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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- --- EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED OCTOBER 1, 1999
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- --- EXCHANGE ACT OF 1934
Commission file number 1-5989
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ANIXTER INTERNATIONAL INC.
(Exact name of registrant as specified in its charter)
Delaware 94-1658138
- -------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4711 Golf Road
Skokie, Illinois 60076
----------------------
(Address of principal executive offices and Zip Code)
Registrant's telephone number, including area code: (847) 677-2600
--------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
---
At November 8, 1999 there were 36,151,608 shares of Common Stock, $1.00 par
value, of the registrant outstanding.
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PART I.
ITEM 1. FINANCIAL STATEMENTS
ANIXTER INTERNATIONAL INC.
CONDENSED CONSOLIDATED STATEMENT OF OPERATION
(UNAUDITED)
(In millions, except per share amounts) 13 WEEKS ENDED 39 WEEKS ENDED
-------------------- ------------------------
OCTOBER 1, OCTOBER 2, OCTOBER 1, OCTOBER 2,
1999 1998 1999 1998
--------- --------- ----------- -----------
Net sales $ 710.4 $ 617.3 $ 1,964.0 $ 1,764.0
Cost of goods sold 548.5 465.4 1,496.9 1,327.2
--------- --------- ----------- -----------
Gross profit 161.9 151.9 467.1 436.8
Operating expenses 126.9 121.3 377.8 357.2
Amortization of goodwill 1.8 1.7 5.6 5.0
--------- --------- ----------- -----------
Operating income 33.2 28.9 83.7 74.6
Interest expense (8.9) (8.6) (25.0) (23.1)
Foreign exchange and other, net (.1) (4.4) (.2) (4.7)
Gain on ANTEC investment - - - 24.3
--------- --------- ----------- -----------
Income before income taxes 24.2 15.9 58.5 71.1
Income tax (benefit) expense (14.1) 6.6 .3 29.6
--------- --------- ----------- -----------
Income from continuing operations 38.3 9.3 58.2 41.5
Discontinued operations:
(Loss) Income from discontinued operations, net of tax (.6) 1.6 (1.1) 6.5
Gain on disposal of discontinued operations, net of tax 6.5 2.1 52.4 13.2
--------- --------- ----------- -----------
Net income $ 44.2 $ 13.0 $ 109.5 $ 61.2
========= ========= =========== ===========
Basic income per common share:
Continuing operations $ 1.06 $ .21 $ 1.53 $ .91
Discontinued operations .17 .09 1.35 .43
--------- --------- ----------- -----------
Net income $ 1.23 $ .30 $ 2.88 $ 1.34
========= ========= =========== ===========
Diluted income per common share:
Continuing operations $ 1.04 $ .21 $ 1.52 $ .90
Discontinued operations .16 .08 1.33 .42
--------- --------- ----------- -----------
Net income $ 1.20 $ .29 $ 2.85 $ 1.32
========= ========= =========== ===========
See accompanying notes to the condensed consolidated financial statements.
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ANIXTER INTERNATIONAL INC.
CONDENSED CONSOLIDATED BALANCE SHEET
(In millions) OCTOBER 1, JANUARY 1,
1999 1999
---------- ----------
(UNAUDITED)
Cash $ 15.7 $ 20.5
Accounts receivable (less allowances of $10.1 in 1999
and $11.0 in 1998) 580.4 455.9
Inventories 517.0 417.2
Income taxes receivable - 5.1
Other current assets 14.9 8.4
---------- ----------
Total current assets 1,128.0 907.1
Property and equipment, at cost 152.7 144.1
Accumulated depreciation (96.7) (86.5)
---------- ----------
Net property and equipment 56.0 57.6
Deferred taxes, net 19.6 -
Goodwill (less accumulated amortization
of $76.6 in 1999 and $71.0 in 1998) 229.5 233.8
Net assets of discontinued operations - 87.3
Other assets 35.0 36.0
---------- ----------
$ 1,468.1 $ 1,321.8
========== ==========
See accompanying notes to the condensed consolidated financial statements.
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ANIXTER INTERNATIONAL INC.
CONDENSED CONSOLIDATED BALANCE SHEET
(In millions) OCTOBER 1, JANUARY 1,
1999 1999
---------- ----------
(UNAUDITED)
Current liabilities:
Accounts payable $ 315.3 $ 246.7
Accrued expenses 135.5 94.3
---------- ----------
Total current liabilities 450.8 341.0
Deferred taxes, net - 15.0
Other liabilities 14.2 10.7
Long-term debt 557.2 543.6
---------- ----------
Total liabilities 1,022.2 910.3
Stockholders' equity:
Common stock 36.1 41.8
Accumulated other comprehensive income (36.2) (39.7)
Retained earnings 446.0 409.4
---------- ----------
Total stockholders' equity 445.9 411.5
---------- ----------
$ 1,468.1 $ 1,321.8
========== ==========
See accompanying notes to the condensed consolidated financial statements.
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ANIXTER INTERNATIONAL INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
(In millions)
39 WEEKS ENDED
------------------------
OCTOBER 1, OCTOBER 2,
1999 1998
---------- ----------
Operating activities:
Net income $ 109.5 $ 61.2
Adjustments to reconcile net income
to net cash used by operating
activities from continuing operations:
Income from discontinued operations (51.3) (19.7)
Depreciation and amortization 20.0 19.7
Gain on ANTEC investment - (24.3)
Deferred income taxes (28.3) 4.4
Changes in current assets and liabilities, net (105.6) (98.2)
Other, net 2.3 (1.7)
-------- --------
Net cash used for continuing operating activities (53.4) (58.6)
Investing activities:
Capital expenditures (12.8) (21.5)
Proceeds from sale of ANTEC - 104.3
Business acquisitions, net of cash acquired - (38.1)
Other .9 -
-------- --------
Net cash (used) provided by continuing investing activities (11.9) 44.7
-------- --------
Net cash used before financing activities (65.3) (13.9)
Financing activities:
Proceeds from long-term borrowings 728.5 674.9
Repayment of long-term borrowings (714.9) (580.5)
Proceeds from issuance of common stock 7.0 .5
Purchases of treasury stock (85.6) (90.9)
Other, net (5.5) (1.2)
-------- --------
Net cash (used) provided by continuing financing activities (70.5) 2.8
Cash provided by discontinued operations 131.0 16.3
-------- --------
Cash (used) provided (4.8) 5.2
Cash at beginning of period 20.5 10.6
-------- --------
Cash at end of period $ 15.7 $ 15.8
======== ========
See accompanying notes to the condensed consolidated financial statements.
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ANIXTER INTERNATIONAL INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION: The accompanying condensed consolidated financial
statements should be read in conjunction with the consolidated financial
statements included in Anixter International Inc.'s (Company) Annual Report on
Form 10-K for the year ended January 1, 1999. The condensed consolidated
financial information furnished herein reflects all adjustments (consisting of
normal recurring accruals and a one-time tax accrual adjustment) which are, in
the opinion of management, necessary for a fair presentation of the condensed
consolidated financial statements for the periods shown. The results of
operations of any interim period are not necessarily indicative of the results
that may be expected for a full fiscal year. Certain amounts for the prior year
have been reclassified and restated to conform to the 1999 presentation and to
reflect the discontinuance of the Integration business. The impact on net income
is not significant.
NOTE 2. INCOME PER SHARE
The following table sets forth the computation of basic and diluted income per
common share from continuing operations:
13 WEEKS ENDED 39 WEEKS ENDED
----------------------- -----------------------
(In millions, except per share amounts) OCTOBER 1, OCTOBER 2, OCTOBER 1, OCTOBER 2,
1999 1998 1999 1998
---------- ---------- ---------- ----------
Numerator:
Income from continuing operations $ 38.3 $ 9.3 $ 58.2 $ 41.5
Denominator:
Basic common shares outstanding 36.0 44.0 38.0 45.9
Effect of dilutive securities:
Stock options and warrants .9 .4 .4 .4
------ ------ ------ ------
Diluted common shares outstanding 36.9 44.4 38.4 46.3
====== ====== ====== ======
Income per share from continuing operations:
Basic $ 1.06 $ .21 $ 1.53 $ .91
Diluted $ 1.04 $ .21 $ 1.52 $ .90
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ANIXTER INTERNATIONAL INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 3. COMPREHENSIVE INCOME
For the 13 and 39 weeks ended October 1, 1999, total comprehensive income
amounted to $44.8 million and $113.0 million, respectively. For the 13 and 39
weeks ended October 2, 1998, total comprehensive income amounted to $3.6 million
and $28.1 million, respectively. The difference between net income and
comprehensive income is the change in cumulative translation adjustments. For
the 39 weeks ended October 2, 1998, the difference also includes unrealized
gains on marketable equity securities.
NOTE 4. DISCONTINUED OPERATIONS
In the fourth quarter of 1998, the Company decided to exit its Integration
segment and accordingly, the Integration segment is reflected as a discontinued
operation in these financial statements. Interest expense has been allocated to
discontinued operations based on the percentage of total identifiable assets.
The sale of the North American Integration business was completed on April 2,
1999, following the sale of the European Integration business in the fourth
quarter of 1998. Total proceeds received were $215.8 million. This resulted in a
one-time after-tax gain in the first quarter of $45.9 million, which is net of
$11.0 million of costs associated primarily with the closing of selected Latin
American and Asian Integration locations and severance costs associated with
staff reductions necessitated by discontinuing the Integration segment. In the
third quarter of 1999, the Company recorded an additional after-tax net
curtailment gain of $2.5 million. The gain resulted from the net decrease in the
Company's pension benefit obligation for employees affected by the sale of the
North American Integration business. On October 20, 1999 the Company entered
into an agreement, which is expected to result in a gain, to sell the final
remaining piece of its Integration business. The sale of that piece of the
business, which is located in Asia Pacific, is expected to close in the fourth
quarter of 1999.
In the third quarter of 1999, the Company recognized a tax benefit of $8.4
million resulting from the reversal of certain tax liabilities associated with
prior years' reported sales of discontinued assets. In addition, a $4.4 million
net loss was recorded for the write-down of certain assets held for sale
anticipated to be sold in the fourth quarter of 1999.
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In the first quarter of 1998, the Company disposed of certain discontinued
railcar assets which had been classified as assets held for sale. The
disposition of these assets resulted in net proceeds of $29 million and an
after-tax gain of $11.1 million.
Net sales for discontinued operations are as follows:
13 WEEKS ENDED 39 WEEKS ENDED
---------------------- ----------------------
OCTOBER 1, OCTOBER 2, OCTOBER 1, OCTOBER 2,
1999 1998 1999 1998
---------- ---------- ---------- ----------
Net sales $ 12.5 $187.2 $190.4 $572.4
NOTE 5. INCOME TAXES
During the third quarter of 1998, the Internal Revenue Service completed its
examination for the years 1993 to 1995, which included an examination of net
operating losses and credit carryovers dating back to 1979. As a result of the
lapsing, during the third quarter of 1999, of all relevant statutes of
limitations on assessment relating to that 17-year period of time, the Company
recorded a $24.3 million tax benefit in continuing operations for the reversal
of previously established tax liabilities which have been determined to be no
longer necessary. The effect on diluted earnings per share for the third quarter
and the first three quarters of 1999 was $.66 and $.63, respectively.
NOTE 6. INVESTMENT IN ANTEC
During the first quarter of 1998, the Company sold 2.2 million shares of ANTEC
Corporation stock which resulted in net after-tax proceeds of approximately $32
million and an after-tax gain of $5.1 million. The sale reduced the Company's
ownership interest to 12.4% at April 3, 1998. In the second quarter of 1998, the
Company sold its remaining 4.9 million shares of ANTEC stock which resulted in
net after-tax proceeds of approximately $68 million and an after-tax gain of
$9.5 million.
NOTE 7. SUMMARIZED FINANCIAL INFORMATION OF ANIXTER INC.
The Company has an approximate 99% ownership interest in Anixter Inc. at October
1, 1999 and January 1, 1999 which is included in the consolidated financial
statements of the Company. The following summarizes the financial information
for Anixter Inc:
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ANIXTER INC.
CONDENSED CONSOLIDATED BALANCE SHEET
OCTOBER 1, JANUARY 1,
(In millions) 1999 1999
--------- ---------
(UNAUDITED)
Assets:
Current assets $ 1,127.2 $ 863.0
Property, net 56.0 54.6
Goodwill 229.5 212.1
Net assets of discontinued operations - 98.3
Other assets 36.0 38.2
--------- ---------
$ 1,448.7 $ 1,266.2
========= =========
Liabilities and Stockholders' Equity:
Current liabilities $ 442.1 $ 333.9
Other liabilities 8.9 8.6
Long-term debt 557.2 524.1
Subordinated notes payable to parent 4.2 7.0
Stockholders' equity 436.3 392.6
--------- ---------
$ 1,448.7 $ 1,266.2
========= =========
ANIXTER INC.
CONDENSED CONSOLIDATED STATEMENT OF OPERATION
(UNAUDITED)
13 WEEKS ENDED 39 WEEKS ENDED
------------------------ -------------------------
OCTOBER 1, OCTOBER 2, OCTOBER 1, OCTOBER 2,
1999 1998 1999 1998
---------- ---------- ---------- ----------
(In millions)
Net sales $ 710.4 $ 578.5 $1,938.9 $1,680.4
Operating income $ 33.5 $ 27.5 $ 85.2 $ 72.6
Income before income tax expense $ 24.3 $ 14.1 $ 60.0 $ 41.6
Income from continuing operations $ 13.3 $ 4.7 $ 32.8 $ 14.0
(Loss) income from discontinued operations, net of tax $ (.6) $ 3.2 $ (1.1) $ 10.8
Gain on disposal of discontinued operations, net of tax $ 2.6 $ - $ 48.5 $ -
Net income $ 15.3 $ 7.9 $ 80.2 $ 24.8
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ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FINANCIAL LIQUIDITY AND CAPITAL RESOURCES
CASH FLOW: Consolidated net cash used by operating activities from continuing
operations was $53.4 million for the 39 weeks ended October 1, 1999, compared to
$58.6 million for the same period in 1998. Cash used by operating activities was
relatively equal to last year as the increase in income from continuing
operations primarily was generated from a $24.3 million one-time non-cash
transaction to reflect the reversal of certain tax liabilities associated with
completing Internal Revenue Service audits for a number of open tax years. The
Company spent an additional $7.4 million in 1999 to support working capital
requirements. In 1998, income from continuing operations includes a $24.3
million gain on the ANTEC investment. Proceeds are reflected as an investing
activity.
Consolidated cash used by investing activities was $11.9 million for the 39
weeks ended October 1, 1999, versus $44.7 million provided for the same period
in 1998. The decline is a result of $104.3 million of proceeds received from the
sale of ANTEC shares in 1998, partially offset by $38.1 million used for the
acquisition of Pacer Electronics, Inc. ("Pacer") in June of 1998.
Consolidated cash used by financing activities was $70.5 million for the 39
weeks ended October 1, 1999, in comparison to $2.8 million provided in 1998. The
increase in cash used is primarily the result of the net borrowings of the
revolving line of credit of $13.6 million in 1999 versus $94.4 million in 1998.
Treasury stock purchases in the 39 weeks ended October 1, 1999 were $85.6
million versus $90.9 million in 1998.
Cash provided by discontinued operations was $131.0 million in 39 weeks ended
October 1, 1999, compared to $16.3 million in 1998. The increase primarily
relates to cash received from the sale of the North American Integration
business.
FINANCINGS:
At October 1, 1999, $123.8 million was available under the bank revolving lines
of credit at Anixter Inc., of which $15.1 million was available to pay the
Company for intercompany liabilities.
Consolidated interest expense was $8.9 million and $8.6 million for the third
quarter 1999 and 1998, respectively, and was $25.0 million and $23.1 million for
the first 39 weeks of 1999 and 1998, respectively. The increase in interest
expense is due to higher average debt levels resulting from funding higher
working capital levels, partially offset by slightly lower interest rates.
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As of October 1, 1999, the Company has authorized the repurchase of up to 7
million shares in 1999, with the volume and timing to depend on market
conditions. Purchases were made in the open market or through other transactions
and were financed through available cash from the sale of the North American and
European Integration businesses. The Company has repurchased 6,225,234 shares
through October 1, 1999, at an average cost of $13.75.
OTHER LIQUIDITY CONSIDERATIONS: Certain debt agreements entered into by the
Company's subsidiaries contain various restrictions including restrictions on
payments to the Company. Such restrictions have not had nor are expected to have
an adverse impact on the Company's ability to meet its cash obligations.
CAPITAL EXPENDITURES AND ACQUISITIONS
Consolidated net capital expenditures, were $12.8 million and $21.5 million for
the 39 weeks ended October 1, 1999 and October 2, 1998, respectively.
In June 1998, the Company purchased Pacer for $38.1 million, which resulted in
approximately $30 million of goodwill.
RESULTS OF OPERATIONS
The Company competes with distributors and manufacturers who sell products
directly or through existing distribution channels to end users or other
resellers. The Company's relationship with the manufacturers for which it
distributes products could be affected by decisions made by these manufacturers
as the result of changes in management or ownerships as well as other factors.
In addition, the Company's future performance could be affected by economic
downturns and possible rapid changes in applicable technologies.
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13 WEEKS ENDED OCTOBER 1, 1999: Income from continuing operations for the third
quarter of 1999 was $38.3 million compared with $9.3 million for the third
quarter of 1998.
The Company's sales during the third quarter of 1999 increased 15.1% to $710.4
million from $617.3 million in 1998. Net sales by major geographic market are
presented in the following table:
(In millions) 13 WEEKS ENDED
----------------------------
OCTOBER 1, OCTOBER 2,
1999 1998
---------- ----------
North America $547.4 $452.6
Europe 128.0 127.7
Asia Pacific and Latin America 35.0 37.0
------ ------
$710.4 $617.3
====== ======
North America sales grew 21.0%, resulting from a significant growth in both the
core Private Network Communications and Electrical Wire and Cable product sets
together with significant new volume from the Public Network Communications and
the Integrated Supply business. Europe sales were flat with last year resulting
from falling unit prices in networking products and a stronger U.S. dollar.
Excluding the effect from changes in exchange rates, Europe third quarter 1999
sales improved 4.1% over the corresponding 1998 period. Asia Pacific and Latin
America declined 5.7%, a result of soft local economic conditions combined with
weaker local currencies in Latin America.
Operating income for the third quarter of 1999 increased to $33.2 million from
$28.9 million in 1998. Operating income by major geographic market is presented
in the following table:
(In millions) 13 WEEKS ENDED
----------------------------
OCTOBER 1, OCTOBER 2,
1999 1998
---------- ----------
North America $ 31.1 $ 26.4
Europe 4.6 5.2
Asia Pacific and Latin America (2.5) (2.7)
------ ------
$ 33.2 $ 28.9
====== ======
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North America operating income increased 17.9% in the third quarter. The
improvement primarily relates to higher sales volume and better sales and
operations productivity, which has resulted in a reduction in operating expenses
as a percent of sales. This improvement was partially offset by lower gross
margin rates, primarily from significant increases in the lower gross margin
Public Network and Integrated Supply business. Europe operating income decreased
11.6% for the third quarter of 1999, primarily a result of the flat sales volume
and stronger U.S. dollar. Excluding the effect from changes in exchange rates,
operating income for Europe was down 7.3% in the third quarter 1999 compared to
1998. Asia Pacific and Latin America operating loss was reduced by 6.2%, as the
1998 Asia Pacific restructuring produced breakeven operating results for the
quarter.
Net foreign exchange and other improved from a $4.4 million loss in the third
quarter of 1998 to a $.1 million loss in 1999. The improvement primarily relates
to a reduction in foreign exchange losses in Mexico, which was a
hyperinflationary economy in 1998.
The consolidated tax benefit on continuing operations in the third quarter was
$14.1 million in 1999 compared to $6.6 million expense in the third quarter of
1998. As a result of the completion of the Internal Revenue Service review of
previous open tax years, a $24.3 million one-time tax benefit was recorded to
reverse previously established tax liabilities. Excluding the $24.3 million
adjustment, the 1999 effective tax rate of 42% is based on pre-tax book income
adjusted primarily for amortization of nondeductible goodwill and losses of
foreign operations which do not yet provide a tax benefit under Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes".
39 WEEKS ENDED OCTOBER 1, 1999: Income from continuing operations for the first
three quarters of 1999 was $58.2 million as compared to $41.5 million for 1998.
The Company's sales during the first three quarters of 1999 increased 11.3% to
$1,964.0 million from $1,764.0 million in 1998. Net sales by major geographic
market are presented in the following table:
(In millions) 39 WEEKS ENDED
--------------------------
OCTOBER 1, OCTOBER 2,
1999 1998
---------- ----------
North America $1,473.0 $1,268.3
Europe 389.7 384.3
Asia Pacific and Latin America 101.3 111.4
-------- --------
$1,964.0 $1,764.0
======== ========
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North America sales grew 16.1%, resulting from very strong second and third
quarter growth in the core Private Network Communications and Electrical Wire
and Cable product sets along with significant new volume from the Public Network
Communications and the Integrated Supply business. 1999 results also include
Pacer which was acquired in June 1998. Europe sales grew 1.4% on the strength of
the first quarter as sales continue to be negatively impacted by soft networking
product sales and a stronger dollar. Asia Pacific and Latin America sales
declined 9.1% to $101.3 million due to soft economic conditions along with
weaker local currencies.
Operating income for the first three quarters of 1999 increased $9.1 million
from $74.6 million in 1998. Operating income by major geographic market are
presented in the following table:
(In millions) 39 WEEKS ENDED
--------------------------
OCTOBER 1, OCTOBER 2,
1999 1998
---------- ----------
North America $ 77.9 $ 73.6
Europe 14.8 13.6
Asia Pacific and Latin America (9.0) (12.6)
--------- ---------
$ 83.7 $ 74.6
========= =========
Operating income in North America increased 6.0% from 1998 as the significant
increase in the third quarter sales volume, coupled with better sales and
operations productivity over the last few quarters, more than offset higher
spending on Year 2000 compliance efforts and retained costs associated with the
sale of the North American Integration business. Europe's operating profit
improved 8.7% from $13.6 million in 1998, reflecting savings generated from
headcount reductions. Growth has been limited by flat sales and a stronger U.S.
dollar. Excluding the effect of changes in exchange rates, Europe's operating
profit grew 11.5%. Despite the 9.1% decline in sales, the combined Asia Pacific
and Latin America operating loss was reduced by 28.0% reflecting the
restructuring and expense reduction efforts of 1998.
Net foreign exchange and other improved from a $4.7 million loss in the first
three quarters of 1998 to a $.2 million loss in 1999. The improvement primarily
relates to a reduction in foreign exchange losses in Mexico, which was a
hyperinflationary economy in 1998.
The first three quarters of 1998 includes an after-tax gain of $14.6 million
relating to the sale of the Company's shareholdings of ANTEC Corporation.
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The consolidated income tax provision on continuing operations for the first
three quarters of 1999 decreased to $.3 million from $29.6 million in 1998. The
decrease was due to a $24.3 million one-time tax benefit recorded to reverse
previously established tax liabilities and lower pre-tax earnings. Excluding the
$24.3 million adjustment, the 1999 effective tax rate of 42% is based on pre-tax
book income adjusted primarily for amortization of nondeductible goodwill and
losses of foreign operations which do not yet provide a tax benefit under
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes".
IMPACT OF YEAR 2000
Some of the Company's older computer programs were written using two
digits rather than four to define the applicable year. As a result, those
computer programs have time-sensitive software that recognizes a date using "00"
as the year 1900 rather than the year 2000. This could cause a system failure or
miscalculations causing disruptions of operations, including, among other
things, a temporary inability to process transactions, send invoices, or engage
in similar normal business activities.
The Company completed an assessment, upgraded the mainframe operating
system and modified software so that computer systems will function properly
with respect to dates in the year 2000 and thereafter. Renovation of all
critical business systems is complete. The Company also completed the assessment
of PC hardware and software systems and non-information technology systems for
Year 2000 compliance. Over the life of the project, the Company incurred and
expensed approximately $4.5 million, primarily for assessment of the Year 2000
issue, mainframe operating system upgrades and code modifications. The time and
expense of the project has not had a material impact on the Company's financial
condition.
The Company initiated formal communications with all of its significant
suppliers to confirm their Year 2000 compliance actions will be sufficient to
avoid any substantial disruptions in the Company's operations. The Company also
put a team together to continue to monitor this situation as the information
evolves. The Company believes most of the responses have been designed to
provide legal protection to the respondent as opposed to supplying direct and
reliable information; as such the Company makes no claim as to the reliability
of these responses. The Company is developing contingency plans to the extent
believed to be appropriate. The Company's total Year 2000 project cost and
estimates to complete that project assume no significant costs from the impact
of third party Year 2000 issues based on presently available information.
However, there can be no
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guarantee the other companies on which the Company relies will be Year 2000
compliant, and their failure to do so could adversely impact the Company as
described below.
The planning, assessment, and execution of substantially all of the
mainframe operating system upgrades and code modifications are complete. A new
general ledger system was implemented in April. The remainder of the project,
including verification of its effectiveness, PC hardware and software upgrades,
is estimated to be complete by the end of November 1999. The Company is
currently working on business contingency plans to address non-planned or
controllable Y2K related outages. Many of these plans are already completed. The
remaining plans are progressing towards a scheduled completion of November 30,
1999. The Company believes that with the modifications to existing software and
upgrades to certain hardware, the Year 2000 issue will not pose significant
operational problems for its computer systems.
The severity of a failure of the Company or key suppliers to be Year
2000 compliant would depend on the nature of the problem and how quickly it
could be corrected or an alternative implemented, which is unknown at this time.
In the extreme, such failures could bring the Company to a standstill. Some
risks related to Year 2000 issues are beyond the control of the Company and its
suppliers. For example, no preparations or contingency plan will protect the
Company from a downturn in economic activity caused by the possible ripple
effect throughout the entire economy that could be caused by problems with Year
2000 issues.
The Company believes it should have no material exposure to
contingencies related to the Year 2000 issue for the products it has sold. The
Company's belief is based on the Company's practice of giving to its customers
only those warranties that the Company receives from its suppliers. To the
extent such warranties are breached, liability resulting therefrom will be the
ultimate responsibility of the Company's suppliers. However, there can be no
guarantee that such suppliers will be able to defend and indemnify the Company.
Specific factors that might cause the Company to incur liability include, but
are not limited to, insolvency of its suppliers, the existence of contractual
limitations on the suppliers' liability, and uncertainties regarding judicial
interpretation of the law regarding implied warranties.
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Each management contract or compensation plan required to be filed as
an exhibit is identified by an asterisk (*).
(10) Material contracts
10.21 Financial Advisory Agreement, dated August 4, 1999.
10.22* Employment Agreement with Robert W. Grubbs, dated July 22,
1999.
10.23* Employment Agreement with Dennis J. Letham, dated July 22,
1999.
(27) Financial data schedule
27.1 Financial data schedule
(b) Reports on Form 8-K
None.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
ANIXTER INTERNATIONAL INC.
Date: November 11, 1999 By: /s/ Robert W. Grubbs
----------------- -------------------------------------
Robert W. Grubbs
President and Chief Executive Officer
Date: November 11, 1999 By: /s/ Dennis J. Letham
----------------- -------------------------------------
Dennis J. Letham
Senior Vice President - Finance
and Chief Financial Officer
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