 shares abstaining.
ITEM 6. EXHIBITS.
| |
10.1 |
|
First Amendment to $40.0 million (Canadian dollar) Credit
Facility, dated July 5, 2007, among Anixter Canada Inc. and The Bank of Nova
Scotia. |
| |
(31) |
|
Rule 13a – 14(a) / 15d – 14(a) Certifications. |
| |
31.1 |
|
Robert W. Grubbs, President and Chief Executive Officer,
Certification Pursuant to Section 302, of the Sarbanes-Oxley Act of 2002. |
| |
| |
31.2 |
|
Dennis J. Letham, Senior 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 W. Grubbs, President and Chief Executive Officer,
Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002. |
| |
| |
32.2 |
|
Dennis J. Letham, Senior Vice President-Finance and Chief
Financial Officer, Certification Pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
28
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.
|
|
| August 6, 2007 |
By: |
/s/ Robert W. Grubbs
|
|
| |
|
Robert W. Grubbs |
|
| |
|
President and Chief Executive Officer |
|
| |
| |
|
|
| August 6, 2007 |
By: |
/s/ Dennis J. Letham
|
|
| |
|
Dennis J. Letham |
|
| |
|
Senior Vice President –
Finance
and Chief Financial Officer |
|
| |
29