Anixter International Inc. Reports Fourth Quarter Net Income

Sales increased 8 percent from the prior year period to $1.50 billion

Anixter International Inc. (Glenville, IL), a leading global distributor of communication and security products, electrical and electronic wire & cable, fasteners and other small parts, today reported results for the fourth quarter ended December 30, 2011.

-- Sales increased 8 percent from the prior year period to $1.50 billion

-- Operating income increased 17 percent year-on-year

-- Diluted earnings per share increased 26 percent year-on-year, or 25 percent excluding the impact of the net tax benefits and a gain in the prior year quarter on the early retirement of debt

-- Cash flow from operations was $112.9 million

Fourth Quarter Highlights

-- Sales of $1.50 billion increased 8 percent compared to sales of $1.39 billion in the year ago quarter. Major items affecting current quarter sales comparisons versus the prior year include:$30.1 million of sales from the acquisition of Clark Security Products in the fourth quarter of 2010$15.7 million from the favorable effects of copper pricing $3.9 million of unfavorable foreign exchange effects Exclusive of the above items, sales increased by 5 percent organically.

-- Fourth quarter operating income of $91.6 million improved by 17 percent compared to $78.5 million in the year ago quarter.

-- Operating margin in the current quarter was 6.1 percent compared to 5.7 percent in the year ago quarter.

-- During the current quarter, the company recorded a net tax benefit of $2.0 million, or $0.06 per diluted share, primarily related to the reversal of deferred income tax valuation allowances in certain foreign jurisdictions. As a result, the tax rate in the current quarter was 35.5 percent, bringing the year-to-date tax rate to 33.9 percent. Excluding the net tax benefits of $10.8 million recorded during the year, the current quarter tax rate was 38.0 percent and the full year tax rate was 37.4 percent. This compares to a tax rate of 35.3 percent in the year ago quarter or 37.3 percent excluding a favorable tax adjustment of $1.3 million, or $0.03 cents per diluted share.

-- Net income from continuing operations of $49.8 million, or $1.49 per diluted share, improved by 19 percent compared to $42.1 million, or $1.18 per share, reported in the year ago quarter. Excluding the favorable impact of the net tax benefits in both the current and prior year quarters and the gain on retirement of debt in the prior year quarter, net income from continuing operations increased by 19 percent and earnings per diluted share improved by 25 percent over the prior year quarter.

-- Cash flow generated from operations, including discontinued operations, was $112.9 million as compared to $29.7 million in the year ago quarter. The higher cash flow was primarily due to a decrease in working capital requirements associated with a lower revenue growth rate than in the prior year quarter.

Fourth Quarter Sales Trends

Commenting on fourth quarter sales trends, Robert Eck, President and CEO, stated, "We were pleased that all of our business segments continued to deliver year-on-year growth, resulting in our seventh consecutive quarter of revenue growth. As expected, our year-on-year growth rate slowed due to a much stronger prior year comparison. Slightly softer project billings and normal seasonality contributed to the sequential reduction in sales, which was also affected by weaker currency and copper effects."

"Our strategic initiatives continue to help drive our sales performance in each of our end markets around the world. As expected, these efforts have once again helped to bolster our sales performance in Emerging Markets, which delivered the highest sales growth rate among our segments," continued Eck. "Within our end markets, the OEM Supply business delivered the highest sales growth rate with 16 percent improvement year-on-year. Our two cabling businesses experienced a lower growth rate due to both a challenging comparison to the prior year period and a slowdown in billings due to project delays."

Fourth Quarter Operating Results

"Strong cost management and operating leverage are reflected in our solid operating profit performance," commented Eck. "Specifically, we are encouraged by the strong fourth quarter operating margin given the weak economic environment in many parts of the world, attesting to our diverse product and value added service offerings. In addition, fourth quarter operating expenses of $257.1 million were 17.2 percent of sales compared to 17.6 percent in the prior year quarter. Excluding the impact of the Clark acquisition of $8.3 million and exchange rates of $0.3 million, year-on-year operating expenses increased by only $5.7 million or 2 percent, on a 5 percent organic increase in sales, further demonstrating the leverage in our operating structure. Expense increases were primarily the result of higher volumes."

Company-wide operating margin improved to 6.1 percent from 5.7 percent in the year ago quarter. This performance resulted in an incremental operating profit leverage of 12 percent on the increased year-on-year sales for the quarter and 11 percent for the full year. The strong operating margin improvement was primarily driven by good expense management. Sequentially, operating margin decreased by 20 basis points due to the seasonality driven revenue reduction. North America operating margin of 7.0 percent in the current quarter compares to 7.1 percent in the prior year quarter. The 10 basis point change was driven primarily by higher corporate operating expenses related to employee benefits and incentives. Sequentially, operating margin was 50 basis points lower in the current quarter primarily driven by normal seasonality resulting in lower fourth quarter sales volume. Full year incremental operating profit leverage equated to 12 percent.

Europe operating margin of 1.9 percent in the current quarter reflected a 180 basis point improvement over the prior year quarter. The strong year-on-year improvement was entirely driven by lower operating expense with a relatively flat gross margin comparison. This resulted in a 36 percent incremental operating profit leverage on the increased year-on-year sales for the quarter and 12 percent for the full year. Sequentially, operating margin was only 10 basis points lower on the seasonally lower fourth quarter sales.

Emerging Markets operating margin of 7.5 percent in the current quarter improved by 110 basis points from the prior year quarter primarily driven by a 70 basis point improvement in gross margin along with operating expense leverage. The 16 percent incremental operating profit leverage represented the best performance for this segment for 2011. Sequentially, operating margin improved by 180 basis points.

Cash Flow and Leverage

"Due to strong working capital management combined with a lower sales growth rate in the current quarter, net cash generated from operations was $112.9 million," commented Ted Dosch, Executive Vice President-Finance. "In the prior year quarter, cash flow generated from operations was $29.7 million, but that was in the context of a higher revenue growth period with higher working capital requirements.

In addition, our healthy balance sheet, along with continued expected positive cash flows, provides us the flexibility to support continued growth in the business while enabling us to pursue strategic acquisitions as they arise."

Key capital structure and credit-related statistics for the fourth quarter include:

-- Quarter-end debt-to-total capital ratio of 43.9 percent compared to 45.7 percent at the end of the third quarter and 46.9 percent at the end of 2010

-- Invested cash of $50.0 million at the end of the current quarter, up from $46.0 million at the end of 2010

-- Fourth quarter weighted average cost of borrowed capital of 5.1 percent compared to 5.6 percent in the year ago quarter

-- 66 percent of quarter-end borrowings have fixed interest rates, either by terms of the borrowing agreement or through hedging contracts

-- $313 million of availability under bank revolving lines of credit at the end of the fourth quarter

-- $175.0 million of outstanding borrowings under the $275.0 million accounts receivable securitization facility at quarter end

Business Outlook

Eck concluded, "Looking ahead to 2012, expected sales growth should position us very well to further leverage our global supply chain platform. While both the U.S. and global market growth rates are difficult to predict in the current economic climate, we believe that our strategic growth initiatives position us well to achieve continued strong year-on-year sales growth and operating leverage, driving further market share improvement. We expect our future growth to be fueled by adding new products and technologies to our portfolio; developing an end market presence in Electrical Wire & Cable and OEM

Supply in countries where our current presence is large but limited primarily to the Enterprise Cabling and Security Solutions end market; and selectively expanding our geographic presence."

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