Good day, everyone, and welcome to the Anixter First Quarter 2011 Earnings Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Chris Kettmann for opening comments and remarks. Please begin when ready, sir.

Thank you. Good morning, and thank you, everyone, for joining us today to discuss Anixter's first quarter 2011 results. By now, everyone should have received a copy of the press release, which was sent out earlier this morning. If anyone still needs a copy, you can go to Anixter's website or call Chris Kettmann at (312) 553-6716, and I can resend the information. On the line today from Anixter's management team are Bob Eck, President and CEO; Dennis Letham, Chief Financial Officer; and Ted Dosch, Senior VP of Finance. After management completes their opening remarks, we will open the line for a Q&A session. Before we begin, I want to remind everyone that statements on this conference call, including words such as believe, expect, intend, anticipate, contemplate, estimate, plan, project, should, may, will or similar expressions are forward-looking statements. They are subject to a number of factors that could cause the company's actual results to differ materially from what is indicated here. These factors include: general economic conditions, including the severity of current economic and financial market conditions; the level of customer demand, particularly for capital projects in the markets we serve; changes in supplier sales strategies or financial viability; political, economic or currency risks related to foreign operations; inventory obsolescence; copper price fluctuations; customer viability; risks associated with accounts receivable; the impact of regulation and regulatory investigated and legal proceedings and legal compliance risks; potential impairment of goodwill; and risks associated with the integration of acquired companies. These uncertainties may cause our actual results to be materially different than those expressed in any forward-looking statements. We do not undertake to update any forward-looking statements. Please see the company's SEC filings for more information. At this point, I'll turn the call over to Dennis.

Thank you, Chris. Good morning, and thank you for joining us. Before we start with an overview of our first quarter results, I'd like to remind everyone of the announcement that we made in late February regarding my pending retirement. I will be retiring on June 30 after 18 years as the CFO of Anixter. Ted Dosch, who has served as the company's Senior Vice President in Global Finance since January 2009 has been named as my replacement. Ted has participated on the company's earnings call for the last 18 months and has been sharing the Investor Relations work with me for the last year, including having a chance to meet or speak with many of you during that time. I've enjoyed the opportunity to work with all of you and have appreciated the support you have given to Anixter throughout my tenure. At this point, I'd like to turn the call over to Ted, who will remain available for questions later in the call as needed. Ted?

Thank you, Dennis. Before going into the details on the drivers of our first quarter operating performance, we'd like to remind you that our first positive growth quarter post recession was during the second quarter of 2010. The first quarter of this year represented our fourth consecutive quarter of recovery with each 1 building positive momentum on the performance of the prior quarter. Also, as we have mentioned many times over the last 2 years, going into the recession and coming out of the recession, our longer-term historical seasonality patterns for sequential quarter performance have often not applied. The volatility of demand on both ends of the business cycle has made it very difficult to predict demand levels from a quarter-to-quarter basis. Most recently, our historical seasonality would have suggested that Q1 sales would be relatively flat from Q4 levels with the positive benefit of fewer holidays in Q1 largely offset by lower capital project spending patterns early in the year and softer sales in the emerging markets. However, due to the strength of recovery across most parts of the business, we were able to deliver 5% sequential growth in sales, excluding the effects of foreign currency of which 3% was organic sales growth and 2% was from our Q4 acquisition of Clark Security Products. Going forward, we expect the business to return to historical seasonal sales patterns; particularly given we've already had 4 straight quarters of sequentially strong results. Before getting further into the numbers, let me also explain the European restructuring charge mentioned in the earnings release issued this morning. Our first quarter results include $5.3 million operating expense related to cost associated with rationalizing our European cost structure. As we have discussed in prior quarters, improving the profitability of our European operations has been and continues to…

Thanks, Ted. Thanks, everyone, for joining us today. The first quarter generated stronger sales sequentially than we had been expecting. We just had a very strong finish to 2010 and our normal seasonal trends from the fourth quarter to the fourth quarter. The sales strength was seen across all of our end markets and reporting segments. Particularly noteworthy was the strong acceleration in growth in our Electrical Wire & Cable end market in North America. While we expect growth in this market to accelerate as we continue on the recovery, the performance in this market has been outstanding. Expenses continue to be well controlled in light of the increase in volume, and we were able to deliver good operating leverage. We do anticipate that as growth continues through this year, we will need to invest to add capacity to the business, which will likely decelerate our operating leverage as the year continues. The continued focused on tight working capital management minimized the invested capital necessary to support the 19% sales growth. We are very pleased with this performance and continue to drive initiatives that will further improve our working capital management. Enterprise Cabling and Security Solutions end market experienced strength in data-related projects as well as double-digit growth in security during the first quarter. Gains were broad based with 34% growth in Asia Pacific, strong performance in Canada and solid growth in other geographies. The recent project trends that we have seen globally in the enterprise market reflect ongoing investment in new IT infrastructure, particularly continued growth in data centers. A recent trend in data center construction is a shift to smaller scale initial projects followed by adding more cells to the data center to support growth and storage and applications. While this leads to fewer very large projects, it…

[Operator Instructions] And our first question will come from Matt McCall with BB&T Capital Markets. Matthew McCall - BB&T Capital Markets: Thanks. So a few comments on seasonality. I want to make sure I understood what we were talking about starting with the top line. I think, Ted, you said you returned to a normal seasonal pattern. When I look back at the last 5 or 6 years, it's been maybe up 4% Q2 versus 1 and up another 3% Q3 versus Q2. Is there anything that's funky in that historical map that we should think about?

I think that's what we would anticipate as returning more to that level. The only thing maybe unusual this year is just the fact that in our European business, we'll have a few less billing days than even in the historical seasonality. Across the entire EMEA business for us, our billing days will actually average about 61 days partly because of the added holidays in the U.K., which due to the wedding later this week and the U.K. is the biggest proportion of our European business. But we still expect to be in that same range despite the fewer billing days. Matthew McCall - BB&T Capital Markets: Okay. And what was -- is the billing days this quarter, so I can compare that, 61 to what?

65 in Q1. We did not have any holidays in Q1. Matthew McCall - BB&T Capital Markets: Got it. Okay. And then 1 question on the contribution margin. You made the comment that you've done over 12% for 4 quarters in a row. It gets more difficult. And I think, Bob, you talked about some investments that you plan to make this year but then 1 of the final comments was, “Hey, we're going to see some improving operating margin trends through the year.” So just kind of put all those together for me. What are the kind of expectations maybe from an incremental margin perspective given that you're going to see tougher comparisons?

Well, first, let me just clarify 1 thing on the sales days that those comments were specific to Europe. In the U.S., we'll have the same impact and in Canada, the holidays that we would normally see in the quarter. Europe is the place where you have a change in holidays. So let me put together some of those comments and Ted and Dennis will jump in as well. What we expect is that we'll continue to have positive operating leverage as we go through the balance of the year. But as we've been saying I think for the last couple of quarters, the operating leverage will decline as we get deeper into the recovery, because sales will hit a level where we'll begin to add people back into the business. At the moment, I don't think we see significant facility yet, but there will be volume-related cost that will come back into the business.

Yes. I think the only thing I'd add to that, as Bob said, the incremental operating profits leverage will drop, but we still expect it to average pretty close to that double-digit number for the whole year starting Q1 at about 13% and then drop as we progress through the year. Matthew McCall - BB&T Capital Markets: Okay. Okay, perfect. Thank you.

Thanks, Matt.

And our next question will come from Shawn Harrison with Longbow Research. [Technical Difficulty]

Our next caller will be Ryan Merkel with William Blair. Ryan Merkel - William Blair & Company L.L.C.: Thanks. So I'll start with the European OEM Supply market. It sounds like we still have some gross margin issues there. Does this limit sequential gross margin improvement on a total company basis going forward? Or can mix and initiatives trump this European OEM Supply issue?

Yes or no to your question. No, we don't think that will be significant enough to limit our total consolidated gross margin improvement. As we mentioned, we feel like our team in Europe has done a very good job of offsetting this first round of cost increases. Unfortunately, with some of the cost of steel helping to fuel a second round of those cost increases required us to go back through to our customers, where we have these long-term contractual agreements and renegotiate. So we're confident that we will be able to offset that and would project that over the next couple of quarters, we would be back to the gross margin levels we were at in mid-2010 before these manufacturer cost increases really skyrocketed. The other thing I would add, Ryan, just as you look at the OEM Supply margins, we've talked about the fact that aerospace is the 1 part of our business that really hasn't seen recovery yet. Bob commented that we'd expect to see some growth in that by year end. I think as we've also said in the past, that's a very high margin business for us. So as it has actually declined year-over-year, it was a very high margin that was also put downward pressure on the overall margins for the OEM Supply business.

I think, just to throw something else in there too, in the 2 Cabling-related businesses, we've got stronger growth in project activity that you do day-to-day business. Projects are typically going to have a lower gross margin on them than the day-to-day basis but a lot more efficiency in terms of servicing the order. So it really -- to some degree, we get too hung up on what's to the right of the decimal point. On gross margin, that's more about the operating leverage that you get from the overall increase in volume. Ryan Merkel - William Blair & Company L.L.C.: Okay, thanks. That's great color. And then second question on copper, it looks like it was slightly more meaningful to sales growth than it had been in the prior quarters. Does this reflect vendor price increases coming through? Or is these large projects coming through at higher-spot copper?

I think it's both. I think price increases are sticking better than perhaps they have in the past. But we clearly have more project volume, and the project volume was negotiated at higher-spot copper. So that is the effect we're seeing. I think as you look through the rest of the year, copper will have a benefit over the next couple of quarters. By the time we get into the fourth quarter, if copper has stabilized, the effect -- the inflationary effect will be minimal. And I still think we have to be careful about taking spot copper and imputing too much into the operating earnings of the company, because we are selling cable. And as we've said many times, the number of the types of cable we sell don't trade closely to spot copper, which is actually a very small portion of our Electrical Wire & Cable business. And that's why you'll probably see less copper inflation running through the business than you might have expected given what's happened and what's the spot price.

The only contributing factor to that is as we talked about Wire & Cable being the fastest growing of our 3 end markets so it is a larger percentage of our total business compared to both Q4 as well as a year ago quarter. So we just have some higher copper content due to that as well. Ryan Merkel - William Blair & Company L.L.C.: Okay. Now I'm going to sneak 1 more in. Any change in the profile of new bookings in the large-project business either by end market or customer size?

No. I think other than the comment I made about data centers in my prepared comments, I don't think there's anything we would highlight. Ryan Merkel - William Blair & Company L.L.C.: Great. Thanks.

Thank you.

Our next question will come from David Manthey with Robert W. Baird. David Manthey - Robert W. Baird & Co. Incorporated: I was wondering, first off, if you could -- just to clarify the number of days issue, could you just tell us what you think the effective number of selling days are in each of the 4 quarters of this year just so we have it?

I don't have all 4 quarters in front of me. 65 was the day -- was the number of days in Q1. In Q2, it will probably be about a weighted average of about 63, 64 in North America and closer to 61 in Europe. I don't have Q3 and Q4 in front of me.

Q3 you'll have Labor Day and Fourth of July, so you're going to be roughly a 63 number there and then I'm not sure on Q4. David Manthey - Robert W. Baird & Co. Incorporated: Okay. Usually, it's about 61 I think. Does that sound right?

Correct.

That's about right.

Yes. David Manthey - Robert W. Baird & Co. Incorporated: Okay. All right. And then just thinking about this -- the sequential growth rates, when we look at organic average daily sales rates excluding copper and currency and everything, by our calculations, revenues daily sales were about flat sequentially, which would seem kind of normal. And I know what you were talking about getting back to normal trends. Are you talking about daily sales trends or overall? And if you could clarify that just as it relates to the normal trend you'd expect to see from the first quarter to the second quarter sequentially.

Yes, we were referring to overall. David Manthey - Robert W. Baird & Co. Incorporated: Okay. So based on those number of days, what would that average be? I mean, we have our own calculation, but I want to square with what you have.

I think we're not targeting a specific number, but Ted did say in his comments that we expect it to be in the kind of mid- single-digit sequential growth rate. David Manthey - Robert W. Baird & Co. Incorporated: Okay. Great. And then just 2 other quick ones here. First of all, could you tell us approximately what percentage of revenues today you think are projects? I think in the past, you talked about it ranging from a low end of 10% to a high end of 20%. Could you tell us where we are in that continuum approximately?

We don't have a specific number, but we're roughly somewhere in the 15% range today and moving towards the 20% range as we continue through the year would be my best guess. David Manthey - Robert W. Baird & Co. Incorporated: Okay. Thanks, Bob. And then the last question would be as you look forward here and a little bit longer term, sort of 5 to 7 years out, how important to Anixter do you think access control and industrial automation will be?

I think access control will be increasingly important. Access control has been a little later entering the shift to IP technology than video surveillance was. That process is underway now, and I would say accelerating. It's a very big market globally, certainly huge in North America, very large in Europe and very large in Asia Pacific. A little bit smaller in Canada, which might just be sort of GDP driven, but it's a very large market. It will be significant assuming that we execute well on our strategy, which I think we will. Industrial automation I think will also have the potential to be a big market for us over the next 5 to 7 years, and it will again be a global story for us. If you look at the developed world, automation is going to be critical to having healthy manufacturing industries. And when you look at rest of world, even in China now, labor costs are beginning to increase. Certainly not like the U.S., but they are increasing for low-value ad manufacturing compared to companies that they would compete with on a labor cost basis. That'll drive more automation there as well. So I think automation in that 5- to 7-year horizon is an important market for us to participate in and be successful in. David Manthey - Robert W. Baird & Co. Incorporated: All right. Great. Thanks much, and Dennis, thanks.

Thank you, Dave.

Our next question will come from Anthony Kure with KeyBanc.

Looks like in emerging markets, sequentially, margins declined, and I just see from the comments that it might be due to some investments in that particular region. Can you just discuss the magnitude of the investments in the emerging markets, how impactful that was to first quarter margins? And then how long do you expect this type of elevated spending to progress through the year or through next year? If you could just talk about that a little bit.

Yes. Let me start with the biggest driver of those margins is the seasonality. Q4 tends to be the strongest market, excuse me, the strongest quarter in emerging markets, especially so in Latin America, which as you know, is almost 3/4 of that total region sales. So we get some negative leverage on that fixed cost infrastructure, which was the primary driver of the lower margins. You'll note those margins were pretty -- were actually flat with last year's Q1, so it wasn't so much that it was unusual. However, we have continued to invest over the course of last year, primarily to support small but very important and growing industrial Wire & Cable business for us down there. So over the course of that period of time, we added approximately 20 people in sales and marketing for that industrial Wire & Cable business and are seeing nice growth rates, as I commented earlier, it's still off a very small base.

Okay. And then just looking at growth rates in Wire & Cable in North America year-over-year versus Europe -- I apologize if I missed this in the opening comments. Could you just discuss sort of the disparity among those 2 this quarter?

I think in North America, the growth that we referred to through the back half of last year and continuing into this year with the project growth was primarily North American based. The other thing that contributed to it is our North America Wire & Cable business has also a very strong OEM Supply portion, which is the sale of the smaller cabling to wire harness shops, which goes to the OEM. So that has mirrored over the course of the last several quarters the same very high growth rates that we've seen we in our OEM fastener business. In Europe, our Wire & Cable business is much more heavily weighted in the U.K, and as we know, the economy there has not been nearly as strong in coming out of the recession.

Okay. Great, and that's helpful. And then finally, just -- if you could just discuss sort of the cadence through the first 3 months of the year, any disparity from normal seasonality? Or is this sort of the first quarter that you're starting to see this sort of normal seasonal progression? And is that the source of your commentary?

I think it's the first quarter we've seen the normal seasonal progression. We had the typical Q1, where you start slow in January, you ramp more volume in February, and it continues through March. So that's what we would expect to see in sort of a normal environment.

Okay, great.

And our next question will come from Brent Rakers with Morgan Keegan. Brent Rakers - Morgan Keegan & Company, Inc.: I guess just maybe first, to follow up on that last question about maybe some semblance of monthly trends with an eye to seasonality as well. Within North American Enterprise, was there any impact to the project business or project start-up timing whether it relates to budgetary delays or possibly weather effects?

No, I think the main thing we called out on North America was that we had a large project last year that was not repeated this year that impacted our growth. Feeling that project out, we had what I would characterize as probably market-level growth across the data part of the business and very solid growth across security. Brent Rakers - Morgan Keegan & Company, Inc.: Bob, did that project complete in March a year ago? Is that an issue with comparisons in Q2 as well?

Yes, a very, very small piece in Q2. Brent Rakers - Morgan Keegan & Company, Inc.: Okay. And then I guess sticking with North American Enterprise, any sort of shift that you're seeing in terms of competitive balance in the business, competitors being more aggressive? Anything like that that's structurally changing the environment out there?

No, I think competition has been and continues to be aggressive. It's not all price driven. But we face a good group of tough competitors, and that is not changing. Brent Rakers - Morgan Keegan & Company, Inc.: Okay. And then I guess last with maybe -- and I know you've kind of touched around this, some of the gross margin issues, but I maybe wanted some clarity on the outlook. And you talked specifically about 2 areas. First, it sounds like the OEM Supply in Europe -- despite the headwinds, I think in the quarter related OEM Supply, European gross margin was still up year-over-year. I just wanted to clarify that the headwinds in that specific group were in Q1, and they expect to start improving in Q2 of that. Or is my timing wrong there?

The headwinds I think you're referring to started late last year. We originally thought that we would recover from that in about 6 to 9 months. It looks like it's going to be 9 months plus. Remember, we started talking about that in the middle of Q3 of last year, but we would anticipate to be kind of fully recovered some time during Q3 of this year.

Yes, there's a -- the lag in achieving the recovery I think Ted characterized very well as being the 2 rounds of price increases that came from European fastener manufacturers. The other factor is that the resourcing effort has taken a little longer than we would have ideally hoped for, and it's a couple of factors involved. 1 is the sheer volume of parts we're trying to resource, and that's required us to add temporary as well as full-time engineers to help in that process. In addition, lead times coming from the low-cost countries have been increasing, so the time to get samples in, have the samples approved in our shop and then approved by the customers' shop has taken a little longer. And finally, customers are facing -- industrial customers are facing all kinds of cost pressure in their business. And so as they focus across all the parts they buy, we're probably a little bit lower priority as a percent of their cost for the finished good. And so that's caused a little bit of a delay, and they're accepting the resourcing exercise as well. So if you put all those factors together -- and this has taken longer for us to crank through than we would have hoped, but we do feel like we're making progress. We have gone out for another round of increases, and we are actually meeting with good success on those increase. Brent Rakers - Morgan Keegan & Company, Inc.: And Bob, just to back up on the timing, the Q3 margins were the period -- were under particular pressure, and you saw some recovery when you got some of the increases in Q4 and then you got on with another round of increases that's going to take a little delay to get as well. Does that sound roughly correct?

Correct. Brent Rakers - Morgan Keegan & Company, Inc.: Okay. And then I guess the other gross margin comment I think you alluded to was in the emerging markets with the lagging impact of some of your price increases. Could you maybe quantify what the negative effect would have been there in the quarter and how quickly you can recover that?

No, I don't think we called out an issue with gross margin in the emerging markets. Brent Rakers - Morgan Keegan & Company, Inc.: Okay. Great. Thank you.

We do have a question from Shawn Harrison with Longbow Research.

Okay, a few clarifications. Just on kind of the organic growth rate year-over-year, backing into some numbers, it looks like it may be high-single digits, maybe low-double digits, best case scenario, for the June quarter, might kind of in that range with the high-single digits on an organic, all-in, year-over-year growth?

I think if we continue to see the general strength overall in the economy, we should be able to continue with those types of levels organically.

Okay. A follow-up on North America, and I apologize if this was asked before. But with operating margins essentially flattish sequentially even though volumes were up, knowing that some of that was tied to the M&A as well as copper, were there other limiting factors that happened? Was the Clark acquisition coming in at a lower margin? Was it headcount additions in the regions? Just kind of trying to triangulate the flattish gross margin sequentially.

Certainly, you touched on Clark. That was a part of it. As I think we've said before, we'd expect for the full year Clark to be -- operate at a little bit lower margins than our -- the rest of our Enterprise Cabling and Security business for the year, but those margins will improve as the year progresses as we continue the integration and realize the cost synergies that Bob alluded to earlier. Another factor that's in there is due to the very strong end to the year last year with our Q4 sales growing as much as they did year-over-year, we were able to realize some nice benefits from vendor rebates in Q4. So if that had been, say, spread over the full year of last year, which is, in essence, where they were earned, we would have shown gross margin improvement and operating margin improvement from Q4 to Q1 in North America as well.

Okay. And then kind of getting back to the hiring question. It sounds as if most of the hiring was going on in OEM Supply is going or is occurring within the emerging markets. Maybe if you could speak to just briefly, as we look over the next 8 months of this year, what regions do you expect to be hiring the most. And is it going to be continuing in the emerging markets? Or are you going to see more hiring in North America first?

Actually, the answer is, to a degree, everywhere, and I'll kind of hold out EMEA maybe as a separate thought on that. But for us, it's productivity driven, and we measure productivity at the warehouse level based on lines picked as well as some quality metrics. We measure productivity across the staff functions based on relevant metrics for those people. We measure salespeople based on gross profit dollars. All those metrics we track very closely over a period of time, and that guides us towards when it's appropriate to add headcount. And frankly, as volume ramps up, you hit pressure where in the warehouses, you can with manage with temps or overtime, and you ultimately have to shift to full-time people. In the sales organization, you also hit points where you have so much volume coming in, you need to add headcount there. We've also added minimal headcount around some of our initiatives who are our sales specialists. So all those kind of things work together over the course of the year to get us to the point of saying that the operating leverage -- while we expect to have positive operating leverage as we run through the year, the percentage will decline as we get late in the year.

Okay. I guess as a follow-up to that, do you think you'll still be within the fourth calendar quarter at a double-digit number or for the operating leverage? Or was that kind of a commentary for in aggregate 2011? Just want a clarification there.

I think by the end of the year, we would be -- by the fourth quarter, be in the high single digits but still average double digits for the full year.

Okay. And then a final question, just a clarification on taxes. I know it's tough to kind of model, but if we use the 37.5% rate through the remainder of the year, is that a good starting point at least based upon what you know right now?

Yes. As I think you know, we record each quarter and effective tax rate based on what the full year projection is. So at this point in time, that would be our best projection.

Okay. Thanks so much for taking my questions.

Thanks.

We'll take a question now from Ted Wheeler with Buckingham Research.

I echo the thanks much to Dennis.

Thanks, Ted.

On the cash flow comments, I think you said operating cash flow would be positive. Do you think free cash flow will be positive this year? Or is it too soon to know?

I think we would be positive at the free cash flow level as well.

Okay. So the -- in other words, the working capital investment tapers off, excuse me, as we go forward here?

Yes. The incremental sales growth quarter-to-quarter would have a much more muted impact on cash requirements each quarter as we progress through the year.

Okay. Yes, and 1 other item. I guess Clark is on track maybe even a little pleasant surprise. But if I recall, you're not expecting much earnings contribution maybe even a little dilution this year and then some enhancement next year. I'm wondering if you could just review that.

Yes. Positive earnings, little dilution within North America ECS, the Enterprise business, due to a slightly lower margin this first year.

Well, actually, you think you'll get some benefit before the year's over from Clark.

Positive earnings, yes. It was positive in Q1, just at a lower operating margin than the rest of our Enterprise and Security business.

Now does it get to corporate or segment average margin, security average margins within the next year or so?

Probably drags a little bit, Ted, because you've got amortization of intangibles on the acquisition. If you looked at it on an EBITDA basis, it will get close to the rest of North America over the next couple of years. But when you throw the amortization expense in there because it's an acquired business as opposed to the rest of the business and Enterprise & Cable being organically built, you get a little bit of a delta around that amortization expense.

Got it. Got it. Okay. And I guess last question, on projects, I guess if we could separate them just individually from Enterprise and Industrial Wire, is the -- I think you -- well, is the momentum in terms of engineering work, et cetera up in both? Or is it principally in the Wire & Cable?

It's up in both.

So in other words, the sort of leading indicators you look at for projects are pretty positive in both verticals?

Yes, they are.

Great. Thanks again.

Thanks. Since we're coming up on the hour, we'll wrap up the call at this point. So thanks, everyone, for joining us today. We believe that the global economy is undergoing a modest recovery, and our global reach, strategic initiatives and value-added business model position us well to support our customers in the improving economic environment. Thank you.

Thank you, sir. That does conclude today's teleconference. We do thank you all for your participation.