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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 |
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For the fiscal year ended December 31, 2004 |
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or |
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 |
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Commission file number 1-5989
Anixter International Inc.
(Exact name of Registrant as specified in its charter)
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Delaware |
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94-1658138 |
(State or other jurisdiction of
incorporation or organization) |
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(I.R.S. Employer
Identification No.) |
2301 Patriot Blvd.
Glenview, IL 60026
(224) 521-8000
(Address and telephone number of principal executive offices
in its charter)
Securities registered pursuant to Section 12(b) of
the Act:
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| Title of each class on which registered |
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Name of each exchange |
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Common stock, $1 par value
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New York Stock Exchange |
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Convertible notes due 2020
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New York Stock Exchange |
Securities registered pursuant to Section 12(g) of
the Act:
None.
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 if
disclosure of delinquent filers pursuant to item 405 of
Regulations S-K is not contained herein, and will not be
contained, to the best of Registrant’s knowledge, in
definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any
amendment to this
Form 10-K. Yes þ No o
Indicate by check mark whether the
registrant is an accelerated filer (as defined in Exchange Act
Rule 12b-2). Yes þ No o
The aggregate market value of the
shares of Registrant’s Common Stock, $1 par value,
held by nonaffiliates of Registrant was approximately
$1,240,228,688 as of July 2, 2004.
At February 17, 2005,
37,517,110 shares of Registrant’s Common Stock,
$1 par value, were outstanding.
Documents incorporated by reference:
Certain portions of the
Registrant’s Proxy Statement for the 2005 Annual Meeting of
Stockholders of Anixter International Inc. are incorporated by
reference into Part III.
TABLE OF CONTENTS
(i)
PART I
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| ITEM 1. |
BUSINESS OF THE COMPANY. |
(a) General Development of Business
Anixter International Inc. (the “Company”), formerly
known as Itel Corporation, which was incorporated in Delaware in
1967, is engaged in the distribution of communications and
specialty wire and cable products and fasteners and other small
parts (“C” class inventory components) through
Anixter Inc. and its subsidiaries (collectively
“Anixter”).
On June 22, 2004, the Company purchased substantially all
of the assets and operations of Distribution Dynamics, Inc.
(“DDI”). DDI was a privately held value-added
distributor of fasteners, hardware and related products
specializing in inventory logistics management programs directed
at supporting the production lines of original equipment
manufacturers across a broad spectrum of industries. DDI employs
approximately 230 people located in sixteen locations in
the United States.
In the third quarter of 2003, the Company purchased 100% of the
stock of Walters Hexagon Group Limited (“Walters
Hexagon”), a leading distributor of fasteners and other
small parts to original equipment manufacturers and provider of
inventory management services to a range of markets and
industries. Walters Hexagon operates a network of nine service
centers in the United Kingdom, France and Italy and employs
approximately 350 people.
In September 2002, the Company completed the purchase of the
operations and assets of Pentacon, Inc. (“Pentacon”),
also a leading distributor of fasteners and other small parts to
original equipment manufacturers and provider of inventory
management services.
(b) Financial Information about Industry 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 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, legal, tax, information technology and
other related services, certain of which are rebilled to
subsidiaries. Interest expense and other non-operating items are
not allocated to the segments or reviewed on a segment basis.
No customer accounted for 10% or more of sales in 2004, 2003 or
2002. For certain financial information concerning the
Company’s business segments, see Note 13
“Business Segments” in the Notes to the Consolidated
Financial Statements.
(c) Narrative Description of Business
Overview
The Company is a leader in the provision of advanced inventory
management services including procurement, just-in-time
delivery, quality assurance testing, advisory engineering
services, component kit production, small component assembly and
e-commerce and electronic data interchange to a broad spectrum
of customers. The Company’s comprehensive supply chain
management solutions are designed to reduce customer procurement
and management costs and enhance overall production
efficiencies. Inventory management services are frequently
provided under customer contracts for periods in excess of one
year and include the interfacing of Anixter and customer
information systems and the maintenance of dedicated
distribution facilities.
Through a combination of its service capabilities and a
portfolio of products from industry leading manufacturers,
Anixter is the leading global distributor of data, voice, video
and security network communication products and largest North
American distributor of specialty wire and cable products. In
addition, Anixter is a leading distributor of
“C” class inventory components which are
incorporated into a wide variety of end
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use applications and include screws, bolts, nuts, washers, pins,
rings, fittings, springs, electrical connectors and similar
small parts, many of which are specialized or highly engineered
for particular applications.
Customers
The Company sells products to over 90,000 active customers.
These customers include international, national, regional and
local companies that include end users of the Company’s
products, installers, integrators and resellers of the
Company’s products as well as original equipment
manufacturers who use the Company’s products as a component
of their end product. Customers for the Company’s products
cover all industry groups including manufacturing,
telecommunications, internet service, finance, education,
healthcare, transportation, utilities and government as well as
contractors, installers, system integrators, value-added
resellers, architects, engineers and wholesale distributors. The
Company’s customer base is well-diversified with no single
customer accounting for more than 10% of sales and no single
end-market industry group accounting for more than 19% of
sales.
Products
Anixter sells over 275,000 products. These products include
communications (voice, data, video and security) products used
to connect personal computers, peripheral equipment, mainframe
equipment, security equipment and various networks to each
other. The products consist of an assortment of transmission
media (copper and fiber optic cable), connectivity products,
support and supply products, and security surveillance and
access control products. These products are incorporated into
enterprise networks, physical security networks, central
switching offices, web hosting sites and remote transmission
sites. Anixter also provides industrial wire and cable products,
including electrical and electronic wire and cable, control and
instrumentation cable and coaxial cable that is used in a wide
variety of maintenance, repair and construction-related
applications. The Company also provides a wide variety of
electrical and electronic wire and cable products, fasteners and
other small components that are used by original equipment
manufacturers in manufacturing a wide variety of products. The
acquisitions of Pentacon, Walters Hexagon and DDI in 2002, 2003
and 2004, respectively, have gradually increased the
Company’s product portfolio.
Suppliers
The Company sources products from over 3,500 suppliers. However,
over 30% of Anixter’s dollar volume purchases in 2004 were
from its five largest suppliers. An important element of
Anixter’s overall business strategy is to develop and
maintain close relationships with its key suppliers, which
include the world’s leading manufacturers of communication
cabling, connectivity, support and supply products, electrical
wiring systems, and fasteners. Such relationships stress joint
product planning, inventory management, technical support,
advertising and marketing. In support of this strategy, Anixter
does not compete with its suppliers in product design or
manufacturing activities. Anixter also does not sell product
that is privately labeled as either an Anixter brand or a brand
name exclusive to Anixter. If any of these suppliers changed its
sales strategy to reduce its reliance in distribution channels,
or decided to terminate its business relationship with Anixter,
the Company’s sales and earnings could be adversely
affected until the Company was able to establish relationships
with suppliers of comparable products. Although the Company
believes its relationships with these key suppliers are good,
they could change their strategies as a result of a change in
control, expansion of their direct sales force, changes in the
marketplace or other factors beyond the Company’s control.
Significant terms of the Company’s typical distribution
agreement are described as follows:
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A non-exclusive right to re-sell products to any customer in a
geography (typically defined as a country); |
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Usually cancelable upon 90 days notice by either party for
any reason; |
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Excludes any minimum purchase agreements, although pricing may
change with volume on a prospective basis; and |
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The right to pass through the manufacturer’s warranty to
Anixter’s customers. |
2
Distribution and Service Platform
Anixter cost-effectively serves its customers’ needs
through its proprietary computer system, which connects most of
its warehouses and sales offices throughout the world. The
system is designed for sales support, order entry, inventory
status, order tracking, credit review and material management.
Customers may also conduct business through Anixter’s
e-commerce platform, one of the most comprehensive,
user-friendly and secure websites in the industry.
Anixter operates a series of large modern regional warehouses in
key distribution centers in North America, Europe and Emerging
Markets that provide for cost-effective, reliable storage and
delivery of products to its customers. Anixter has designated 13
warehouses as regional warehouses. Collectively these facilities
store approximately 40% of Anixter’s inventory. In certain
cities, some smaller warehouses are also maintained to maximize
transportation efficiency and to provide for the local pick-up
needs of customers. The network of warehouses and sales offices
consists of 124 locations in the United States, 21 in Canada, 20
in the United Kingdom, 28 in Continental Europe, 14 in Latin
America, 11 in Asia and 4 in Australia/ New Zealand.
Anixter has also developed close relationships with certain
freight, package delivery and courier services to minimize
transit times between its facilities and customer locations. The
combination of its information systems, distribution network and
delivery partnerships allows Anixter to provide a high level of
customer service while maintaining a reasonable level of
investment in inventory and facilities.
Employees
At December 31, 2004, the Company and its subsidiaries
employed approximately 5,600 people. Approximately 46% of the
employees are engaged in sales or sales related activities, 40%
are engaged in warehousing and distribution operations and 14%
are engaged in support activities including inventory
management, information services, finance, human resources and
general management. Less than one percent of the Company’s
employees are covered by collective bargaining agreements.
Competition
Given the Company’s role as an aggregator of many different
types of products from many different sources and the fact that
these products are sold to many different industry groups, there
is no well-defined industry group against which the company
competes. The Company views the competitive environment as
highly fragmented with hundreds of distributors and
manufacturers that sell products directly or through multiple
distribution channels to end users or other resellers.
Competition is based primarily on breadth of products, quality,
services, price and geographic proximity. Anixter believes that
it has a significant competitive advantage due to its
comprehensive product and service offerings, highly-skilled
workforce and global distribution network. The Company can ship
99% of orders from inventory for delivery within 24 to
48 hours to all major global markets. In addition, the
Company has common systems and processes throughout most of its
operations in 45 countries that provide its customers and
suppliers with global consistency.
Anixter enhances its value to both key suppliers and customers
through its specifications and testing facilities and numerous
quality assurance certification programs such as ISO 9002 and
QSO 9000. The Company uses its testing facilities in conjunction
with suppliers to develop product specifications and to test
quality compliance. At its suburban Chicago data network-testing
lab, the Company also works with customers to design and test
various product configurations to optimize network design and
performance specific to the customers’ needs.
Many of the Company’s competitors are privately held and,
as a result, reliable competitive information is not available.
Contract Sales and Backlog
The Company has a number of customers who purchase products
under long-term (generally 3 to 5 year) contractual
arrangements. In such circumstances, the relationship with the
customer typically involves a high degree of material
requirements planning and information systems interfaces and, in
some cases, may require the maintenance of a dedicated
distribution facility or dedicated personnel and inventory at or
in close
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proximity to the customer site to meet the needs of the
customer. Such contracts do not generally require the customer
to purchase any minimum amount of goods from the Company, but
would require that materials acquired as a result of joint
material requirements planning between the Company and the
customer be purchased by the customer.
Backlog orders are not material as a significant amount of
orders are shipped within 24 to 48 hours of receipt.
(d) Financial Information about Geographic Areas
For information concerning foreign and domestic operations and
export sales see Note 10 “Income Taxes” and
Note 13 “Business Segments” in the Notes to the
Consolidated Financial Statements.
(e) Available Information
The Company maintains an Internet website at
http://www.anixter.com that includes links to the Company’s
Annual Report on Form 10-K, Quarterly Reports on
Form 10-Q, Current Reports on Form 8-K and all
amendments to these reports. These forms are available without
charge as soon as reasonably practical following the time they
are filed with or furnished to the Securities and Exchange
Commission (“SEC”). Shareholders and other interested
parties may request email notifications of the posting of these
documents through the Investor Relations section of the
Company’s website.
The Company’s Internet website also contains corporate
governance information including corporate governance
guidelines; audit, compensation and nomination and governance
committee charters; nomination process for directors and the
Company’s business ethics and conduct policy.
The Company’s distribution network consists of
approximately 169 warehouses in 45 countries with more than
4.6 million square feet. There are 13 regional
distribution centers (100,000 – 575,000 square
feet), 29 local distribution centers (35,000 –
100,000 square feet) and 127 service centers.
Additionally, the Company has approximately 53 sales
offices throughout the world. All these facilities are leased.
No one facility is material to operations, and the Company
believes there is ample supply of alternative warehousing space
available on similar terms and conditions in each of its markets.
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| ITEM 3. |
LEGAL PROCEEDINGS. |
From time to time, in the ordinary course of business, the
Company and its subsidiaries become involved as plaintiffs or
defendants in various legal proceedings. The claims and
counterclaims in such litigation, including those for punitive
damages, individually in certain cases and in the aggregate,
involve amounts that may be material. However, it is the opinion
of the Company’s management, based upon the advice of its
counsel, that the ultimate disposition of pending litigation
will not be material.
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| ITEM 4. |
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. |
During the fourth quarter of 2004, no matters were submitted to
a vote of the security holders.
4
EXECUTIVE OFFICERS OF THE REGISTRANT
The following table lists the name, age as of February 23,
2005, position, offices and certain other information with
respect to the executive officers of the Company. The term of
office of each executive officer will expire upon the
appointment of his successor by the Board of Directors.
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John A. Dul, 43
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Secretary of the Company since November 2002; General Counsel
since May 1998; Assistant Secretary from May 1995 to November
2002; General Counsel and Secretary of Anixter since January
1996. |
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Terrance A. Faber, 53
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Vice-President Controller of the Company since October 2000;
Chief Financial Officer of International Survey Research from
January 2000 to October 2000. |
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Robert W. Grubbs Jr., 48
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President and Chief Executive Officer of the Company since
February 1998; President and Chief Executive Officer of Anixter
since July 1994. |
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Dennis J. Letham, 53
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Chief Financial Officer, Senior Vice-President –
Finance of the Company since January 1995; Chief Financial
Officer, Executive Vice President of Anixter since July 1993. |
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Philip F. Meno, 45
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Vice-President – Taxes of the Company since May 1993. |
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Rodney A. Shoemaker, 47
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Vice-President – Treasurer of the Company and Anixter
since July 1999. |
5
PART II
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| ITEM 5. |
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED
STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY
SECURITIES. |
Anixter International Inc.’s Common Stock is traded on the
New York Stock Exchange under the symbol AXE. Stock price
information, dividend information and shareholders of record are
set forth in Note 15 “Selected Quarterly Financial
Data (Unaudited)” in the Notes to the Consolidated
Financial Statements. There have been no sales of unregistered
securities.
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| ITEM 6. |
SELECTED FINANCIAL DATA. |
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Fiscal Year | |
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2004* | |
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2003* | |
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2002* | |
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2001 | |
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2000 | |
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(In millions, except per share amounts) | |
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Selected Income Statement Data:
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Net sales
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$ |
3,275.2 |
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$ |
2,625.2 |
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$ |
2,520.1 |
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$ |
3,144.2 |
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$ |
3,514.4 |
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Operating income (a)
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138.0 |
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92.3 |
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87.7 |
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102.0 |
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189.8 |
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Interest expense and other, net (b)
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(16.7 |
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(12.8 |
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(15.2 |
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(43.8 |
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(55.2 |
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Extinguishment of debt (c)
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(0.7 |
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(6.6 |
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(0.7 |
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(5.5 |
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— |
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Income before extraordinary gain (a)(b)(c)
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73.6 |
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41.9 |
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43.1 |
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30.3 |
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78.7 |
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Extraordinary gain, net (c)(d)
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4.1 |
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— |
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— |
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— |
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— |
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Net income (a)(b)(c)(d)
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$ |
77.7 |
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$ |
41.9 |
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$ |
43.1 |
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$ |
30.3 |
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$ |
78.7 |
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Basic income per share:
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Income before extraordinary item
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$ |
2.00 |
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$ |
1.15 |
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$ |
1.17 |
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$ |
0.83 |
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$ |
2.15 |
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Net income
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$ |
2.11 |
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$ |
1.15 |
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$ |
1.17 |
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$ |
0.83 |
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$ |
2.15 |
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Diluted income per share:
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Income before extraordinary item
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$ |
1.90 |
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$ |
1.13 |
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$ |
1.13 |
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$ |
0.80 |
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$ |
2.03 |
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Net income
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$ |
2.01 |
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$ |
1.13 |
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$ |
1.13 |
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$ |
0.80 |
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$ |
2.03 |
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Dividend per common share (e)
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$ |
1.50 |
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$ |
— |
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$ |
— |
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$ |
— |
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$ |
— |
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Selected Balance Sheet Data:
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Total assets (b)(f)
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$ |
1,706.6 |
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$ |
1,371.4 |
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$ |
1,226.0 |
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$ |
1,198.8 |
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$ |
1,686.0 |
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Total debt (b)
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$ |
412.4 |
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$ |
239.2 |
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$ |
195.1 |
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$ |
241.1 |
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$ |
451.9 |
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Stockholders’ equity (e)
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$ |
763.0 |
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$ |
690.8 |
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$ |
634.8 |
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$ |
563.1 |
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$ |
554.9 |
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Diluted book value per share
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$ |
19.75 |
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$ |
18.58 |
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$ |
16.71 |
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$ |
14.90 |
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$ |
13.57 |
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Weighted-average diluted shares
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38.6 |
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37.2 |
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38.0 |
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37.8 |
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40.9 |
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Year-end outstanding shares
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37.4 |
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36.4 |
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37.5 |
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36.9 |
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37.7 |
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Other Financial Data:
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Working capital (b)(f)
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$ |
815.3 |
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$ |
562.7 |
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$ |
462.5 |
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$ |
476.3 |
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$ |
687.6 |
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Capital expenditures
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$ |
14.5 |
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$ |
25.9 |
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$ |
16.9 |
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$ |
22.0 |
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$ |
22.6 |
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Depreciation and amortization
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$ |
25.6 |
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$ |
24.3 |
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$ |
23.5 |
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$ |
32.4 |
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$ |
29.6 |
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* In June of 2004 and September of 2003 and 2002, the
Company acquired DDI, Walters Hexagon and Pentacon for
$32.9 million, $44.6 million and $111.4 million,
respectively, inclusive of legal and advisory fees. The
acquisitions were accounted for as purchases and the results of
operations of the acquired businesses are included in the
consolidated financial statements from the date of acquisition.
See Note 6 “Acquisitions” in the Notes to the
Consolidated Financial Statements for further information.
Notes:
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(a) |
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For the year ended December 31, 2004, operating income
includes net favorable adjustments to cost of sales of
$10.2 million ($0.16 per diluted share) arising
primarily from the reduction in risks associated with the value
of certain inventories, an impairment charge of
$1.8 million ($0.03 per diluted share) to write-down
to fair value the value assigned to the Pentacon name when it
was acquired in 2002 and unfavorable expenses of
$5.2 million ($0.09 per diluted share) related to the
relocation of the Company’s largest distribution facility,
severance costs associated with staffing reductions in Europe
and acquisition-related charges; 2001 includes a restructuring
charge of $31.7 million ($0.50 per diluted share)
associated with reducing its workforce, closing or consolidating
certain facilities and exiting the Korean market. |
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Additionally, 2001 and 2000 include goodwill amortization of
$9.0 million ($0.24 per diluted share) and
$8.4 million ($0.20 per diluted share), respectively. |
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(b) |
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In the fourth quarter of 2000, the Company incurred an
$8.8 million charge ($0.12 per diluted share) relating
to the discount on the initial non-recourse sale of accounts
receivable to an unconsolidated wholly owned special purpose
corporation (“ARC”) in connection with an accounts
receivable securitization program. The Company expected to
substantially recover this amount upon termination of the
program. In the intervening years, due to a decline in the
amount of accounts receivable in the program, $2.4 million
of the initial discount costs had been recouped. Due to the
accounting consolidation of ARC at the end of the third quarter
of 2004, the Company recovered the remaining $6.4 million
($0.10 per diluted share) of discount costs during the
fourth quarter of 2004. As a result of the consolidation of ARC,
working capital, total assets and debt increased
$222.2 million, $168.3 million and
$161.8 million, respectively. |
| |
|
(c) |
|
Fiscal year 2001 and 2002 have been restated to reflect our
adoption of Statement of Financial Accounting Standards
No. 145 which required gains and losses from extinguishment
of debt be recorded as other income or expense before income
taxes. |
| |
|
(d) |
|
An extraordinary gain of $4.1 million ($0.11 per
diluted share) was recorded in 2004 associated with the receipt
of $4.7 million of cash for a 1983 matter related to Itel
Corporation, the predecessor of the Company. |
| |
|
(e) |
|
Stockholders’ equity reflects treasury stock purchases of
$35.6 million, $46.9 million and $15.4 million in
2003, 2001 and 2000, respectively. The Company did not purchase
any treasury shares in 2004 or 2002. As of December 31,
2004, stockholders’ equity reflects the dividend of
$1.50 per common share, or $55.8 million, as a return
of excess capital to shareholders. |
| |
|
(f) |
|
In 2000, the Company had $120.0 million of inventories
returnable to vendor which had been paid for by the Company. The
inventory was returned for cash in the first quarter of 2001. |
7
|
|
| ITEM 7. |
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS. |
The following Management’s Discussion and Analysis of
Financial Condition and Results of Operations 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. These statements can be identified by the use
of forward-looking terminology such as “believe,”
“expects,” “prospects,”
“estimated,” “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 also could cause actual results to
differ materially from expected results included in these
statements. These factors include changes in supplier
relationships, foreign political, economic and currency risks,
risks associated with inventory, commodity price fluctuations
and risks associated with the integration of recently acquired
companies. The information contained in this financial review
should be read in conjunction with the consolidated financial
statements, including the notes thereto, on pages 26 to 57
of this Report.
Acquisitions of Distribution Dynamics, Walters Hexagon and
Pentacon, Inc.
On June 22, 2004, the Company purchased substantially all
of the assets and operations of Distribution Dynamics, Inc.
(“DDI”). Anixter paid $32.9 million in cash,
inclusive of legal and advisory fees, for tangible assets with a
fair value of $19.7 million. DDI was a privately held
value-added distributor of fasteners, hardware and related
products specializing in inventory logistics management programs
directed at supporting the production lines of original
equipment manufacturers across a broad spectrum of industries.
Headquartered in Eden Prairie, Minnesota, DDI employs
approximately 230 associates located in sixteen locations
in the United States. The Company believes DDI’s business
model complements its strategy of building a global original
equipment manufacturer supply business.
In the third quarter of 2003, the Company purchased 100% of the
stock of Walters Hexagon Group Limited (“Walters
Hexagon”). Anixter paid $43.9 million in cash and
assumed $0.7 million of debt, inclusive of legal and
advisory fees, for tangible assets with a fair value of
$16.2 million. Headquartered in Worcester, England, Walters
Hexagon is a leading distributor of fasteners and other small
parts to original equipment manufacturers and provides inventory
management services to a range of markets and industries.
Walters Hexagon operates a network of nine service centers in
the United Kingdom, France and Italy and employs approximately
350 people. The Company believes Walters Hexagon’s
business model and position as a value-added distributor
complements its existing U.S. original equipment
manufacturer supply business.
On September 20, 2002, the Company completed the purchase
of the operations and assets of Pentacon, Inc.
(“Pentacon”). Anixter paid $111.4 million in
cash, inclusive of legal and advisory fees, for tangible assets
with a fair value of $74.7 million. Pentacon is a leading
distributor of fasteners and other small parts to original
equipment manufacturers and provider of inventory management
services and has 21 distribution and sales facilities in
the United States, along with sales offices and agents in
Europe, Canada, Mexico and Australia.
These acquisitions were accounted for as purchases and the
results of operations of the acquired businesses are included in
the consolidated financial statements from the date of
acquisition. Had these acquisitions occurred at the beginning of
the year of acquisition, the impact on the Company’s
operating results would not have been significant. For further
information regarding these acquisitions and related purchase
accounting, see Note 6 “Acquisitions” in the
Notes to the Consolidated Financial Statements.
As a part of bringing the acquired businesses of DDI, Walters
Hexagon and Pentacon together to form an industry leading supply
chain solution that combines the individual strengths and
expertise of the acquired companies with the financial strength
and global capabilities of the Company, a new brand name,
Anixter
Fastenerssm,
was introduced in 2004 to reflect the combined capabilities. As
a result of this new brand name introduction, the Company
recorded an asset impairment charge of $1.8 million in 2004
to write-down to fair value the value assigned to the Pentacon
name when that business was acquired by the Company, as the
Pentacon brand name will no longer be used in the industrial
operations.
8
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 a factor of the rate of sales
increase or decline, due to the corresponding change in working
capital.
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.
Cash Flow
Year ended December 31, 2004: Consolidated net cash
provided by continuing operating activities was
$57.4 million in 2004, compared to $125.1 million for
the same period in 2003. The decrease in cash flows from
operations was primarily due to an increase in working capital
of $47.2 million to support the 24.8% growth in sales.
In 2003, working capital (accounts receivable, inventory and
accounts payable and accrued liabilities) decreased
$35.5 million due to a much lower sales growth rate of
4.2%. In 2004, net deferred tax assets increased
$16.2 million as compared to a decrease of
$14.1 million in the corresponding period in 2003 due to
the reclassification of certain income tax reserves. Excluding
non-cash items, primarily depreciation and amortization and the
accretion of the zero coupon convertible notes, net income
generated cash of $111.2 million in 2004 compared to
$82.0 million in 2003.
Consolidated net cash used in investing activities increased to
$49.3 million in 2004 versus $36.8 million for the
same period in 2003. During 2004, the Company spent
$32.9 million to acquire DDI and $1.9 million in
additional purchase consideration for Walters Hexagon, as
compared to $42.0 million to acquire Walters Hexagon in the
same period of 2003. Capital expenditures decreased
$11.4 million during 2004 as compared to the corresponding
period in 2003. The decrease is primarily the result of the
Company spending $18.4 million during 2003 to complete the
construction of the new corporate headquarters building. In the
fourth quarter of 2003, the Company recovered approximately
$27.0 million of capital that had been invested in this
project during 2002 and 2003 through a sale and leaseback
transaction. Capital expenditures are expected to be
approximately $14.5 million in 2005.
Consolidated net cash used in financing activities was
$55.7 million in 2004 compared to $4.5 million in the
corresponding 2003 period. In 2004, the Company used
$55.1 million to fund the special dividend of
$1.50 per common share that was paid on March 31,
2004. In 2003, the Company issued $378.1 million of 3.25%
zero coupon convertible notes due 2033. Proceeds of
$143.8 million were used to purchase a portion of the
$35.6 million of treasury stock and $80.2 million of
its 7% zero coupon convertible notes and retire its
8% senior notes. The Company did not purchase any treasury
stock, or debt prior to maturity, during 2004. However, the
Company completed the exchange of its convertible notes due 2033
for new notes due 2033 and refinanced its $275.0 million
revolving credit facility with a similar sized facility in 2004.
This resulted in additional deferred financing costs of
$1.6 million as compared to $4.9 million of deferred
financing costs recorded in the corresponding period in 2003
primarily related to the issuance of the convertible notes due
2033. In 2004, the Company had a net payment on the revolving
credit agreements of $19.8 million compared to
$33.6 million during 2003. Proceeds from the issuance of
common stock relating to the exercise of stock options and the
employee stock purchase plan were $20.9 million in 2004
compared to $6.5 million in 2003. In 2004, as a result of
the exercise of stock options and the employee stock purchase
plan, approximately 1.0 million shares were issued at an
average price of $20.39. In the corresponding period in 2003,
approximately 0.4 million shares were issued at an average
price of $16.83.
Year ended January 2, 2004: Consolidated net cash
provided by continuing operating activities was
$125.1 million in 2003, compared to $165.7 million for
the same period in 2002. Excluding non-cash items, primarily
depreciation and amortization and the accretion of the zero
coupon convertible notes, net income
9
generated cash of $82.0 million in 2003 compared to
$76.3 million in 2002. Due to the decline in sales in 2002,
working capital reductions provided $87.8 million compared
to only $35.5 million in 2003 when sales, excluding
acquired operations, were relatively flat. The significant
reduction in the 2002 working capital was primarily driven by an
$81.4 million reduction in inventory compared to only
$33.9 million in 2003. In 2003, the Company ended the year
in a net prepaid income tax position of $6.8 million
compared to an accrual position of $4.7 million in 2002.
The cash surrender value of company life insurance policies
increased $5.4 million ($2.9 million due to premiums
paid) in 2003 compared to a decline of $0.6 million in
2002. There were no premiums paid in 2002.
Consolidated net cash used in investing activities decreased to
$36.8 million in 2003 versus $122.4 million for the
same period in 2002. During 2003, the Company spent
$42.0 million to acquire Walters Hexagon as compared to
$110.4 million used to acquire Pentacon in the same period
of 2002. Capital expenditures increased $9.0 million during
2003 as compared to the corresponding period in 2002. The
increase is primarily the result of the Company spending
$18.4 million to complete the construction of the new
corporate headquarters building. In the fourth quarter of 2003,
the Company recovered approximately $27.0 million of
capital that had been invested in this project during 2002 and
2003 through a sale and leaseback transaction.
Consolidated net cash used in financing activities was
$4.5 million in 2003 compared to $48.8 million in the
corresponding 2002 period. In 2003, the Company issued
$378.1 million of 3.25% zero coupon convertible notes due
2033. Proceeds of $143.8 million were used to purchase a
portion of the $35.6 million of treasury stock and
$80.2 million of its 7% zero coupon convertible notes and
retire its 8% senior notes. In the same period of 2002, the
Company paid $118.3 million for the repurchase of its 7%
zero coupon convertible notes and 8% senior notes. Net cash
used to repay borrowings under the revolving credit agreements
were $33.6 million during 2003 as compared to net proceeds
from borrowing under the revolving credit agreements of
$62.6 million in 2002. In 2003, the Company received
$6.5 million from the issuance of 0.5 million shares
of common stock for the exercise of stock options and the
employee stock purchase plan compared to $7.5 million in
2002 for the issuance of 0.6 million shares.
Financings
Convertible Notes Due 2033
In July 2003, the Company issued $378.1 million of 3.25%
zero coupon convertible senior notes due 2033 (“Old
Securities”) and exchanged the notes in December 2004 for
new zero coupon convertible notes due 2033 (“New
Securities”). As of the expiration of the exchange offer on
December 10, 2004, $378.1 million aggregate principal
amount at maturity of Old Securities had been tendered in
exchange for an equal principal amount at maturity of New
Securities. Each of the New Securities has a principal value at
maturity of $1,000.
The conversion of the Old Securities could be settled in stock,
cash or a combination of cash and stock. The conversion of the
New Securities will be settled in cash up to the accreted
principal amount of the convertible note. If the conversion
value of the convertible note exceeds the accreted principal
amount of the convertible note at the time of conversion, the
amount in excess of the accreted value will be settled in stock.
Similar to the Old Securities, holders of the New Securities may
convert each of them in any calendar quarter based on certain
conditions.
The Company may redeem the New Securities, at any time in whole
or in part, on July 7, 2011 for cash at the accreted value.
Additionally, holders may require the Company to purchase all or
a portion of their New Securities at various prices on certain
future dates beginning July 7, 2007. The company is
required to pay the purchase price in cash.
The convertible notes due 2033 are structurally subordinated to
the indebtedness of Anixter. At December 31, 2004 and
January 2, 2004, the book value of the convertible notes
due 2033 was $150.9 million and $146.1 million,
respectively. For further information regarding the convertible
notes due 2033 see Note 8 “Debt” in the Notes to
the Consolidated Financial Statements.
10
Accounts Receivable Securitization Program
In October 2000, the Company entered into an accounts receivable
securitization program. The program allows the Company 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 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. Effective October 1, 2004, ARC,
which was previously unconsolidated, is consolidated for
accounting purposes only in the financial statements of the
Company (See Note 1 “Summary of Significant Accounting
Policies”). At December 31, 2004, and January 2,
2004, ARC’s outstanding funding was $161.8 million and
$145.7 million and had an effective interest rate of 2.90%
and 1.68%, respectively.
The average outstanding funding extended to ARC during the year
ended December 31, 2004 and January 2, 2004 was
approximately $159.2 million and $130.1 million,
respectively. The effective funding rate on the ARC funding was
2.04%, 2.06% and 2.60% in 2004, 2003 and 2002, respectively.
Convertible Notes Due 2020
On June 28, 2000, the Company issued $792.0 million of
7% zero coupon convertible notes due 2020 (“Convertible
Notes due 2020”). Each Convertible Note due 2020 has a
principal value at maturity of $1,000. The net proceeds from the
issue were $193.4 million and were initially used to repay
working capital borrowings under the floating rate bank line of
credit. The discount associated with the issuance is being
amortized through June 28, 2020, using the effective
interest rate method. Through 2003, the Company has repurchased
a portion of the Convertible Notes due 2020 with a book value of
$177.2 million at a cost of $179.4 million. There were
no repurchases in 2004. Remaining issuance costs at
December 31, 2004 of approximately $1.3 million are
being amortized through June 2020 using the straight-line method.
Holders of the remaining Convertible Notes due 2020 may convert
at any time on or before the maturity date, unless the notes
have previously been redeemed or purchased, into
7.4603 shares of the Company’s common stock for which
the Company has reserved 1.4 million shares at
December 31, 2004 based on the number of currently
outstanding bonds. Additionally, holders may require the Company
to purchase all or a portion of their Convertible Notes due 2020
at the accreted value on certain future dates beginning
June 28, 2005. In December 2004, the Company gave notice
under the indenture governing the Convertible Notes due 2020 of
its irrevocable election to pay such amounts in cash.
The Convertible Notes due 2020 are structurally subordinated to
the indebtedness of Anixter. The remaining face value of the
Convertible Notes due 2020 outstanding was $196.3 million
with a book value of $67.6 million and $63.1 million
at December 31, 2004 and January 2, 2004,
respectively. For more information regarding the Convertible
Notes due 2020 see Note 8 “Debt” in the Notes to
the Consolidated Financial Statements.
8% Senior Notes
During 2003, the Company retired the remaining $8.0 million
outstanding 8% senior notes. The Company recorded a loss on
the extinguishment of debt of $0.4 million in 2002 from
repurchases of a portion of these notes prior to maturity.
Revolving Lines of Credit
On June 18, 2004, Anixter Inc. entered into a new
five-year, senior unsecured $275.0 million revolving credit
agreement to support future growth of the business. This new
facility replaces a similar sized facility that was set to
expire in October 2005. The borrowing rate under the new
revolving credit agreement is LIBOR plus 77.5 basis points.
In addition, there are facility fees on the revolving credit
facility equal to 22.5 basis points. The new agreement,
which is guaranteed by Anixter International Inc., contains
covenants that among other things restrict the leverage ratio
and set a minimum fixed charge coverage ratio. In connection
with this refinancing, the company recorded a pre-tax loss of
$0.7 million in the second quarter of 2004 for the
write-off of deferred financing costs remaining from the
refinanced facility.
11
In March 2003, Anixter cancelled $115.0 million of the
$390.0 million five-year agreement that was set to expire
in October 2005 in order to reduce costs associated with this
excess availability. Accordingly, in 2003, Anixter recorded a
loss on the extinguishment of debt in its consolidated
statements of operations of approximately $0.4 million to
expense the financing fees associated with this portion of the
revolving credit agreement.
At December 31, 2004, the primary liquidity source for
Anixter is the new $275.0 million, five-year revolving
credit agreement, $30.0 million of which was outstanding,
leaving $245.0 million available to be borrowed.
Approximately $67.0 million may be used to pay the Company
for intercompany liabilities. The borrowing rate on the
revolving credit agreement was 3.50% at December 31, 2004.
Facility fees of 22.5 basis points in 2004 and
25.0 basis points in 2003 and 2002, respectively, payable
on the five-year revolving credit agreement totaled
$0.7 million, $0.7 million and $1.0 million in
2004, 2003 and 2002, respectively, and were included in interest
expense in the consolidated statements of operations. This
revolving credit agreement requires certain covenant ratios to
be maintained. 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. See Exhibit 4.3 for
definitions of the covenant ratios. Under the leverage ratio, as
of December 31, 2004, all of the $245.0 million
available under bank revolving lines of credit at Anixter would
be permitted to be borrowed, of which $190.7 million may be
used to pay dividends to the Company.
At December 31, 2004 and January 2, 2004, certain
foreign subsidiaries had approximately $24.0 million and
$20.4 million, respectively, available under bank revolving
lines of credit, $2.1 million of which was outstanding at
December 31, 2004 and none at January 2, 2004.
Shelf Registration
On December 17, 2004, Anixter Inc. filed a shelf
registration statement with the Securities and Exchange
Commission to offer from time to time up to $300.0 million
of debt securities, guaranteed by the Company. The registration
became effective on February 15, 2005.
Contractual Cash Obligations and Commitments
The Company has the following contractual cash obligations as of
December 31, 2004:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Payments due by period | |
| |
|
| |
| |
|
|
|
Beyond | |
|
|
| |
|
2005 | |
|
2006 | |
|
2007 | |
|
2008 | |
|
2009 | |
|
2009 | |
|
Total | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| |
|
(In millions) | |
|
Long-Term
Debt1
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
161.8 |
|
|
$ |
— |
|
|
$ |
32.1 |
|
|
$ |
574.4 |
|
|
$ |
768.3 |
|
|
Purchase
Obligations2
|
|
|
269.4 |
|
|
|
0.3 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
269.7 |
|
|
Operating Leases
|
|
|
43.8 |
|
|
|
34.8 |
|
|
|
26.1 |
|
|
|
19.5 |
|
|
|
17.2 |
|
|
|
88.8 |
|
|
|
230.2 |
|
|
Deferred Compensation
Liability3
|
|
|
0.2 |
|
|
|
2.7 |
|
|
|
1.3 |
|
|
|
0.8 |
|
|
|
0.6 |
|
|
|
15.0 |
|
|
|
20.6 |
|
|
Pension
Plans4
|
|
|
10.0 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
10.0 |
|
|
Capital Lease Obligations
|
|
|
0.2 |
|
|
|
0.2 |
|
|
|
0.2 |
|
|
|
0.2 |
|
|
|
0.2 |
|
|
|
0.5 |
|
|
|
1.5 |
|
|
Restructuring Liability
|
|
|
0.6 |
|
|
|
0.3 |
|
|
|
0.2 |
|
|
|
0.1 |
|
|
|
0.1 |
|
|
|
— |
|
|
|
1.3 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Obligations
|
|
$ |
324.2 |
|
|
$ |
38.3 |
|
|
$ |
189.6 |
|
|
$ |
20.6 |
|
|
$ |
50.2 |
|
|
$ |
678.7 |
|
|
$ |
1,301.6 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 Holders
of the Company’s 7% zero coupon convertible notes, with a
face value of $196.3 million, may require the Company to
purchase, at a book value of $67.6 million, all or a
portion of their convertible notes in June 2005. Holders of the
Company’s 3.25% zero coupon convertible notes, with a face
value of $378.1 million, may require the Company to
purchase, at a book value of $150.9 million, all or a
portion of their convertible notes in July 2007. The
securitization program is a three-year agreement expiring in
2007. The outstanding balance at December 31, 2004 was
$161.8 million. Anixter entered into a five-year revolving
credit agreement in 2004 and had borrowings of
$32.1 million as of December 31, 2004.
2 Purchase
obligations primarily consists of purchase orders for products
sourced from unaffiliated third party suppliers, in addition to
commitments related to various capital expenditures. Many of
these obligations may be cancelled with limited or no financial
penalties.
12
3 A
non-qualified deferred compensation plan was implemented on
January 1, 1995. The plan provides for benefit payments
upon retirement, death, disability, termination or other
scheduled dates determined by the participant. At
December 31, 2004, the long-term deferred compensation
liability was $20.6 million. In an effort to ensure that
adequate resources are available to fund the deferred
compensation liability, the Company has purchased a series of
company-owned life insurance policies on the lives of plan
participants. At December 31, 2004, the cash surrender
value of these company life insurance policies was
$21.8 million.
4 The
majority of the Company’s various 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 the
plans. The Company’s policy is to fund these plans as
required by the Employee Retirement Income Security Act, the
Internal Revenue Service and local statutory law. As of
December 31, 2004 and January 2, 2004, the pension
liability was $43.6 million and $34.6 million,
respectively. The Company currently estimates that it will
contribute $10.0 million to its pension funds in 2005. Due
to the future impact of various market conditions, rates of
return and changes in plan participants, the Company cannot
provide a meaningful estimate of its future contributions beyond
2005.
Share Repurchases
In 2003, the Company repurchased 1,567,650 shares at an
average cost of $22.74. Purchases were made in the open market
and were financed from cash generated by operations and the net
proceeds ($139.8 million) from the issuance of
$378.1 million of the Convertible Notes due 2033. No shares
were repurchased in 2004 or 2002. However, the Company may
purchase additional shares with the volume and timing dependent
on market conditions.
Interest Expense
Interest expense for continuing operations was
$13.8 million, $12.8 million and $15.5 million
for 2004, 2003, and 2002, respectively. The increase in interest
expense in 2004 from 2003 is due to higher debt levels as a
result of an increase in working capital to support the sales
growth along with the accounting consolidation of the
securitization facility. The decrease in interest expense in
2003 from 2002 is due to a reduction in interest rates. The
Company has entered into interest rate agreements that
effectively fix or cap, for a period of time, the interest rate
on a portion of its floating-rate obligations. As a result, the
interest rate on 60.3% and 100% of debt obligations at
December 31, 2004 and January 2, 2004, respectively,
was fixed or capped. Total outstanding debt at December 31,
2004 and January 2, 2004 was $412.4 million and
$239.2 million, respectively. In 2003, ARC had outstanding
debt of $145.7 million, which was not consolidated. The
impact of interest rate swaps and caps for 2004, 2003 and 2002
was an increase to interest expense of $0.6 million,
$0.6 million and $0.1 million, respectively.
Income Taxes
Various foreign subsidiaries of the Company had aggregate
cumulative net operating loss (“NOL”) carryforwards
for foreign income tax purposes of approximately
$134.2 million at December 31, 2004, which are subject
to various provisions of each respective country. Approximately
$40.0 million of this amount expires between 2005 and 2014,
and $94.2 million of the amount has an indefinite life. Of
the $134.2 million NOL carryforwards of foreign
subsidiaries, $91.4 million relates to losses that have
already provided a tax benefit in the U.S. due to rules
permitting flow-through of such losses in certain circumstances.
Without such losses included, the cumulative NOL carryforwards
at December 31, 2004, were approximately
$42.8 million, which are subject to various provisions of
each respective country. Approximately $25.2 million of
this amount expires between 2005 and 2014 and $17.6 million
of the amount has an indefinite life. During 2004, a tax benefit
of $2.9 million was recognized for NOLs for which future
utilization was determined to be probable. The deferred tax
asset and valuation allowance has been adjusted to reflect only
the carryforwards for which the Company has not taken a tax
benefit in the United States.
13
Liquidity Considerations and Other
Certain debt agreements entered into by the Company’s
operating subsidiaries contain various restrictions, including
restrictions on payments to the Company. These restrictions have
not had nor are expected to have an adverse impact on the
Company’s ability to meet its cash obligations.
At the current level of operating margin and working capital
turns, the Company estimates that in 2005 it will have positive
cash flow from operating activities and after capital
expenditures. The Company may continue to pursue opportunities
to acquire businesses and issue or retire borrowings or equity
in an effort to maintain a cost-effective capital structure
consistent with its anticipated capital requirements. Assuming
the current level of operating margins and working capital
turns, if the sales growth rate in 2005 were to exceed
approximately 15% to 17%, then the incremental working capital
required to support the increase in sales may result in the
Company having negative cash flows from operations. The Company
has adequate facilities to fund its expected growth in
operations.
Shortly after the filing of the Company’s 2004
Form 10-K, Anixter Inc. is planning on issuing
$200 million of senior, unsecured 10-year notes. These
notes will be fully and unconditionally guaranteed by the
Company. The proceeds of this note offering will be used to
redeem on June 28, 2005 all of the issued and outstanding
Convertible Notes due 2020, pay down our revolving line of
credit and for general corporate purposes.
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 ownership as well as other
factors. Although relationships with its 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.
Our recent operating results have been favorably affected by the
rise in commodity prices, primarily petrochemicals and copper,
which are components in some of the products we sell. As current
purchase costs with suppliers increase due to higher commodity
prices, our percentage mark-up to customers remains relatively
constant, resulting in higher sales revenue and gross profit. In
addition, existing inventory purchased at previously lower
prices and sold as prices increase, results in a higher gross
profit margin. Conversely, a decrease in commodity prices in a
short period of time would have the opposite effect, negatively
affecting our results.
Overview
In 2004, we saw positive trends in all of the geographies in
which the Company operates, helping to make 2004 a year of
organic revenue growth for the first time since 2000. Net sales
increased $650.0 million, or approximately 24.8%, to
$3,275.2 million in 2004. The acquisitions of DDI and
Walters Hexagon, excluding foreign exchange of
$2.4 million, contributed $121.3 million to the
increase in sales in 2004 as compared to the corresponding
period in 2003. Excluding these acquisitions, net sales
increased $526.3 million in 2004 due to improved economic
conditions, commodity driven price increases, an increase in
larger capital projects and an expanded product offering.
Exchange rate changes related to the weaker U.S. dollar
increased sales by $67.9 million.
Operating margins increased in 2004 to 4.2% as compared to
approximately 3.5% in 2003. Gross margins declined 40 basis
points in 2004 as compared to 2003 primarily due to an increase
in larger capital projects, excess industry capacity and the
timing of passing through commodity price increases to customers
with long-term contracts. Gross margins were positively affected
in 2004 by net favorable adjustments to cost of sales of
$10.2 million arising primarily from the reduction in risks
associated with the value of certain inventories.
Operating expenses were unfavorably affected in 2004 by
$5.2 million related to the relocation of the
Company’s largest distribution facility, severance costs
associated with a staff reduction in Europe and
14
acquisition related charges. In 2004, the Company recorded an
impairment charge of $1.8 million for the write-off of
intangible assets associated with the Pentacon trade name. As
compared to 2003, the Company saw operating profits increase
49.5% in 2004. The increase in operating profit is due to the
combination of unit growth and commodity driven price increases,
the acquisitions of Walters Hexagon and DDI, exchange rate
changes related to the weaker U.S. dollar and net favorable
adjustments mentioned above that occurred in the fourth quarter
of 2004. Including the unfavorable operating expense
adjustments, operating expenses as a percent of sales declined
100 basis points from the corresponding period in 2003 due
to the Company’s continued tight expense controls and the
leveraging of existing infrastructure. As a result, operating
margins of 4.2% showed an improvement of 70 basis points
over 2003.
Beginning in the fourth quarter of 2004, $1.2 million of
costs associated with the accounts receivable securitization
program (primarily funding costs), have been recorded as
“interest expense,” while similar type costs are
included in “other expense” in 2003. At the inception
of this program in 2000, the Company recorded a charge of
$8.8 million for the initial discounting of receivables
sold to ARC. The Company expected to substantially recover this
amount upon termination of the program. In the intervening
years, due to a decline in the amount of accounts receivable in
the program, $2.4 million of the initial discount costs had
been recouped. With the consolidation of ARC, the remaining
$6.4 million of discount costs were recovered during the
fourth quarter of 2004.
Other expenses increased in the current year due to larger
foreign exchange losses. Foreign exchange losses totaled
$5.6 million in 2004, as compared to minimal gains and
losses in the corresponding period in 2003 and 2002. In 2004, a
$1.5 million gain was recorded relating to the cash
surrender value of life insurance policies compared to a gain of
$2.5 million in 2003 and a loss of $0.5 million in
2002. In addition, the Company incurred $0.9 million of
fees related to the exchange of the Convertible Notes due 2033
in 2004.
In 2004, the Company recorded a pre-tax loss of
$0.7 million related to the write-off of deferred financing
costs associated with early termination and refinancing of the
Company’s $275.0 million revolving credit facility. In
the prior year, the Company recorded a pre-tax loss of
$6.6 million for the early extinguishment of
$67.5 million of its 7% zero coupon convertible notes and
debt issuance costs associated with the cancellation of
$115.0 million of its available revolving credit facility.
In 2002, the Company recorded a pre-tax loss of
$0.7 million for the early extinguishment of
$109.7 million of its 7% zero coupon convertible notes
and $10.7 million of its 8% senior notes. The
extraordinary gain of $4.1 million in 2004 was the result
of monies received from an escrow account in connection with the
1983 bankruptcy of Itel Corporation, the predecessor to the
Company.
As a distributor, the Company’s use of capital is largely
for working capital to support its revenue base. In any given
reporting period, the amount of cash consumed or generated by
operations will primarily be a function of the rate of sales
increase or decline, due to the corresponding change in working
capital. In periods when sales are increasing, the expanded
working capital (accounts receivable, inventory and accounts
payable and accrued liabilities) needs will be funded primarily
by cash provided by operations. In 2004, working capital
increased $47.2 million to support the 24.8% growth in
sales. On March 31, 2004, the Company returned
$55.1 million to its shareholders through a special
dividend. As of December 31, 2004, the Company had
$53.4 million in cash and its debt to total capitalization
was a modest 35.1%.
2004 versus 2003
Consolidated Results of Operations
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Years ended | |
| |
|
| |
| |
|
December 31, | |
|
January 2, | |
|
Percent | |
| |
|
2004 | |
|
2004 | |
|
Change | |
| |
|
| |
|
| |
|
| |
| |
|
(In millions) | |
|
Net sales
|
|
$ |
3,275.2 |
|
|
$ |
2,625.2 |
|
|
|
24.8% |
|
|
Gross profit
|
|
$ |
790.3 |
|
|
$ |
642.2 |
|
|
|
23.1% |
|
|
Operating expenses
|
|
$ |
652.3 |
|
|
$ |
549.9 |
|
|
|
18.6% |
|
|
Operating income
|
|
$ |
138.0 |
|
|
$ |
92.3 |
|
|
|
49.5% |
|
15
Net Sales: The Company’s net sales increased 24.8%
to $3,275.2 million from $2,625.2 million in the same
period in 2003. The acquisitions of Walters Hexagon in September
2003 and DDI in June 2004, along with favorable effects from
changes in exchange rates, accounted for $121.3 million and
$67.9 million of the increase, respectively. Excluding the
acquisitions of Walters Hexagon and DDI and the effects from
changes in exchange rates, the Company’s net sales
increased 17.7% during 2004 from the same period in 2003. The
increase in net sales was due to improved economic conditions,
commodity-driven price increases, an increase in larger capital
projects, an expanded product offering and market share gains.
Gross Margins: Gross margins decreased to 24.1% in 2004
from 24.5% in the corresponding period in 2003. The primary
reason for the decline was an increase in larger capital
projects during 2004 as compared to 2003. Due to excess capacity
in the industry, pricing on these projects was extremely
competitive, which reduced gross margins. Also, the timing of
passing through commodity price increases to customers with
long-term contracts put pressure on gross margins. Gross margins
were positively affected in 2004 by net favorable adjustments to
cost of sales of $10.2 million, arising primarily from the
reduction in risks associated with the value of certain
inventories.
Operating Income: As a result of higher sales, operating
margins were 4.2% for the fiscal year ended December 31,
2004 as compared to 3.5% in the corresponding period in 2003.
Operating expenses increased $102.4 million in 2004 from
the corresponding period in 2003. The Walters Hexagon and DDI
acquisitions increased operating expenses by $30.3 million,
while changes in exchange rates increased operating expenses by
$13.5 million. Operating expenses were negatively affected
in 2004 by unfavorable expenses of $5.2 million related to
the relocation of the Company’s largest distribution
facility, severance costs associated with a staffing reduction
in Europe and acquisition related charges. As a result of the
Company’s new branding strategy of its recently-acquired
fastener and small parts supply businesses, the Company recorded
a pre-tax asset impairment charge of $1.8 million in the
third quarter of 2004 to write-down to fair value the value
assigned to the Pentacon tradename when it was acquired in
September 2002. Excluding the above, operating expenses
increased $51.5 million, or 9.4%, primarily due to variable
costs associated with higher sales volumes, increases in
healthcare and pension costs, expenses associated with
additional restricted stock grants and an increase in employee
incentives due to our improved operating performance.
Interest Expense: Consolidated interest expense increased
to $13.8 million in 2004 from $12.8 million in 2003.
Interest expense increased due to the accounting consolidation
of ARC, effective October 1, 2004, and an increase in the
average borrowings. The average long-term funding balance was
$309.0 million and $229.7 million for 2004 and 2003,
respectively. The average interest rate for 2004 and 2003 was
4.5% and 5.6%, respectively. The increase in average funding
associated with the ARC facility was $45.4 million with an
average interest rate of 2.6%.
Other, net income (expense):
| |
|
|
|
|
|
|
|
|
| |
|
Years ended | |
| |
|
| |
| |
|
December 31, | |
|
January 2, | |
| |
|
2004 | |
|
2004 | |
| |
|
| |
|
| |
| |
|
(In millions) | |
|
Foreign exchange
|
|
$ |
(5.6) |
|
|
$ |
— |
|
|
Accounts receivable securitization
|
|
|
3.6 |
|
|
|
(2.8) |
|
|
Cash surrender value of life insurance policies
|
|
|
1.5 |
|
|
|
2.5 |
|
|
Exchange offer fees
|
|
|
(0.9) |
|
|
|
— |
|
|
Sale of fixed assets
|
|
|
(0.2) |
|
|
|
(0.3) |
|
|
Other
|
|
|
(1.3) |
|
|
|
0.6 |
|
| |
|
|
|
|
|
|
| |
|
$ |
(2.9) |
|
|
$ |
— |
|
| |
|
|
|
|
|
|
Foreign exchange produced a net loss of $5.6 million in
2004 as compared to minimal gains in the corresponding period of
2003. A significant portion of the net loss in 2004 resulted
from the February 2004 devaluation of the Venezuelan Bolivar.
The accounts receivable securitization program had income of
$3.6 million for 2004, compared to $2.8 million of
expenses in 2003. In the fourth quarter of 2004, the Company
recorded $6.4 million of income for the recovery of
discount costs previously incurred on accounts receivable sold
to ARC. Beginning in the fourth quarter of 2004, funding costs
associated with the accounts
16
receivable securitization program are included in interest
expense as ARC is now consolidated for accounting purposes in
the Company’s consolidated financial statements. In
conjunction with the exchange offer of the Company’s
Convertible Notes due 2033, the Company incurred
$0.9 million of fees.
Income Taxes: The consolidated tax provision increased to
$47.0 million in 2004 from $31.0 million in the
corresponding period in 2003, due to an increase in income
before taxes and extraordinary gain. The 2004 effective tax rate
(excluding extraordinary gain) is 39.0% compared to 42.5% in
2003. The decrease in the effective tax rate is primarily due to
a change in the mix of foreign income and losses by country as
compared to country-level net operating loss positions. The
Company recorded a tax benefit of $2.9 million in 2004
related to the adjustment of valuation allowances for certain
foreign NOL carryforwards, which was offset by a
$3.2 million charge associated with the conclusion of the
examination of the 1999-2001 federal income tax returns by the
IRS. The change in tax rate increased income before
extraordinary gain and net income by $4.2 million or
$0.11 per diluted share in 2004.
Net Income: Net income for 2004 was $77.7 million
compared with $41.9 million for 2003. In addition to the
above, the Company recorded a pre-tax loss of $0.7 million
related to the write-off of deferred financing costs associated
with early termination and refinancing of the Company’s
$275.0 million revolving credit facility. In 2003, the
Company recorded a pre-tax loss of $6.6 million in 2003 for
the early extinguishment of $67.5 million of its 7% zero
coupon convertible notes and debt issuance costs associated with
the cancellation of $115.0 million of its available
revolving credit facility.
North America Results of Operations
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Years ended | |
| |
|
| |
| |
|
December 31, | |
|
January 2, | |
|
Percent | |
| |
|
2004 | |
|
2004 | |
|
Change | |
| |
|
| |
|
| |
|
| |
| |
|
(In millions) | |
|
Net sales
|
|
$ |
2,494.5 |
|
|
$ |
2,044.1 |
|
|
|
22.0% |
|
|
Gross profit
|
|
$ |
602.2 |
|
|
$ |
496.4 |
|
|
|
21.3% |
|
|
Operating expenses
|
|
$ |
482.0 |
|
|
$ |
420.7 |
|
|
|
14.6% |
|
|
Operating income
|
|
$ |
120.2 |
|
|
$ |
75.7 |
|
|
|
58.7% |
|
Net Sales: When compared to 2003, North America net sales
for 2004 increased 22.0% to $2,494.5 million. The
acquisition of DDI accounted for $34.2 million of the
increase, while favorable changes in the Canadian exchange rate
accounted for $23.7 million of the increase. Excluding DDI
and the exchange rate impact, North America net sales increased
19.2% during 2004 as compared to the corresponding period in
2003. The combined enterprise cabling and industrial wire and
cable sales increased 21.0% in 2004 as compared to the
corresponding period in 2003, due to improved economic
conditions, price increases driven by higher copper and data
cabling prices, expanded product offering and a favorable
exchange rate impact. In the OEM supply market, the Pentacon
operations reported a 22.5% increase in sales on a combination
of improved customer demand and new contract additions. Sales to
telecom-related OEMs increased 11.9% in 2004 as compared to the
corresponding period in 2003.
Gross Margins: North America’s gross margins
decreased slightly to 24.1% in 2004 from 24.3% for the same
period in 2003. The decrease is primarily due to a higher
percentage of larger capital projects, which had lower gross
margins due to excess capacity in the industry. Also, the timing
of passing through commodity price increases to customers with
long-term contracts put pressure on gross margins. North America
gross margins were positively affected in 2004 by net favorable
adjustments to cost of sales of $10.2 million arising
primarily from the reduction in risks associated the value of
certain inventories.
Operating Income: Operating expenses increased
$61.3 million in 2004 from the corresponding period in
2003. The DDI acquisition accounted for $10.0 million of
the increase, while changes in exchange rates increased
operating expenses by $4.0 million. Excluding the
acquisition of DDI and the exchange rate impact, North America
operating expenses increased 11.2%, primarily due to variable
costs associated with the increase in sales volume, higher
pension and healthcare costs, expenses related to additional
restricted stock grants and an increase in employee incentives
due to our strong operating performance. North America operating
expenses were negatively affected in 2004 by unfavorable
expenses of $3.3 million related to the relocation of the
Company’s largest distribution facility and
acquisition-related charges. As a result of the
17
Company’s new branding strategy of its recently acquired
fastener and small parts supply businesses, the Company recorded
a pre-tax asset impairment charge of $1.8 million in the
third quarter of 2004 to write-down to fair value the value
assigned to the Pentacon tradename when it was acquired in
September 2002. Primarily as a result of higher daily sales,
continued tight expense controls and the leveraging of the
existing infrastructure, North America operating margins
increased to 4.8% in 2004 from 3.7% in same period in 2003.
Exchange rate changes had a $1.2 million favorable impact
on operating income.
Europe Results of Operations
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Years ended | |
| |
|
| |
| |
|
December 31, | |
|
January 2, | |
|
Percent | |
| |
|
2004 | |
|
2004 | |
|
Change | |
| |
|
| |
|
| |
|
| |
| |
|
(In millions) | |
|
Net sales
|
|
$ |
554.3 |
|
|
$ |
393.1 |
|
|
|
41.0% |
|
|
Gross profit
|
|
$ |
141.0 |
|
|
$ |
107.5 |
|
|
|
31.1% |
|
|
Operating expenses
|
|
$ |
131.1 |
|
|
$ |
93.1 |
|
|
|
40.9% |
|
|
Operating income
|
|
$ |
9.9 |
|
|
$ |
14.4 |
|
|
|
(30.6)% |
|
Net Sales: Europe net sales increased 41.0% in 2004 to
$554.3 million from $393.1 million in the
corresponding period in 2003, including a $42.6 million
favorable effect from changes in exchange rates and an increase
of $87.1 million as a result of the acquisition of Walters
Hexagon at the end of the third quarter of 2003. Excluding
Walters Hexagon and exchange rate impact, sales increased 8.4%.
Overall, demand remains comparatively weak resulting in
significant margin pressure.
Gross Margins: Europe’s gross margins decreased to
25.4% in 2004 from 27.4% in the same period in 2003. The
decrease is primarily due to large projects at reduced margins,
a change in product mix which had lower gross margins and
significant pricing pressures resulting from excess capacity in
the industry. Walters Hexagon added 50 basis points to
Europe’s gross margins in 2004.
Operating Income: Compared to 2003, Europe operating
expenses increased 40.9%, or $38.0 million, to
$131.1 million in 2004. Included in the increase are
$20.3 million of expenses related to Walters Hexagon and
$9.2 million for changes in exchange rates. Excluding
Walters Hexagon and the exchange rate impact, operating expenses
increased $8.5 million, or 9.7%, higher than 2003.
Operating margins decreased in 2004 to 1.8% from 3.7% as
compared to 2003. The decrease is primarily due to a higher
percentage of large projects at reduced margins, significant
pricing pressures and severance costs associated with a staff
reduction. Walters Hexagon added 60 basis points to
Europe’s operating margins, while exchange rate changes had
a $1.1 million favorable impact on operating income.
Emerging Markets Results of Operations
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Years ended | |
| |
|
| |
| |
|
December 31, | |
|
January 2, | |
|
Percent | |
| |
|
2004 | |
|
2004 | |
|
Change | |
| |
|
| |
|
| |
|
| |
| |
|
(In millions) | |
|
Net sales
|
|
$ |
226.4 |
|
|
$ |
188.0 |
|
|
|
20.5% |
|
|
Gross profit
|
|
$ |
47.1 |
|
|
$ |
38.3 |
|
|
|
23.1% |
|
|
Operating expenses
|
|
$ |
39.2 |
|
|
$ |
36.1 |
|
|
|
8.1% |
|
|
Operating income
|
|
$ |
7.9 |
|
|
$ |
2.2 |
|
|
|
258.4% |
|
Net Sales: Emerging Markets (Asia Pacific and Latin
America) net sales were up 20.5% to $226.4 million in 2004
from $188.0 million in the corresponding period in 2003,
including a $1.5 million favorable impact from changes in
exchange rates. The increase reflects larger projects and
product and market expansion.
Gross Margins: During 2004, Emerging Markets’ gross
margins increased to 20.8% from 20.4% in the corresponding
period in 2003. The improvement is primarily due to price
increases in Venezuela and higher gross margins throughout Asia.
Operating Income: Emerging Markets operating income
increased $5.7 million from $2.2 million in 2003.
Operating expenses increased 8.1% as compared to the
corresponding period in 2003. As a result of the higher
18
sales levels, improved gross margins and tight expense controls,
operating margins increased to 3.5% in 2004 from 1.2% in the
corresponding period in 2003. Exchange rate changes had a
$0.4 million favorable impact on operating income.
2003 versus 2002
Consolidated Results of Operations
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Years ended | |
| |
|
| |
| |
|
January 2, | |
|
January 3, | |
|
Percent | |
| |
|
2004 | |
|
2003 | |
|
Change | |
| |
|
| |
|
| |
|
| |
| |
|
(In millions) | |
|
Net sales
|
|
$ |
2,625.2 |
|
|
$ |
2,520.1 |
|
|
|
4.2% |
|
|
Gross profit
|
|
$ |
642.2 |
|
|
$ |
597.1 |
|
|
|
7.6% |
|
|
Operating expenses
|
|
$ |
549.9 |
|
|
$ |
509.4 |
|
|
|
8.0% |
|
|
Operating income
|
|
$ |
92.3 |
|
|
$ |
87.7 |
|
|
|
5.2% |
|
Net Sales: The Company’s net sales during 2003
increased 4.2% to $2.6 billion from $2.5 billion in
the same period in 2002. The acquisition of Pentacon in
September 2002 and Walters Hexagon in September 2003, along with
favorable effects from changes in exchange rates, accounted for
$228.8 million of the increase. North America sales to
telecom-related original equipment manufacturers declined by
$80.0 million, while Europe continued to be impacted by
weak economic conditions. In addition, 2003 had 52 weeks as
compared to 53 weeks in 2002.
Gross Margins: Gross margins improved to 24.5% in 2003
from 23.7% in 2002. The improvement was a result of a lower
percentage of contract sales to telecom-related original
equipment manufacturers in 2003 (which have lower gross
margins), the addition of higher gross margin Pentacon and
Walters Hexagon sales and more price competitive
U.S. dollar-sourced inventory in foreign operations.
Operating Income: Operating margins were 3.5% for 2003,
which were flat as compared to the prior year. Operating
expenses increased $40.5 million in 2003 from the
corresponding period in 2002. The Pentacon and Walters Hexagon
acquisitions increased operating expenses by $38.6 million,
while changes in exchange rates increased operating expenses by
$17.2 million. Excluding the above, operating expenses
declined $15.3 million primarily due to reduced sales
levels and tight expense controls, including further staff
reductions in 2003.
Interest Expense: Consolidated interest expense decreased
to $12.8 million in 2003 from $15.5 million in 2002.
Interest expense decreased due to a reduction in interest rates.
The average long-term debt balance was $229.7 million and
$209.0 million for 2003 and 2002, respectively. The average
interest rate for 2003 was 5.6% compared to 7.4% in 2002.
Other, net income (expense):
| |
|
|
|
|
|
|
|
|
| |
|
Years ended | |
| |
|
| |
| |
|
January 2, | |
|
January 3, | |
| |
|
2004 | |
|
2003 | |
| |
|
| |
|
| |
| |
|
(In millions) | |
|
Accounts receivable securitization
|
|
$ |
(2.8 |
) |
|
$ |
(2.7 |
) |
|
Cash surrender value of life insurance policies
|
|
|
2.5 |
|
|
|
(0.5 |
) |
|
Sale of fixed assets and securities
|
|
|
(0.3 |
) |
|
|
2.9 |
|
|
Foreign exchange
|
|
|
— |
|
|
|
(0.1 |
) |
|
Other
|
|
|
0.6 |
|
|
|
0.7 |
|
| |
|
|
|
|
|
|
| |
|
$ |
— |
|
|
$ |
0.3 |
|
| |
|
|
|
|
|
|
Income Taxes: The consolidated effective tax provision
increased to $31.0 million in 2003 from $28.7 million
in 2002, primarily due to an increase in the income tax rate.
The 2003 effective tax rate was 42.5% compared to 40.0% in 2002.
The increase in the effective tax rate was primarily a result of
an increase in non-deductible losses in certain foreign entities.
19
Net Income: Net income for 2003 was $41.9 million
compared with $43.1 million for 2002. In addition to the
items described above, the Company recorded a pre-tax loss of
$6.6 million in 2003 for the early extinguishment of
$67.5 million of its 7% zero coupon convertible notes and
debt issuance costs associated with the cancellation of
$115.0 million of its available revolving credit facility.
In 2002, the Company recorded a pre-tax loss of
$0.7 million for the early extinguishment of
$109.7 million of its 7% zero coupon convertible notes and
$10.7 million of its 8% senior notes.
North America Results of Operations
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Years ended | |
| |
|
| |
| |
|
January 2, | |
|
January 3, | |
|
Percent | |
| |
|
2004 | |
|
2003 | |
|
Change | |
| |
|
| |
|
| |
|
| |
| |
|
(In millions) | |
|
Net sales
|
|
$ |
2,044.1 |
|
|
$ |
1,996.2 |
|
|
|
2.4% |
|
|
Gross profit
|
|
$ |
496.4 |
|
|
$ |
471.7 |
|
|
|
5.2% |
|
|
Operating expenses
|
|
$ |
420.7 |
|
|
$ |
388.0 |
|
|
|
8.4% |
|
|
Operating income
|
|
$ |
75.7 |
|
|
$ |
83.7 |
|
|
|
(9.6)% |
|
Net Sales: When compared to the corresponding period in
2002, North America net sales for the year ended January 2,
2004 increased 2.4% to over $2.0 billion. The acquisition
of Pentacon on September 20, 2002 represents
$133.3 million of the increase. The sales decline in the
remaining business was primarily due to a decrease of
$80.0 million in sales to telecom-related original
equipment manufacturers. In addition, 2003 had 52 weeks
compared to 53 weeks in 2002. Daily sales levels for the
remainder of the business remained steady.
Gross Margins: Gross margins increased to 24.3% in 2003
from 23.6% for the same period in 2002. The increase was
primarily due to a lower percentage of contract sales to
telecom-related original equipment manufacturers in 2003, which
have lower gross margins, and the addition of higher gross
margin Pentacon sales. Pentacon increased the North America
gross margins by 50 basis points in 2003 from 2002. Sales
to telecom-related original equipment manufacturers represented
10.5% of North America sales in 2003 as compared to 14.7% in
2002.
Operating Income: Operating expenses increased
$32.7 million in 2003 from the corresponding period in
2002, due to the acquisition of Pentacon. In addition, the 2002
operating expense included the reversal of $0.9 million of
excess restructuring accruals. The reduction in variable costs
associated with the reduced sales levels more than offset higher
pension, healthcare and insurance costs. The 2003 North America
operating income included $4.8 million of operating income
related to Pentacon, as compared to $0.5 million in 2002.
Primarily as a result of lower sales to telecom-related original
equipment manufacturers, North America operating margins
declined to 3.7% in 2003 from 4.2% in the same period in 2002.
Europe Results of Operations
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Years ended | |
| |
|
| |
| |
|
January 2, | |
|
January 3, | |
|
Percent | |
| |
|
2004 | |
|
2003 | |
|
Change | |
| |
|
| |
|
| |
|
| |
| |
|
(In millions) | |
|
Net sales
|
|
$ |
393.1 |
|
|
$ |
344.9 |
|
|
|
14.0% |
|
|
Gross profit
|
|
$ |
107.5 |
|
|
$ |
90.3 |
|
|
|
19.1% |
|
|
Operating expenses
|
|
$ |
93.1 |
|
|
$ |
85.0 |
|
|
|
9.7% |
|
|
Operating income
|
|
$ |
14.4 |
|
|
$ |
5.3 |
|
|
|
169.2% |
|
Net Sales: Europe net sales increased 14.0% in 2003 to
$393.1 million from $344.9 million in 2002, including
a $50.8 million favorable effect from changes in exchange
rates and an increase of $19.0 million as a result of the
acquisition of Walters Hexagon. The decrease in local currency
sales reflected the continued weak economic conditions in many
of the major countries. In addition, 2003 had 52 weeks as
compared to 53 weeks in 2002.
Gross Margins: Europe’s gross margins increased to
27.4% in 2003 from 26.2% in 2002. The improvement was primarily
due to the weaker U.S. dollar making U.S-sourced inventory
more price competitive and the
20
addition of higher gross margins from Walters Hexagon sales.
Walters Hexagon added 10 basis points to Europe’s
gross margins in 2003.
Operating Income: Compared to 2002, operating expenses
increased 9.7%, or $8.1 million, to $93.1 million in
2003. Included in the increase are $4.8 million of expenses
related to Walters Hexagon and $13.1 million for changes in
exchange rates. In 2003, Europe incurred a gain of
$1.6 million from the settlement of certain pension plans.
In 2002, Europe incurred $1.4 million of additional
restructuring costs. Finally, corporate overhead allocation to
Europe was reduced by $1.0 million in 2003. As a result of
the above, operating margin for 2003 was 3.7% compared to 1.5%
in 2002. Exchange rate changes had a minimal impact on operating
income.
Emerging Markets Results of Operations
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Years ended | |
| |
|
| |
| |
|
January 2, | |
|
January 3, | |
|
Percent | |
| |
|
2004 | |
|
2003 | |
|
Change | |
| |
|
| |
|
| |
|
| |
| |
|
(In millions) | |
|
Net sales
|
|
$ |
188.0 |
|
|
$ |
179.0 |
|
|
|
5.0% |
|
|
Gross profit
|
|
$ |
38.3 |
|
|
$ |
35.1 |
|
|
|
9.2% |
|
|
Operating expenses
|
|
$ |
36.1 |
|
|
$ |
36.4 |
|
|
|
(0.9)% |
|
|
Operating income (loss)
|
|
$ |
2.2 |
|
|
$ |
(1.3 |
) |
|
|
263.0% |
|
Net Sales: Emerging Markets’ (Asia Pacific and Latin
America) net sales were up 5.0% to $188.0 million in 2003
from $179.0 million in 2002, including a $1.8 million
unfavorable impact from changes in exchange rates and one
additional week in 2002 as compared to 2003. The increase
reflected an overall improvement in average daily volume from
new customers and sales to telecom-related original equipment
manufacturers in Asia Pacific.
Gross Margins: For 2003, Emerging Markets’ gross
margins increased to 20.4% from 19.6% in 2002. The improvement
was primarily due to a reduction in inventory obsolescence
provisions for Asia Pacific.
Operating Income: Emerging Markets’ operating income
increased $3.5 million from a $1.3 million loss in
2002 to $2.2 million of income in 2003. The operating loss
in 2002 included the benefit of the reversal of excess
restructuring accruals of $0.5 million. The
$3.5 million improvement reflects the higher sales levels,
improved gross margins and tightened expense controls. Exchange
rate changes had a minimal impact on operating income.
Critical Accounting Policies and Estimates
The Company believes that the following are critical areas that
either require significant judgement by management or may be
affected by changes in general market conditions outside the
control of management. As a result, changes in estimates and
general market conditions could cause actual results to differ
materially from future expected results. Historically, our
estimates in these critical areas have not differed materially
from actual results.
Allowance for Doubtful Accounts: Each quarter the Company
segregates the doubtful receivable balances into the following
major categories and determines the bad debt reserve required as
outlined below:
|
|
|
| |
• |
Customers that have refused to pay their balances are reserved
based on the historical write-off percentages; |
| |
| |
• |
Risk accounts are individually reviewed and the reserve is based
on the probability of potential default; and |
| |
| |
• |
The outstanding balance for customers who have declared
bankruptcy is reserved at 100%. |
If circumstances change (i.e., higher/lower than expected
defaults or an unexpected material change in a major
customer’s ability to meet its financial obligations to the
Company), the Company’s estimates of the recoverability of
amounts due to the Company could be reduced/increased by a
material amount.
21
Inventory Obsolescence: At December 31, 2004 and
January 2, 2004, the Company reported inventory of
$580.1 million and $499.1 million, respectively. Each
quarter the Company reviews the excess inventory and makes an
assessment of the realizable value. There are many factors that
management considers in determining whether or not a reserve
should be established. These factors include the following:
|
|
|
| |
• |
Return or rotation privileges with vendors; |
| |
| |
• |
Price protection from vendors; |
| |
| |
• |
Expected usage during the next twenty-four months; |
| |
| |
• |
Whether or not a customer is obligated by contract to purchase
the inventory; |
| |
| |
• |
Current market pricing; and |
| |
| |
• |
Risk of obsolescence. |
If circumstances change (i.e., unexpected shift in market
demand, pricing or customer defaults), there could be a material
impact on the net realizable value of the inventory.
Deferred Tax Assets: The Company applies a three-year
cumulative taxable income test for foreign subsidiaries whose
results are not included in the U.S. tax return in
determining whether to recognize an income tax benefit for their
respective foreign NOL carryforwards, with a resultant
adjustment to the valuation allowance. Qualitative factors
surrounding a particular subsidiary are also examined and, in
certain circumstances (e.g., projections of further losses for
that subsidiary in the short-term), an income tax benefit may
not be recorded (and therefore, the valuation allowance not
adjusted) even when the three-year cumulative taxable income is
positive for a given subsidiary.
Pension Expense: The Company accounts for its defined
benefit pension plans in accordance with the Statement of
Financial Accounting Standards (“SFAS”) No. 87,
Employers’ Accounting for Pensions, which requires
that amounts recognized in financial statements be determined on
an actuarial basis. In 2004, the Company made a
$10.2 million contribution to its various plans.
SFAS No. 87 and the policies used by the Company
generally reduce the volatility of the net benefit cost from
changes in pension liability discount rates and the performance
of the pension plan’s assets, as significant actuarial
gains/losses are amortized over the service lives of the plan
participants.
A significant element in determining the Company’s net
periodic benefit cost in accordance with SFAS No. 87
is the expected return on plan assets. The Company has assumed
that the weighted-average expected long-term rate of return on
plan assets will be 7.95%. This expected return on plan assets
is included in the net periodic benefit cost. The plan assets
produced an actual return of approximately 9% in 2004. If
significant, the difference between this expected return and the
actual return on plan assets is amortized over the service lives
of the plan participants.
At the end of each year, the Company determines the discount
rate to be used to discount the plan liabilities. The discount
rate reflects the current rate at which the pension liabilities
could be effectively settled at the end of the year. In
estimating this rate, the Company looks to rates of return on
relevant market indices (Citigroup pension liability index,
Moody’s Aa corporate bond yield and Bloomberg AAA/ AA 15 +
year). These rates are adjusted to match the duration of the
liabilities associated with the pension plans. At
December 31, 2004, the Company determined this rate to be
5.79% on a consolidated basis.
As of December 31, 2004, the Company’s consolidated
pension liability was $43.6 million, up from
$34.6 million at the end of 2003. For the year ended
December 31, 2004, the Company recognized a consolidated
pre-tax net periodic cost of $12.2 million, up from
$9.1 million in 2003. Due to its long duration, the pension
liability is very sensitive to changes in the discount rate. As
a result of a reduced discount rate and other actuarial gains
and losses, the Company estimates its 2005 net periodic
cost to increase by 5.0% to 10.0%. As a sensitivity measure, the
effect of a 50 basis point decline in the discount rate
assumption would result in an increase in the 2005 pension
expense of approximately $3.1 million and an increase in
the projected benefit obligations at December 31, 2004 of
$22.3 million.
22
Tax Contingencies: The Company believes it has a
reasonable basis in the tax law for all of the positions it
takes on the various tax returns it files. However, in
recognition of the fact that various taxing authorities may take
opposing views on some issues, that the costs and hazards of
litigation in maintaining the positions that the Company has
taken on various returns might be significant and that the
taxing authorities may prevail in their attempts to overturn
such positions, the Company maintains tax reserves. The amounts
of such reserves, the potential issues they are intended to
cover and their adequacy to do so are topics of frequent review
internally and with outside tax professionals. Where necessary,
periodic adjustments are made to such reserves to reflect the
lapsing of statutes of limitations, closings of ongoing
examinations or the commencement of new examinations.
As of December 31, 2004, the Company has recorded a current
income tax payable of $32.8 million. The aggregate amount
of global income tax reserves and related interest recorded in
current taxes payable was approximately $15.1 million.
These reserves cover a wide range of issues and involve numerous
different taxing jurisdictions. The single largest item
($3.5 million) relates to a dispute with the state of
Wisconsin concerning income taxes payable upon the 1993 sale of
a short-line railroad that operated wholly within such state.
Other significant exposures for which reserves exist include,
but are not limited to, a variety of foreign jurisdictional
transfer pricing disputes and foreign withholding tax issues
related to inter-company transfers and services.
Other
The Company’s independent registered public accounting
firm, Ernst & Young LLP, informed our Audit Committee
of our Board of Directors that, in connection with certain
income tax compliance services, a member firm of
Ernst & Young LLP held employment and business and
corporate income tax related funds of a de minimis amount and
made payment of such funds to the applicable tax authorities in
respect of our representative offices in China and employees in
those offices. These actions by the member firm of
Ernst & Young LLP have been discontinued.
Ernst & Young LLP has also informed our Audit Committee
that certain partners in a member firm of Ernst & Young
LLP had an investment in a company, an affiliate of which
provided a registered office and corporate secretarial services
to our Singapore subsidiary. Fees paid for these services were
de minimis. These partners have sold their ownership interest,
and the entity providing services to us is no longer considered
an associated entity of Ernst & Young LLP.
Ernst & Young LLP has concluded that these activities,
although violative of the SEC’s independence rules, have
not impaired their independence. Ernst & Young LLP has
represented to us that they are independent certified public
accountants with respect to us within the meaning of the federal
securities laws and the rules and regulations thereunder,
including the independence rules adopted by the SEC pursuant to
the Sarbanes-Oxley Act of 2002 and Rule 3600 T of the
Public Company Accounting Oversight Board.
23
|
|
| ITEM 7A. |
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
periodically enters into derivatives in order to minimize these
risks, but not for trading purposes. The Company’s strategy
is to negotiate terms for its derivatives and other financial
instruments to be perfectly effective, such that the change in
the value of the derivative perfectly offsets the impact of the
underlying hedged item. Any resulting gains or losses from hedge
ineffectiveness are reflected directly in income. See in
Note 1 “Interest rate agreements” and
“Foreign currency forward contracts” and Note 8
“Debt” to the Notes to the Consolidated Financial
Statements for further detail on interest rate agreements and
outstanding debt obligations. Approximately 30% of the
Company’s sales were denominated in foreign currency in
2004 and approximately 28% in 2003 and 27% in 2002. The
Company’s exposure to currency rate fluctuations primarily
relate to the Euro, British Pound, Canadian Dollar, Venezuelan
Bolivar, Brazilian Real and Mexican Peso.
As of December 31, 2004 and January 2, 2004, the
Company had a significant amount of assets and liabilities that
are denominated in currencies other than the functional currency
of the reporting entity. The absolute value of these assets and
liabilities at December 31, 2004 and January 2, 2004,
were approximately $151.9 million and $157.2 million,
respectively. The Company has purchased approximately
$72.3 million of short-term foreign currency forward
contracts to minimize the effect of fluctuating foreign
currencies. If there was a 10 percent adverse change in the
exchange rates, the Company would record a foreign exchange loss
of approximately $8.0 million.
The Company has entered into interest rate agreements that
effectively fix or cap, for a period of time, the London
Interbank Offered Rate (“LIBOR”) component of the
interest rate on a portion of its floating rate obligations. As
a result, the interest rate on 60.3% and 100% of debt
obligations at December 31, 2004 and January 2, 2004,
respectively, was fixed or capped.
The Company prepared sensitivity analyses of its derivatives and
other financial instruments assuming a one-percentage point
adverse change in interest rates and a 10 percent adverse
change in the foreign currency contracts outstanding. Holding
all other variables constant, the hypothetical adverse changes
would have increased interest expense by $0.3 million and
$0.3 million in 2004 and 2003, respectively, and decreased
the value of foreign currency forward contracts by
$7.7 million and $8.4 million in 2004 and 2003,
respectively. The estimated fair market value of the
Company’s outstanding fixed rate debt at December 31,
2004 and January 2, 2004 was $273.2 million and
$229.1 million, respectively. If interest rates were to
increase or decrease by 1%, the fair market value of the fixed
rate debt would decrease or increase by 2.0% or 2.1%,
respectively, for 2004 and decrease by 2.8% or increase by 3.0%
for 2003, 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. These analyses 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, the sensitivity
analyses assume no changes in the Company’s financial
structure.
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND
SUPPLEMENTARY DATA.
| |
|
|
|
|
| |
|
Page | |
| |
|
| |
|
|
|
|
25 |
|
|
|
|
|
26 |
|
|
|
|
|
27 |
|
|
|
|
|
28 |
|
|
|
|
|
29 |
|
|
|
|
|
30 |
|
|
|
|
|
57 |
|
24
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders
Anixter International Inc.:
We have audited the accompanying consolidated balance sheets of
Anixter International Inc. and subsidiaries as of
December 31, 2004 and January 2, 2004 and the related
consolidated statements of operations, stockholders’ equity
and cash flows for each of the three years in the period ended
December 31, 2004. Our audits also included the financial
statement schedules listed in the Index at Item 15(a)(2).
These financial statements and schedules are the responsibility
of the Company’s management. Our responsibility is to
express an opinion on these financial statements and schedules
based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of Anixter International Inc. at
December 31, 2004 and January 2, 2004, and the
consolidated results of its operations and its cash flows for
each of the three years in the period ended December 31,
2004, in conformity with U.S. generally accepted accounting
principles. Also, in our opinion, the related financial
statement schedules, when considered in relation to the basic
financial statements taken as a whole, present fairly in all
material respects the information set forth therein.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
effectiveness of Anixter International Inc.’s internal
control over financial reporting as of December 31, 2004,
based on criteria established in Internal Control —
Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission and our report dated
February 23, 2005 expressed an unqualified opinion thereon.
ERNST & YOUNG LLP
Chicago, Illinois
February 23, 2005
25
ANIXTER INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In millions, except per share amounts)
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Years Ended | |
| |
|
| |
| |
|
December 31, | |
|
January 2, | |
|
January 3, | |
| |
|
2004 | |
|
2004 | |
|
2003 | |
| |
|
| |
|
| |
|
| |
|
Net sales
|
|
$ |
3,275.2 |
|
|
$ |
2,625.2 |
|
|
$ |
2,520.1 |
|
|
Cost of operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Cost of goods sold
|
|
|
2,484.9 |
|
|
|
1,983.0 |
|
|
|
1,923.0 |
|
| |
Operating expenses
|
|
|
647.8 |
|
|
|
548.2 |
|
|
|
509.0 |
|
| |
Amortization of intangibles
|
|
|
2.7 |
|
|
|
1.7 |
|
|
|
0.4 |
|
| |
Impairment charge
|
|
|
1.8 |
|
|
|
— |
|
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
Total costs and expenses
|
|
|
3,137.2 |
|
|
|
2,532.9 |
|
|
|
2,432.4 |
|
| |
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
138.0 |
|
|
|
92.3 |
|
|
|
87.7 |
|
|
Other (expense) income:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Interest expense
|
|
|
(13.8 |
) |
|
|
(12.8 |
) |
|
|
(15.5 |
) |
| |
Extinguishment of debt
|
|
|
(0.7 |
) |
|
|
(6.6 |
) |
|
|
(0.7 |
) |
| |
Other, net
|
|
|
(2.9 |
) |
|
|
— |
|
|
|
0.3 |
|
| |
|
|
|
|
|
|
|
|
|
|
Income before income taxes and extraordinary gain
|
|
|
120.6 |
|
|
|
72.9 |
|
|
|
71.8 |
|
|
Income tax expense
|
|
|
47.0 |
|
|
|
31.0 |
|
|
|
28.7 |
|
| |
|
|
|
|
|
|
|
|
|
|
Income before extraordinary gain
|
|
|
73.6 |
|
|
|
41.9 |
|
|
|
43.1 |
|
|
Extraordinary gain, net of tax of $0.6
|
|
|
4.1 |
|
|
|
— |
|
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$ |
77.7 |
|
|
$ |
41.9 |
|
|
$ |
43.1 |
|
| |
|
|
|
|
|
|
|
|
|
|
Basic income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Income before extraordinary gain
|
|
$ |
2.00 |
|
|
$ |
1.15 |
|
|
$ |
1.17 |
|
| |
Extraordinary gain
|
|
$ |
0.11 |
|
|
$ |
— |
|
|
$ |
— |
|
| |
Net income
|
|
$ |
2.11 |
|
|
$ |
1.15 |
|
|
$ |
1.17 |
|
|
Diluted income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Income before extraordinary gain
|
|
$ |
1.90 |
|
|
$ |
1.13 |
|
|
$ |
1.13 |
|
| |
Extraordinary gain
|
|
$ |
0.11 |
|
|
$ |
— |
|
|
$ |
— |
|
| |
Net income
|
|
$ |
2.01 |
|
|
$ |
1.13 |
|
|
$ |
1.13 |
|
|
Dividend per common share
|
|
$ |
1.50 |
|
|
$ |
— |
|
|
$ |
— |
|
See accompanying notes to the consolidated financial statements.
26
ANIXTER INTERNATIONAL INC.
CONSOLIDATED BALANCE SHEETS
(In millions, except share amounts)
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
December 31, | |
|
January 2, | |
| |
|
2004 | |
|
2004 | |
| |
|
| |
|
| |
|
ASSETS |
|
Current assets
|
|
|
|
|
|
|
|
|
| |
Cash and cash equivalents
|
|
$ |
53.4 |
|
|
$ |
101.4 |
|
| |
Accounts receivable (less allowances of $18.0 and $17.3 in 2004
and 2003, respectively)
|
|
|
620.4 |
|
|
|
255.5 |
|
| |
Note receivable — unconsolidated subsidiary
|
|
|
— |
|
|
|
56.5 |
|
| |
Inventories
|
|
|
580.1 |
|
|
|
499.1 |
|
| |
Deferred income taxes
|
|
|
16.3 |
|
|
|
16.5 |
|
| |
Other current assets
|
|
|
11.7 |
|
|
|
18.9 |
|
| |
|
|
|
|
|
|
| |
|
|
|
Total current assets
|
|
|
1,281.9 |
|
|
|
947.9 |
|
|
Property and equipment, at cost
|
|
|
183.8 |
|
|
|
180.7 |
|
|
Accumulated depreciation
|
|
|
(141.2 |
) |
|
|
(137.6 |
) |
| |
|
|
|
|
|
|
| |
|
|
|
Net property and equipment
|
|
|
42.6 |
|
|
|
43.1 |
|
|
Goodwill
|
|
|
293.6 |
|
|
|
278.5 |
|
|
Other assets
|
|
|
88.5 |
|
|
|
101.9 |
|
| |
|
|
|
|
|
|
| |
|
$ |
1,706.6 |
|
|
$ |
1,371.4 |
|
| |
|
|
|
|
|
|
| |
|
LIABILITIES AND STOCKHOLDERS’ EQUITY |
|
Current liabilities
|
|
|
|
|
|
|
|
|
| |
Accounts payable
|
|
$ |
323.2 |
|
|
$ |
304.4 |
|
| |
Accrued expenses
|
|
|
143.4 |
|
|
|
80.8 |
|
| |
|
|
|
|
|
|
| |
|
|
|
Total current liabilities
|
|
|
466.6 |
|
|
|
385.2 |
|
|
Long-term debt
|
|
|
412.4 |
|
|
|
239.2 |
|
|
Other liabilities
|
|
|
64.6 |
|
|
|
56.2 |
|
| |
|
|
|
|
|
|
| |
|
|
|
Total liabilities
|
|
|
943.6 |
|
|
|
680.6 |
|
|
Stockholders’ equity
|
|
|
|
|
|
|
|
|
|
Common stock — $1.00 par value,
100,000,000 shares authorized, 37,375,676 and
36,376,411 shares issued and outstanding in 2004 and 2003,
respectively
|
|
|
37.4 |
|
|
|
36.4 |
|
|
Capital surplus
|
|
|
50.7 |
|
|
|
21.8 |
|
|
Retained earnings
|
|
|
660.1 |
|
|
|
638.2 |
|
|
Accumulated other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
| |
|
Foreign currency translation
|
|
|
16.6 |
|
|
|
(4.8 |
) |
| |
|
Minimum pension liability
|
|
|
(1.8 |
) |
|
|
(0.5 |
) |
| |
|
Unrealized loss on derivatives
|
|
|
— |
|
|
|
(0.3 |
) |
| |
|
|
|
|
|
|
| |
|
|
Total accumulated other comprehensive income (loss)
|
|
|
14.8 |
|
|
|
(5.6 |
) |
| |
|
|
|
|
|
|
| |
|
|
|
Total stockholders’ equity
|
|
|
763.0 |
|
|
|
690.8 |
|
| |
|
|
|
|
|
|
| |
|
$ |
1,706.6 |
|
|
$ |
1,371.4 |
|
| |
|
|
|
|
|
|
See accompanying notes to the consolidated financial statements.
27
ANIXTER INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Years Ended | |
| |
|
| |
| |
|
December 31, | |
|
January 2, | |
|
January 3, | |
| |
|
2004 | |
|
2004 | |
|
2003 | |
| |
|
| |
|
| |
|
| |
|
Operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Net income
|
|
$ |
77.7 |
|
|
$ |
41.9 |
|
|
$ |
43.1 |
|
| |
Adjustments to reconcile net income to net cash provided by
continuing operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Extraordinary gain
|
|
|
(4.1 |
) |
|
|
— |
|
|
|
— |
|
| |
|
Impairment of intangible asset
|
|
|
1.8 |
|
|
|
— |
|
|
|
— |
|
| |
|
Loss on extinguishment of debt
|
|
|
0.7 |
|
|
|
6.6 |
|
|
|
0.7 |
|
| |
|
Loss (gain) on sale or disposal of fixed assets and
securities
|
|
|
0.2 |
|
|
|
0.3 |
|
|
|
(2.9 |
) |
| |
|
Depreciation
|
|
|
16.4 |
|
|
|
18.0 |
|
|
|
19.1 |
|
| |
|
Accretion of zero coupon convertible notes
|
|
|
9.3 |
|
|
|
8.9 |
|
|
|
11.9 |
|
| |
|
Amortization of restricted stock
|
|
|
5.8 |
|
|
|
3.9 |
|
|
|
3.4 |
|
| |
|
Amortization of intangible assets and deferred financing costs
|
|
|
3.4 |
|
|
|
2.4 |
|
|
|
1.0 |
|
| |
|
Income tax savings from employee stock plans
|
|
|
3.9 |
|
|
|
0.6 |
|
|
|
2.5 |
|
| |
|
Deferred income taxes
|
|
|
(16.2 |
) |
|
|
14.1 |
|
|
|
(0.8 |
) |
| |
|
Changes in assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
Accounts receivable
|
|
|
(57.3 |
) |
|
|
(7.1 |
) |
|
|
37.8 |
|
| |
|
|
Inventory
|
|
|
(57.1 |
) |
|
|
33.9 |
|
|
|
81.4 |
|
| |
|
|
Accounts payable and accruals
|
|
|
67.2 |
|
|
|
8.7 |
|
|
|
(31.4 |
) |
| |
|
|
Other, net
|
|
|
5.7 |
|
|
|
(7.1 |
) |
|
|
(0.1 |
) |
| |
|
|
|
|
|
|
|
|
|
| |
|
|
|
Net cash provided by continuing operating activities
|
|
|
57.4 |
|
|
|
125.1 |
|
|
|
165.7 |
|
|
Investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Capital expenditures
|
|
|
(14.5 |
) |
|
|
(25.9 |
) |
|
|
(16.9 |
) |
| |
Acquisition of businesses
|
|
|
(34.8 |
) |
|
|
(42.0 |
) |
|
|
(110.4 |
) |
| |
Proceeds from sale of fixed assets
|
|
|
— |
|
|
|
28.6 |
|
|
|
2.9 |
|
| |
Proceeds from sale of investment
|
|
|
— |
|
|
|
2.5 |
|
|
|
2.0 |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
|
|
Net cash used in continuing investing activities
|
|
|
(49.3 |
) |
|
|
(36.8 |
) |
|
|
(122.4 |
) |
|
Financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Proceeds from long-term borrowings
|
|
|
446.9 |
|
|
|
345.3 |
|
|
|
262.6 |
|
| |
Repayment of long-term borrowings
|
|
|
(466.7 |
) |
|
|
(378.9 |
) |
|
|
(200.0 |
) |
| |
Payment of cash dividend
|
|
|
(55.1 |
) |
|
|
— |
|
|
|
— |
|
| |
Proceeds from issuance of common stock
|
|
|
20.9 |
|
|
|
6.5 |
|
|
|
7.5 |
|
| |
Deferred financing costs
|
|
|
(1.6 |
) |
|
|
(4.9 |
) |
|
|
(0.6 |
) |
| |
Proceeds from issuance of notes payable
|
|
|
— |
|
|
|
143.8 |
|
|
|
— |
|
| |
Retirement of notes payable
|
|
|
— |
|
|
|
(80.2 |
) |
|
|
(118.3 |
) |
| |
Purchases of common stock for treasury
|
|
|
— |
|
|
|
(35.6 |
) |
|
|
— |
|
| |
Other, net
|
|
|
(0.1 |
) |
|
|
(0.5 |
) |
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
|
|
Net cash used in continuing financing activities
|
|
|
(55.7 |
) |
|
|
(4.5 |
) |
|
|
(48.8 |
) |
| |
|
|
|
|
|
|
|
|
|
|
(Decrease) increase in cash and cash equivalents from
continuing operations
|
|
|
(47.6 |
) |
|
|
83.8 |
|
|
|
(5.5 |
) |
|
Cash used in discontinued operations
|
|
|
(0.4 |
) |
|
|
(1.5 |
) |
|
|
(2.6 |
) |
|
Cash and cash equivalents at beginning of year
|
|
|
101.4 |
|
|
|
19.1 |
|
|
|
27.2 |
|
| |
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year
|
|
$ |
53.4 |
|
|
$ |
101.4 |
|
|
$ |
19.1 |
|
| |
|
|
|
|
|
|
|
|
|
See accompanying notes to the consolidated financial statements.
28
ANIXTER INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(In millions)
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
Accumulated | |
|
|
| |
|
Common Stock | |
|
|
|
|
|
Other | |
|
|
| |
|
| |
|
Capital | |
|
Retained | |
|
Comprehensive | |
|
Comprehensive | |
| |
|
Shares | |
|
Amount | |
|
Surplus | |
|
Earnings | |
|
Income | |
|
Income | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
Balance at December 28, 2001
|
|
|
36.9 |
|
|
$ |
36.9 |
|
|
$ |
32.5 |
|
|
$ |
553.2 |
|
|
$ |
(59.5 |
) |
|
|
|
|
|
Net income
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
43.1 |
|
|
|
— |
|
|
$ |
43.1 |
|
|
Other comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Foreign currency translation
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
20.7 |
|
|
|
20.7 |
|
| |
Minimum pension liabilities, net of tax of $0.2
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(0.3 |
) |
|
|
(0.3 |
) |
| |
Change in fair market value of foreign exchange contracts, net
of tax of $3.4
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(5.1 |
) |
|
|
(5.1 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
58.4 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock and related tax benefits
|
|
|
0.6 |
|
|
|
0.6 |
|
|
|
12.7 |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 3, 2003
|
|
|
37.5 |
|
|
|
37.5 |
|
|
|
45.2 |
|
|
|
596.3 |
|
|
|
(44.2 |
) |
|
|
|
|
|
Net income
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
41.9 |
|
|
|
— |
|
|
$ |
41.9 |
|
|
Other comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Foreign currency translation
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
39.1 |
|
|
|
39.1 |
|
| |
Minimum pension liability, net of tax of $0.1
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(0.2 |
) |
|
|
(0.2 |
) |
| |
Change in fair market value of foreign exchange contracts, net
of tax of $0.2
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(0.3 |
) |
|
|
(0.3 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
80.5 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock and related tax benefits
|
|
|
0.5 |
|
|
|
0.5 |
|
|
|
10.6 |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
Purchase and retirement of treasury stock
|
|
|
(1.6 |
) |
|
|
(1.6 |
) |
|
|
(34.0 |
) |
|
|
— |
|
|
|
— |
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 2, 2004
|
|
|
36.4 |
|
|
|
36.4 |
|
|
|
21.8 |
|
|
|
638.2 |
|
|
|
(5.6 |
) |
|
|
|
|
|
Net income
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
77.7 |
|
|
|
— |
|
|
$ |
77.7 |
|
|
Other comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Foreign currency translation
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
21.4 |
|
|
|
21.4 |
|
| |
Minimum pension liability, net of tax of $0.6
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(1.3 |
) |
|
|
(1.3 |
) |
| |
Change in fair market value of foreign exchange contracts, net
of tax of $0.2
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
0.3 |
|
|
|
0.3 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
98.1 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends on common stock ($1.50 per share)
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(55.8 |
) |
|
|
— |
|
|
|
|
|
|
Issuance of common stock and related tax benefits
|
|
|
1.0 |
|
|
|
1.0 |
|
|
|
28.9 |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2004
|
|
|
37.4 |
|
|
$ |
37.4 |
|
|
$ |
50.7 |
|
|
$ |
660.1 |
|
|
$ |
14.8 |
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to the consolidated financial statements.
29
ANIXTER INTERNATIONAL INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|
|
| NOTE 1. |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
Organization: Anixter International Inc., formerly
known as Itel Corporation, which was incorporated in Delaware in
1967, is engaged in the distribution of communications and
specialty wire and cable products, fasteners and small parts
through Anixter Inc. and its subsidiaries (collectively
“Anixter”).
Basis of presentation: The consolidated financial
statements include the accounts of Anixter International Inc.
and its majority-owned subsidiaries. The Company’s fiscal
year ends on the Friday nearest December 31 and included
52 weeks in 2004 and 2003 and 53 weeks in 2002.
Certain amounts for prior years have been reclassified to
conform to the current year presentation.
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the amounts reported
in the financial statements and accompanying notes. Actual
results could differ from those estimates.
Receivables and allowance for doubtful accounts:
The Company carries its accounts receivable at their face
amounts less an allowance for doubtful accounts. On a regular
basis, the Company evaluates its accounts receivable and
establishes the allowance for doubtful accounts based on a
combination of specific customer circumstances, as well as
credit conditions and history of write-offs and collections. A
receivable is considered past due if payments have not been
received within the agreed upon invoice terms. The provision for
doubtful accounts was $10.5 million, $7.4 million and
$13.9 million in 2004, 2003 and 2002, respectively.
Accounts receivable program: On October 6,
2000, the Company entered into an accounts receivable
securitization program. The underlying agreements for this
program were most recently amended on September 30, 2004 to
extend the program. The program is conducted through Anixter
Receivables Corporation (“ARC”), a wholly-owned,
bankruptcy remote, special purpose subsidiary. The 2004
amendment provides ARC with a call right with respect to
receivables sold. As a result of this call right, ARC no longer
holds a passive interest in the receivables and, thus, is no
longer considered a qualified special purpose entity for
accounting purposes. Accordingly, ARC, which was previously
unconsolidated, is now consolidated in the financial statements
of the Company. Approximately $161.8 million of long-term
funding and $282.4 million of accounts receivable sold to
ARC are reflected in the Company’s consolidated balance
sheet at December 31, 2004. Additionally, Anixter’s
investment in ARC and the inter-company note between Anixter and
ARC is eliminated in consolidation. The receivables will
continue to be sold by Anixter to ARC. The assets of ARC are not
available to creditors of Anixter in the event of bankruptcy or
insolvency proceedings. See Note 8 “Debt” for
further information.
Prior to the consolidation of the accounts receivable
securitization facility at the end of the third quarter of 2004,
ARC funding was not recorded on the Company’s balance
sheet. Generally accepted accounting principles required that
the interest expense be classified as other expense when it was
accounted for by the equity method as part of the Company’s
100% ownership of ARC. However, it was considered to be part of
the Company’s financing strategy and therefore viewed as
interest expense by the Company. Included in the ARC net
(income) expense amount was funding costs incurred by ARC of
$3.3 million (of which $1.2 million is recorded as
“Interest expense” in the consolidated statement of
operations), $2.8 million and $3.4 million in 2004,
2003 and 2002, respectively. The average outstanding funding
extended to ARC during the year ended December 31, 2004 and
January 2, 2004 was $159.2 million and
$130.1 million, respectively. The effective funding rate on
the ARC debt was 2.04%, 2.06% and 2.60% in 2004, 2003 and 2002,
respectively.
Interest expense of $1.2 million incurred by ARC during the
fourth quarter of 2004 is included in interest expense in the
2004 Consolidated Statement of Operations due to the
consolidation of ARC at the end of the third quarter of 2004.
Net (income) expense of ($3.6) million, $2.8 million
and $2.7 million was recorded as
30
ANIXTER INTERNATIONAL INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS —
(Continued)
“Other, net” in the 2004, 2003 and 2002 Consolidated
Statements of Operations, respectively, as ARC was previously
unconsolidated. The net (income) expense is as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
| |
|
(In millions) | |
|
Loss on sales of receivables
|
|
$ |
22.1 |
|
|
$ |
29.6 |
|
|
$ |
24.5 |
|
|
Gain on collection of receivables by ARC
|
|
|
(27.8 |
) |
|
|
(29.6 |
) |
|
|
(25.2 |
) |
|
Interest expense incurred by ARC
|
|
|
2.1 |
|
|
|
2.8 |
|
|
|
3.4 |
|
| |
|
|
|
|
|
|
|
|
|
| |
Total
|
|
$ |
(3.6 |
) |
|
$ |
2.8 |
|
|
$ |
2.7 |
|
| |
|
|
|
|
|
|
|
|
|
At the inception of this program, the Company recorded a charge
of $8.8 million for the initial discounting of receivables
sold to ARC. The Company expected to substantially recover this
amount upon termination of the program. In the intervening
years, due to a decline in the amount of accounts receivable in
the program, $2.4 million of the initial discount costs had
been recouped. With the consolidation of ARC, the remaining
$6.4 million of discount costs were recovered during the
fourth quarter of 2004 (included above in the $27.8 million
gain on collection of receivables of ARC).
Anixter had total billings to ARC of $1,687.2 million,
$1,417.1 million and $1,544.2 million in 2004, 2003
and 2002, respectively. These billings were for the sale of
receivables, servicing fees and interest costs calculated on the
outstanding balance of the note receivable. These billings are
not included in the consolidated sales results of the Company.
Anixter received proceeds from ARC of $1,684.0 million,
$1,430.1 million and $1,586.0 million in 2004, 2003
and 2002, respectively, as payment for the Anixter billings.
Note receivable: At January 2, 2004, the
Company’s note receivable of $56.5 million represents
the amount due to Anixter from ARC primarily for the sale of
accounts receivable. As a result of the accounting consolidation
of ARC at the end of the third quarter of 2004, this note
receivable was eliminated in consolidation.
Inventories: Inventories, consisting primarily of
finished goods, are stated at the lower of cost or market. Cost
is determined using the average-cost method. The Company has
agreements with some of its vendors that provide a right to
return products. This right is typically limited to a small
percentage of the Company’s total purchases from that
vendor. The Company can return slow moving product, and the
vendor will replace it with faster moving product chosen by the
Company. Some vendor agreements contain price protection
provisions that require the manufacturer to issue a credit in an
amount sufficient to reduce the Company’s current inventory
carrying cost down to the manufacturer’s current price. The
Company considers these agreements in determining its reserve
for obsolescence.
Property and equipment: At December 31, 2004,
net property and equipment consisted of $35.9 million of
equipment and computer software, $6.3 million of leasehold
improvements and $0.4 million of other miscellaneous
property. At January 2, 2004, net property and equipment
consisted of $36.4 million of equipment and computer
software and $6.7 million of leasehold improvements.
Equipment and computer software are recorded at cost and
depreciated by applying the straight-line method over their
estimated useful lives, which range from 3 to 10 years.
Leasehold improvements are depreciated over the useful life or
over the term of the related lease, whichever is shorter. Upon
sale or retirement, the cost and related depreciation are
removed from the respective accounts and any gain or loss is
included in income. Maintenance and repair costs are expensed as
incurred. Depreciation expense charged to operations was
$16.4 million, $18.0 million and $19.1 million in
2004, 2003 and 2002, respectively.
31
ANIXTER INTERNATIONAL INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS —
(Continued)
Goodwill: Goodwill is the excess of cost over the
fair value of the net assets of businesses acquired. Goodwill is
reviewed annually for impairment. The Company performs its
impairment tests utilizing the two step process outlined in
Statement of Financial Accounting Standards (“SFAS”)
No. 142, Goodwill and other Intangible Assets. If
the carrying amount of a reporting unit’s goodwill exceeds
the implied fair value of that goodwill, an impairment loss
would be recognized in an amount equal to that excess, not to
exceed the carrying amount of the goodwill. The Company
currently expects the carrying amount to be fully recoverable.
Intangible assets: Intangible assets primarily
consist of customer relationships that are being amortized on a
straight-line basis over periods ranging from 8 to
10 years. The Company continually evaluates whether events
or circumstances have occurred that would indicate the remaining
estimated useful lives of its intangible assets warrant revision
or that the remaining balance of such assets may not be
recoverable. The Company uses an estimate of the related
undiscounted cash flows over the remaining life of the asset in
measuring whether the asset is recoverable.
In 2004, a new brand name, Anixter
FastenersSM,
was introduced to reflect the combined capabilities of Pentacon,
Walters Hexagon and DDI. As a result of this new brand name
introduction, the Company recorded an asset impairment charge of
$1.8 million in 2004 to write-down to fair value the value
assigned to the Pentacon name when that business was acquired by
Anixter, as the Pentacon brand name will no longer be used in
the industrial operations.
Interest rate agreements: The Company utilized
interest rate agreements that effectively fix or cap, for a
period of time, the London Interbank Offered Rate
(“LIBOR”) component of the interest rate on a portion
of its floating rate obligations. At December 31, 2004 and
January 2, 2004, as a result of this type of interest rate
agreement along with fixed rate debt, the interest rate on 60.3%
and 100% of debt obligations, respectively, was fixed or capped.
At December 31, 2004 and January 2, 2004, the Company
had interest rate swap agreements outstanding with a notional
amount of $30.0 million. These swap agreements obligate the
Company to pay a fixed rate of approximately 3.5% through
October 2007. At December 31, 2004 and January 2,
2004, the fair market value of outstanding interest rate
agreements, which is the estimated amount that the Company would
have received or paid to enter into similar interest rate
agreements at the current interest rate, was a minimal liability
in 2004 and a $0.4 million liability in 2003. The impact of
interest rate agreements was to increase interest expense by
$0.6 million, $0.6 million and $0.1 million in
2004, 2003 and 2002, respectively. The Company does not enter
into interest rate transactions for speculative purposes.
Foreign currency forward contracts: The Company
uses foreign currency forward contracts to reduce its exposure
to adverse fluctuations in foreign exchange rates. When entered
into, these financial instruments are designated as hedges of
underlying exposures. The Company does not enter into derivative
financial instruments for trading purposes.
The Company purchased foreign currency forward contracts to
minimize the effect of fluctuating foreign currency denominated
payables (fair value hedges) on its reported income. The forward
contracts were revalued at current foreign exchange rates, with
the changes in valuation reflected directly in income offsetting
the transaction gain/loss recorded on the foreign currency
denominated payable. The net impact of these foreign currency
forward contracts on the income statement was insignificant in
2004, 2003 and 2002. At December 31, 2004 and
January 2, 2004, the face amount of the foreign currency
forward contracts outstanding was approximately
$72.3 million and $84.3 million, respectively. The
Company recognized the difference between the face amount and
the fair value of its forward contracts and recorded a liability
of $0.1 million and $0.4 million at December 31,
2004 and January 2, 2004, respectively.
32
ANIXTER INTERNATIONAL INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS —
(Continued)
Foreign currency translation: The results of
operations for foreign subsidiaries, where the functional
currency is not the U.S. dollar, are translated into
U.S. dollars using the average exchange rates during the
year, while the assets and liabilities are translated using
period-end exchange rates. The related translation adjustments
are recorded in a separate component of Stockholders’
equity, “Foreign currency translation.” Gains and
losses from foreign currency transactions are included in
“Other, net” in the consolidated statements of
operations. The Company recognized $5.6 million in net
foreign exchange losses in 2004. In 2003 and 2002, the
Company’s net foreign exchange was minimal.
Revenue recognition: Sales to customers, resellers
and distributors and related cost of sales are recognized upon
transfer of title, which occurs upon shipment of products.
Services, such as design and testing of product configurations
for customers and contractual supply chain management, are not
billed separately and are included in the sales price of the
product.
In those cases where the Company does not have goods in stock
and delivery times are critical, product is purchased from the
manufacturer and drop shipped to the customer. The Company takes
title to the goods when shipped by the manufacturer and then
bills the customer for the product upon transfer of the title.
Advertising and sales promotion: Advertising and
sales promotion costs are expensed as incurred. Advertising and
promotion costs were $9.7 million, $7.8 million and
$6.3 million in 2004, 2003 and 2002, respectively.
Shipping and handling fees and costs: The Company
incurred shipping and handling costs totaling
$78.3 million, $65.9 million and $60.8 million
for the years ended 2004, 2003 and 2002, respectively. These
costs are included in Operating expenses in the consolidated
statements of operations.
Income taxes: Using the liability method,
provisions for income taxes include deferred taxes resulting
from temporary differences in determining income for financial
and tax purposes. Such temporary differences result primarily
from differences in the carrying value of assets and liabilities.
Stock based compensation: Beginning in 2003, the
Company granted employee stock units in lieu of employee stock
options. The fair value of the stock units is amortized over the
four-year vesting period from the date of grant. Total expense
for fiscal 2004 for the employee stock units that were issued in
lieu of stock options was $4.3 million as compared to
$1.6 million in 2003.
Under the provisions of Statement of Financial Accounting
Standard (“SFAS”) No. 123, Accounting for
Stock-Based Compensation, and SFAS No. 148,
Accounting for Stock-Based Compensation-Transition and
Disclosure, an amendment of SFAS No. 123, the
Company has elected to continue to apply the intrinsic value
method of Accounting Principles Board (“APB”) Opinion
No. 25, Accounting for Stock Issued to Employees,
and its related interpretations in accounting for its
stock-based compensation plans. In accordance with the APB
Opinion No. 25, compensation cost for the Company’s
fixed stock options issued were measured as the excess, if any,
of the quoted market price of the company’s stock at the
date of the grant over the option exercise price and is charged
to operations over the vesting period. The Company applied the
disclosure-only provisions of SFAS No. 123.
Accordingly, because the options were granted at market value,
no compensation expense has been recognized in the consolidated
statements of operations for the stock option plans.
33
ANIXTER INTERNATIONAL INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS —
(Continued)
The Black-Scholes option-pricing model was developed for
estimating the fair value of traded options, which have no
vesting restrictions and are fully transferable. In addition,
option valuation models require the input of highly subjective
assumptions including the expected stock price volatility.
Because the Company’s stock options have characteristics
significantly different from those of traded options and,
because changes in the subjective input assumptions can
materially affect the fair value estimate, in management’s
opinion, the existing models do not necessarily provide a
reliable single measure of the fair value of the Company’s
stock options. Had compensation costs for the plans been
determined based on the fair value at the grant date using the
Black-Scholes option pricing model and amortized over the
respective vesting period, the Company’s net income would
have been reduced to the pro forma amounts indicated below:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
| |
|
(In millions, except per share | |
| |
|
data) | |
|
Basic earnings per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income as reported
|
|
$ |
77.7 |
|
|
$ |
41.9 |
|
|
$ |
43.1 |
|
|
Add: APB Opinion No. 25 Stock-based employee compensation
included in net income, net
|
|
|
3.5 |
|
|
|
2.5 |
|
|
|
2.1 |
|
|
Deduct: SFAS No. 123 Stock-based employee compensation
expense, net
|
|
|
(8.8 |
) |
|
|
(9.9 |
) |
|
|
(10.1 |
) |
| |
|
|
|
|
|
|
|
|
|
|
Pro forma net income
|
|
$ |
72.4 |
|
|
$ |
34.5 |
|
|
$ |
35.1 |
|
| |
|
|
|
|
|
|
|
|
|
|
Basic earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
As reported
|
|
$ |
2.11 |
|
|
$ |
1.15 |
|
|
$ |
1.17 |
|
| |
Pro forma
|
|
$ |
1.96 |
|
|
$ |
0.95 |
|
|
$ |
0.95 |
|
|
Diluted earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
As reported
|
|
$ |
2.01 |
|
|
$ |
1.13 |
|
|
$ |
1.13 |
|
| |
Pro forma
|
|
$ |
1.87 |
|
|
$ |
0.93 |
|
|
$ |
0.95 |
|
The weighted average fair value of the Company’s stock
options (which was $14.74 per share in 2002) was estimated
at the date of grant using the Black-Scholes option pricing
model with the following assumptions: expected stock price
volatility of 46%; expected dividend yield of zero; risk-free
interest rate of 4.7%; and an average expected life of
8 years.
Recently issued accounting pronouncements: In
September of 2004, the Emerging Issues Tasks Force
(“EITF”) reached a final conclusion on EITF Issue
No. 04-8, The Effect of Contingently Convertible Debt on
Diluted Earnings Per Share, that contingently convertible
debt instruments will be subject to the if-converted method
under SFAS No. 128, Earnings Per Share,
regardless of the contingent features included in the
instrument. Under prior practice, issuers of contingently
convertible debt instruments exclude potential common shares
underlying the debt instruments from the calculation of diluted
earnings per share until the market price or other contingency
is met. The effective date for Issue 04-8 is for reporting
periods ending after December 15, 2004. The effect of
adopting EITF 04-08 required the Company to retroactively
restate earnings per share to reflect the impact of adoption
based on the form of the debt as of the year ended
December 31, 2004. In December 2004, the Company modified
its Convertible Notes due 2033 whereby the conversion of the
Convertible Notes due 2033 will be settled in cash up to the
accreted principal amount of the convertible note. If the
conversion value of the convertible note exceeds the accreted
principal amount of the convertible note at the time of
conversion, the amount in excess of the accreted value will be
settled in stock. The restatement of earnings per share had a
minimal impact in the first and second quarters of 2004. The
restatement of earnings per share for the third quarter of 2004
resulted in a lower number of diluted shares and, in turn,
results in a higher diluted earnings per share calculation of
$0.44. There was no impact for 2003. See Note 2
“Income Per Share” for further information.
34
ANIXTER INTERNATIONAL INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS —
(Continued)
In December 2004, the FASB issued SFAS No. 123
(Revised 2004), a revision of SFAS No. 123,
Accounting for Stock-Based Compensation, and supersedes
APB Opinion No. 25, Accounting for Stock Issued to
Employees, and its related implementation guidance. The
accounting provisions of SFAS No. 123 (Revised 2004)
are effective for reporting periods beginning after
June 15, 2005. We are required to adopt
SFAS No. 123 (Revised 2004) in the third quarter of
fiscal 2005. The Company will be required to measure the cost of
all employee share-based payments to employees, including grants
of employee stock options, using a fair-value-based method. The
cost of share-based payments will be recognized over the period
during which an employee is required to provide service in
exchange for the award. The pro forma disclosures previously
permitted under SFAS No. 123 no longer will be an
alternative to financial statement recognition. See “Stock
based compensation” above for the pro forma net income and
net income per share amounts for 2004, 2003, and 2002 as if we
had used a fair-value-based method similar to the methods
required under SFAS No. 123 (Revised 2004) to measure
compensation expense for employee stock incentive awards. The
adoption of SFAS No. 123 (Revised 2004) by the Company
is expected to result in an additional expense of approximately
$2.0 million to be recognized in the second half of 2005.
In December 2004, the FASB issued Staff Position No. 109-1
(“FAS 109-1”), Application of
SFAS No. 109, Accounting for Income Taxes, to the Tax
Deduction on Qualified Production Activities Provided by the
American Jobs Creation Act of 2004. The American Jobs
Creation Act of 2004 (“AJCA”) introduces a special 9%
tax deduction on qualified production activities. FAS 109-1
clarifies that this tax deduction should be accounted for as a
special tax deduction in accordance with SFAS No. 109.
Pursuant to the AJCA and the guidance that has been forthcoming
to date, the Company will likely not be viewed as conducting
“qualified production activities” and, thus, not be
able to claim this tax benefit. Accordingly, we do not expect
the adoption of these new tax provisions to have a material
impact on our consolidated financial position, results of
operations or cash flows.
In December 2004, the FASB issued Staff Position No. 109-2
(“FAS 109-2”), Accounting and Disclosure
Guidance for the Foreign Earnings Repatriation Provision within
the American Jobs Creation Act of 2004. The AJCA introduces
a limited time 85% dividends received deduction on the
repatriation of certain foreign earnings to a U.S. taxpayer
(repatriation provision), provided certain criteria are met.
FAS 109-2 provides accounting and disclosure guidance for
the repatriation provision. Although FAS 109-2 is effective
immediately, we do not expect to be able to complete our
evaluation of the repatriation provision until after Congress or
the Treasury Department provides additional clarifying language
on key elements of the provision. In January 2005, the Treasury
Department began to issue the first of a series of clarifying
guidance documents related to this provision. We expect to
complete our evaluation of the effects of the repatriation
provision within the first two fiscal quarters of 2005. The
range of possible amounts that may be available for repatriation
under this provision is between zero and $217.7 million.
While we estimate that the related potential range of additional
U.S. federal income tax is between zero and
$11.0 million, this estimation is subject to change
following technical correction legislation that we believe is
forth-coming from Congress. We estimate that the related
potential range of additional foreign withholding tax is between
zero and $7.7 million.
Final determination of the amounts which we may repatriate under
the regulations will be limited by the qualifying investment
requirements of the Act. Based on the rules promulgated to-date,
the Company believes the actual amounts it will repatriate will
be substantially less than the high-end noted above.
35
ANIXTER INTERNATIONAL INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS —
(Continued)
The table below sets forth the computation of basic and diluted
income per share:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Years Ended | |
| |
|
| |
| |
|
December 31, | |
|
January 2, | |
|
January 3, | |
| |
|
2004 | |
|
2004 | |
|
2003 | |
| |
|
| |
|
| |
|
| |
| |
|
(In millions, except per share data) | |
|
Basic Income per Share:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Income before extraordinary gain
|
|
$ |
73.6 |
|
|
$ |
41.9 |
|
|
$ |
43.1 |
|
| |
Extraordinary gain, net
|
|
|
4.1 |
|
|
|
— |
|
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
| |
Net income
|
|
$ |
77.7 |
|
|
$ |
41.9 |
|
|
$ |
43.1 |
|
| |
|
|
|
|
|
|
|
|
|
| |
Weighted-average common shares outstanding
|
|
|
36.9 |
|
|
|
36.3 |
|
|
|
37.0 |
|
| |
Income per share before extraordinary gain
|
|
$ |
2.00 |
|
|
$ |
1.15 |
|
|
$ |
1.17 |
|
| |
Extraordinary gain per share
|
|
$ |
0.11 |
|
|
$ |
— |
|
|
$ |
— |
|
| |
Net income per share
|
|
$ |
2.11 |
|
|
$ |
1.15 |
|
|
$ |
1.17 |
|
|
Diluted Income per Share:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Income before extraordinary gain
|
|
$ |
73.6 |
|
|
$ |
41.9 |
|
|
$ |
43.1 |
|
| |
Extraordinary gain, net
|
|
|
4.1 |
|
|
|
— |
|
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
| |
Net income
|
|
$ |
77.7 |
|
|
$ |
41.9 |
|
|
$ |
43.1 |
|
| |
|
|
|
|
|
|
|
|
|
| |
Weighted-average common shares outstanding
|
|
|
36.9 |
|
|
|
36.3 |
|
|
|
37.0 |
|
| |
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Stock options and units
|
|
|
1.3 |
|
|
|
0.9 |
|
|
|
1.0 |
|
| |
|
Convertible notes due 2033
|
|
|
0.4 |
|
|
|
— |
|
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
| |
Weighted-average common shares outstanding
|
|
|
38.6 |
|
|
|
37.2 |
|
|
|
38.0 |
|
| |
|
|
|
|
|
|
|
|
|
| |
Income per share before extraordinary gain
|
|
$ |
1.90 |
|
|
$ |
1.13 |
|
|
$ |
1.13 |
|
| |
Extraordinary gain per share
|
|
$ |
0.11 |
|
|
$ |
— |
|
|
$ |
— |
|
| |
Net income per share
|
|
$ |
2.01 |
|
|
$ |
1.13 |
|
|
$ |
1.13 |
|
The Convertible Notes due 2033 are convertible into 13.5584 of
the Company’s common stock in any calendar quarter if:
|
|
|
| |
• |
the sales price of our common stock reaches specified thresholds; |
| |
| |
• |
during any period in which the credit rating assigned to the
Convertible Notes due 2033 is below a specified level; |
| |
| |
• |
the Convertible Notes due 2033 are called for redemption; or |
| |
| |
• |
specified corporate transactions have occurred. |
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 accordance with the provisions
of EITF 04-8, additional shares of 0.4 million related
to the Convertible Notes due 2033 have been included in the
diluted weighted average common shares outstanding for 2004. The
inclusion in diluted earnings per share of all contingently
issuable stock is required regardless of whether or not the
above-mentioned triggers have been met.
36
ANIXTER INTERNATIONAL INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS —
(Continued)
In 2004, the Company excluded 1.4 million of common stock
equivalents relating to the Convertible Notes due 2020 from its
calculation of diluted income per share because the effect would
not have been dilutive. Because the Convertible Notes due 2020
were not included in the diluted shares outstanding, the related
$2.7 million of net interest expense was not excluded from
the determination of net income in the calculation of diluted
income per share.
In 2003 and 2002, the Company excluded from its calculation of
diluted income per share 6.3 million and 3.1 million
shares of common stock equivalents relating to Convertible Notes
due 2033 and 2020, respectively. The Convertible Notes due 2033
were excluded as the conversion value did not exceed the
accreted principle amount during 2003. The Convertible Notes due
2020 were excluded for both years because the effect would have
been antidilutive. Because the convertible notes were not
included in the diluted shares outstanding, the related
$4.0 million and $7.3 million of net interest expense
for 2003 and 2002, respectively, was not excluded from the
determination of income in the calculation of diluted income per
share.
|
|
| NOTE 3. |
EXTRAORDINARY GAIN |
In December 2003, the Company received $4.7 million from an
escrow account established in connection with the 1983
bankruptcy of Itel Corporation, the predecessor of the Company.
As of January 2, 2004, the Company was unable to determine
the appropriate beneficiary of this receipt and was in the
process of an investigation to determine its proper disposition.
As of January 2, 2004, the Company had not recorded income
associated with this receipt because of the uncertainty of the
beneficiary. During the first quarter of 2004, the Company
completed the investigation and concluded that the funds are the
property of the Company. Accordingly, in the first quarter of
2004, the Company recorded a $4.1 million extraordinary
after-tax gain as a result of the receipt.
|
|
| NOTE 4. |
IMPAIRMENT CHARGE |
Following the September 2002 acquisition of the assets and
operations of Pentacon, Anixter acquired Walters Hexagon as well
as the assets and operations of DDI. All three of these
businesses are engaged in the supply of “C” class
inventory components to original equipment manufacturers
throughout the United States and the United Kingdom along with a
location in each of France and Italy. As a part of bringing
these businesses together to form an industry leading supply
chain solution that combines the individual strengths and
expertise of the acquired companies with the financial strength
and global capabilities of Anixter, a new brand name, Anixter
Fastenerssm
was introduced in 2004 to reflect the combined capabilities. As
a result of this new brand name introduction, the Company
recorded an asset impairment charge in its North America
business segment of $1.8 million in 2004 to write-down to
fair value the value assigned to the Pentacon name when that
business was acquired by Anixter, as the Pentacon brand name
will no longer be used in the industrial operations.
On February 11, 2004, the Company’s Board of Directors
declared a special dividend of $1.50 per common share, or
$55.8 million, as a return of excess capital to
shareholders. On March 31, 2004, the Company paid
$55.1 million of the dividend to shareholders of record as
of March 16, 2004. In addition, as required by the plan
documents, the remaining dividend of $0.7 million was
accrued at December 31, 2004 for payments to be made on the
vesting date to holders of employee stock units and restricted
stock.
In accordance with the provisions of the stock option plan, the
exercise price and number of options outstanding were adjusted
to reflect the special dividend. The average exercise price of
outstanding options decreased from $21.48 to $20.40 and the
number of outstanding options increased from 4.3 million to
4.5 million. These changes resulted in no additional
compensation expense.
37
ANIXTER INTERNATIONAL INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS —
(Continued)
In accordance with the provisions of the enhanced incentive
plan, stock units granted in 2001 were adjusted to reflect the
special dividend. The number of outstanding stock units
associated with the 2001 grant increased from 53,680 to 56,531.
This change resulted in no additional compensation expense.
The conversion rate of the Convertible Notes due 2033 was
adjusted in March 2004 to reflect the special dividend. Holders
of the Convertible Notes due 2033 may convert each note into
13.5584 shares of the Company’s common stock to the
extent the conversion value exceeds the accreted value per note.
For further information regarding the conversion of the
Convertible Notes due 2033, see Note 8 “Debt.”
On June 22, 2004, the Company purchased substantially all
of the assets and operations of DDI. DDI was a privately held
value-added distributor of fasteners, hardware and related
products specializing in inventory logistics management programs
directed at supporting the production lines of original
equipment manufacturers across a broad spectrum of industries.
Headquartered in Eden Prairie, Minnesota, DDI employs
approximately 230 people located in sixteen locations in the
United States. The Company believes DDI’s business model
complements its strategy of building a global original equipment
manufacturer supply business. Included in the results of the
Company for 2004, are $34.2 million of sales and
$1.0 million of operating losses which includes
$0.8 million of acquisition related costs. The purchase was
funded with on-hand excess cash balances and cash available
under the Company’s revolving credit facility. The Company
purchased DDI for $32.9 million inclusive of legal and
advisory fees, acquiring tangible assets with a fair value of
$19.7 million. The tangible net assets primarily consist of
accounts receivable, inventory, fixed assets and prepaid
expenses. Based upon a third party valuation, the fair value of
customer relationships has been recorded in the Company’s
Consolidated Balance Sheet as of December 31, 2004. The
Company continues to evaluate the fair value of the remaining
assets. Intangible assets have been recorded as follows:
|
|
|
| |
• |
$2.8 million of intangible assets with a finite life of
8.5 years (customer relationships); and |
| |
| |
• |
$10.4 million of goodwill. |
In the third quarter of 2003, the Company purchased 100% of the
stock of Walters Hexagon. Headquartered in Worcester, England,
Walters Hexagon is a leading distributor of fasteners and other
small parts to original equipment manufacturers and provides
inventory management services to a range of markets and
industries. Walters Hexagon operates a network of nine service
centers in the United Kingdom, France and Italy and employs
approximately 350 people. The Company believes Walters
Hexagon’s business model and position as a value-added
distributor complements its existing U.S. original
equipment manufacturer supply business. The Company purchased
Walters Hexagon for $43.9 million and assumed
$0.7 million of debt, inclusive of legal and financial
advisory fees and the additional consideration discussed below,
acquiring tangible assets with a fair value of
$16.2 million. The tangible net assets primarily consist of
accounts receivable, inventory, office and warehouse equipment
and furnishings, accounts payable and select operating
liabilities. Based upon a third party valuation, assets and
liabilities have been recorded at estimated fair value based on
an allocation of the purchase price. Intangible assets are
recorded as follows:
|
|
|
| |
• |
$8.3 million of intangible assets with a finite life of
10 years (customer relationships); and |
| |
| |
• |
$20.1 million of goodwill. |
In accordance with the stock purchase agreement, the Company
paid additional consideration of £1.0 million
($1.9 million) in the fourth quarter of 2004. The
additional consideration paid in the fourth quarter of 2004 was
based only on actual operating performance of Walters Hexagon
and was recorded as an adjustment to the purchase price. The
stock purchase agreement also provides for additional
consideration of up to a maximum £2.5 million
($4.9 million at current exchange rates) based on the
future operating performance of Walters Hexagon and is also
contingent upon identified employees meeting certain service
38
ANIXTER INTERNATIONAL INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS —
(Continued)
requirements. The accrual for the additional consideration is
being recorded as compensation expense over the service period
through December 2006. The purchase was funded with on-hand
excess cash balances along with the assumption of
$0.7 million of Walters Hexagon’s debt. Included in
the results of the Company for 2004 and 2003 are
$108.6 million and $19.0 million of sales and
$4.4 million and $0.6 million of operating income,
respectively, related to Walters Hexagon.
On September 20, 2002, the Company completed the purchase
of the operations and assets of Pentacon a leading distributor
of fasteners and other small parts to original equipment
manufacturers and provider of inventory management services, for
a total of $111.4 million.
These acquisitions were accounted for as purchases and the
results of operations of the acquired businesses are included in
the consolidated financial statements from the date of
acquisition. Had these acquisitions occurred at the beginning of
the year of acquisition, the impact on the Company’s
operating results would not have been significant. Intangible
amortization expense is expected to be approximately
$2.8 million per year for the next five years.
Accrued expenses consisted of the following:
| |
|
|
|
|
|
|
|
|
|
| |
|
December 31, | |
|
January 2, | |
| |
|
2004 | |
|
2004 | |
| |
|
| |
|
| |
| |
|
(In millions) | |
|
Salaries and fringe benefits
|
|
$ |
59.8 |
|
|
$ |
40.7 |
|
|
Income tax payable
|
|
|
32.8 |
|
|
|
1.2 |
|
|
Other miscellaneous taxes
|
|
|
14.9 |
|
|
|
4.9 |
|
|
Facility
|
|
|
7.8 |
|
|
|
4.3 |
|
|
Selling and promotion
|
|
|
6.9 |
|
|
|
4.7 |
|
|
Freight
|
|
|
5.1 |
|
|
|
4.0 |
|
|
Discontinued operations
|
|
|
3.7 |
|
|
|
2.6 |
|
|
Professional fees
|
|
|
3.7 |
|
|
|
2.4 |
|
|
Other
|
|
|
8.7 |
|
|
|
16.0 |
|
| |
|
|
|
|
|
|
| |
Total accrued expenses
|
|
$ |
143.4 |
|
|
$ |
80.8 |
|
| |
|
|
|
|
|
|
Debt is summarized below:
| |
|
|
|
|
|
|
|
|
|
| |
|
December 31, | |
|
January 2, | |
| |
|
2004 | |
|
2004 | |
| |
|
| |
|
| |
| |
|
(In millions) | |
|
Accounts receivable securitization
|
|
$ |
161.8 |
|
|
$ |
— |
|
|
3.25% zero coupon convertible notes
|
|
|
150.9 |
|
|
|
146.1 |
|
|
7% zero coupon convertible notes
|
|
|
67.6 |
|
|
|
63.1 |
|
|
Bank revolving lines of credit
|
|
|
32.1 |
|
|
|
30.0 |
|
| |
|
|
|
|
|
|
| |
Total debt
|
|
$ |
412.4 |
|
|
$ |
239.2 |
|
| |
|
|
|
|
|
|
39
ANIXTER INTERNATIONAL INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS —
(Continued)
|
|
|
Accounts Receivable Securitization Program |
In October 2000, the Company entered into an accounts receivable
securitization program. The program allows the Company 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 securitization
program is a three-year agreement expiring in 2007. The assets
of ARC are not available to creditors of Anixter 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. Effective October 1,
2004, ARC, which was previously unconsolidated, is consolidated
in the financial statements of the Company (See Note 1
“Significant Accounting Policies”). At
December 31, 2004, ARC’s outstanding funding was
$161.8 million and had an effective interest rate of 2.90%.
The average outstanding funding extended to ARC during the year
ended December 31, 2004 and January 2, 2004 was
approximately $159.2 million and $130.1 million,
respectively. The effective funding rate on the ARC debt was
2.04%, 2.06% and 2.60% in 2004, 2003 and 2002, respectively.
Convertible Notes Due 2033
In July 2003, the Company issued $378.1 million of 3.25%
zero coupon convertible senior notes due 2033 (“Old
Securities”) and exchanged the notes in December 2004 for
new zero coupon convertible notes due 2033 (“New
Securities”). All but $5,000 of the Old Securities were
tendered in exchange for an equal amount of New Securities. Each
of the New Securities has a principal value at maturity of
$1,000.
The net proceeds from the issuance in July 2003 were
$139.8 million and were initially used (i) to fund
repurchases of $63.5 million of accreted value of the
Company’s outstanding 7% zero coupon convertible senior
notes from a limited number of holders, (ii) to fund
repurchases of approximately $17.2 million of the
Company’s common stock and (iii) for general corporate
purposes, including the repayment of working capital borrowings
under a floating rate bank line of credit. The Company expects
to reborrow such amounts under the line of credit from time to
time for general corporate purposes. The discount associated
with the issuance is being amortized through June 2033, using
the effective interest rate method. Issuance costs at
December 31, 2004 of approximately $4.2 million are
being amortized through June 2033 using the straight-line method.
The conversion of the Old Securities could be settled in stock,
cash or a combination of cash and stock. The conversion of the
New Securities will be settled in cash up to the accreted
principal amount of the convertible note. If the conversion
value of the convertible note exceeds the accreted principal
amount of the convertible note at the time of conversion, the
amount in excess of the accreted value will be settled in stock.
Similar to the Old Securities, holders of the New Securities may
convert each of them in any calendar quarter if:
|
|
|
| |
• |
the sales price of our common stock reaches specified thresholds; |
| |
| |
• |
during any period in which the credit rating assigned to the New
Securities is below a specified level; |
| |
| |
• |
the New Securities are called for redemption; or |
| |
| |
• |
specified corporate transactions have occurred. |
40
ANIXTER INTERNATIONAL INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS —
(Continued)
The Company may redeem the New Securities, at any time in whole
or in part, on July 7, 2011 for cash at the accreted value.
Additionally, holders may require the Company to purchase all or
a portion of their New Securities on the following dates:
|
|
|
| |
• |
July 7, 2007 at a price equal to $432.48 per
Convertible Note due 2033; |
| |
| |
• |
July 7, 2009 at a price equal to $461.29 per
Convertible Note due 2033; |
| |
| |
• |
July 7, 2011 at a price equal to $492.01 per
Convertible Note due 2033; |
| |
| |
• |
July 7, 2013 at a price equal to $524.78 per
Convertible Note due 2033; |
| |
| |
• |
July 7, 2018 at a price equal to $616.57 per
Convertible Note due 2033; |
| |
| |
• |
July 7, 2023 at a price equal to $724.42 per
Convertible Note due 2033; and |
| |
| |
• |
July 7, 2028 at a price equal to $851.13 per
Convertible Note due 2033. |
The company is required to pay the purchase price in cash.
The Company must pay contingent cash interest to the holders of
the New Securities during any six-month period commencing
July 7, 2011 if the average market price of the New
Securities for a five trading day measurement period preceding
the applicable six-month period equals 120% or more of the sum
of the original issuance price and accrued original issue
discount for the New Securities as of the day immediately
preceding the relevant six-month period. The contingent interest
payable per New Security in respect of any six-month period will
equal an annual rate of 0.25% of the average market price of a
New Security for the five trading day measurement period and
will be payable on the last day of the relevant six-month
period. Except for the contingent interest described above, the
Company will not pay cash interest on the New Securities prior
to maturity. The original issue discount will continue to accrue
at the yield to maturity whether or not contingent interest is
paid.
The New Securities are structurally subordinated to the
indebtedness of Anixter. The face value of the New Securities
outstanding was $378.1 million with a book value of
$150.9 million at December 31, 2004. The book value of
the Old Securities outstanding at January 2, 2004 was
$146.1 million.
Convertible Notes Due 2020
On June 28, 2000, the Company issued $792.0 million of
7% zero coupon convertible notes due 2020 (“Convertible
Notes due 2020”). The Convertible Notes due 2020 are
structurally subordinated to the indebtedness of Anixter. The
remaining face value of the Convertible Notes due 2020
outstanding was $196.3 million with a book value of
$67.6 million and $63.1 million at December 31,
2004 and January 2, 2004, respectively. The discount
associated with the issuance is being amortized through
June 28, 2020, using the effective interest rate method.
Remaining issuance costs at December 31, 2004 of
approximately $1.3 million are being amortized through June
2020 using the straight-line method.
The Company recorded losses on the extinguishment of debt of
$6.2 million and $0.3 million in its consolidated
statements of operations for the years ended January 2,
2004 and January 3, 2003, respectively,
41
ANIXTER INTERNATIONAL INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS —
(Continued)
for repurchases of these notes prior to their maturity and the
write-off of associated debt issuance costs. No repurchase
activity occurred in 2004. The repurchase activity for 2003 and
2002 is summarized below:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Years Ended | |
| |
|
| |
| |
|
January 2, 2004 | |
|
January 3, 2003 | |
| |
|
| |
|
| |
| |
|
(In millions) | |
| |
|
Book | |
|
|
|
Book | |
|
|
| |
|
Value | |
|
Cost | |
|
Value | |
|
Cost | |
| |
|
| |
|
| |
|
| |
|
| |
|
7% zero coupon convertible notes
|
|
$ |
67.5 |
|
|
$ |
72.2 |
|
|
$ |
109.7 |
|
|
$ |
107.2 |
|
|
Debt issuance costs written-off
|
|
$ |
1.5 |
|
|
$ |
— |
|
|
$ |
2.8 |
|
|
$ |
— |
|
Holders of the remaining Convertible Notes due 2020 may convert
at any time on or before the maturity date, unless the notes
have previously been redeemed or purchased, into
7.4603 shares of the Company’s common stock for which
the Company has reserved 1.4 million shares at
December 31, 2004 based on the number of currently
outstanding bonds. Additionally, holders may require the Company
to purchase all or a portion of their Convertible Notes due 2020
on the following dates:
|
|
|
| |
• |
June 28, 2005, at a price of $356.28 per Convertible
Note due 2020; |
| |
| |
• |
June 28, 2010, at a price of $502.57 per Convertible
Note due 2020; and |
| |
| |
• |
June 28, 2015, at a price of $708.92 per Convertible
Note due 2020. |
The Company is required to pay the purchase price in cash.
8% Senior Notes
During 2003, the Company retired the last of the outstanding
8% senior notes at maturity for $8.0 million. The
Company recorded a loss on the extinguishment of debt of
$0.4 million in 2002 from repurchases of a portion of these
notes prior to maturity.
Revolving Lines of Credit
On June 18, 2004, Anixter Inc. entered into a new
five-year, senior unsecured $275.0 million revolving credit
agreement to support future growth of the business. This new
facility replaces a similar sized facility that was set to
expire in October 2005. The borrowing rate under the new
revolving credit agreement is LIBOR plus 77.5 basis points.
In addition, there are facility fees on the revolving credit
facility equal to 22.5 basis points. The new agreement,
which is guaranteed by Anixter International Inc., contains
covenants that among other things restricts the leverage ratio
and sets a minimum fixed charge coverage ratio. In connection
with this refinancing, the company recorded a pre-tax loss of
$0.7 million in the second quarter of 2004 for the
write-off of deferred financing costs remaining from the
refinanced facility.
In March 2003, Anixter cancelled $115.0 million of the
$390.0 million refinanced five-year agreement that was set
to expire in October 2005 in order to reduce costs associated
with this excess availability. Accordingly, in 2003 Anixter
recorded a loss on the extinguishment of debt of approximately
$0.4 million to expense the financing fees associated with
this portion of the revolving credit agreement that was set to
expire in October 2005, in its consolidated statements of
operations.
At December 31, 2004, the primary liquidity source for
Anixter is the new $275.0 million, five-year revolving
credit agreement, $30.0 million of which was outstanding,
leaving $245.0 million available to be borrowed.
Approximately $67.0 million may be used to pay the Company
for intercompany liabilities. The borrowing rate on the
revolving credit agreement is LIBOR plus 77.5 basis points
and the interest rate on the $30.0 million outstanding
balance was 3.50% at December 31, 2004. Facility fees of
22.5 basis points in 2004 and 25.0 basis points in
2003 and 2002, respectively, payable on the five-year revolving
credit agreement
42
ANIXTER INTERNATIONAL INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS —
(Continued)
totaled $0.7 million, $0.7 million and
$1.0 million in 2004, 2003 and 2002, respectively, and were
included in interest expense in the consolidated statements of
operations. This revolving credit agreement requires certain
covenant ratios to be maintained. 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. See
Exhibit 4.3 for definitions of the covenant ratios. Under
the leverage ratio, as of December 31, 2004, all of the
$245.0 million available under bank revolving lines of
credit at Anixter would be permitted to be borrowed, of which
$190.7 million may be used to pay dividends to the Company.
At December 31, 2004 and January 2, 2004, certain
foreign subsidiaries had approximately $24.0 million and
$20.4 million, respectively, available under bank revolving
lines of credit, $2.1 million of which was outstanding at
December 31, 2004 and none at January 2, 2004.
Other
On December 17, 2004, Anixter Inc. filed a shelf
registration statement with the Securities and Exchange
Commission to offer from time to time up to $300.0 million
of debt securities, guaranteed by the Company. The registration
became effective on February 15, 2005.
Interest paid in 2004, 2003 and 2002 was $3.7 million,
$3.4 million and $4.3 million, respectively.
Certain debt agreements entered into by the Company’s
subsidiaries contain various restrictions, including
restrictions on payments to the Company. The Company has
guaranteed substantially all of the debt of its subsidiaries.
Restricted net assets of its subsidiaries were approximately
$979.4 million and $649.6 million at December 31,
2004 and January 2, 2004, respectively.
Aggregate annual maturities of debt at December 31, 2004
were as follows: 2005 — none; 2006 — none;
2007 — $161.8 million; 2008 — none;
2009 — $32.1 million; and $218.5 million
thereafter.
The estimated fair value of the Company’s debt at
December 31, 2004 and January 2, 2004 was
$467.2 million and $259.1 million, respectively, based
on public quotations and current market rates.
|
|
| NOTE 9. |
COMMITMENTS AND CONTINGENCIES |
Substantially all of the Company’s office and warehouse
facilities and equipment are leased under operating leases. A
certain number of these leases are long-term operating leases
containing rent escalation clauses and expire at various dates
through 2023. Most operating leases entered into by the Company
contain renewal options.
During 2003, the Company completed a sale and leaseback of its
corporate headquarters facility. Under the terms of the
transaction, Anixter received proceeds of $27.0 million
equal to the amount expended for construction of the facility
during 2002 and 2003. At the same time, Anixter entered into a
20-year operating lease agreement for the facility. Proceeds
from the transaction were used for general corporate purposes.
Minimum lease commitments under operating leases at
December 31, 2004 are as follows:
| |
|
|
|
|
| |
|
(In millions) | |
| |
|
| |
|
2005
|
|
$ |
43.8 |
|
|
2006
|
|
|
34.8 |
|
|
2007
|
|
|
26.1 |
|
|
2008
|
|
|
19.5 |
|
|
2009
|
|
|
17.2 |
|
|
2010 and thereafter
|
|
|
88.8 |
|
| |
|
|
|
|
Total
|
|
$ |
230.2 |
|
| |
|
|
|
43
ANIXTER INTERNATIONAL INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS —
(Continued)
Total rental expense was $57.8 million, $50.1 million
and $50.5 million in 2004, 2003 and 2002, respectively.
Aggregate future minimum rentals to be received under
noncancelable subleases at December 31, 2004 was
$4.8 million.
From time to time, in the ordinary course of business, the
Company and its subsidiaries become involved as plaintiffs or
defendants in various legal proceedings. The claims and
counterclaims in such litigation, including those for punitive
damages, individually in certain cases and in the aggregate,
involve amounts that may be material. However, it is the opinion
of the Company’s management, based upon the advice of its
counsel, that the ultimate disposition of pending litigation
will not be material to the Company’s financial position
and results of operation.
NOTE 10. INCOME TAXES
The Company and its U.S. subsidiaries file their federal
income tax return on a consolidated basis. As of
December 31, 2004, the Company had no net operating loss
(“NOL”) or tax credit carryforwards for
U.S. federal income tax purposes.
At December 31, 2004, various foreign subsidiaries of the
Company had aggregate cumulative NOL carryforwards for foreign
income tax purposes of approximately $134.2 million, which
are subject to various provisions of each respective country.
Approximately $40.0 million of this amount expires between
2005 and 2014 and $94.2 million of the amount has an
indefinite life.
Of the $134.2 million NOL carryforwards of foreign
subsidiaries mentioned above, $91.4 million relates to
losses that have already provided a tax benefit in the
U.S. due to rules permitting flow-through of such losses in
certain circumstances. Without such losses included, the
cumulative NOL carryforwards at December 31, 2004 were
approximately $42.8 million, which are subject to various
provisions of each respective country. Approximately
$25.2 million of this amount expires between 2005 and 2014
and $17.6 million of the amount has an indefinite life. The
deferred tax asset and valuation allowance, shown below relating
to foreign NOL carryforwards, have been adjusted to reflect only
the carryforwards for which the Company has not taken a tax
benefit in the United States. In 2004 and 2003, the Company
recorded a valuation allowance related to our foreign NOL
carryforwards to reduce the deferred tax asset to the amount
that is more likely than not to be realized.
Domestic income before income taxes was $85.8 million,
$44.9 million and $62.7 million for 2004, 2003 and
2002, respectively. Foreign income before income taxes was
$34.8 million, $28.0 million and $9.0 million for
2004, 2003 and 2002, respectively.
Undistributed earnings of the Company’s foreign
subsidiaries amounted to approximately $171.9 million at
December 31, 2004. Historically, the Company considered
those earnings to be indefinitely reinvested and, accordingly,
no provision for U.S. federal and state income taxes or any
withholding taxes has been recorded. Upon distribution of those
earnings in the form of dividends or otherwise, the Company may
be subject to both U.S. income taxes (subject to adjustment
for foreign tax credits) and withholding taxes payable to the
various foreign countries. The American Jobs Creation Act of
2004 (“AJCA”) has created an opportunity, and
incentive, for U.S. companies to cause the distribution of
earnings of foreign subsidiaries to the U.S. at a
significantly reduced U.S. tax cost, in many cases, compared to
the costs before such legislation. The requirements of this
legislation are highly complex and details continue to be
clarified in IRS pronouncements. The Company is studying the
feasibility of making distributions from its foreign
subsidiaries in 2005, which is the duration of the opportunity.
As a distribution business, the Company’s ability to
identify qualified investments is limited. Additionally, with
respect to the countries that have undistributed earnings as of
December 31, 2004, according to the foreign laws and
treaties in place at that time, estimated U.S. federal
income tax of approximately $27.0 million and various
foreign jurisdiction withholding taxes of approximately
$14.5 million would be payable upon the remittance of all
earnings at December 31, 2004. These computations
44
ANIXTER INTERNATIONAL INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS —
(Continued)
do not reflect the AJCA provided favorable taxation of such a
distribution as no “repatriation plan” was in effect
as of such date.
The Company had net payments for income taxes in 2004, 2003 and
2002 of $20.7 million, $27.4 million and
$26.1 million, respectively.
As of December 31, 2004, the Company has recorded a current
income tax payable of $32.8 million. The aggregate amount
of global income tax reserves and related interest recorded in
current taxes payable was approximately $15.1 million.
These reserves cover a wide range of issues and involve numerous
different taxing jurisdictions. The single largest item
($3.5 million) relates to a dispute with the state of
Wisconsin concerning income taxes payable upon the 1993 sale of
a short-line railroad that operated wholly within such state.
Other significant exposures for which reserves exist include,
but are not limited to, a variety of foreign jurisdictional
transfer pricing disputes and foreign withholding tax issues
related to inter-company transfers and services.
Significant components of the Company’s deferred tax assets
and (liabilities) were as follows:
| |
|
|
|
|
|
|
|
|
|
| |
|
December 31, | |
|
January 2, | |
| |
|
2004 | |
|
2004 | |
| |
|
| |
|
| |
| |
|
(In millions) | |
|
Accreted interest
|
|
$ |
(3.5 |
) |
|
$ |
(1.0 |
) |
|
Other
|
|
|
— |
|
|
|
(14.4 |
) |
| |
|
|
|
|
|
|
| |
Gross deferred tax liabilities
|
|
|
(3.5 |
) |
|
|
(15.4 |
) |
|
Deferred compensation
|
|
|
21.9 |
|
|
|
20.2 |
|
|
Foreign NOL carryforwards
|
|
|
15.4 |
|
|
|
19.1 |
|
|
Inventory reserves
|
|
|
9.1 |
|
|
|
10.2 |
|
|
Allowance for doubtful accounts
|
|
|
3.7 |
|
|
|
3.3 |
|
|
Depreciation and amortization
|
|
|
3.0 |
|
|
|
3.5 |
|
|
Other
|
|
|
5.6 |
|
|
|
4.2 |
|
| |
|
|
|
|
|
|
| |
Gross deferred tax assets
|
|
|
58.7 |
|
|
|
60.5 |
|
| |
|
|
|
|
|
|
| |
Gross net deferred tax assets
|
|
|
55.2 |
|
|
|
45.1 |
|
|
Valuation allowance
|
|
|
(12.5 |
) |
|
|
(19.1 |
) |
| |
|
|
|
|
|
|
| |
Net deferred tax assets
|
|
$ |
42.7 |
|
|
$ |
26.0 |
|
| |
|
|
|
|
|
|
|
Net current deferred tax assets
|
|
$ |
16.3 |
|
|
$ |
16.5 |
|
|
Net non-current deferred tax assets
|
|
|
26.4 |
|
|
|
9.5 |
|
| |
|
|
|
|
|
|
| |
Net deferred tax assets
|
|
$ |
42.7 |
|
|
$ |
26.0 |
|
| |
|
|
|
|
|
|
45
ANIXTER INTERNATIONAL INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS —
(Continued)
Income tax expense (benefit) from continuing operations was
comprised of:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Years Ended | |
| |
|
| |
| |
|
December 31, | |
|
January 2, | |
|
January 3, | |
| |
|
2004 | |
|
2004 | |
|
2003 | |
| |
|
| |
|
| |
|
| |
| |
|
(In millions) | |
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Foreign
|
|
$ |
15.1 |
|
|
$ |
10.6 |
|
|
$ |
9.7 |
|
| |
State
|
|
|
9.5 |
|
|
|
2.7 |
|
|
|
1.9 |
|
| |
Federal
|
|
|
39.1 |
|
|
|
7.8 |
|
|
|
15.4 |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
|
63.7 |
|
|
|
21.1 |
|
|
|
27.0 |
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Foreign
|
|
|
(5.7 |
) |
|
|
0.6 |
|
|
|
4.3 |
|
| |
State
|
|
|
(4.0 |
) |
|
|
0.7 |
|
|
|
0.2 |
|
| |
Federal
|
|
|
(7.0 |
) |
|
|
8.6 |
|
|
|
(2.8 |
) |
| |
|
|
|
|
|
|
|
|
|
| |
|
|
(16.7 |
) |
|
|
9.9 |
|
|
|
1.7 |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
Income tax expense
|
|
$ |
47.0 |
|
|
$ |
31.0 |
|
|
$ |
28.7 |
|
| |
|
|
|
|
|
|
|
|
|
Reconciliations of income tax expense on continuing operations
to the statutory corporate federal tax rate of 35% were as
follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Years Ended | |
| |
|
| |
| |
|
December 31, | |
|
January 2, | |
|
January 3, | |
| |
|
2004 | |
|
2004 | |
|
2003 | |
| |
|
| |
|
| |
|
| |
| |
|
(In millions) | |
|
Statutory tax expense
|
|
$ |
42.2 |
|
|
$ |
25.5 |
|
|
$ |
25.1 |
|
|
Increase (reduction) in taxes resulting from:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Foreign tax NOLs
|
|
|
(2.9 |
) |
|
|
0.3 |
|
|
|
4.7 |
|
| |
State income taxes
|
|
|
3.6 |
|
|
|
2.2 |
|
|
|
1.4 |
|
| |
IRS audit activity*
|
|
|
2.8 |
|
|
|
— |
|
|
|
— |
|
| |
Other foreign tax effects
|
|
|
0.8 |
|
|
|
0.4 |
|
|
|
1.8 |
|
| |
Other, net
|
|
|
0.5 |
|
|
|
2.6 |
|
|
|
(4.3 |
) |
| |
|
|
|
|
|
|
|
|
|
| |
|
Income tax expense
|
|
$ |
47.0 |
|
|
$ |
31.0 |
|
|
$ |
28.7 |
|
| |
|
|
|
|
|
|
|
|
|
* Charge associated with the conclusion of the
examination of the 1999-2001 federal income tax returns by the
IRS.
46
ANIXTER INTERNATIONAL INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS —
(Continued)
|
|
| NOTE 11. |
PENSION PLANS, POST-RETIREMENT BENEFITS AND OTHER BENEFITS |
The Company has various defined benefit and defined contributory
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 fund
investments.
The investment objective of both the Domestic and Foreign Plans
is to ensure, over the long-term life of the Plans, an adequate
level of assets to fund the benefits to employees and their
beneficiaries at the time they are payable. In meeting this
objective, Anixter seeks to achieve a high level of total
investment return consistent with a prudent level of portfolio
risk. The risk tolerance of Anixter indicates an above average
ability to accept risk relative to that of a typical
contributory or non-contributory pension plan as the duration of
the projected benefit obligation is longer than the average
company. The risk preference indicates a willingness to accept
some increases in short-term volatility in order to maximize
long-term returns.
The Domestic Plans’ and Foreign Plans’ asset mixes as
of December 31, 2004 and January 2, 2004 and the
Company’s asset allocation guidelines for such plans are
summarized as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Domestic Plans | |
| |
|
| |
| |
|
|
|
Allocation Guidelines | |
| |
|
December 31, | |
|
January 2, | |
|
| |
| |
|
2004 | |
|
2004 | |
|
Min | |
|
Target | |
|
Max | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
Large capitalization U.S. stocks
|
|
|
33.3 |
% |
|
|
34.0 |
% |
|
|
20 |
% |
|
|
30 |
% |
|
|
40% |
|
|
Small capitalization U.S. stocks
|
|
|
17.1 |
|
|
|
17.1 |
|
|
|
10 |
|
|
|
15 |
|
|
|
20 |
|
|
International stocks
|
|
|
14.9 |
|
|
|
14.4 |
|
|
|
10 |
|
|
|
15 |
|
|
|
20 |
|
|
Convertible investments
|
|
|
9.4 |
|
|
|
9.9 |
|
|
|
5 |
|
|
|
10 |
|
|
|
15 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity securities
|
|
|
74.7 |
|
|
|
75.4 |
|
|
|
|
|
|
|
70 |
|
|
|
|
|
|
Fixed income investments
|
|
|
24.7 |
|
|
|
24.2 |
|
|
|
25 |
|
|
|
30 |
|
|
|
35 |
|
|
Other investments
|
|
|
0.6 |
|
|
|
0.4 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
|
|
|
|
100 |
% |
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Foreign Plans | |
| |
|
| |
| |
|
|
|
Allocation Guidelines | |
| |
|
December 31, | |
|
January 2, | |
|
| |
| |
|
2004 | |
|
2004 | |
|
|
|
Target | |
|
|
| |
|
| |
|
| |
|
|
|
| |
|
|
|
Equity securities
|
|
|
73.3 |
% |
|
|
75.4 |
% |
|
|
|
|
|
|
70 |
% |
|
|
|
|
|
Fixed income investments
|
|
|
21.0 |
|
|
|
21.3 |
|
|
|
|
|
|
|
20 |
|
|
|
|
|
|
Other investments
|
|
|
5.7 |
|
|
|
3.3 |
|
|
|
|
|
|
|
10 |
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
|
|
|
|
100 |
% |
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
47
ANIXTER INTERNATIONAL INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS —
(Continued)
The pension committees meet regularly to assess investment
performance and re-allocate assets that fall outside of its
allocation guidelines.
The North American investment policy guidelines are as follows:
|
|
|
| |
• |
Each asset class is actively managed by one investment manager; |
| |
| |
• |
Each asset class may be invested in a commingled fund, mutual
fund, or separately managed account; |
| |
| |
• |
Each manager is expected to be “fully invested” with
minimal cash holdings; |
| |
| |
• |
The use of options and futures is limited to covered hedges only; |
| |
| |
• |
Each equity asset manager has a minimum number of individual
company stocks that need to be held and there are restrictions
on the total market value that can be invested in any one
industry and the percentage that any one company can be of the
portfolio total. The domestic equity funds are limited as to the
percentage that can be invested in international securities; |
| |
| |
• |
The international stock fund is limited to readily marketable
securities; and |
| |
| |
• |
The fixed income fund has similar restrictions as the equity
funds and is further restricted by minimum investment ratings. |
The investment policies for the European plans are the
responsibility of the various trustees. Generally, the
investment policy guidelines are as follows:
|
|
|
| |
• |
Make sure that the obligations to the beneficiaries of the Plan
can be met; |
| |
| |
• |
Maintain funds at a level to meet the minimum funding
requirements; and |
| |
| |
• |
The investment managers are expected to provide a return, within
certain tracking tolerances, close to that of the relevant
market’s indices. |
48
ANIXTER INTERNATIONAL INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS —
(Continued)
The expected long-term rate of return on both the Domestic and
Foreign Plans’ assets reflects the average rate of earnings
expected on the invested assets and future assets to be invested
to provide for the benefits included in the projected benefit
obligation. The expected rate of return on plan assets for 2005
is 7.95%.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Pension Benefits | |
| |
|
| |
| |
|
Domestic | |
|
Foreign | |
|
Total | |
| |
|
| |
|
| |
|
| |
| |
|
2004 | |
|
2003 | |
|
2004 | |
|
2003 | |
|
2004 | |
|
2003 | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| |
|
(In millions) | |
|
Change in projected benefit obligation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Beginning balance
|
|
$ |
115.2 |
|
|
$ |
100.1 |
|
|
$ |
62.3 |
|
|
$ |
39.1 |
|
|
$ |
177.5 |
|
|
$ |
139.2 |
|
| |
Service cost
|
|
|
6.0 |
|
|
|
5.1 |
|
|
|
3.9 |
|
|
|
3.4 |
|
|
|
9.9 |
|
|
|
8.5 |
|
| |
Interest cost
|
|
|
7.4 |
|
|
|
6.4 |
|
|
|
3.7 |
|
|
|
2.4 |
|
|
|
11.1 |
|
|
|
8.8 |
|
| |
Plan participants contributions
|
|
|
— |
|
|
|
— |
|
|
|
0.3 |
|
|
|
— |
|
|
|
0.3 |
|
|
|
— |
|
| |
Net effect of settlement
|
|
|
— |
|
|
|
— |
|
|
|
(0.1 |
) |
|
|
(2.2 |
) |
|
|
(0.1 |
) |
|
|
(2.2 |
) |
| |
Actuarial loss
|
|
|
12.7 |
|
|
|
6.7 |
|
|
|
6.0 |
|
|
|
1.5 |
|
|
|
18.7 |
|
|
|
8.2 |
|
| |
Acquisition
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
13.2 |
|
|
|
— |
|
|
|
13.2 |
|
| |
Amendment
|
|
|
(0.1 |
) |
|
|
— |
|
|
|
1.2 |
|
|
|
— |
|
|
|
1.1 |
|
|
|
— |
|
| |
Benefits paid
|
|
|
(3.2 |
) |
|
|
(3.1 |
) |
|
|
(0.7 |
) |
|
|
(1.0 |
) |
|
|
(3.9 |
) |
|
|
(4.1 |
) |
| |
Unrecognized prior service cost
|
|
|
4.6 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
4.6 |
|
|
|
— |
|
| |
Foreign currency exchange rate changes
|
|
|
— |
|
|
|
— |
|
|
|
5.9 |
|
|
|
5.9 |
|
|
|
5.9 |
|
|
|
5.9 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Ending balance
|
|
$ |
142.6 |
|
|
$ |
115.2 |
|
|
$ |
82.5 |
|
|
$ |
62.3 |
|
|
$ |
225.1 |
|
|
$ |
177.5 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in plan assets at fair value:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Beginning balance
|
|
$ |
75.0 |
|
|
$ |
58.2 |
|
|
$ |
43.5 |
|
|
$ |
27.7 |
|
|
$ |
118.5 |
|
|
$ |
85.9 |
|
| |
Actual return on plan assets
|
|
|
7.4 |
|
|
|
14.6 |
|
|
|
3.5 |
|
|
|
2.4 |
|
|
|
10.9 |
|
|
|
17.0 |
|
| |
Acquisitions
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
8.3 |
|
|
|
— |
|
|
|
8.3 |
|
| |
Company contributions
|
|
|
6.3 |
|
|
|
5.3 |
|
|
|
3.9 |
|
|
|
3.0 |
|
|
|
10.2 |
|
|
|
8.3 |
|
| |
Plan participants contributions
|
|
|
— |
|
|
|
— |
|
|
|
0.3 |
|
|
|
— |
|
|
|
0.3 |
|
|
|
— |
|
| |
Benefits paid
|
|
|
(3.2 |
) |
|
|
(3.1 |
) |
|
|
(0.7 |
) |
|
|
(1.0 |
) |
|
|
(3.9 |
) |
|
|
(4.1 |
) |
| |
Net effect of settlement
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(1.2 |
) |
|
|
— |
|
|
|
(1.2 |
) |
| |
Foreign currency exchange rate changes
|
|
|
— |
|
|
|
— |
|
|
|
6.0 |
|
|
|
4.3 |
|
|
|
6.0 |
|
|
|
4.3 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Ending balance
|
|
$ |
85.5 |
|
|
$ |
75.0 |
|
|
$ |
56.5 |
|
|
$ |
43.5 |
|
|
$ |
142.0 |
|
|
$ |
118.5 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of funded status:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Projected benefit obligation
|
|
$ |
(142.6 |
) |
|
$ |
(115.2 |
) |
|
$ |
(82.5 |
) |
|
$ |
(62.3 |
) |
|
$ |
(225.1 |
) |
|
$ |
(177.5 |
) |
| |
Plan assets at fair value
|
|
|
85.5 |
|
|
|
75.0 |
|
|
|
56.5 |
|
|
|
43.5 |
|
|
|
142.0 |
|
|
|
118.5 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Funded status
|
|
|
(57.1 |
) |
|
|
(40.2 |
) |
|
|
(26.0 |
) |
|
|
(18.8 |
) |
|
|
(83.1 |
) |
|
|
(59.0 |
) |
| |
Unrecognized net actuarial loss
|
|
|
26.8 |
|
|
|
15.5 |
|
|
|
13.5 |
|
|
|
7.7 |
|
|
|
40.3 |
|
|
|
23.2 |
|
| |
Unrecognized prior service cost
|
|
|
5.9 |
|
|
|
1.7 |
|
|
|
0.2 |
|
|
|
0.3 |
|
|
|
6.1 |
|
|
|
2.0 |
|
| |
Minimum pension liability
|
|
|
(4.2 |
) |
|
|
— |
|
|
|
(2.7 |
) |
|
|
(0.8 |
) |
|
|
(6.9 |
) |
|
|
(0.8 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Accrued benefit cost
|
|
$ |
(28.6 |
) |
|
$ |
(23.0 |
) |
|
$ |
(15.0 |
) |
|
$ |
(11.6 |
) |
|
$ |
(43.6 |
) |
|
$ |
(34.6 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average assumptions used for measurement of the
projected benefit obligation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Discount rate
|
|
|
5.90 |
% |
|
|
6.25 |
% |
|
|
5.59 |
% |
|
|
5.66 |
% |
|
|
5.79 |
% |
|
|
6.04% |
|
| |
Salary growth rate
|
|
|
4.80 |
% |
|
|
5.44 |
% |
|
|
3.80 |
% |
|
|
3.89 |
% |
|
|
4.41 |
% |
|
|
4.82% |
|
49
ANIXTER INTERNATIONAL INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS —
(Continued)
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Pension Benefits | |
| |
|
| |
| |
|
Domestic | |
|
Foreign | |
|
Total | |
| |
|
| |
|
| |
|
| |
| |
|
2004 | |
|
2003 | |
|
2002 | |
|
2004 | |
|
2003 | |
|
2002 | |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| |
|
(In millions) | |
|
Components of net periodic cost:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Service cost
|
|
$ |
6.0 |
|
|
$ |
5.1 |
|
|
$ |
4.1 |
|
|
$ |
3.9 |
|
|
$ |
3.4 |
|
|
$ |
3.0 |
|
|
$ |
9.9 |
|
|
$ |
8.5 |
|
|
$ |
7.1 |
|
| |
Interest cost
|
|
|
7.4 |
|
|
|
6.4 |
|
|
|
6.3 |
|
|
|
3.7 |
|
|
|
2.4 |
|
|
|
2.0 |
|
|
|
11.1 |
|
|
|
8.8 |
|
|
|
8.3 |
|
| |
Expected return on plan assets
|
|
|
(6.5 |
) |
|
|
(5.3 |
) |
|
|
(6.1 |
) |
|
|
(3.4 |
) |
|
|
(2.2 |
) |
|
|
(2.1 |
) |
|
|
(9.9 |
) |
|
|
(7.5 |
) |
|
|
(8.2 |
) |
| |
Net amortization
|
|
|
0.9 |
|
|
|
0.7 |
|
|
|
0.1 |
|
|
|
0.2 |
|
|
|
0.2 |
|
|
|
(0.2 |
) |
|
|
1.1 |
|
|
|
0.9 |
|
|
|
(0.1 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Periodic benefit cost prior to settlement
|
|
|
7.8 |
|
|
|
6.9 |
|
|
|
4.4 |
|
|
|
4.4 |
|
|
|
3.8 |
|
|
|
2.7 |
|
|
|
12.2 |
|
|
|
10.7 |
|
|
|
7.1 |
|
| |
Net settlement
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(1.6 |
) |
|
|
— |
|
|
|
— |
|
|
|
(1.6 |
) |
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Net periodic cost
|
|
$ |
7.8 |
|
|
$ |
6.9 |
|
|
$ |
4.4 |
|
|
$ |
4.4 |
|
|
$ |
2.2 |
|
|
$ |
2.7 |
|
|
$ |
12.2 |
|
|
$ |
9.1 |
|
|
$ |
7.1 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average assumption used to measure
net periodic cost:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Discount rate
|
|
|
6.25 |
% |
|
|
6.75 |
% |
|
|
7.25 |
% |
|
|
5.66 |
% |
|
|
5.69 |
% |
|
|
5.71 |
% |
|
|
6.03 |
% |
|
|
6.45 |
% |
|
|
6.81 |
% |
| |
Expected return on plan assets
|
|
|
8.50 |
% |
|
|
9.00 |
% |
|
|
9.00 |
% |
|
|
7.11 |
% |
|
|
7.19 |
% |
|
|
7.22 |
% |
|
|
7.95 |
% |
|
|
8.42 |
% |
|
|
8.43 |
% |
| |
Salary growth rate
|
|
|
5.44 |
% |
|
|
5.44 |
% |
|
|
5.44 |
% |
|
|
3.89 |
% |
|
|
3.89 |
% |
|
|
3.95 |
% |
|
|
4.83 |
% |
|
|
4.82 |
% |
|
|
4.82 |
% |
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Estimated Future Benefit | |
| |
|
Payments | |
| |
|
| |
| |
|
Domestic | |
|
Foreign | |
|
Total | |
| |
|
| |
|
| |
|
| |
|
2005
|
|
$ |
3.2 |
|
|
$ |
0.4 |
|
|
$ |
3.6 |
|
|
2006
|
|
|
3.3 |
|
|
|
0.5 |
|
|
|
3.8 |
|
|
2007
|
|
|
3.4 |
|
|
|
0.5 |
|
|
|
3.9 |
|
|
2008
|
|
|
3.7 |
|
|
|
0.6 |
|
|
|
4.3 |
|
|
2009
|
|
|
3.9 |
|
|
|
0.7 |
|
|
|
4.6 |
|
|
2010-2014
|
|
|
29.5 |
|
|
|
7.2 |
|
|
|
36.7 |
|
| |
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
47.0 |
|
|
$ |
9.9 |
|
|
$ |
56.9 |
|
| |
|
|
|
|
|
|
|
|
|
The accumulated benefit obligation for the Domestic Plans in
2004 and 2003 was $109.9 million and $87.6 million,
respectively, and for the Foreign Plans it was
$61.1 million and $45.6 million, respectively. The
Company has seven plans in 2004 and five plans in 2003 where the
accumulated benefit obligation is in excess of the fair value of
plan assets.
A minimum pension liability is defined as the difference between
the accumulated benefit obligation and the underlying pension
plan assets and the accrued pension liability. In 2004, the
Company was required to record a minimum pension liability of
$4.2 million relating to the Domestic Plans. There was no
income statement impact as the offset to the minimum pension
liability adjustment for the Domestic Plans was an intangible
asset of $4.2 million in 2004. No additional minimum
pension liability existed in 2003. In 2004 and 2003, the Company
recorded a minimum pension liability of $2.7 million and
$0.8 million, respectively, relating to its Foreign Plans.
The Foreign Plans’ offset, net of deferred taxes, was to
other comprehensive income of $1.3 million and
$0.5 million in 2004 and 2003, respectively. In 2003, two
foreign defined benefit pension plans were terminated and
replaced by two foreign defined contribution plans. As a result
of the settlement, the Company realized a cumulative gain of
$1.6 million, net of tax, which was recorded in the year
ended January 2, 2004 consolidated results of operations.
The measurement date for all plans is December 31.
The Company currently estimates that it will make contributions
of approximately $6.0 million to its Domestic Plan and
$4.0 million to its Foreign Plans in 2005.
50
ANIXTER INTERNATIONAL INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS —
(Continued)
Non-union domestic employees of the Company hired on or after
June 1, 2004 earn a benefit under a personal retirement
account (cash balance account). Each year, a participant’s
account receives a credit equal to 2.0% of the
participant’s salary (2.5% if the participant’s years
of service at the beginning of the plan year are five or more).
Interest earned on the credited amount is not credited to the
personal retirement account, but is contributed to the
participant’s account in the Anixter Inc. Employee Savings
Plan. The contribution equals the interest earned on the
personal retirement account in the Domestic Plan and is based on
the 10-year Treasury securities rate as of the last business day
of December.
Anixter Inc. adopted the Anixter Inc. Employee Savings Plan
effective January 1, 1994. The Plan is a
defined-contribution plan covering all non-union domestic
employees of the Company. Participants are eligible and
encouraged to enroll in the tax-deferred plan on their date of
hire. The savings plan is subject to the provisions of ERISA.
The Company makes a matching contribution equal to 25% of a
participant’s contribution, up to 6% of a
participant’s compensation. The Company’s
contributions to these plans are based upon various levels of
employee participation. The total cost of all of the defined
contribution plans was $1.9 million, $1.5 million and
$1.6 million in 2004, 2003 and 2002, respectively.
The Company has no other post-retirement benefits other than the
pension plans and savings plans described herein.
A non-qualified deferred compensation plan was implemented on
January 1, 1995. The plan permits selected employees to
make pre-tax deferrals of salary and bonus. Interest is accrued
quarterly on the deferred compensation balances based on the
average 10-year treasury note rate for the previous three
months times a factor of 1.4, and the rate is further adjusted
if certain Company financial goals are achieved. The plan
provides for benefit payments upon retirement, death,
disability, termination or other scheduled dates determined by
the participant. At December 31, 2004 and January 2,
2004, the long-term deferred compensation liability was
$20.6 million and $17.4 million, respectively.
Concurrent with the implementation of the deferred compensation
plan, the Company purchased variable, separate account life
insurance policies on the lives of the participants. To provide
for the liabilities associated with the deferred compensation
plan and an executive non-qualified defined benefit plan, fixed
general account “increasing whole life” insurance
policies were purchased on the lives of certain participants.
The Company pays level annual premiums on the above
company-owned policies. The last premium is due in 2005. Policy
proceeds are payable to the Company upon the insured
participant’s death. At December 31, 2004 and
January 2, 2004, the cash surrender value of
$28.2 million and $23.9 million, respectively, was
recorded under this program and reflected in “Other
assets” on the consolidated balance sheets.
|
|
| NOTE 12. |
PREFERRED STOCK AND COMMON STOCK |
The Company has the authority to issue 15.0 million shares
of preferred stock, par value $1.00 per share, none of
which was outstanding at the end of 2004 and 2003.
The Company has the authority to issue 100.0 million shares
of common stock, par value $1.00 per share, of which
37.4 million shares and 36.4 million shares were
outstanding at the end of 2004 and 2003, respectively.
In 2003, the Company repurchased 1.6 million shares at an
average cost of $22.74. Purchases were made in the open market
and were financed from cash generated by operations and the net
proceeds ($139.8 million) from the issuance of
$378.1 million of the Convertible Notes due 2033. No shares
were repurchased in
51
ANIXTER INTERNATIONAL INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS —
(Continued)
2004 or 2002. However, the Company may purchase additional
shares with the volume and timing dependent on market conditions.
|
|
|
Restricted Shares and Stock Units |
The Company issued restricted shares in 2000, 2001 and 2002. The
2002 issuance was cancelled in 2003. Restricted stock fully
vests after four years from the date of grant. At
December 31, 2004, there were 10,447 restricted shares
outstanding which will vest on January 2, 2005.
Compensation expense associated with the restricted stock grants
was $0.2 million, $0.8 million and $1.7 million
in 2004, 2003 and 2002, respectively.
Beginning in 2003, the Company granted stock units in lieu of
employee stock options under the 2001 Stock Incentive Plan. The
Company granted approximately 244,630 stock units to employees
in 2004 and 248,000 in 2003 with a weighted-average grant date
fair value of $30.50 and $23.34 per share, respectively.
The grant date value of the stock units is amortized and
converted to common stock over a four-year vesting period from
the date of grant. Compensation expense associated with the
stock units was $4.6 million, $2.2 million and
$1.1 million in 2004, 2003 and 2002, respectively.
In 1996, the Company adopted a Director Stock Unit Plan to pay
its non-employee directors annual retainer fees in the form of
stock units. These stock units convert to common stock of the
Company at a pre-arranged time selected by each director. Stock
units were granted to eleven directors in 2004, ten directors in
2003 and nine directors in 2002 having an aggregate value at
grant date of $1.0 million, $1.1 million and
$0.6 million, respectively.
The following table summarizes the activity under the director
and employee stock unit plans:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
Weighted | |
|
|
|
Weighted | |
| |
|
Director | |
|
Average | |
|
Employee | |
|
Average | |
| |
|
Stock | |
|
Grant Date | |
|
Stock | |
|
Grant Date | |
| |
|
Units | |
|
Value | |
|
Units | |
|
Value | |
| |
|
| |
|
| |
|
| |
|
| |
| |
|
(Units in thousands) | |
|
Balance at December 28, 2001
|
|
|
83.0 |
|
|
$ |
21.32 |
|
|
|
161.0 |
|
|
$ |
18.81 |
|
|
Granted
|
|
|
24.8 |
|
|
|
23.02 |
|
|
|
— |
|
|
|
— |
|
|
Converted
|
|
|
(6.6 |
) |
|
|
18.33 |
|
|
|
(53.6 |
) |
|
|
18.81 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 3, 2003
|
|
|
101.2 |
|
|
|
21.93 |
|
|
|
107.4 |
|
|
|
18.81 |
|
|
Granted
|
|
|
47.8 |
|
|
|
23.56 |
|
|
|
248.0 |
|
|
|
23.34 |
|
|
Converted
|
|
|
(7.1 |
) |
|
|
26.32 |
|
|
|
(53.6 |
) |
|
|
18.81 |
|
|
Canceled
|
|
|
— |
|
|
|
— |
|
|
|
(17.1 |
) |
|
|
22.89 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 2, 2004
|
|
|
141.9 |
|
|
|
22.26 |
|
|
|
284.7 |
|
|
|
22.51 |
|
|
Adjustment *
|
|
|
— |
|
|
|
— |
|
|
|
2.8 |
|
|
|
18.81 |
|
|
Granted
|
|
|
30.4 |
|
|
|
33.24 |
|
|
|
244.6 |
|
|
|
30.50 |
|
|
Converted
|
|
|
(9.2 |
) |
|
|
26.87 |
|
|
|
— |
|
|
|
— |
|
|
Canceled
|
|
|
— |
|
|
|
— |
|
|
|
(6.4 |
) |
|
|
25.57 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2004
|
|
|
163.1 |
|
|
$ |
24.05 |
|
|
|
525.7 |
|
|
$ |
26.17 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
* In accordance with the provisions of the enhanced
incentive plan, stock units granted in 2001 were adjusted to
reflect the special dividend. The number of outstanding stock
units associated with the 2001 grant increased from 53,680 to
56,531. This change resulted in no additional compensation
expense.
52
ANIXTER INTERNATIONAL INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS —
(Continued)
|
|
|
Stock Options and Stock Grants |
At December 31, 2004, the Company had reserved a total of
7.4 million shares for future issuance, 6.6 million of
which were reserved for the holders of the convertible notes as
discussed in Note 8 “Debt.” Additionally, the
Company had stock incentive plans that reserve 0.8 million
shares 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. One-fourth of the
employee options granted become exercisable each year after the
year of grant. The director options fully vest in one year. All
options expire ten years after the date of grant.
The following table summarizes the 2004, 2003 and 2002 activity
under the employee and director option plans:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
Weighted | |
|
|
|
Weighted | |
| |
|
|
|
Average | |
|
|
|
Average | |
| |
|
Employee | |
|
Exercise | |
|
Director | |
|
Exercise | |
| |
|
Options | |
|
Price | |
|
Options | |
|
Price | |
| |
|
| |
|
| |
|
| |
|
| |
| |
|
(Options in thousands) | |
|
Balance at December 28, 2001
|
|
|
4,084.6 |
|
|
$ |
19.37 |
|
|
|
220.0 |
|
|
$ |
15.57 |
|
|
Granted
|
|
|
1,216.5 |
|
|
|
25.86 |
|
|
|
— |
|
|
|
— |
|
|
Exercised
|
|
|
(407.7 |
) |
|
|
15.46 |
|
|
|
(60.0 |
) |
|
|
8.42 |
|
|
Canceled
|
|
|
(55.9 |
) |
|
|
22.65 |
|
|
|
— |
|
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 3, 2003
|
|
|
4,837.5 |
|
|
|
21.30 |
|
|
|
160.0 |
|
|
|
18.26 |
|
|
Exercised
|
|
|
(233.9 |
) |
|
|
15.95 |
|
|
|
(60.0 |
) |
|
|
16.22 |
|
|
Canceled
|
|
|
(116.1 |
) |
|
|
24.34 |
|
|
|
— |
|
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 2, 2004
|
|
|
4,487.5 |
|
|
|
21.50 |
|
|
|
100.0 |
|
|
|
19.47 |
|
|
Adjustment*
|
|
|
224.9 |
|
|
|
20.28 |
|
|
|
4.5 |
|
|
|
18.75 |
|
|
Exercised
|
|
|
(846.0 |
) |
|
|
20.63 |
|
|
|
(62.4 |
) |
|
|
17.74 |
|
|
Canceled
|
|
|
(15.9 |
) |
|
|
23.50 |
|
|
|
— |
|
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2004
|
|
|
3,850.5 |
|
|
$ |
20.37 |
|
|
|
42.1 |
|
|
$ |
19.65 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercisable at year-end:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
2002
|
|
|
2,184.9 |
|
|
$ |
18.49 |
|
|
|
160.0 |
|
|
$ |
18.26 |
|
| |
2003
|
|
|
2,906.3 |
|
|
$ |
19.58 |
|
|
|
100.0 |
|
|
$ |
19.47 |
|
| |
2004
|
|
|
3,000.9 |
|
|
$ |
19.20 |
|
|
|
42.1 |
|
|
$ |
19.65 |
|
|
|
| * |
In accordance with the provisions of the stock option plan,
the exercise price and number of options outstanding were
adjusted to reflect the special dividend (See Note 5
“Special Dividend”). |
53
ANIXTER INTERNATIONAL INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS —
(Continued)
The weighted average remaining life of the director stock
options is 1.0 year. The following table summarizes
information relating to employee options outstanding and
exercisable at December 31, 2004, using various ranges of
exercise prices:
Employee Options
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Options Outstanding | |
|
Options Exercisable | |
| |
|
| |
|
| |
| |
|
|
|
Weighted | |
|
Weighted | |
|
|
|
Weighted | |
| |
|
|
|
Average | |
|
Average | |
|
|
|
Average | |
| Range of |
|
|
|
Exercise | |
|
Remaining | |
|
|
|
Exercise | |
| Exercise Prices |
|
Outstanding | |
|
Price | |
|
Years | |
|
Exercisable | |
|
Price | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| |
|
(Options in thousands) | |
|
$12.05-$17.75
|
|
|
1,108.2 |
|
|
$ |
14.47 |
|
|
|
4.1 |
|
|
|
1,108.2 |
|
|
$ |
14.47 |
|
|
$18.64-$27.60
|
|
|
2,727.0 |
|
|
$ |
22.72 |
|
|
|
6.5 |
|
|
|
1,883.8 |
|
|
$ |
21.94 |
|
|
$28.30-$30.39
|
|
|
15.3 |
|
|
$ |
28.43 |
|
|
|
7.7 |
|
|
|
8.9 |
|
|
$ |
28.50 |
|
Employee Stock Purchase Plan
The Company discontinued the Employee Stock Purchase Plan
(“ESPP”) at the end of the 2003 plan year on
June 30, 2004. Participants could request that up to 10% of
their base compensation be applied toward the purchase of common
stock under the Company’s ESPP. The discounted purchase
price for the ESPP on June 30, 2004 was $19.92, or 85% of
the fair market value of the common stock at the beginning of
the ESPP year, July 1, 2003. Under the ESPP, the Company
sold 87,274 shares, 92,503 shares and
81,900 shares to employees in 2004, 2003 and 2002,
respectively.
Stock Option Plans of Anixter Inc.
In 1995 and prior years, Anixter granted to key employees
options to purchase the common stock of Anixter. Substantially
all options were granted with exercise prices at the fair market
value of the common stock on the date of grant. These options
vested over four years and terminated seven to ten years from
the date of grant. As of January 3, 2003, there were no
Anixter options outstanding. At December 31, 2004, the
Company owned 100.0% of the approximately 2,714 shares of
outstanding Anixter common stock. In 2002, the balance of 18,000
options were exercised at a value of $14.50 under this program.
In 2004 and 2003, there was no stock option activity related to
the Anixter stock option plan.
NOTE 13. 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. Interest expense and other non-operating items are
not allocated to the segments or reviewed on a segment basis.
In 2004, the Company recorded an extraordinary gain of
$4.1 million and an impairment charge of $1.8 million
in its North America segment. Tangible long-lived assets in the
United States declined $35.2 million primarily due to the
elimination of Anixter’s investment in Anixter Receivables
Corporation, as
54
ANIXTER INTERNATIONAL INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS —
(Continued)
it is now a consolidated entity. No customer accounted for 10%
or more of sales in 2004, 2003 or 2002. Export sales were
insignificant. Segment information for 2004, 2003 and 2002 was
as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
North America | |
|
|
|
|
|
|
| |
|
| |
|
|
|
|
|
|
| |
|
United | |
|
|
|
|
|
Emerging | |
|
|
| |
|
States | |
|
Canada | |
|
Total | |
|
Europe | |
|
Markets | |
|
Total | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| |
|
(In millions) | |
|
2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$ |
2,169.9 |
|
|
$ |
324.6 |
|
|
$ |
2,494.5 |
|
|
$ |
554.3 |
|
|
$ |
226.4 |
|
|
$ |
3,275.2 |
|
|
Operating income
|
|
|
103.1 |
|
|
|
17.1 |
|
|
|
120.2 |
|
|
|
9.9 |
|
|
|
7.9 |
|
|
|
138.0 |
|
|
Depreciation
|
|
|
12.4 |
|
|
|
0.7 |
|
|
|
13.1 |
|
|
|
2.5 |
|
|
|
0.8 |
|
|
|
16.4 |
|
|
Amortization
|
|
|
8.3 |
|
|
|
— |
|
|
|
8.3 |
|
|
|
0.9 |
|
|
|
— |
|
|
|
9.2 |
|
|
Goodwill
|
|
|
248.4 |
|
|
|
13.8 |
|
|
|
262.2 |
|
|
|
24.4 |
|
|
|
7.0 |
|
|
|
293.6 |
|
|
Tangible long-lived assets
|
|
|
59.7 |
|
|
|
2.0 |
|
|
|
61.7 |
|
|
|
8.1 |
|
|
|
2.3 |
|
|
|
72.1 |
|
|
Total assets
|
|
|
1,163.7 |
|
|
|
145.4 |
|
|
|
1,309.1 |
|
|
|
271.8 |
|
|
|
125.7 |
|
|
|
1,706.6 |
|
|
Capital expenditures
|
|
|
10.5 |
|
|
|
0.7 |
|
|
|
11.2 |
|
|
|
2.5 |
|
|
|
0.8 |
|
|
|
14.5 |
|
|
2003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$ |
1,794.4 |
|
|
$ |
249.7 |
|
|
$ |
2,044.1 |
|
|
$ |
393.1 |
|
|
$ |
188.0 |
|
|
$ |
2,625.2 |
|
|
Operating income
|
|
|
62.3 |
|
|
|
13.4 |
|
|
|
75.7 |
|
|
|
14.4 |
|
|
|
2.2 |
|
|
|
92.3 |
|
|
Depreciation
|
|
|
14.4 |
|
|
|
0.7 |
|
|
|
15.1 |
|
|
|
1.9 |
|
|
|
1.0 |
|
|
|
18.0 |
|
|
Amortization
|
|
|
6.1 |
|
|
|
— |
|
|
|
6.1 |
|
|
|
0.2 |
|
|
|
— |
|
|
|
6.3 |
|
|
Goodwill
|
|
|
238.1 |
|
|
|
12.8 |
|
|
|
250.9 |
|
|
|
20.9 |
|
|
|
6.7 |
|
|
|
278.5 |
|
|
Tangible long-lived assets
|
|
|
94.9 |
|
|
|
1.7 |
|
|
|
96.6 |
|
|
|
7.2 |
|
|
|
2.5 |
|
|
|
106.3 |
|
|
Total assets
|
|
|
906.1 |
|
|
|
120.2 |
|
|
|
1,026.3 |
|
|
|
228.0 |
|
|
|
117.1 |
|
|
|
1,371.4 |
|
|
Capital expenditures
|
|
|
23.7 |
|
|
|
0.2 |
|
|
|
23.9 |
|
|
|
1.0 |
|
|
|
1.0 |
|
|
|
25.9 |
|
|
2002
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$ |
1,771.6 |
|
|
$ |
224.6 |
|
|
$ |
1,996.2 |
|
|
$ |
344.9 |
|
|
$ |
179.0 |
|
|
$ |
2,520.1 |
|
|
Operating income (loss)
|
|
|
72.1 |
|
|
|
11.6 |
|
|
|
83.7 |
|
|
|
5.3 |
|
|
|
(1.3 |
) |
|
|
87.7 |
|
|
Depreciation
|
|
|
15.2 |
|
|
|
0.9 |
|
|
|
16.1 |
|
|
|
1.8 |
|
|
|
1.2 |
|
|
|
19.1 |
|
|
Amortization
|
|
|
4.4 |
|
|
|
— |
|
|
|
4.4 |
|
|
|
— |
|
|
|
— |
|
|
|
4.4 |
|
|
Goodwill
|
|
|
227.6 |
|
|
|
10.6 |
|
|
|
238.2 |
|
|
|
4.4 |
|
|
|
5.0 |
|
|
|
247.6 |
|
|
Tangible long-lived assets
|
|
|
126.1 |
|
|
|
1.9 |
|
|
|
128.0 |
|
|
|
3.5 |
|
|
|
3.1 |
|
|
|
134.6 |
|
|
Total assets
|
|
|
842.7 |
|
|
|
96.8 |
|
|
|
939.5 |
|
|
|
171.2 |
|
|
|
115.3 |
|
|
|
1,226.0 |
|
|
Capital expenditures
|
|
|
15.2 |
|
|
|
0.1 |
|
|
|
15.3 |
|
|
|
0.7 |
|
|
|
0.9 |
|
|
|
16.9 |
|
55
ANIXTER INTERNATIONAL INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS —
(Continued)
|
|
| NOTE 14. |
SUMMARIZED FINANCIAL INFORMATION OF ANIXTER INC. |
The parent company of Anixter Inc. guarantees, fully and
unconditionally, substantially all of the debt of its
subsidiaries, which includes Anixter Inc. The parent company has
no independent assets or operations and all other subsidiaries
other than Anixter Inc. are minor. Certain debt agreements
entered into by Anixter Inc. 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. See Note 8 “Debt” for further
details on restricted assets. The following summarizes the
financial information for Anixter Inc.:
ANIXTER INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
| |
|
|
|
|
|
|
|
|
|
| |
|
December 31, | |
|
January 2, | |
| |
|
2004 | |
|
2004 | |
| |
|
| |
|
| |
| |
|
(In millions) | |
|
Assets:
|
|
|
|
|
|
|
|
|
| |
Current assets
|
|
$ |
1,280.6 |
|
|
$ |
875.4 |
|
| |
Property, net
|
|
|
42.2 |
|
|
|
43.1 |
|
| |
Goodwill and other intangibles
|
|
|
319.3 |
|
|
|
301.1 |
|
| |
Other assets
|
|
|
77.7 |
|
|
|
109.6 |
|
| |
|
|
|
|
|
|
| |
|
$ |
1,719.8 |
|
|
$ |
1,329.2 |
|
| |
|
|
|
|
|
|
| |
|
Liabilities and Stockholders’ Equity:
|
|
|
|
|
|
|
|
|
| |
Current liabilities
|
|
$ |
445.7 |
|
|
$ |
384.9 |
|
| |
Subordinated notes payable to parent
|
|
|
205.3 |
|
|
|
147.8 |
|
| |
Long-term debt
|
|
|
194.0 |
|
|
|
30.0 |
|
| |
Other liabilities
|
|
|
86.2 |
|
|
|
79.1 |
|
| |
Stockholders’ equity
|
|
|
788.6 |
|
|
|
687.4 |
|
| |
|
|
|
|
|
|
| |
|
$ |
1,719.8 |
|
|
$ |
1,329.2 |
|
| |
|
|
|
|
|
|
ANIXTER INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Years Ended | |
| |
|
| |
| |
|
December 31, | |
|
January 2, | |
|
January 3, | |
| |
|
2004 | |
|
2004 | |
|
2003 | |
| |
|
| |
|
| |
|
| |
| |
|
(In millions) | |
|
Net sales
|
|
$ |
3,275.2 |
|
|
$ |
2,625.2 |
|
|
$ |
2,520.1 |
|
|
Operating income
|
|
$ |
141.9 |
|
|
$ |
94.5 |
|
|
$ |
88.5 |
|
|
Income from continuing operations before income taxes
|
|
$ |
121.4 |
|
|
$ |
79.5 |
|
|
$ |
70.6 |
|
|
Discontinued operations gain
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
0.3 |
|
|
Net income
|
|
$ |
72.8 |
|
|
$ |
46.0 |
|
|
$ |
35.7 |
|
56
ANIXTER INTERNATIONAL INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS —
(Continued)
NOTE 15. SELECTED QUARTERLY FINANCIAL DATA
(UNAUDITED)
The following is a summary of the unaudited interim results of
operations and the price range of the common stock composite for
each quarter in the years ended December 31, 2004 and
January 2, 2004. The Company has never paid regular cash
dividends on its common stock. However, in 2004 the Company
declared a special dividend of $1.50 per common share, or
$55.8 million, as a return of excess capital to
shareholders. The dividend was payable March 31, 2004 to
shareholders of record on March 16, 2004. As of
February 17, 2005, the Company had 3,635 shareholders
of record.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
First | |
|
Second | |
|
Third | |
|
Fourth | |
| |
|
Quarter | |
|
Quarter | |
|
Quarter | |
|
Quarter | |
| |
|
| |
|
| |
|
| |
|
| |
| |
|
(In millions, except per share amounts) | |
|
Year ended December 31, 2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$ |
764.2 |
|
|
$ |
813.1 |
|
|
$ |
849.6 |
|
|
$ |
848.3 |
|
|
Cost of sales
|
|
|
581.5 |
|
|
|
621.6 |
|
|
|
647.7 |
|
|
|
634.1 |
|
|
Operating income
|
|
|
29.0 |
|
|
|
33.7 |
|
|
|
33.9 |
|
|
|
41.4 |
|
|
Income before extraordinary gain
|
|
|
14.0 |
|
|
|
16.8 |
|
|
|
17.2 |
|
|
|
25.6 |
|
|
Extraordinary gain
|
|
|
4.1 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Net income
|
|
|
18.1 |
|
|
|
16.8 |
|
|
|
17.2 |
|
|
|
25.6 |
|
|
Basic income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Income before extraordinary gain
|
|
|
0.38 |
|
|
|
0.46 |
|
|
|
0.46 |
|
|
|
0.69 |
|
| |
Extraordinary gain
|
|
|
0.11 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
| |
Net income
|
|
|
0.50 |
|
|
|
0.46 |
|
|
|
0.46 |
|
|
|
0.69 |
|
|
Diluted income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Income before extraordinary gain*
|
|
|
0.37 |
|
|
|
0.44 |
|
|
|
0.44 |
|
|
|
0.64 |
|
| |
Extraordinary gain
|
|
|
0.11 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
| |
Net income*
|
|
|
0.48 |
|
|
|
0.44 |
|
|
|
0.44 |
|
|
|
0.64 |
|
|
Composite stock price range:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
High
|
|
|
30.55 |
|
|
|
34.03 |
|
|
|
36.40 |
|
|
|
38.96 |
|
| |
Low
|
|
|
26.85 |
|
|
|
28.42 |
|
|
|
31.71 |
|
|
|
35.42 |
|
| |
Close
|
|
|
29.10 |
|
|
|
33.62 |
|
|
|
36.00 |
|
|
|
35.99 |
|
|
Year ended January 2, 2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$ |
662.2 |
|
|
$ |
644.8 |
|
|
$ |
653.4 |
|
|
$ |
664.8 |
|
|
Cost of sales
|
|
|
501.4 |
|
|
|
486.8 |
|
|
|
495.1 |
|
|
|
499.7 |
|
|
Operating income
|
|
|
22.6 |
|
|
|
21.3 |
|
|
|
23.3 |
|
|
|
25.1 |
|
|
Income before income taxes
|
|
|
17.5 |
|
|
|
12.8 |
|
|
|
20.1 |
|
|
|
22.5 |
|
|
Net income
|
|
|
10.2 |
|
|
|
7.3 |
|
|
|
11.3 |
|
|
|
13.1 |
|
|
Basic income per share
|
|
|
0.28 |
|
|
|
0.20 |
|
|
|
0.31 |
|
|
|
0.36 |
|
|
Diluted income per share
|
|
|
0.27 |
|
|
|
0.20 |
|
|
|
0.31 |
|
|
|
0.36 |
|
|
Composite stock price range:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
High
|
|
|
25.02 |
|
|
|
24.72 |
|
|
|
24.39 |
|
|
|
25.95 |
|
| |
Low
|
|
|
21.31 |
|
|
|
21.25 |
|
|
|
21.03 |
|
|
|
22.40 |
|
| |
Close
|
|
|
22.08 |
|
|
|
22.08 |
|
|
|
23.55 |
|
|
|
25.83 |
|
|
|
| * |
First, second and third quarter of 2004 diluted income per
share amounts have been restated in accordance with
EITF 04-08,“The Effect of Contingently Convertible
Debt on Diluted Earnings Per Share.” There was minimal
impact on the first and second quarter diluted income per share
amounts. For further information, see Note 1 “ Summary
of Significant Accounting Policies” and Note 2
“Income Per Share.” |
57
|
|
| ITEM 9. |
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE. |
None.
|
|
| ITEM 9A. |
CONTROLS AND PROCEDURES. |
Conclusion Regarding the Effectiveness of Disclosure Controls
and Procedures
Under the supervision and the participation of our management,
including our principal executive officer and principal
financial officer, we conducted an evaluation as of
December 31, 2004 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 the end
of the period covered by this annual report.
Management’s Report on Internal Control Over Financial
Reporting
Our management is responsible for establishing and maintaining
adequate internal control over financial reporting, as such term
is defined in Exchange Act Rules 13a-15(f). The
Company’s internal control over financial reporting is
designed to provide reasonable assurance to the Company’s
management and board of directors regarding the preparation and
fair presentation of published financial statements. Because of
its inherent limitations, internal control over financial
reporting may not prevent or detect misstatements. Therefore,
even those systems determined to be effective can provide only
reasonable assurance with respect to financial statement
preparation and presentation. Under the supervision and with the
participation of our management, including our principal
executive officer and principal financial officer, we conducted
an evaluation of the effectiveness of our internal control over
financial reporting based on the framework in Internal
Control — Integrated Framework, issued by the
committee of Sponsoring Organizations of the Treadway
Commission. Based on our evaluation under the framework in
Internal Control — Integrated Framework, our
management concluded that our internal control over financial
reporting was effective as of December 31, 2004.
Our management’s assessment of the effectiveness of our
internal control over financial reporting as of
December 31, 2004 has been audited by Ernst &
Young LLP, an independent registered public accounting firm, as
stated in their report below.
58
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
ON INTERNAL CONTROL OVER FINANCIAL REPORTING
The Board of Directors and Shareholders
of Anixter International Inc.
We have audited management’s assessment, included in the
accompanying Management’s Report on Internal Control Over
Financial Reporting, that Anixter International Inc. maintained
effective internal control over financial reporting as of
December 31, 2004, based on criteria established in
Internal Control — Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission
(the COSO criteria). Anixter International Inc.’s
management is responsible for maintaining effective internal
control over financial reporting and for its assessment of the
effectiveness of internal control over financial reporting. Our
responsibility is to express an opinion on management’s
assessment and an opinion on the effectiveness of the
company’s internal control over financial reporting based
on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control
over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of
internal control over financial reporting, evaluating
management’s assessment, testing and evaluating the design
and operating effectiveness of internal control, and performing
such other procedures as we considered necessary in the
circumstances. We believe that our audit provides a reasonable
basis for our opinion.
A company’s internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A company’s
internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of
management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
company’s assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
In our opinion, management’s assessment that Anixter
International Inc. maintained effective internal control over
financial reporting as of December 31, 2004, is fairly
stated, in all material respects, based on the COSO criteria.
Also, in our opinion, Anixter International Inc. maintained, in
all material respects, effective internal control over financial
reporting as of December 31, 2004, based on the COSO
criteria.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
consolidated balance sheets of Anixter International Inc. as of
December 31, 2004 and January 2, 2004, and the related
consolidated statements of income, shareholders’ equity,
and cash flows for each of the three years in the period ended
December 31, 2004 and our report dated February 23,
2005 expressed an unqualified opinion thereon.
ERNST & YOUNG LLP
Chicago, Illinois
February 23, 2005
59
ITEM 9B. OTHER INFORMATION.
None.
PART III
|
|
| ITEM 10. |
DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT. |
See Registrant’s Proxy Statement for the 2005 Annual
Meeting of Stockholders — “Election of
Directors,” “Corporate Governance — Code of
Ethics” and “Section 16(a) Beneficial Ownership
Reporting Compliance.” The Company’s Code of Ethics
and changes or waivers, if any, related thereto are located on
the Company’s website at http://www.anixter.com.
Information regarding executive officers is included as a
supplemental item at the end of Part I of this
Form 10-K.
|
|
| ITEM 11. |
EXECUTIVE COMPENSATION. |
See Registrant’s Proxy Statement for the 2005 Annual
Meeting of Stockholders — “Executive
Compensation,” “Compensation of Directors,”
“Employment Contracts and Termination of Employment and
Change-in-Control Arrangements,” “Compensation
Committee Interlocks and Insider Participation” and
“Performance Graph.”
|
|
| ITEM 12. |
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AND RELATED STOCKHOLDER MATTERS. |
See Registrant’s Proxy Statement for the 2005 Annual
Meeting of Stockholders — “Security Ownership of
Management,” “Security Ownership of Principal
Stockholders” and “Equity Compensation Plan
Information.”
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS.
None.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
See Registrant’s Proxy Statement for the 2005 Annual
Meeting of Stockholders — “Independent Auditors
and their Fees.”
60
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENTS SCHEDULES.
(a) Index to Consolidated Financial Statements,
Financial Statement Schedules and Exhibits.
(1) Financial Statements.
The following Consolidated Financial Statements of Anixter
International Inc. and Report of Independent Registered Public
Accounting Firm are filed as part of this report.
| |
|
|
|
|
| |
|
Page | |
| |
|
| |
|
Report of Independent Registered Public Accounting Firm
|
|
|
25 |
|
|
Consolidated Statements of Operations for the years ended
December 31, 2004, January 2, 2004, and
January 3, 2003
|
|
|
26 |
|
|
Consolidated Balance Sheets at December 31, 2004, and
January 2, 2004
|
|
|
27 |
|
|
Consolidated Statements of Cash Flows for the years ended
December 31, 2004, January 2, 2004, and
January 3, 2003
|
|
|
28 |
|
|
Consolidated Statements of Stockholders’ Equity for the
years ended December 31, 2004, January 2, 2004, and
January 3, 2003
|
|
|
29 |
|
|
Notes to the Consolidated Financial Statements
|
|
|
30 |
|
(2) Financial Statement Schedules.
The following financial statement schedules of Anixter
International Inc. are filed as part of this report and should
be read in conjunction with the Consolidated Financial
Statements of Anixter International Inc.:
| |
|
|
|
|
| |
|
Page | |
| |
|
| |
|
I. Condensed financial information of registrant.
|
|
|
65 |
|
|
II. Valuation and qualifying accounts and reserves
|
|
|
69 |
|
All other schedules are omitted because they are not required,
are not applicable, or the required information is shown in the
Consolidated Financial Statements or notes thereto.
(3) Exhibit List.
Each management contract or compensation plan required to be
filed as an exhibit is identified by an asterisk (*).
| |
|
|
|
|
| Exhibit | |
|
|
| No. | |
|
Description of Exhibit |
| | |
|
|
|
(3) Articles of Incorporation and by–laws. |
| |
3.1 |
|
|
Restated Certificate of Incorporation of Anixter International
Inc., filed with Secretary of the State of Delaware on
September 29, 1987 and Certificate of Amendment thereof,
filed with the Secretary of Delaware on August 31, 1995
(Incorporated by reference from Anixter International Inc.
Annual Report on Form 10-K for the year ended December 31,
1995, Exhibit 3.1). |
| |
3.2 |
|
|
By-laws of Anixter International Inc. as amended through
November 21, 2002. (Incorporated by reference from Anixter
International Inc. Annual Report on Form 10-K for the year ended
January 3, 2003, Exhibit 3.2). |
|
(4) Instruments defining the rights of security holders,
including indentures. |
| |
4.1 |
|
|
Indenture dated September 17, 1996, between Anixter Inc.,
Anixter International Inc. and the Bank of New York, as Trustee,
providing for 8% Senior Notes due 2003. (Incorporated by
reference from Amendment No. 1 to Anixter Inc.’s
Registration Statement on Form S-3, Registration
Number 333-121428, filed February 9, 2005,
Exhibit 4.1). |
61
| |
|
|
|
|
| Exhibit | |
|
|
| No. | |
|
Description of Exhibit |
| | |
|
|
| |
4.2 |
|
|
Indenture dated as of June 28, 2000, by and between Anixter
International Inc. and Bank of New York, as Trustee, offering 7%
zero coupon convertible notes due 2020. (Incorporated by
reference from Anixter International Inc.’s Registration
Statement on Form S-3, Registration Number 333-42788,
filed August 1, 2000, Exhibit 4.1). |
| |
4.3 |
|
|
Five-year, $275.0 million, Revolving Credit Agreement,
dated June 18, 2004, among Anixter Inc., Bank of America,
N.A., as Agent, and other banks named therein. (Incorporated by
reference from Anixter International Inc., Quarterly Report on
Form 10-Q for the quarterly period ended July 2, 2004,
Exhibit 4.1). |
| |
4.4 |
|
|
Amended and Restated Receivables Sale Agreement dated
October 3, 2002, between Anixter Inc. and Anixter
Receivables Corporation. (Incorporated by reference from Anixter
International Inc. Annual Report on Form 10-K for the year ended
January 3, 2003, Exhibit 4.6). |
| |
4.5 |
|
|
Amended and Restated Receivables Purchase Agreement dated
October 3, 2002, among Anixter Receivables Corporation, as
Seller, Anixter Inc., as Servicer, Bank One, NA, as Agent and
the other financial institutions named herein. (Incorporated by
reference from Anixter International Inc. Annual Report on Form
10-K for the year ended January 3, 2003, Exhibit 4.7). |
| |
4.6 |
|
|
Indenture dated December 8, 2004, by and between Anixter
International Inc. and Bank of New York, as Trustee, with
respect to 3.25% zero coupon convertible notes due 2033. |
| |
4.7 |
|
|
Amendment No. 1 to Amended and Restated Receivables Sale
dated October 2, 2003 between Anixter Inc. and Anixter
Receivables Corporation. (Incorporated by reference from Anixter
International Inc. Annual Report on Form 10-K for the year ended
January 2, 2004, Exhibit 4.9). |
| |
4.8 |
|
|
Amendment No. 1 to Amended and Restated Receivables
Purchase dated October 2, 2003 among Anixter Receivables
Corporation, as Seller, Anixter Inc., as Servicer, Bank One, NA,
as Agent and the other financial institutions named herein.
(Incorporated by reference from Anixter International Inc.
Annual Report on Form 10-K for the year ended January 2,
2004, Exhibit 4.10). |
| |
4.9 |
|
|
Amendment No. 2 to Amended and Restated Receivables Sale
Agreement, dated September 30, 2004 between Anixter Inc.
and Anixter Receivables Corporation. |
| |
4.10 |
|
|
Amendment No. 2 to Amended and Restated Receivables
Purchase Agreement, dated September 30, 2004 among Anixter
Receivables Corporation, as Seller, Anixter Inc., as Servicer,
Bank One, NA, as Agent and the other financial institutions
named herein. |
|
(10) Material contracts. |
| |
10.1 |
|
|
Purchase Agreement between Mesirow Realty Sale-Leaseback, Inc.
(‘Buyer”) and Anixter-Real Estate, Inc., a subsidiary
of the Company (‘Seller‘). (Incorporated by reference
from Anixter International Inc., Quarterly Report on Form 10-Q
for the quarterly period ended April 2, 2004,
Exhibit 10.1). |
| |
10.2 |
* |
|
Company’s 1983 Stock Incentive Plan as amended and restated
July 16, 1992. (Incorporated by reference from Itel
Corporation’s Annual Report on Form 10-K for the
fiscal year ended December 31, 1992, Exhibit 10.3). |
| |
10.3 |
* |
|
Anixter International Inc. 1998 Stock Incentive Plan.
(Incorporated by reference from Anixter International Inc.
Registration Statement on Form S-8, file
number 333-56935, Exhibit 4a). |
| |
10.4 |
* |
|
Company’s Key Executive Equity Plan, as amended and
restated July 16, 1992. (Incorporated by reference from
Itel Corporation’s Annual Report on Form 10-K for the
fiscal year ended December 31, 1992, Exhibit 10.8). |
| |
10.5 |
* |
|
Company’s Director Stock Option Plan. (Incorporated by
reference from Itel Corporation’s Annual Report on Form
10-K for the fiscal year ended December 31, 1991,
Exhibit 10.24). |
| |
10.6 |
* |
|
Form of Stock Option Agreement. (Incorporated by reference from
Itel Corporation’s Annual Report on Form 10-K for the
fiscal year ended December 31, 1992, Exhibit 10.24). |
62
| |
|
|
|
|
| Exhibit | |
|
|
| No. | |
|
Description of Exhibit |
| | |
|
|
| |
10.7 |
* |
|
Form of Indemnity Agreement with all directors and officers.
(Incorporated by reference from Anixter International Inc.
Annual Report on Form 10-K for the year ended December 31,
1995, Exhibit 10.24). |
| |
10.8 |
* |
|
Anixter International Inc. 1996 Stock Incentive Plan.
(Incorporated by reference from Anixter International Inc.
Annual Report on Form 10-K for the year ended December 31,
1995, Exhibit 10.26). |
| |
10.9 |
* |
|
Form of Stock Option Grant. (Incorporated by reference from
Anixter International Inc. Annual Report on Form 10-K for the
year ended December 31, 1995, Exhibit 10.27). |
| |
10.10 |
* |
|
Anixter Excess Benefit Plan. (Incorporated by reference from
Anixter International Inc. Annual Report on Form 10-K for the
year ended December 31, 1995, Exhibit 10.28). |
| |
10.11 |
* |
|
Forms of Anixter Stock Option, Stockholder Agreement and Stock
Option Plan. (Incorporated by reference from Anixter
International Inc. Annual Report on Form 10-K for the year ended
December 31, 1995, Exhibit 10.29). |
| |
10.12 |
* |
|
(a) Anixter Deferred Compensation Plan. (Incorporated by
reference from Anixter International Inc. Annual Report on Form
10-K for the year ended December 31, 1995,
Exhibit 10.30). |
| |
|
|
|
(b) Anixter 1999 Restated Deferred Compensation Plan.
(Incorporated by reference from Anixter International Inc.
Annual Report on Form 10-K for the year ended December 31,
1999, Exhibit 10.15(b)). |
| |
|
|
|
(c) Amendment No. 1 to Anixter 1999 Restated Deferred
Compensation Plan. (Incorporated by reference from Anixter
International Inc. Annual Report on Form 10-K for the year ended
December 28, 2001, Exhibit 10.12 (c)). |
| |
|
|
|
(d) Amendment No. 2 to Anixter 1999 Restated Deferred
Compensation Plan. (Incorporated by reference from Anixter
International Inc. Annual Report on Form 10-K for the year ended
December 28, 2001, Exhibit 10.12 (d)). |
| |
|
|
|
(e) Amendment No. 3 to Anixter 1999 Restated Deferred
Compensation Plan. (Incorporated by reference from Anixter
International Inc. Annual Report on Form 10-K for the year ended
January 3, 2003, Exhibit 10.12 (e)). |
| |
|
|
|
(f) Amendment No. 4 to Anixter 1999 Restated Deferred
Compensation Plan. (Incorporated by reference from Anixter
International Inc. Annual Report on Form 10-K for the year ended
January 2, 2004, Exhibit 10.12 (f)). |
| |
10.13 |
* |
|
Employment Agreement with Robert W. Grubbs, dated July 22,
1999. (Incorporated by reference from Anixter International Inc.
Quarterly Report on Form 10-Q for the quarterly period ended
October 1, 1999, Exhibit 10.22). |
| |
10.14 |
* |
|
Employment Agreement with Dennis J. Letham, dated July 22,
1999. (Incorporated by reference from Anixter International Inc.
Quarterly Report on Form 10-Q for the quarterly period ended
October 1, 1999, Exhibit 10.23). |
| |
10.15 |
* |
|
Anixter International Inc. Management Incentive Plan effective
May 20, 2004. |
| |
10.16 |
* |
|
Amendment to Employee Agreements with Robert W. Grubbs and
Dennis J. Letham, dated February 14, 2001. (Incorporated by
reference from Anixter International Inc. Annual Report on Form
10-K for the year ended December 29, 2000,
Exhibit 10.23). |
| |
10.17 |
* |
|
Anixter International Inc. 2001 Stock Incentive Plan.
(Incorporated by reference from Anixter International Inc.
Registration Statement on Form S-8, File
number 333-103270, Exhibit 4a). |
| |
10.18 |
* |
|
First Amendment to the Anixter International Inc. 2001 Stock
Incentive Plan effective May 20, 2004. |
63
| |
|
|
|
|
| Exhibit | |
|
|
| No. | |
|
Description of Exhibit |
| | |
|
|
| |
10.19 |
* |
|
Anixter International Inc. 2001 Mid-Level Stock Option Plan.
(Incorporated by reference from Anixter International Inc.
Annual Report on Form 10-K for the year ended January 3,
2003, Exhibit 10.19). |
| |
10.20 |
* |
|
Anixter International Inc. 1998 Mid-Level Stock Option Plan.
(Incorporated by reference from Anixter International Inc.
Annual Report on Form 10-K for the year ended January 3,
2003, Exhibit 10.20). |
| |
10.21 |
* |
|
Form of Anixter International Inc. Restricted Stock Unit Grant
Agreement. (Incorporated by reference from Anixter International
Inc., Quarterly Report on Form 10-Q for the quarterly period
ended April 4, 2003, Exhibit 10.1). |
| |
10.22 |
* |
|
Anixter Inc. Supplemental Executive Retirement Plan with Robert
W. Grubbs and Dennis J. Letham, dated August 4, 2004. |
| |
|
(12) Statements regarding computation of ratios. |
| |
12.1 |
|
|
Computation of ratio of earnings to fixed charges for the five
years ended December 31, 2004. |
| |
|
(14) Code of ethics. |
| |
14.1 |
|
|
Code of ethics. |
| |
|
(21) Subsidiaries of the Registrant. |
| |
21.1 |
|
|
List of Subsidiaries of the Registrant. |
| |
|
(23) Consents of experts and counsel. |
| |
23.1 |
|
|
Consent of Independent Registered Public Accounting Firm. |
| |
|
(24) Power of attorney. |
| |
24.1 |
|
|
Power of Attorney executed by Lord James Blyth, Robert L.
Crandall, Robert W. Grubbs, F. Philip Handy, Melvyn N. Klein,
George Muñoz, Stuart M. Sloan, Thomas C. Theobald, Mary
Agnes Wilderotter, Matthew Zell and Samuel Zell. |
| |
|
(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 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 of Act of 2002. |
Copies of other instruments defining the rights of holders of
long-term debt of the Company and its subsidiaries not filed
pursuant to Item 601(b)(4)(iii) of Regulation S-K and
omitted copies of attachments to plans and material contracts
will be furnished to the Securities and Exchange Commission upon
request.
64
ANIXTER INTERNATIONAL INC.
SCHEDULE 1 — CONDENSED FINANCIAL INFORMATION OF
REGISTRANT
ANIXTER INTERNATIONAL INC. (PARENT COMPANY)
STATEMENTS OF OPERATIONS
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Years Ended | |
| |
|
| |
| |
|
December 31, | |
|
January 2, | |
|
January 3, | |
| |
|
2004 | |
|
2004 | |
|
2003 | |
| |
|
| |
|
| |
|
| |
| |
|
(In millions) | |
|
Operating loss
|
|
$ |
(3.2 |
) |
|
$ |
(2.6 |
) |
|
$ |
(1.9 |
) |
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Interest income, including intercompany
|
|
|
5.7 |
|
|
|
3.4 |
|
|
|
5.6 |
|
| |
Loss on extinguishment of debt
|
|
|
— |
|
|
|
(6.2 |
) |
|
|
(0.3 |
) |
| |
Other
|
|
|
(1.0 |
) |
|
|
1.1 |
|
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes, extraordinary gain and
equity in earnings of subsidiaries
|
|
|
1.5 |
|
|
|
(4.3 |
) |
|
|
3.4 |
|
|
Income tax benefit
|
|
|
0.3 |
|
|
|
1.6 |
|
|
|
5.7 |
|
| |
|
|
|
|
|
|
|
|
|
|
Income (loss) before extraordinary gain and equity in
earnings of subsidiaries
|
|
|
1.8 |
|
|
|
(2.7 |
) |
|
|
9.1 |
|
|
Extraordinary gain, net of tax of $0.6
|
|
|
4.1 |
|
|
|
— |
|
|
|
— |
|
|
Equity in earnings of subsidiaries
|
|
|
71.8 |
|
|
|
44.6 |
|
|
|
34.0 |
|
| |
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$ |
77.7 |
|
|
$ |
41.9 |
|
|
$ |
43.1 |
|
| |
|
|
|
|
|
|
|
|
|
See accompanying note to the condensed financial information of
registrant.
65
ANIXTER INTERNATIONAL INC.
SCHEDULE 1 — CONDENSED FINANCIAL INFORMATION OF
REGISTRANT
ANIXTER INTERNATIONAL INC. (PARENT COMPANY)
BALANCE SHEETS
| |
|
|
|
|
|
|
|
|
|
|
| |
|
December 31, | |
|
January 2, | |
| |
|
2004 | |
|
2004 | |
| |
|
| |
|
| |
| |
|
(In millions) | |
|
ASSETS |
|
Current assets:
|
|
|
|
|
|
|
|
|
| |
Cash and cash equivalents
|
|
$ |
0.7 |
|
|
$ |
59.9 |
|
| |
Accounts receivable
|
|
|
— |
|
|
|
3.3 |
|
| |
Amounts currently due from affiliates, net
|
|
|
4.0 |
|
|
|
1.3 |
|
| |
Other assets
|
|
|
0.4 |
|
|
|
1.1 |
|
| |
|
|
|
|
|
|
| |
|
Total current assets
|
|
|
5.1 |
|
|
|
65.6 |
|
|
Investment in and advances to subsidiaries
|
|
|
994.2 |
|
|
|
836.0 |
|
|
Other assets
|
|
|
5.4 |
|
|
|
5.5 |
|
| |
|
|
|
|
|
|
| |
|
$ |
1,004.7 |
|
|
$ |
907.1 |
|
| |
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY |
|
Liabilities:
|
|
|
|
|
|
|
|
|
| |
Accounts payable and accrued expenses, due currently
|
|
$ |
2.8 |
|
|
$ |
7.1 |
|
| |
Income taxes, net
|
|
|
19.8 |
|
|
|
— |
|
| |
Long-term debt
|
|
|
218.5 |
|
|
|
209.2 |
|
| |
Other non-current liabilities
|
|
|
0.6 |
|
|
|
— |
|
| |
|
|
|
|
|
|
| |
|
Total liabilities
|
|
|
241.7 |
|
|
|
216.3 |
|
|
Stockholders’ equity:
|
|
|
|
|
|
|
|
|
| |
Common stock
|
|
|
37.4 |
|
|
|
36.4 |
|
| |
Capital surplus
|
|
|
50.7 |
|
|
|
21.8 |
|
| |
Accumulated other comprehensive income (Loss)
|
|
|
14.8 |
|
|
|
(5.6 |
) |
| |
Retained earnings
|
|
|
660.1 |
|
|
|
638.2 |
|
| |
|
|
|
|
|
|
| |
|
Total stockholders’ equity
|
|
|
763.0 |
|
|
|
690.8 |
|
| |
|
|
|
|
|
|
| |
|
$ |
1,004.7 |
|
|
$ |
907.1 |
|
| |
|
|
|
|
|
|
See accompanying note to the condensed financial information of
registrant.
66
ANIXTER INTERNATIONAL INC.
SCHEDULE I — CONDENSED FINANCIAL INFORMATION
OF REGISTRANT
ANIXTER INTERNATIONAL INC. (PARENT COMPANY)
STATEMENTS OF CASH FLOWS
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Years Ended | |
| |
|
| |
| |
|
December 31, | |
|
January 2, | |
|
January 3, | |
| |
|
2004 | |
|
2004 | |
|
2003 | |
| |
|
| |
|
| |
|
| |
| |
|
(In millions) | |
|
Operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Net income
|
|
$ |
77.7 |
|
|
$ |
41.9 |
|
|
$ |
43.1 |
|
| |
Adjustments to reconcile net income to net cash (used in)
provided by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Extraordinary gain
|
|
|
(4.1 |
) |
|
|
— |
|
|
|
— |
|
| |
Loss on extinguishment of debt
|
|
|
— |
|
|
|
6.2 |
|
|
|
0.3 |
|
| |
Depreciation and amortization
|
|
|
1.1 |
|
|
|
0.8 |
|
|
|
0.8 |
|
| |
Income tax benefit
|
|
|
(0.3 |
) |
|
|
(1.6 |
) |
|
|
(5.7 |
) |
| |
Deferred income taxes
|
|
|
20.4 |
|
|
|
(3.5 |
) |
|
|
(4.8 |
) |
| |
Equity in earnings of subsidiaries
|
|
|
(71.8 |
) |
|
|
(44.6 |
) |
|
|
(34.0 |
) |
| |
Accretion of zero coupon convertible notes
|
|
|
(0.2 |
) |
|
|
— |
|
|
|
(1.9 |
) |
| |
Income tax savings from employee stock plans
|
|
|
0.2 |
|
|
|
0.6 |
|
|
|
2.5 |
|
| |
Change in other operating items
|
|
|
4.7 |
|
|
|
2.7 |
|
|
|
9.3 |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
|
|
Net cash provided by operating activities
|
|
|
27.7 |
|
|
|
2.5 |
|
|
|
9.6 |
|
|
Investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Investment in Anixter Inc.
|
|
|
(4.3 |
) |
|
|
(71.3 |
) |
|
|
— |
|
| |
Proceeds from sale of Anixter Inc. shares to Anixter Inc.
|
|
|
— |
|
|
|
18.4 |
|
|
|
66.7 |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
|
Net cash (used in) provided by investing activities
|
|
|
(4.3 |
) |
|
|
(52.9 |
) |
|
|
66.7 |
|
|
Financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Loans (to) from subsidiaries, net
|
|
|
(48.0 |
) |
|
|
71.3 |
|
|
|
22.9 |
|
| |
Proceeds from issuance of common stock
|
|
|
20.9 |
|
|
|
6.5 |
|
|
|
7.5 |
|
| |
Payment of cash dividend
|
|
|
(55.1 |
) |
|
|
— |
|
|
|
— |
|
| |
Debt issuance costs
|
|
|
(0.4 |
) |
|
|
(3.9 |
) |
|
|
— |
|
| |
Proceeds from 3.25% zero coupon convertible notes
|
|
|
— |
|
|
|
143.8 |
|
|
|
— |
|
| |
Retirement of 7% zero coupon convertible notes
|
|
|
— |
|
|
|
(72.2 |
) |
|
|
(107.1 |
) |
| |
Purchase of treasury stock
|
|
|
— |
|
|
|
(35.6 |
) |
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
Net cash (used in) provided by financing activities
|
|
|
(82.6 |
) |
|
|
109.9 |
|
|
|
(76.7 |
) |
| |
|
|
|
|
|
|
|
|
|
|
(Decrease) increase in cash and cash equivalents
|
|
|
(59.2 |
) |
|
|
59.5 |
|
|
|
(0.4 |
) |
|
Cash and cash equivalents at beginning of year
|
|
|
59.9 |
|
|
|
0.4 |
|
|
|
0.8 |
|
| |
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year
|
|
$ |
0.7 |
|
|
$ |
59.9 |
|
|
$ |
0.4 |
|
| |
|
|
|
|
|
|
|
|
|
See accompanying note to the condensed financial information of
registrant.
67
ANIXTER INTERNATIONAL INC.
SCHEDULE I — CONDENSED FINANCIAL
INFORMATION OF REGISTRANT
ANIXTER INTERNATIONAL INC. (PARENT COMPANY)
NOTE TO THE CONDENSED FINANCIAL INFORMATION OF REGISTRANT
Note A — Basis of Presentation
In the parent company condensed financial statements, the
Company’s investment in subsidiaries is stated at cost plus
equity in undistributed earnings of subsidiaries since the date
of acquisition. The Company’s share of net income of its
unconsolidated subsidiaries is included in consolidated income
using the equity method. The parent company financial statements
should be read in conjunction with the Company’s
consolidated financial statements.
68
ANIXTER INTERNATIONAL INC.
SCHEDULE II — VALUATION AND QUALIFYING
ACCOUNTS AND RESERVES
Years ended December 31, 2004, January 2, 2004 and
January 3, 2003
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Balance at | |
|
|
|
Charged | |
|
|
|
Balance at | |
| |
|
beginning of | |
|
Charged | |
|
to other | |
|
|
|
end of | |
| Description |
|
the period | |
|
to income | |
|
accounts | |
|
Deductions | |
|
the period | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| |
|
(In millions) | |
|
Year ended December 31, 2004:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Allowance for doubtful accounts
|
|
$ |
17.3 |
|
|
$ |
10.5 |
|
|
$ |
(0.2 |
) |
|
$ |
(9.6 |
) |
|
$ |
18.0 |
|
| |
Allowance for deferred tax asset
|
|
$ |
19.1 |
|
|
$ |
(2.9 |
) |
|
$ |
(3.7 |
) |
|
$ |
— |
|
|
$ |
12.5 |
|
|
Year ended January 2, 2004:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Allowance for doubtful accounts
|
|
$ |
15.4 |
|
|
$ |
7.4 |
|
|
$ |
(2.1 |
) |
|
$ |
(3.4 |
) |
|
$ |
17.3 |
|
| |
Allowance for deferred tax asset
|
|
$ |
23.8 |
|
|
$ |
0.3 |
|
|
$ |
(5.0 |
) |
|
$ |
— |
|
|
$ |
19.1 |
|
|
Year ended January 3, 2003:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Allowance for doubtful accounts
|
|
$ |
20.9 |
|
|
$ |
13.9 |
|
|
$ |
(9.6 |
) |
|
$ |
(9.8 |
) |
|
$ |
15.4 |
|
| |
Allowance for deferred tax asset
|
|
$ |
24.5 |
|
|
$ |
4.7 |
|
|
$ |
(5.4 |
) |
|
$ |
— |
|
|
$ |
23.8 |
|
69
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, in the City of Glenview,
State of Illinois, on the 23th day of February, 2005.
|
|
| |
ANIXTER INTERNATIONAL INC. |
|
|
| |
|
| |
Dennis J. Letham |
| |
Senior Vice President-Finance |
| |
and Chief Financial Officer |
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of the Registrant and in the capacities and on the
dates indicated.
| |
|
|
|
|
|
|
| |
/s/ Robert W. Grubbs
Robert
W. Grubbs |
|
President and Chief Executive Officer
(Principal Executive Officer) |
|
February 23, 2005 |
| |
/s/ Dennis J. Letham
Dennis
J. Letham |
|
Senior Vice President — Finance
(Chief Financial Officer) |
|
February 23, 2005 |
| |
/s/ Terrance A. Faber
Terrance
A. Faber |
|
Vice President — Controller
(Chief Accounting Officer) |
|
February 23, 2005 |
| |
/s/ Lord James Blyth*
Lord
James Blyth |
|
Director |
|
February 23, 2005 |
| |
/s/ Robert L. Crandall*
Robert
L. Crandall |
|
Director |
|
February 23, 2005 |
| |
/s/ Robert W. Grubbs
Robert
W. Grubbs |
|
Director |
|
February 23, 2005 |
| |
/s/ F. Philip Handy*
F.
Philip Handy |
|
Director |
|
February 23, 2005 |
| |
/s/ Melvyn N. Klein*
Melvyn
N. Klein |
|
Director |
|
February 23, 2005 |
| |
/s/ George Muñoz*
George
Muñoz |
|
Director |
|
February 23, 2005 |
| |
/s/ Stuart M. Sloan*
Stuart
M. Sloan |
|
Director |
|
February 23, 2005 |
| |
/s/ Thomas C. Theobald*
Thomas
C. Theobald |
|
Director |
|
February 23, 2005 |
| |
/s/ Mary Agnes Wilderotter*
Mary
Agnes Wilderotter |
|
Director |
|
February 23, 2005 |
| |
/s/ Matthew Zell*
Matthew
Zell |
|
Director |
|
February 23, 2005 |
| |
/s/ Samuel Zell*
Samuel
Zell |
|
Director |
|
February 23, 2005 |
| |
|
*By |
|
/s/ Dennis J. Letham |
|
|
|
|
| |
|
|
|
|
|
|
| |
|
Dennis J. Letham (Attorney in fact)
Dennis J. Letham, as attorney in fact for each person
indicated |
|
|
70