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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
________________---------------------
FORM 10-K
X[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (D)
--(d)
OF THE SECURITESSECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 28, 2001JANUARY 3, 2003 OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D)(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 1-5989
ANIXTER INTERNATIONAL INC.
(Exact name of Registrant as specified in its charter)
Delaware
DELAWARE 94-1658138
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4711 GOLF ROAD
SKOKIE, ILLINOIS 60076
(847) 677-2600
(Address and telephone number of principal executive offices in its charter)
SECURITIES REGISTERED PURSUANT TO SECTION 12 (B) OF THE ACT:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
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TITLE OF EACH CLASS
NAME OF EACH EXCHANGE ON WHICH REGISTERED
--------------------- -------------------
Common stock, $1 par value New York Stock Exchange
Convertible notes due 2020 New York Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12 (G)(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 X[X] No _[ ]
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 X[X] No _[ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2). Yes [X] No [ ]
The aggregate market value of the shares of Registrant's Common Stock, $1
par value, held by nonaffiliates of Registrant was approximately $1,068,981,002$877,146,000 as
of March 8,June 28, 2002.
At March 8, 2002, 36,988,9627, 2003, 37,244,174 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 20022003 Annual
Meeting of Stockholders of Anixter International Inc. are incorporated by
reference into Part III. This document consists of 4555 pages.
Exhibit List begins on page 37.44.
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TABLE OF CONTENTS
PART I
Item 1. Business of the Company..............................................1
Item 2. Properties...........................................................2
Item 3. Legal Proceedings....................................................3
Item 4. Submission of Matters to a Vote of Security Holders..................3
PART II
Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters................................................4
Item 6. Selected Financial Data..............................................4
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations..........................................5
Item 7A. Quantitative and Qualitative Disclosures about Market Risk..........13
Item 8. Consolidated Financial Statements and Supplementary Data............13
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure...........................................34
PART III
Item 10. Directors and Executive Officers of the Registrant...................35
Item 11. Executive Compensation...............................................36
Item 12. Security Ownership of Certain Beneficial Owners and Management.......36
Item 13. Certain Relationships and Related Transactions.......................36
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K......36
PAGE
----
PART I
Item 1. Business of the Company..................................... 1
Item 2. Properties.................................................. 4
Item 3. Legal Proceedings........................................... 4
Item 4. Submission of Matters to a Vote of Security Holders......... 4
PART II
Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters......................................... 5
Item 6. Selected Financial Data..................................... 5
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 6
Item 7A. Quantitative and Qualitative Disclosures about Market
Risk........................................................ 15
Item 8. Consolidated Financial Statements and Supplementary Data.... 16
Item 9 Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................... 50
PART III
Item 10. Directors and Executive Officers of the Registrant.......... 51
Item 11. Executive Compensation...................................... 51
Item 12. Security Ownership of Certain Beneficial Owners and
Management.................................................. 51
Item 13. Certain Relationships and Related Transactions.............. 51
Item 14. Controls and Procedures..................................... 51
Item 15. Exhibits, Financial Statement Schedules and Reports on Form
8-K......................................................... 52
i
PART I
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 small parts ("C" Class inventory components) through Anixter Inc.
and its subsidiaries (collectively "Anixter").
In September 2002, the Company completed the purchase of the operations and
assets of Pentacon, Inc. ("Pentacon"), a leading distributor of fasteners and
other small parts to original equipment manufacturers and provider of inventory
management services, pursuant to Pentacon's plan of reorganization filed under
Chapter 11 of the United States Bankruptcy Code. See Note 4 "Acquisition and
Divestiture of Businesses" in the Notes to the Consolidated Financial Statements
for additional information on the acquisition of Pentacon.
In the fourth quarter of 1998, the Company decided to exit its Integration
segment and accordingly, the Integration segment is reflected as a discontinued
operation in these financial statements. The European Integration business was
sold in the fourth quarter of 1998. In 1999, the Company completed the disposal
of the Integration segment with North America Integration being sold in the
first quarter of 1999 followed by the sale of Asia Pacific Integration in the
fourth quarter of 1999.
As of January 2, 1998, the Company owned approximately 19% of ANTEC
Corporation and its subsidiaries (collectively "ANTEC"), a broadband
communications technology company, which was reduced from 31% in February 1997,
by the issuance of additional stock by ANTEC in connection with a merger. In
1998, the Company sold its remaining 19% interest in ANTEC.
In June 1998, the Company purchased 100% of the outstanding common stock of
Pacer Electronics, Inc., a distributor of wire and cable products, along with
value added services, to original equipment manufacturers in the electronics
industry.
In August 1997, the Company purchased approximately 93% of the
outstanding common stock of Accu-Tech Corporation ("Accu-Tech"), a networking
and wiring systems specialist distributing products for data, voice, video and
electrical applications. Accu-Tech became a wholly owned subsidiary during the
first quarter of 2002.
(B) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
The Company operates in one business segment which is engaged in the distribution of communications and specialty
wire and cable products.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 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.
In 2001, 10.3% of total sales were to Lucent Technologies and its
subsidiaries. No other customer accounts for 10% or more of sales in 2002, 2001
2000 or 1999.2000. For certain financial information concerning the Company's business
segment,segments, see Note 1312 "Business Segment" ofSegments" in the Notes to the Consolidated
Financial Statements of this report.Statements.
(C) NARRATIVE DESCRIPTION OF BUSINESS
In 1999, the Company completed the disposal of the Integration segment
and, accordingly, the Integration segment is reflected as a discontinued
operation in these financial statements. All narrative descriptions and year to
year comparisons have been restated to exclude Integration.Overview
Anixter is athe leading global distributor of data, voice, video and
videosecurity network communications products used by corporations to support their operations.communication products. In addition, Anixter is a leadingthe largest
North American distributor of specialty wire and cable products
to original equipment manufacturers and to industrial companies for maintenance
and repair operations.products. Through its
recent purchase of Pentacon, Anixter also provides contractualdistributes "C" Class inventory
components. "C" Class inventory components are incorporated into a wide variety
of end 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.
1
The Company is an industry 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
of installationsolutions are designed to reduce customer procurement and repair-related materialsmanagement costs and
enhance overall production efficiencies. Inventory management services are
frequently provided under customer contracts for customers who install and/or
maintain communication equipment ("Integrated Supply"). Such contracts are
generally for timesome periods in excess of one
year and include the interfacing of Anixter and customer information systems the procurement, warehousing and
delivery of goods by Anixter, and in certain cases,
the maintenance of dedicated warehousedistribution facilities.
Anixter stocks and/orCustomers
The Company sells a full line of these products
from a network of 87 locations in the United States, 16 in Canada, 10 in the
United Kingdom, 24 in Continental Europe, 11 in Latin America, 4 in Australia
and 9 in Asia.
Anixter sells approximately 92,000 products to 85,00082,000 active customers
and works with approximately 1,000 active suppliers. Itscustomers. These customers
include international, national, regional, and local companies that areinclude end
users of thesethe Company's products, installers and resellers of the Company's
products and engage inOriginal 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, health care, transportation, utilities and government. Also, Anixter sells products to resellers suchgovernment as
well as contractors, installers, system integrators, value added resellers,
architects, engineers and wholesale distributors. The average order size is
approximately $1,700. The$1,500.
Products
Anixter sells approximately 185,000 products. These products distributed by Anixter include
communications (voice, data, video and video)security) products used to connect
personal computers, peripheral equipment, mainframe equipment, security
equipment, and various networks to each other. The products include an
assortment of transmission media (copper and fiber optic cable), connectivity
products and support and supply products. In the enterprise network communications market,
Anixter sellsThese products that are incorporated in
local areaenterprise networks, ("LANs"),
the internetworking of LANs to form wide areaphysical security networks, and enterprise networks.
In the service provider market, Anixter provides the installation-related
materials that support central switching offices, web
hosting sites and remote transmission sites. Anixter'sAnixter 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 and repair and construction related applications. The
Company also include electrical wiring system
products used for the transmissionprovides a wide variety of electrical energy and control/monitoringelectronic wire and cable
products, fasteners and other small components that are used by OEM's in
manufacturing a wide variety of industrial processes.products.
Suppliers
The Company sources products from approximately 2,000 suppliers. However,
approximately 35% of Anixter's dollar volume purchases in 2002 were from the
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 communicationscommunication cabling,
connectivity, support and supply products, and electrical wiring systems, products.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.
Approximately
38%Significant terms of the Company's typical distribution agreement are
described as follows:
- A non-exclusive right to re-sell products to any customer in a
geography (typically defined as a country);
- Usually cancelable upon 90 days notice by either party for any reason;
- Excludes any minimum purchase agreements, although pricing may change
with volume on a prospective basis;
- The right to pass through the manufacturer's warranty to Anixter's
dollar volume purchases in 2001 were from its five largest
suppliers.
Anixter enhances its value proposition to both key supplierscustomers.
2
Distribution and customers through its industry leading specifications and testing lab in
suburban Chicago. In this Underwriter Laboratories-certified lab, Anixter works
with key suppliers to develop product specifications and to test compliance. The
Company uses the same lab to design and test various product configurations for
customers in order to optimize their network performance.Service Platform
Anixter cost-effectively serves its customers' needs through its
proprietary computer system, which connects substantially allmost 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 Web
sitesWebsites in the industry.
Anixter operates a series of large modern hub warehouses in key
distribution centers in North America, Europe, Asia and Latin America that
provide for cost-effective and reliable storage and delivery of products to its
customers. The hub warehouses store the bulk of Anixter's inventory. Some
smaller warehouses are also maintained to maximize transportation efficiency and
to provide for the local pick-up needs of customers in certain cities. This
network consists of 108 locations in the United States, 16 in Canada, 11 in the
United Kingdom, 24 in Continental Europe, 12 in Latin America, 12 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 January 3, 2003, the Company and its subsidiaries employed approximately
5,000 people. Less than 1 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 competesviews the competitive
environment as highly fragmented with hundreds of distributors and manufacturers
that sell products directly or through existingmultiple 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 offering,
highly skilled workforce, and global distribution network. The Company can ship
99% of orders for delivery within 24 to 48 hours to all major global markets. In
addition, the Company has common systems and processes in 40 countries around
the world that provide its customers and suppliers global consistency.
Anixter enhances its value proposition to both key suppliers and customers
through its industry leading specifications and testing lab in suburban Chicago.
In this Underwriter Laboratories-certified lab, Anixter works with key suppliers
to develop product specifications and to test compliance. The Company uses the
same lab to design and test various product configurations for customers in
order to optimize their network performance.
In addition to competitive factors, future performance could be subject to
economic downturns, possible rapid changes in applicable technologies,
or regulatory changes whichor liquidity problems that may substantially changebe experienced by the
cost and/or accessibility of public
network bandwidth. To guard against inventory obsolescence, the Company has
negotiated various return and price protection agreements with its key
suppliers.Company's two largest customers. 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.
MISCELLANEOUS
At December 28, 2001,Many of the Company's competitors, including the two largest 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
3
degree of material requirements planning and information systems interfaces and
in some cases may require the maintenance of a dedicated distribution facility
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
provide that materials acquired as a result of joint material requirements
planning between the Company and its subsidiaries employed
approximately 4,900 people.the customer would be required to 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)Available Information
The Company maintains an Internet web site 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 those reports.
These forms are available without charge as soon as reasonably practical
following the time they are filed with or furnished to the SEC. Shareholders and
other interested parties may request email notification of the posting of these
documents through the Investor Relations section of the Company's Website.
(d) FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND EXPORT SALES
For information concerning foreign and domestic operations and export
sales, see Note 109 "Income Taxes" and Note 1312 "Business Segment" of this report.Segments" in the Notes to
the Consolidated Financial Statements.
ITEM 2. PROPERTIES.
Substantially allThe Company's distribution network consists of 142 warehouses in 40
countries with approximately 4 million square feet. There are 13 regional
distribution centers (100,000 - 575,000 square feet), 22 local distribution
centers (35,000 - 100,000 square feet) and 107 service centers. Additionally,
the Company'sCompany has 45 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.
ITEM 3. LEGAL PROCEEDINGS.
InFrom time to time, in the ordinary course of business, the Company and its
subsidiaries becamebecome 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 which 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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
During the fourth quarter of 2001,2002, no matters were submitted to a vote of
the security holders.
4
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
Anixter International Inc.'s Common Stock is traded on the New York Stock
Exchange under the symbol AXE. Stock price information is set forth in Note 14
("Selected13
"Selected Quarterly Financial Data (Unaudited)") of this report. in the Notes to the Consolidated
Financial Statements. As of March 8,
2002,7, 2003, the Registrant had 3,8074,079 shareholders
of record.
ITEM 6. SELECTED FINANCIAL DATA.
(In millions, except per share amounts)
FISCAL YEAR
Results of operations:----------------------------------------------------
2002* 2001 2000 1999 1998
1997
-------- -------- -------- -------- --------
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
Results of operations:
Net salessales................................ $2,520.1 $3,144.2 $3,514.4 $2,712.0 $2,390.1
$2,126.4
Operating income (a)..................... 87.7 102.0 189.8 112.8 87.0 91.1
Interest expense and other, net (b)...... (15.2) (43.8) (55.2) (34.6) (34.8)
(28.5)
Gain on ANTEC investmentinvestment................. -- -- -- -- 24.3
2.2
Income from continuing operations (c).... 43.5 33.6 78.7 69.7 44.7
37.4
Income from discontinued operationsoperations...... -- -- -- 54.5 20.9 7.9
Extraordinary loss on early
extinguishment of debtdebt................ (0.4) (3.3) -- -- --
--
Net incomeincome............................... 43.1 30.3 78.7 124.2 65.6 45.3
Basic income per share:
Continuing operationsoperations................. $ 1.18 $ 0.92 $ 2.15 $ 1.86 $ 1.00
$ 0.79
Net incomeincome............................ 1.17 0.83 2.15 3.31 1.46 0.95
Diluted income per share:
Continuing operationsoperations................. $ 1.14 $ 0.89 $ 2.03 $ 1.83 $ 0.99
$ 0.78
Net incomeincome............................ 1.13 0.80 2.03 3.26 1.45 0.95
Financial position at year-end:
Total assetsassets............................. $1,226.0 $1,198.8 $1,686.0 $1,434.7 $1,335.1
$1,333.6
Total debtdebt............................... $ 195.1 $ 241.1 $ 451.9 $ 468.0 $ 543.6
$ 468.8
Stockholders' equity (d)................. $ 634.8 $ 563.1 $ 554.9 $ 456.4 $ 411.5
$ 477.0
Diluted book value per shareshare............. $ 16.71 $ 14.90 $ 13.57 $ 11.99 $ 9.09
$ 9.98
Diluted sharesshares........................... 38.0 37.8 40.9 38.1 45.3
47.8
Year end outstanding sharesshares.............. 37.5 36.9 37.7 35.9 41.9 47.3
*On September 20, 2002, the Company completed the purchase of the operations
and assets of Pentacon, Inc.("Pentacon"), for $108.5 million. The acquisition
was accounted for as a purchase and the results of operations of the acquired
business are included in the consolidated financial statements from the date of
acquisition. Pentacon's operations in 2002 were not significant to the Company.
See Note 3 "Acquisitions and Divestiture of Businesses" in the Notes to the
Consolidated Financial Statements for further information.
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Notes:
(a) In the third quarter of 2001, the Company incurred a one-time restructuring charge of
$31.7 million associated with reducing its workforce, closing or
consolidating certain facilities and exiting the Korean market.
Additionally, 2001, 2000, 1999 and 1998 include goodwill amortization of
$9.0 million, $8.4 million, $7.4 million and $7.1 million, respectively.
5
(b) In the fourth quarter of 2000, the Company incurred an $8.8 million charge
relating to the discount on the initial sale of accounts receivable to an
unconsolidated wholly owned special purpose corporation in connection with
an accounts receivable securitization program.
(c) In the third quarter of 1999, the Company recorded a $24.3 million tax
benefit in continuing operations for the reversal of previously established
tax reserves determined to be no longer necessary.
(d) Stockholders' equity reflects treasury stock purchases of $46.9 million,
$15.4 million, $91.9 million $101.8 million and $14.2$101.8 million in 2001, 2000, 1999 and
1998, and 1997, respectively. In addition, stockholders'
equity includes unrealized after-tax gains on marketable equity
securities available-for-sale of $19.8 million at January 2, 1998.
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 "believes",
"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 general economic conditions, technology changes, changes
in supplier or customer relationships, exchange rate fluctuations and new
or
changed competitors. The information contained in this financial review should be read
in conjunction with the consolidated financial statements, including the notes
thereto, on pages 1418 to 3341 of this Report.
FINANCIAL LIQUIDITY AND CAPITAL RESOURCES
ASSET SALES AND OTHER DISPOSITIONS
DISCONTINUED OPERATIONS AND ASSETS HELD FOR SALE: In 1999,Acquisition of Pentacon, Inc.
On September 20, 2002, the Company completed the disposalpurchase of the Integration segmentoperations
and accordingly,assets of Pentacon, Inc. ("Pentacon"), pursuant to Pentacon's plan of
reorganization filed under Chapter 11 of the Integration segmentUnited States Bankruptcy Code.
Pentacon is reflected as a discontinued operation in these financial
statements. The North America Integration business was soldleading 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 first quarterUnited States, along with sales offices
and agents in Europe, Canada, Mexico and Australia. The Company paid a total of
1999$108.5 million for tangible assets with a fair value of approximately $81.7
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, intangible
assets have also been recorded at an estimated fair value as follows: $13.8
million of intangible assets with finite lives (customer relationships) and a
$1.8 million intangible asset with an indefinite life (trade name). Goodwill
resulting from the Asia Pacific Integration businesstransaction totaled $14.1 million. The Company agreed to hire
the existing Pentacon employees and assume the lease obligations for certain of
its operating facilities. The acquired assets will be used in substantially the
same manner in which they were utilized by Pentacon. The Company has incurred
approximately $2.9 million of transaction-related costs that have been
capitalized as part of the acquisition. In addition, the Company agreed to pay
$1.2 million in retention bonuses, $1.0 million of which was soldexpensed in the
fourth quarter of 1999. Total proceeds received2002 and $0.1 million will be expensed in each year of 2003
and 2004. The acquisition was accounted for as a purchase and the results of
operations of the acquired business are included in the consolidated financial
statements from the saledate of acquisition. Included in the results of the Integration business were
$238.3Company
for 2002 are $51.5 million resulting in an after-tax gain of $50.6 million. Loss from
discontinued operations was $2.5sales and $0.5 million of operating profit related
to Pentacon. Pentacon had sales of $205.3 million in 1999. See Note 3 "Discontinued
Operations"2002.
2001 Restructuring
Staff Reductions: The Company has completed all of the approximately 700
staff reductions (approximately 13% of the total workforce prior to the
announcement) that were originally anticipated in the
Notes6
restructuring charge. In 2002, the Company paid $4.5 million in severance and
termination benefits. During the second quarter of 2002, the Company recorded an
additional charge of $0.4 million for severance associated with headcount
reductions in Europe. The Company's results of operations were not impacted by
this charge, as it was offset by the reversal of excess accruals in North
America and Asia Pacific. The Company estimates that staff reductions resulted
in savings of approximately $39.6 million in 2002.
Facility Restructuring: In the fourth quarter of 2001, the Company vacated
substantially all of the 900,000 square feet of space located in 35 warehouses
and sales locations. The reduction in square feet represented approximately 18%
of the total square footage the Company occupied prior to the Consolidated Financial Statementsrestructuring
initiative. In 2002, the Company paid out $6.3 million related to exit costs for
further
information.these facilities. During the second quarter, the Company recorded an additional
charge for the facility consolidation in our UK operation of $1.0 million. The
Company's consolidated results of operations were not impacted by the charge, as
it was offset by the reduction in excess accruals in North America and Asia
Pacific. The Company sold certain other assetsestimates the 2002 operating expense savings were $7.8
million.
Korea: The Company closed operations in Korea during the fourth quarter of
2001. The remaining accrued expense of $1.4 million is needed to cover the legal
proceedings against Anixter Korea.
Other Items: The remaining accrued expense of $0.3 million is needed for
$25.1 million resulting in an
after-tax loss of $2.0 million in 1999.
FINANCINGSlegal costs associated with the restructuring.
Financings
On June 28, 2000, the Company issued $792.0 million 7% zero-coupon
convertible notes ("Convertible Notes") due 2020. 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 Company expects to
reborrow these 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 28, 2020, using the effective
interest rate method. During 2002, the Company repurchased Convertible Notes
with a notional amount of $378.7 million and a book carrying value of $109.7
million for $107.2 million. In addition, the Company wrote-off related debt
issuance costs of $2.8 million. Accordingly, the Company recorded an
extraordinary loss on the early extinquishment of debt of $0.3 million ($0.2
million, net of tax) in its Consolidated Statement of Operations for the year
ended January 3, 2003. Holders of the remaining Convertible Notes 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 5.93.1 million shares. Additionally, holders may
require the Company to purchase at book value, all or a portion of their
Convertible Notes on June 28, 2005, at a price of $356.28 per Convertible Note,Note;
on June 28, 2010, at a price of $502.57 per Convertible NoteNote; and on June 28,
2015, at a price of $708.92 per Convertible Note. The Company may choose to pay
the purchase price in cash or common stock or a combination of both. See Exhibit
4.2 for the calculation of the purchase price if the Company were to choose to
pay in common shares. The Convertible Notes are structurally subordinated to the
indebtedness of Anixter Inc. ("Anixter"). At January 3, 2003, the remaining face
value of the Convertible Notes outstanding was $413.3 million with a book value
of $124.0 million.
On October 6, 2000, the Company entered into two financing arrangements to
support further business growth. The agreements consisted of a $500.0 million,
senior unsecured, revolving credit agreement and a $275.0 million accounts
receivable securitization program. Theprogram which was amended and restated in October
2002. This new revolving credit line included a $390.0 million, five-year
agreement, plus a $110.0 million, 364-day agreement. As a result of the economic
slowdown experienced in 2001 and 2002, these facilities have been scaled down to
fit the Company's current anticipated needs through the remainder of the
arrangements. On April 24, 2001, Anixter Inc. cancelled the $110.0 million, 364-day
revolving credit line. Accordingly, the Company recorded an extraordinary loss
on the early extinquishment of debt in 2001 of $0.3 million ($0.2 million, net
of tax) to expense the financing fees associated with this portion of the
revolving credit agreement. On October 6, 2001, the Company reduced the
borrowing capacity on the accounts receivable securitization program from $275.0
million to $225.0 million. In March 2003, Anixter cancelled $115.0 million of
the five-year agreement and will record a loss on the early extinguishment of
debt of approximately $0.4 million as a nonoperating expense in its Consolidated
Statements of Operations for the 13 weeks ended April 4, 2003.
7
The accounts receivable securitization program is conducted through Anixter
Receivables Corporation ("ARC"), which is a wholly owned unconsolidated
subsidiary of the Company that is accounted for using the equity method. ARC was
established in order to take advantage of the lower borrowing costs available
under this arrangement versus the borrowing costs on the unsecured revolving
credit agreement. The program allows the CompanyAnixter to sell, on an ongoing basis
without recourse, a majority of the accounts receivable originating in the
United States to ARC and consists of a series of 364-day facilities. ARC may in
turn sell an interest in these receivables to a financial institutioninstitutions and borrow
up to $225.0 million. Prior to the October 6, 2001 borrowing capacity reduction,
ARC could borrow up to $275.0 million. The Company reduced the capacity of the
facility in order to reduce costs associated with excess availability. Under
this arrangement, Anixter continues to service the sold receivables by
performing the collection and cash application functions in order to maintain
relationships with its customers. These services are billed by Anixter to ARC at
cost. The securitization program began in October 2000, at which time $416.8
million of gross accounts receivable were sold and removed from the balance
sheet. At January 3, 2003 and December 28, 2001,
and December 29, 2000, the outstanding balance of
accounts receivable sold to ARC totaled $296.0$248.6 million and $388.3$296.0 million,
respectively. In order to fund the purchase of the accounts receivable from
Anixter, ARC has incurred long-term debt of $143.7$129.7 million and $236.3$143.7 million and
has a subordinated note payable to Anixter of $69.6 million and $111.4 million
at January 3, 2003 and $126.1 million at December 28, 2001, and December
29, 2000, respectively. The effective interest
rate paid by ARC in 20012002 and 20002001 on the long-term debt was 5.0%2.6% and 7.1%5.0%,
respectively. ARCARC's long-term debt has not been guaranteed by Anixter or the
Company and neither have an obligation, contingent or otherwise, to the holders
of ARCARC's long-term debt. Under this program, ARC is required to maintain delinquency, loss-to-liquidation and
dilution ratios
that are normal forconsistent with other programs arranged by the Company's financial
institutions. The financial institutions used by the Company have a significant
presence in this type of arrangement. As of December 28,
2001,financing and are familiar with industry norms. ARC was within 13%is
in compliance with all covenant ratios and the Company believes that there is
adequate margin between the covenant ratios and the actual ratios given the
current trends of the maximum allowed underbusiness. See Exhibit 4.7 for definitions of the delinquency ratio. The
Company does not believe it is necessary to amend the ratio at this time.covenant
ratios. A charge of $8.8 million, primarily relating to the discount on the
initial sale of accounts receivable to ARC, was recorded at inception of the
program in the fourth quarter of 2000. The ongoing discount rate of 2.12% was
calculated by a third party and represents a rate equivalent to those in an
arms-length transaction. The Company expects to substantially recover thethis $8.8
million charge during the course of the program. In otherOther expenses, the Company
recorded net charges of $2.7 million, $8.7 million and $3.8 million in 2002,
2001 and 2000, respectively, primarily for the interest expense on the long-term
debt incurred by ARC to fund the purchases of the accounts receivable from
Anixter.
In September 1996, Anixter filed a shelf registration statement with the
Securities and Exchange Commission to offer from time to time up to a $200.0
million aggregate principal amount of unsecured notes. On September 17, 1996,
Anixter issued $100.0 million of these notes due September 2003. The notes,
which bear interest at 8%, contain various restrictions with respect to secured
borrowings and are unconditionally guaranteed by the Company. During 2001,
Anixter repurchased $81.3 million of itsthe 8% senior notes for $86.5 million.
Accordingly, the Company recorded an extraordinary loss on the early
extinquishment of debt of $5.2 million ($3.1 million, net of tax) in its
consolidated statementConsolidated Statement of operationsOperations for the year ended December 28, 2001.
During 2002, Anixter repurchased $10.7 million of these senior notes for $11.1
million. Accordingly, the Company recorded an extraordinary loss on the early
extinquishment of debt of $0.4 million ($0.2 million, net of tax) in its
Consolidated Statement of Operations for the year ended January 3, 2003. At
January 3, 2003, the outstanding balance of the 8% notes was $8.0 million. These
notes have a put provision that under certain circumstances is triggered by a
rating downgrade. At December 28, 2001, theThe current outstanding balance of the 8% notes
was $18.6 million which wasis well under the
cross-default thresholds of Anixter and the Company's other existing
indebtedness. Therefore, Anixter and the Company wereare not exposed to any
potentially adverse effects from thisthe put provision.
At December 28, 2001, $408.2January 3, 2003, $345.3 million was available under the bank revolving
lines of credit at Anixter, of which $25.7$10.8 million was available to pay the
Company for intercompany liabilities. The primary liquidity source for Anixter
is the $390.0 million revolving credit agreement, for$59.5 million of which no borrowings
werewas
outstanding at December 28, 2001.January 3, 2003. The borrowing rate on the revolving credit
agreement is LIBOR plus 87.5 basis points and the interest rate on the $59.5
million outstanding balance was 2.9%. In March 2003, $115.0 million of this
facility was cancelled by the Company in order to reduce costs associated with
this excess availability. This revolving credit agreement requires certain
financialcovenant ratios to be maintained. The most restrictive financialCompany is in compliance
8
with all of these covenant ratios areand believes that there is adequate margin
between the fixed charge coverage ratiocovenant ratios and the leverage ratio. Asactual ratios given the current trends of
December 28,
2001, Anixter's operating results exceeded the minimum required underbusiness. See Exhibit 4.3 for definitions of the fixed
charge coverage ratio by 23%. If results for 2002 are significantly lower than
planned, the restricted financial ratio provisions would be in default and the
borrowings callable. In addition, due to cross-default provisions in all other
Anixter and Company debt agreements, all outstanding debt would then become due
and payable. While the Company does not expect to default under this agreement,
if that were to occur, the Company believes it would be able to obtain a waiver
or amendment from the lenders on reasonable terms.covenant ratios. Due to the
requirement of the leverage ratio, borrowings of only $298.0$135.9 million of the
$408.2$345.3 million available under bank revolving lines of credit at Anixter would
be permitted as of December 28, 2001.January 3, 2003.
In 2002,2003, the Company estimates that it will have positive cash flow from
operating activities and after capital expenditures. On February 5, 2003,
Anixter repurchased, at book value, an additional $2.0 million of the 8% senior
notes. The Company will continue to pursue opportunities to repurchase
outstanding debt, with the volume and timing to depend on market conditions. As of March 13, 2002, Anixter has
repurchased an additional $1.0 million of its 8% senior notes that mature in
September, 2003 for $1.1 million and 54,100 of its Convertible Notes that mature
in June 2020 for $15.5 million. The Company will reflect an extraordinary loss
on the early extinguishment of debt of approximately $0.6 million ($0.4 million,
net of tax) from these transactions in its consolidated statements of operations
for the 13 weeks ended March 29, 2002.
The Board of Directors of the Company had authorized the purchase of up to
2.8 million common shares (2.0 million was authorized in 2001 and 0.8 million
carried over from prior year authorizations), with the volume and timing to
depend on market conditions. In 2001, the Company repurchased 2,079,000 shares
at an average cost of $22.57. In February 2003, the Board of Directors of the
Company authorized the purchase of up to an additional 0.6 million shares with
the volume and timing to depend on market conditions. As of March 13, 2003,
Anixter had repurchased an additional 586,100 shares at an average cost of
$21.93. Purchases were made on the open market and were financed from cash
generated by operations.
CASH FLOW
YEAR ENDED DECEMBERCash Flow
Year ended January 3, 2003: Consolidated net cash provided by continuing
operating activities was $165.7 million in 2002 compared to $288.5 million in
2001. Cash provided by continuing operating activities decreased primarily
because the decline in working capital in 2002 was less than the decline in
2001. In 2002, cash generated by the collection of receivables was almost
entirely offset by the payments made on accounts payable and accrued expenses.
Inventory was further reduced in 2002 by $81.4 million associated with the
decline in sales. The Company paid $10.8 million for costs related to the 2001
restructuring. In 2001, accounts receivable decreased, providing cash of $128.5
million. Inventory declined $357.1 million in 2001 as the $120.0 million
specifically identified at December 29, 2000 as "inventory returnable to
vendors" was returned and the remaining decline was due to reduced purchases as
lower levels of inventory were needed to support the reduced sales levels. The
increase in cash flow generated by the reduction in inventory was partially
offset by the related decrease of $294.5 million in accounts payable and accrued
expenses. In 2001, the Company incurred a $31.7 million restructuring charge,
$6.6 million of which was non-cash. At January 3, 2003, $6.9 million remained to
be paid.
Consolidated net cash used in investing activities was $122.4 million in
2002 versus $20.5 million in 2001. In the third quarter of 2002, the Company
completed the acquisition of certain assets and liabilities of Pentacon for
$110.4 million, including transaction related costs. Also in 2002, $2.9 million
was received from the sale of real estate and other fixed assets and $2.0
million from the sale of securities. Capital expenditures decreased $5.1 million
from 2001 as spending was reduced due to weak economic conditions. In 2002,
capital expenditures includes $11.6 million for the construction of a new
corporate headquarters. Capital expenditures in 2001 were primarily for the
upgrades of warehouse facilities and the purchase of software and computer
equipment. Capital expenditures are expected to be approximately $24.0 million
in 2003, $18.0 million of which is for the new corporate headquarters.
Consolidated net cash used by financing activities was $48.8 million in
2002 in comparison to $255.8 million in 2001. In 2002, cash used in financing
activities includes $107.2 million and $11.1 million for the repurchase of the
Convertible Notes and 8% senior notes, respectively. Proceeds from borrowing
under the revolving credit agreements were $62.6 million in 2002. The Company
received $7.5 million for the issuance of 0.6 million shares of common stock
relating to the exercise of stock options and the employee stock purchase
program. In 2001, cash used in financing activities included a net repayment of
long-term borrowings of $142.4 million, extinquishment of senior notes of $86.5
million and $46.9 million of treasury stock purchases, partially offset by
proceeds of $22.3 million received from the issuance of 1.3 million shares of
common stock for the exercise of stock options and the employee stock purchase
plan. Cash used for discontinued operations was $2.6 million in 2002 compared to
$5.8 million in 2001.
9
Year ended December 28, 2001: Consolidated net cash provided by continuing
operating activities was $288.5 million in 2001 compared to $67.5 million in
2000. Cash provided by continuing operating activities increased primarily due
to a reduction in working capital required to support the business. In 2001,
accounts receivable decreased, providing cash of $128.5 million compared to
$91.4 million in 2000. The outstanding balance of gross
receivables sold to ARC at December 28, 2001, was $92.3 million less than at
December 29, 2000. The cash generated by the decline was used by ARC to pay-down
$92.6 million of ARC long-term debt. Inventory declined $357.1 million as the $120.0 million
specifically identified at December 29, 2000 as inventory"inventory returnable to
vendorsvendors" was returned and the remaining decline was due to reduced purchases as
lower levels of inventory were needed to support the reduced sales levels. In
2000, inventory increased $329.7 million, $120.0 million of which represented
inventories returnable to vendors, to support the growth in the service provider
and integrated supply markets and a significant competitive local exchange
carrier contract. The increase in cash flow generated by the reduction in
inventory was partially offset by the related decrease of $294.5 million in
accounts payable and accrued expenses. In 2000, accounts payable and accrued
expenses increased $181.8 million. In 2001, the Company incurred a $31.7 million
restructuring charge, of which $6.6 million was non-cash. At December 28, 2001,
$17.7 million remained to be paid.
Consolidated net cash used in investing activities was $20.5 million in
2001 versus $26.3 million in 2000. Capital expenditures were $22.0 million in
2001 compared to $22.6 million in 2000. Capital expenditures in 2001 were
primarily for the upgrades of warehouse facilities and the purchase of software
and computer equipment. Capital
expenditures are expected to be approximately $11.0 million in 2002. In the first quarter of 2000, the Company purchased
allNet Technologies Pty. Limited in Australia for $6.7 million. In the third
quarter of 2000, the Company sold the net assets of a wholly owned U.S.
subsidiary of its structured cabling business for $3.0 million in cash and $1.6
million in notes receivable.
Consolidated net cash used by financing activities was $255.8 million in
2001 in comparison to $24.4 million in 2000. In 2001, cash used in financing
activities included a net repayment of long-term borrowings of $142.4 million,
extinquishment of senior notes of $86.5 million and $46.9 million of treasury
stock purchases, partially offset by proceeds of $22.3 million received from the
issuance of 1.3 million shares of common stock for the exercise of stock options
and the employee stock purchase plan. In 2000, net repayment of long-term
borrowings was $21.5 million, while treasury stock purchases were $15.4 million.
In addition, in 2000 the Company received $34.9 million from the issuance of 2.2
million shares for the exercise of stock options and the employee stock purchase
plan. Cash used for discontinued operations was $5.8 million in 2001 compared to
$13.5 million in 2000.
YEAR ENDED DECEMBER 29, 2000: Consolidated net cash provided by
continuing operating activities was $67.5 million in 2000 compared to $6.9
million in 1999. Cash provided by continuing operating activities increased
primarily due to net proceeds of $236.3 million received in connection with the
receivable securitization program, partially offset by higher working capital
requirements. Consolidated net cash used by investing activities was $26.3
million in 2000 versus $15.9 million in 1999. In the first quarter of 2000, the
Company purchased allNet Technologies Pty. Limited in Australia for $6.7
million. In the third quarter of 2000, the Company sold the net assets of a
wholly owned U.S. subsidiary of its communications products distribution
business for $3.0 million in cash and $1.6 million in notes receivable. In the
fourth quarter of 1999, the Company acquired a small specialty wire and cable
company in Europe for $2.6 million. Capital expenditures were $22.6 million in
2000 compared to $13.8 million in 1999. The increase primarily relates to the
expansion of the Company's distribution centers. Consolidated net cash used by
financing activities was $24.4 million in 2000 in comparison to $163.4 million
in 1999. In 1999, the Company had treasury stock purchases of $91.9 million as
compared to $15.4 million in 2000. In addition, in 2000 the Company received
$34.9 million relating to the exercise of 2.2 million stock options compared to
$7.4 million received in 1999. Net repayment of long-term borrowings was $21.5
and $73.0 million in 2000 and 1999, respectively. In 1999, proceeds from the
sale of the Integration business was used to pay down long-term debt. Cash used
for discontinued operations was $13.5 million in 2000 compared to $169.4 million
provided in 1999. In 1999, proceeds of $238.3 million were received from the
sale of the Integration business.
INTEREST EXPENSE:Interest Expense
Interest expense for continuing operations was $15.5 million, $30.1 million
and $43.3 million for 2002, 2001 and $34.9 million for 2001, 2000, and 1999, respectively. During the second
quarter of 2001, the Company incurred $1.7 million in interest expense related
to the cancellation of certain interest rate hedge agreements for which there
were no longer outstanding borrowings. The decrease in the interest expense in
20012002 from 20002001 was due to lower debt levels as a result of the
accounts receivable securitization program implemented in the fourth quarter of
2000, lower working
capital, levelsthe repurchase of high interest rate debt and a reduction inoverall lower interest
rates. During
previous years, theThe Company hadhas 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. At December 28, 2001,As a result, the Company had only $0.5
million in variable borrowings outstanding under the bank revolving lines of
credit, for which no interest rate hedge agreements were in place.on approximately 83%
of debt obligations at January 3, 2003, is fixed or capped. Total outstanding
debt at December 28, 2001,January 3, 2003, was $241.1$195.1 million for the Company and $143.7$129.7 million
for ARC. The interest rate on substantially all of the Company's
debt obligations (excluding ARC, which are variable rate obligations) at
December 28, 2001, was fixed. The impact of interest rate swaps and caps for 20012002 and 19992001 was an
increase to interest expense of $0.3$0.1 million and $1.3$0.3 million, respectively, and
a decrease to interest expense of $0.7 million in 2000.
INCOME TAXESIncome Taxes
Various foreign subsidiaries of the Company had aggregate cumulative net
operating loss ("NOL") carryforwards for foreign income tax purposes of
approximately $167.6$144.7 million at December 28, 2001,January 3, 2003, which are subject to various
provisions of each respective country. Approximately $56.1$52.3 million of this
amount expires between 20022003 and 20112012 and $111.5$92.4 million of the amount has an
indefinite life. Of the $167.6$144.7 million NOL carryforwards of foreign
subsidiaries, $89.4$68.6 million relatedrelates 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 28, 2001,January 3, 2003, were approximately $78.2$76.1 million, which are
subject to various provisions of each respective country. Approximately $48.6$43.5
million of this amount expires
10
between 20022003 and 20112012 and $29.6$32.6 million of the amount has an indefinite life.
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 U.S.
DuringLiquidity Considerations and Other
With the third quarterdeterioration of 1998,market conditions in the Internal Revenue Service completed
its examination forcommunication products
industry, the years 1993 to 1995, which included an examinationCompany's two largest customers have experienced significant
downturns in their business. This has resulted in each of net
operatingthem incurring large
losses and credit carryforwards dating back to 1979. As a result of
the lapsing, during the third quarter of 1999, of all relevant statutes of
limitations on assessment relating to that 17-yearmultiple restructuring charges. If these conditions persist for an
extended period of time, these customers may experience future liquidity
problems. The Company holds a significant amount of accounts receivable and
inventory relating to these customers. The Company believes that the inventory
and logistics services that it provides to these two customers are critical to
their on-going operations. While the Company recorded a $24.3 million tax benefit in continuing operations in 1999 forbelieves the reversal of previously established tax reserves determinedcurrent risk is
minimal, if these customers were to default on their obligations to the Company,
the effect could be no longer
necessary.
LIQUIDITY CONSIDERATIONS AND OTHERmaterial.
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.
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. In
addition the Company'sto competitive factors, future performance could be affected bysubject to economic
downturns, possible rapid changes in applicable technologies, or regulatory changes
or liquidity problems that substantially changemay be experienced by the Company's two largest
customers. 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.
Year ended January 3, 2003: Net income was $43.1 million in 2002 compared
with $30.3 million in 2001. Due to a combination of increased economic softness
and continued deterioration of market conditions in the communications products
industry, the Company incurred a restructuring charge of $31.7 million ($19.0
million, net of tax) in the third quarter of 2001 associated with reducing its
workforce, closing or consolidating certain facilities and exiting the Korean
market. The restructuring resulted in annualized expense reductions of
approximately $48.0 million. In 2002, the Company recorded an after-tax
extraordinary loss of $0.4 million for the early extinguishment of $109.7
million of the Company's Convertible Notes and $10.7 million of its 8% senior
notes. In 2001, the Company recorded an after-tax extraordinary loss of $3.3
million for the early extinguishment of $81.3 million of Anixter's 8% senior
notes and debt issuance costs associated with the cancellation of a $110.0
million 364-day revolving credit agreement due 2001. In 2002, the Company no
longer amortized goodwill. Operating income for 2001 includes $9.0 million of
expense for goodwill amortization.
The Company's net sales for the year ended January 3, 2003, declined 19.8%
to $2.5 billion from $3.1 billion in 2001. Net sales by major geographic market
are presented in the following table:
YEARS ENDED
---------------------------
JANUARY 3, DECEMBER 28,
2003 2001
------------ ------------
(IN MILLIONS)
North America............................... $1,996.2 $2,433.5
Europe...................................... 344.9 502.1
Asia Pacific and Latin America.............. 179.0 208.6
-------- --------
$2,520.1 $3,144.2
======== ========
11
In 2002, North America sales declined 18.0% to $2.0 billion from $2.4
billion in 2001. Excluding Pentacon, sales declined 20.1%. Sales fell across all
customer markets. The decline reflects a significant fall in spending in the
telecom industry, a reduction in technology-related spending and general overall
economic softness. In 2001, sales included $148.3 million related to service
provider customers. Due to the significant fall in spending in the
telecommunications industry, sales to the service provider market in 2002 were
minimal.
Europe sales declined 31.3% when compared to 2001. Excluding the effects of
changes in exchange rates, sales declined 35.5%. All customer markets were down
as international markets also felt the poor economic conditions experienced in
North America. In 2001, sales in Europe included $57.0 million to the service
provider market which were minimal in 2002.
Asia Pacific and Latin America net sales decreased 14.2% from the same
period in 2001, reflecting reduced spending in the communications customer
market. Excluding the effect of changes in exchange rates, Asia Pacific and
Latin America net sales decreased 13.6%.
In 2002, operating income decreased 14.0% to $87.7 million from $102.0
million in 2001. Operating margins increased to 3.5% in 2002 from 3.2% in 2001.
Excluding the 2001 restructuring charge of $31.7 million and $9.0 million of
goodwill amortization expense, operating income declined 38.5% from 2001 to
2002. Gross margins improved to 24.0% in 2002 from 23.4% in 2001. Operating
income (loss) by major market is presented in the following table:
YEARS ENDED
---------------------------
JANUARY 3, DECEMBER 28,
2003 2001
------------ ------------
(IN MILLIONS)
North America *............................. $ 83.7 $ 89.7
Europe *.................................... 5.3 21.2
Asia Pacific and Latin America*............. (1.3) (8.9)
------ ------
$ 87.7 $102.0
====== ======
*The year ended December 28, 2001 includes restructuring costs for North
America, Europe and Asia Pacific and Latin America of $23.1 million, $2.3
million and $6.3 million, respectively. In addition, 2001 includes goodwill
amortization expense of $8.4 million, $0.3 million and $0.3 million for North
America, Europe and Asia Pacific.
North America operating income decreased 6.5% in 2002 compared to 2001.
Excluding 2001 restructuring costs of $23.1 million and goodwill amortization
expense of $8.4 million, operating income declined 31.6%. Operating margins
increased to 4.2% in 2002 from 3.7% in 2001. Excluding restructuring costs and
goodwill amortization in 2001, operating margins declined 80 basis points. As
North America gross margins were flat with 2001 at 23.9%, the decline in
operating margin is primarily due to the decrease in sales volume. Excluding
Pentacon, operating expenses declined 17.6% primarily due to a reduction in
headcount and facility expenses resulting from the third quarter 2001
restructuring along with lower variable costs associated with the lower sales
volume. Excluding Pentacon, average headcount for the year declined 28.1% from
2001.
Europe operating income decreased 74.9% when compared to 2001. Excluding
the 2001 restructuring costs of $2.3 million and goodwill amortization expense
of $0.3 million, operating income decreased 77.7%, while operating margins
declined by 330 basis points to 1.5%. The sharp declines in operating income and
margins reflect the 31.3% decline in sales. Europe's gross margins increased 360
basis points to 26.7%, as 2001 included $57.0 million of low margin service
provider sales. While cost and/or availabilitysavings from the 2001 restructuring were achieved,
operating expenses declined by only 7.5% reflecting the minimal operating costs
incurred on the 2001 service provider sales, $1.4 million of public
networking bandwidth.
YEARadditional
restructuring costs incurred in 2002 and the impact of changes in exchange
rates. Excluding the effect of exchange rates, restructuring costs and goodwill
amortization expense, operating expenses decreased 11.6% and operating income
declined 75.3%.
Asia Pacific and Latin America recorded an operating loss of $1.3 million
in 2002 compared to a $8.9 million loss for 2001. In 2002, Asia Pacific and
Latin America reversed net excess restructuring accruals of $0.5 million.
Excluding the restructuring costs in 2002 and 2001 and goodwill amortization
expense in 2001, the operating loss decreased 20.5% from a $2.3 million loss in
2001 to a $1.8 million loss in 2002. In 2001,
12
Latin America wrote-off $6.3 million of inventory. The remaining loss in 2002 is
primarily due to the decline in sales. Excluding restructuring costs, goodwill
amortization expense and changes in exchange rates, the operating loss was
reduced by 18.7% compared to 2001.
Consolidated interest expense and other expenses decreased to $15.2 million
in 2002 from $43.8 million in 2001. Interest expense decreased $14.6 million to
$15.5 million due to lower debt levels as a result of lower working capital, the
repurchase of high interest rate debt and overall lower interest rates. During
the second quarter of 2001, the Company incurred $1.7 million in interest
expense related to the cancellation of certain interest rate hedge agreements
for which there were no longer outstanding borrowings.
In 2001, the Company incurred a $2.3 million foreign exchange loss
resulting from the devaluation of the Argentine Peso. Other, net income
(expense) includes the following:
YEARS ENDED
---------------------------
JANUARY 3, DECEMBER 28,
2003 2001
------------ ------------
(IN MILLIONS)
Gain on sale of fixed assets and
securities................................ $ 2.9 $ --
Accounts receivable securitization.......... (2.7) (8.7)
Foreign exchange............................ (0.1) (5.3)
Other....................................... 0.2 0.3
-------- --------
$ 0.3 $ (13.7)
======== ========
The consolidated tax provision increased to $29.0 million in 2002 from
$24.6 million in 2001 due to higher pre-tax earnings, partially offset by a
decline in the income tax rate. The 2002 effective tax rate of 40.0% declined
from 42.2% in 2001. The decrease in the effective tax rate resulted from no
longer having non-deductible goodwill amortization which was recorded in 2001,
partially offset by greater non-deductible losses in certain foreign entities.
Year ended December 28, 2001: Net income was $30.3 million in 2001
compared with $78.7 million in 2000. Due to a combination of increased economic
softness and continued deterioration of market conditions in the communications
products industry, the Company incurred a one-timerestructuring charge of $31.7 million
($19.0 million, net of tax) in the third quarter of 2001 associated with
reducing its workforce, closing or consolidating certain facilities and exiting
the Korean market. The Company anticipates that the restructuring will result in
annualized expense reductions of approximately $48 million. In addition, the Company recorded an after-tax extraordinary
loss of $3.3 million for the early extinguishment of $81.3 million of Anixter Inc.'sAnixter's
8% senior notes and debt issuance costs associated with the cancellation of a
$110.0 million 364-day revolving credit agreement due 2001. In 2000, the Company
incurred an initial after-tax charge of $5.3 million for the receivables
securitization program, which the Company expects to substantially recover
during the course of the program.
The Company's net sales for the year ended December 28, 2001, declined
10.5% to $3.1 billion from $3.5 billion in 2000. Net sales by major geographic
market are presented in the following table:
YEARS ENDED
DECEMBER 28, DECEMBER 29,
(In millions)
YEARS ENDED
---------------------------
DECEMBER 28, DECEMBER 29,
2001 2000
------------ ------------
(IN MILLIONS)
North America............................... $2,433.5 $2,739.3
Europe...................................... 502.1 587.1
Asia Pacific and Latin America.............. 208.6 188.0
-------- --------
$3,144.2 $3,514.4
======== ========
In 2001, 2000
------------ ------------
North America $2,433.5 $2,739.3
Europe 502.1 587.1
Asia Pacific and Latin America 208.6 188.0
------------ ------------
$3,144.2 $3,514.4
============ ============ North America sales declined 11.2% to $2.4 billion from $2.7
billion in 2000. With the exception of integrated supply, all customer markets
in North America declined from 2000. Enterprise network communications product
sales declined 10.6%, due to a worldwide reduction in technology-related
spending.
13
The electrical wire and cable market declined 4.3% resulting fromas the result of general
economic softness. Due to the significant fall in spending in the telecom
industry, sales in the service provider market were down 67.7%. The integrated
supply market improved significantly, as sales increased 65.1% on newprimarily due to
contracts added in late 2000.
Europe sales decreased 14.5% when compared to 2000. Increased sales in the
integrated supply market partially offset declines across all other customer
markets as international markets were also feeling the general economic softness
being experienced in the United States is also being felt by the international markets.States. Excluding the effect in changes in
exchange rates, Europe sales declined 10.9%.
Asia Pacific and Latin America net sales increased 11.0% from the same
period in 2000, reflecting strong growth in Latin America associated with
expanded product lines. Excluding the effect of changes in exchange rates, Asia
Pacific and Latin America net sales increased 13.8%.
In 2001, operating income decreased 46.2% to $102.0 million from $189.8
million in 2000. Operating margins declined to 3.2% in 2001 from 5.4% in 2000.
Excluding the one-time restructuring charge of $31.7 million previously
discussed, operating profit declined 29.5% to $133.7 million, representing a
4.3% operating margin compared to 5.4% in 2000. Gross margins were flat at
23.4%. Operating income (loss) by major market is presented in the following
table:
YEARS ENDED
---------------------------
DECEMBER 28, DECEMBER 29,
(In millions)
2001 2000
------------ ------------
(IN MILLIONS)
North America *............................. $ 89.7 $164.2
Europe *.................................... 21.2 24.6
Asia Pacific and Latin America *............ (8.9) 1.0
------ ------
$102.0 $189.8
====== ======
*The year ended December 28, 2001 includes restructuring costs for North
America, * $ 89.7 $164.2
Europe * 21.2 24.6and Asia Pacific and Latin America * (8.9) 1.0
------------ ------------
$102.0 $189.8
============ ============
*THE YEAR ENDED DECEMBER 28,of $23.1 million, $2.3
million and $6.3 million, respectively. 2001 INCLUDES RESTRUCTURING COSTS FOR NORTH
AMERICA, EUROPE AND ASIA PACIFIC AND LATIN AMERICA OF $23.1 MILLION, $2.3
MILLION AND $6.3 MILLION, RESPECTIVELY.includes goodwill amortization
expense of $8.4 million, $0.3 million, and $0.3 million for North America,
Europe, and Asia Pacific. 2000 includes goodwill amortization expense of $7.8
million, $0.3 million and $0.3 million for North America, Europe, and Asia
Pacific.
North America operating income decreased 45.4% in 2001 compared to 2000.
Excluding restructuring costs of $23.1 million and the non-recurring fulfillment
sales impact on operating profitincome of $6.9 million during 2000, operating profit
declined 28.3%. Operating margins decreased to 3.7% in 2001 from 6.0% in 2000.
Excluding restructuring costs, operating margins were 4.6%, a decline of 1.4
percentage140
basis points when compared to 2000. Operating results were negatively affected,
particularly in the second half of the year, as sales declined more rapidly than
the Company was able to reduce operating expenses. This more than offset a
slight improvement in gross margins fromof 23.7% in 2000 to 23.9% in 2001, resulting
primarily from the change in sales mix caused by the decline in sales to the
lower margin service provider market.
Europe operating income decreased 13.6% when compared to 2000. Excluding
restructuring costs of $2.3 million, operating profit decreased 4.2%, while
operating margins improved by 0.5 percentage50 basis points to 4.7%. Excluding the effect of
changes in exchange rates and the restructuring charge, Europe operating profitincome
remained flat. Operating profitincome and margins benefited from a significant
reduction in operating expenses, reflecting organizational changes and refocused
market efforts that offset the 14.5% decline in sales. In addition, Europe's
gross margins improved to 22.3% from 21.7% in 2000, reflecting reduced sales of
lower margin networking products.
Asia Pacific and Latin America recorded an operating loss of $8.9 million
in 2001 compared to operating income of $1.0 million for 2000. Excluding
restructuring costs of $6.3 million, the operating loss was $2.6 million and the
operating margin was 1.8 percentage180 basis points below 2000. OperatingThe operating loss was
negatively impacted by $6.3 million in inventory write-offs in Latin America
recorded in 2001. Changes in exchange rates had a minimal effect on operating
income.
14
Consolidated interest expense and other expenses decreased to $43.8 million
in 2001 from $55.2 million in 2000. Interest expense decreased $13.2 million to
$30.1 million due to lower debt levels, resulting from the accounts receivable
securitization program implemented in the fourth quarter of 2000, lower working
capital levels and a reduction in interest rates. Other expensesDuring the second quarter of
$13.72001, the Company incurred $1.7 million in interest expense related to the
cancellation of certain interest rate hedge agreements for which there were no
longer outstanding borrowings.
In 2001, primarily consisted of $8.7 million of costs associated
with the receivable securitization program and $5.3 million of foreign exchange
losses. The Company incurred a $2.3 million foreign exchange loss
resulting from the devaluationdeterioration of the Argentine peso in December of 2001.Peso. In 2000, other
expenses of $11.9the $12.6
million primarily represent costs associated withexpense from the accounts receivable securitization program, of whichincludes $8.8
million relates tofor the initial discounting fee. Other, net income (expense) includes
the following:
YEARS ENDED
---------------------------
DECEMBER 28, DECEMBER 29,
2001 2000
------------ ------------
(IN MILLIONS)
Accounts receivable securitization.......... $ (8.7) $(12.6)
Foreign exchange............................ (5.3) (0.9)
Other....................................... 0.3 1.6
------ ------
$(13.7) $(11.9)
====== ======
The consolidated tax provision on continuing operations decreased to $24.6 million in 2001 from
$55.9 million in 2000 due to lower pre-tax earnings, partially offset by a small
increase in the income tax rate. The 2001 effective tax rate of 42.2% is based
on pre-tax book income adjusted primarily for amortization of nondeductible
goodwill and losses of foreign operations that are not currently deductible. The
increase from 41.6% in 2000 is due to nondeductible goodwill being a higher
percentage of the total, offset by a lower state tax rate.
YEAR ENDED DECEMBER 29, 2000: Income from continuing operations was $78.7
million in 2000 compared with $69.7 million in 1999. The comparative results
were favorably impacted by a 30% growth in sales and lower operating expenses as
a percentageImpact of sales. 2000 includes an initial after-tax charge of $5.3 million
for the receivables securitization program, which the Company expects to
substantially recover during the course of the program. 1999 results were
favorably impacted by a $24.3 million one-time tax benefit.
The Company's net sales for the year ended December 29, 2000, grew by 30%
to $3.5 billion from $2.7 billion in 1999. Net sales by major geographic market
are presented in the following table:
YEARS ENDED
DECEMBER 29, DECEMBER 31,
(In millions) 2000 1999
------------ ------------
North America $2,739.3 $2,047.3
Europe 587.1 523.0
Asia Pacific and Latin America 188.0 141.7
------------ ------------
$3,514.4 $2,712.0
============ ============
North American sales from continuing operations in 2000 experienced 34%
growth to $2.7 billion from $2.0 billion in 1999. The improvement was the result
of growth in all customer markets. The service provider market continued its
rapid growth driven by the telecommunications industry. Enterprise network
communications benefitted from the increase in technology-related spending,
while the electrical wire and cable market grew along with the improving
economy. Sales to the integrated supply market increased 30% as the Company
entered into a couple of new significant contracts in 2000. In Europe, sales
increased 12%, reflecting strong growth in the Company's core enterprise network
communications products, combined with a growing amount of sales to the service
provider market. Excluding the effect of changes in exchange rates, sales
improved 22%. Asia Pacific and Latin America net sales were up 33% to $188.0
million in 2000 from $141.7 million in 1999. The increase is a result of
improved economic conditions along with a stronger market share position.
In 2000, operating income increased to $189.8 million from $112.8 million
in 1999. Operating margins improved to 5.4% in 2000 from 4.2% in 1999. The
improvement primarily relates to further leveraging of the expense structure,
associated with rapid sales growth, which more than offset a decline in gross
margins resulting from the mix in sales associated with the rapid growth of
sales to the service provider and integrated supply markets. Operating expenses
as a percent of sales decreased from 21% in 1999 to 18% in 2000. The lower gross
margins in the service provider and integrated supply markets correspond with
the higher operating productivity that is inherent in the nature of those
businesses, including the effects of some very large volume and low gross profit
fulfillment orders to service provider customers. 1999 expenses include $3.0
million for headcount reductions and the write-down of inventory to net
realizable value for the Latin American operations. Operating income (loss) by
major market is presented in the following table:
YEARS ENDED
DECEMBER 29, DECEMBER 31,
(In millions) 2000 1999
------------ ------------
North America $164.2 $106.2
Europe 24.6 20.6
Asia Pacific and Latin America 1.0 (14.0)
------------ ------------
$189.8 $112.8
============ ============
In North America, operating margins increased to 6.0% in 2000 from 5.2%
in 1999. The improvement primarily relates to a reduction, as a percentage of
sales, in retained overhead costs associated with the North American Integration
business, the absence of costs associated with the Year 2000 compliance efforts
incurred in 1999 and further leveraging of the expense structure resulting from
the significant increase in sales. Europe operating income increased 19%,
reflecting the increase in sales, as operating margins remained flat. Excluding
the effect of changes in exchange rates, Europe operating income increased 27%.
Asia Pacific and Latin America recorded income of $1.0 million compared to a
loss of $14.0 million in 1999. This resulted from the 33% improvement in sales
and a reduced cost structure following the expense reduction efforts made over
the last 2 years.
Consolidated interest expense and other expenses increased to $55.2
million in 2000 from $34.6 million in 1999. Interest expense increased $8.4
million to $43.3 million due to higher interest rates and higher levels of
working capital. Other expenses of $11.9 million in 2000 primarily represents
costs associated with the receivable securitization program, of which $8.8
million relates to the initial discounting fee.
The consolidated tax provision on continuing operations increased to
$55.9 million in 2000 from $8.5 million in 1999 due to higher pre-tax earnings.
1999 includes a $24.3 million one-time tax benefit recorded to reverse
previously established tax liabilities. The 2000 effective tax rate of 41.6% is
based on pre-tax book income adjusted primarily for amortization of
nondeductible goodwill and losses of foreign operations that are not currently
deductible.
IMPACT OF INFLATION:Inflation: Inflation is currently not an important determinant
of Anixter'sthe Company's results of operations due to the low rate of inflation and, in
part, to rapid inventory turnover.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The Company believes that the following are critical areas whichthat 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.
ALLOWANCE FOR DOUBTFUL ACCOUNTS :Allowance for Doubtful Accounts: Each quarter the Company segregates the
doubtful receivable balances into the following major categories and determines
the bad debt reserve as stated below:
- Customers that have refused to pay their balances are reserved based
on the historical write-off percentages.
percentages
- Risk accounts are individually reviewed and the reserve is based on
the probability of potential default.default;
- 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 us)the Company), the Company's estimates of the recoverability of
amounts due to the Company could be reduced (increased) by a material amount.
INVENTORY OBSOLESCENCE:Inventory Obsolescence: At December 28, 2001,January 3, 2003, the Company reported inventory
of $495.7$498.8 million. 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:
a) return- Return or rotation privileges with vendors, b) pricevendors;
- Price protection from vendors, c) expectedvendors;
15
- Expected usage during the next twenty-four months, d) whethermonths;
- Whether or not a customer is obligated by contract to purchase the
inventory, e) currentinventory;
- Current market pricing, and f) riskpricing;
- 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: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.
LIFE INSURANCE POLICIES:Life Insurance Policies: Anixter implemented a nonqualified deferred
compensation plan on January 1, 1995. The plan permits selected employees to
make pre-tax deferrals of salary and bonus. The plan provides for benefit
payments upon retirement, death, disability, termination or termination.other scheduled
dates determined by the participant. Concurrent with the implementation of the
deferred compensation plan, Anixter purchased variable, separate account life
insurance policies on the lives of the participants. To fund additional
liabilities, Anixter purchased fixed, general account "increasing whole life"
insurance policies on the lives of certain participants in both the deferred
compensation plan and thean executive excess defined benefit plan. AllAnixter owns all
of the above policies are owned by Anixter and Anixter pays level annual premiums on them. Policy proceeds
are payable to Anixter upon the insured participant's death. The cash surrender
values on those policies are updated quarterly.
At January 3, 2003 and December 28, 2001, and December 29, 2000, the cash surrender value of $19.1$18.5
million and $14.4$19.1 million, respectively, was recorded under this program and
reflected in "Other Assets" on the consolidated balance sheets. The value of
the investment was recordedsheets at market value determined by the performance of the
underlying investments in the market.value.
The Company's investment in the cash surrender value program is liquid and
redeemable in whole or part by "surrendering" the underlying life insurance
policies. As the life insurance policies are recorded at market value, changes
in the market value of the underlying securities can have a significant impact
on the Company's results of operations.
FOREIGN DENOMINATED ASSETS AND LIABILITIES: At December 28, 2001, the
Company had a significant amount of assets and liabilities that are denominated
in currencies other than the functional currency of the reporting entity. Such
net assets at December 28, 2001, were approximately $20.0 million. The Company
has purchased approximately $10.0 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 exchange rates, the Company would record a
foreign exchange loss of approximately $1.0 million.
PENSION EXPENSE:Pension Expense: The Company accounts for its defined benefit pension
plans in accordance with SFASthe Statement of Financial Accounting Standards
("SFAS") No. 87, "Employers' Accounting for Pensions",Pensions," which requires that
amounts recognized in financial statements be determined on an actuarial basis.
A substantial portion of the Company's pension benefit cost relates to its
defined benefit plan in the United States. The Company has not made
contributions to the U.S. pension plan since 1995. 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 8.53%8.43%. Over the long term, the company'sCompany's pension plan
assets have earned in excess of 8.53%8.43%; therefore, the companyCompany believes that its
assumption of future returns of 8.53%8.43% is reasonable. This produces the expected return on
plan assets that is included in the net periodic benefit cost. The plan assets
actually incurred a loss of $10.7 million in 2002. If significant, the
difference between this expected return and the actual return on plan assets is
deferred. Theamortized over the service lives of the plan assets have earned a rate of return substantially less than
8.53% in the last two years. Should this trend continue, future benefit costs
would likely increase.
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 high
quality, fixed-income investments that receive one of the two highest ratings
given by a recognized ratings agency. At December 28, 2001,January 3, 2003, the Company determined
this rate to be 6.81%6.45%.
Changes in discount rates over the past three
years have not materially affected the net periodic benefit cost. The net effect
of changes in the discount rate, as well as the net effect of other changes in
actuarial assumptions and experience, have been deferred as allowed by SFAS No.
87.16
At December 28, 2001,January 3, 2003, the Company's consolidated pension liability was $21.5$27.1
million, up from $17.7$21.5 million at the end of 2000.2001. For the year ended December 28, 2001,January 3,
2003, the Company recognized a consolidated pre-tax net periodic benefit cost of $7.1
million, up from $5.8 million down from $7.0 million in 2000. In 2000, the
Company incurred a $3.2 million loss on settlement of a supplemental employee
retirement plan.2001. As a result of the decline in the fair
value of the pension plan assets, along with a reduced discount rate and other actuarial
gains and losses, the Company estimates its 20022003 net periodic benefit cost to increase
by 25%55% to 50%65%.
TAX CONTINGENCIES: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 periodically made to such reserves
to reflect the lapsing of statutes of limitations, closings of ongoing
examinations or the commencement of new examinations.
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 "Critical Accounting Policies" in Management's Discussion and
Analysis of Financial Condition and Results of Operations, Note 1 "Interest rate
agreements" and "Foreign currency forward contracts" and Note 87 "Debt" ofto the
consolidated financial statements for further detail on interest agreements and
outstanding debt obligations outstanding.
Inobligations. Approximately 27% of the past,Company's sales were
denominated in foreign currency in 2002, 2001 and 2000.
At January 3, 2003, the Company has net assets and liabilities that were
denominated in currencies other than the functional currency of the reporting
entity. If there was a 10 percent adverse change in exchange rates, the Company
would record a foreign exchange loss of approximately $3.2 million.
The Company has entered into interest rate agreements that effectively fix
or cap, for a period of time, the LIBORLondon Interbank Offered Rate ("LIBOR")
component of the interest rate on a portion of its floating rate obligations. At December 28, 2001, the Company had minimal
variable debt outstanding and asAs
a result, hadthe interest rate on approximately 83% of debt obligations at January
3, 2003 was fixed or capped. There were no interest rate agreements outstanding. Approximately 100% and 91% of debt obligationsoutstanding
at December 28, 2001, as a result of the Company canceling two hedge agreements
and December 29, 2000, respectively, was fixed or capped.one interest rate collar agreement in 2001 for which there were no longer
outstanding borrowings.
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, and holdingoutstanding. Holding all other variables constant, the hypothetical adverse
changes would have increased interest expense by $0.8$0.1 million and $3.4$0.8 million
and decreased the value of foreign currency forward contracts by $6.1 million
and $3.2 million in 2002 and $3.1 million in 2001, and 2000, respectively. In 2001 and 2000, theThe estimated fair market value
of the Company's outstanding fixed rate debt at January 3, 2003 and December 28,
2001, was $245.2$138.2 million and $280.6$245.2 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 2.3% and 3.2% for 2002 and 3.5% for 2001, and 2000, respectively.
Changes in the market value of the Company's debt does 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.
17
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
PAGE
Report of Independent Auditors 14
Consolidated Statements of Operations 15
Consolidated Balance Sheets 16
Consolidated Statements of Cash Flows 17
Consolidated Statements of Stockholders' Equity
PAGE
----
Report of Independent Auditors.............................. 19
Consolidated Statements of Operations....................... 20
Consolidated Balance Sheets................................. 21
Consolidated Statements of Cash Flows....................... 22
Consolidated Statements of Stockholders' Equity............. 23
Notes to the Consolidated Financial Statements.............. 24
Selected Quarterly Financial Data (Unaudited)............... 40
18
Notes to the Consolidated Financial Statements 19
Selected Quarterly Financial Data (Unaudited) 33
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Anixter International Inc.
We have audited the accompanying consolidated balance sheets of Anixter
International Inc. as of January 3, 2003, and December 28, 2001, and December 29, 2000, and the related
consolidated statements of operations, stockholders' equity and cash flows for
each of the three years in the period ended December 28, 2001.January 3, 2003. Our audits also
included the financial statement schedules listed in the Index at Item 14(a)15(a).
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 auditing standards generally
accepted in the 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 January 3, 2003 and December 28, 2001, and December 29, 2000, and the
consolidated results of its operations and its cash flows for each of the three
years in the period ended December 28, 2001,January 3, 2003, in conformity with accounting
principles generally accepted in the United States. 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.
As described in Note 2 to the consolidated financial statements, effective
December 29, 2001, the Company changed its method of accounting for goodwill and
other intangible assets to conform with Statement of Financial Accounting
Standards No. 142, "Goodwill and Other Intangible Assets."
ERNST & YOUNG LLP
Chicago, Illinois
January 28, 2002February 3, 2003
19
ANIXTER INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In millions, except per share amounts)
YEARS ENDED
--------------------------------------------------------------------------------------
JANUARY 3, DECEMBER 28, DECEMBER 29,
DECEMBER 31,2003 2001 2000
1999---------- ------------ ------------
------------(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
NET SALES $ 3,144.2 $ 3,514.4 $ 2,712.0SALES................................................. $2,520.1 $3,144.2 $3,514.4
Cost of operations:
Cost of goods soldsold...................................... 1,914.7 2,407.3 2,692.5
2,042.7
Operating expensesexpenses...................................... 517.3 594.2 623.7
549.1
Amortization of goodwillintangibles............................. 0.4 9.0 8.4
7.4
Restructuring costsand other charges......................... -- 31.7 - -
------------ ------------ --------------
-------- -------- --------
Total costs and expensesexpenses........................... 2,432.4 3,042.2 3,324.6
2,599.2
------------ ------------ -------------------- -------- --------
OPERATING INCOMEINCOME.......................................... 87.7 102.0 189.8 112.8
Other (expenses) income:
Interest expenseexpense........................................ (15.5) (30.1) (43.3)
(34.9)
Other, netnet.............................................. 0.3 (13.7) (11.9)
0.3
------------ ------------ -------------------- -------- --------
Income from continuing operations before income taxes and extraordinary lossloss......... 72.5 58.2 134.6
78.2
Income tax expenseexpense........................................ 29.0 24.6 55.9
8.5
------------ ------------ ------------
Income from continuing operations
before extraordinary loss 33.6 78.7 69.7
Discontinued operations:
Loss from discontinued operations, net of tax - - (2.5)
Gain on disposal of discontinued, net of tax - - 57.0
------------ ------------ -------------------- -------- --------
Income before extraordinary lossloss.......................... 43.5 33.6 78.7 124.2
Extraordinary loss on early extinguishment of debt, net of taxnet... (0.4) (3.3) - -
------------ ------------ --------------
-------- -------- --------
NET INCOMEINCOME................................................ $ 43.1 $ 30.3 $ 78.7
$ 124.2
============ ============ ==================== ======== ========
BASIC INCOME (LOSS) PER SHARE:
Continuing operationsIncome before extraordinary loss........................ $ 1.18 $ 0.92 $ 2.15
Extraordinary loss...................................... (0.01) (0.09) --
-------- -------- --------
Net income.............................................. $ 1.86
Discontinued operations - - 1.45
Extraordinary loss (0.09) - -
------------ ------------ ------------
Net income1.17 $ 0.83 $ 2.15
$ 3.31
============ ============ ==================== ======== ========
DILUTED INCOME (LOSS) PER SHARE:
Continuing operationsIncome before extraordinary loss........................ $ 1.14 $ 0.89 $ 2.03
Extraordinary loss...................................... (0.01) (0.09) --
-------- -------- --------
Net income.............................................. $ 1.83
Discontinued operations - - 1.43
Extraordinary loss (0.09) - -
------------ ------------ ------------
Net income1.13 $ 0.80 $ 2.03
$ 3.26
============ ============ ==================== ======== ========
See accompanying notes to the consolidated financial statements.
20
ANIXTER INTERNATIONAL INC.
CONSOLIDATED BALANCE SHEETS
(In millions, except share amounts)
JANUARY 3, DECEMBER 28,
DECEMBER 29,
ASSETS2003 2001
2000
------------ ----------------------- -------------
(IN MILLIONS, EXCEPT SHARE
AMOUNTS)
ASSETS
CURRENT ASSETS
CashCash...................................................... $ 27.219.1 $ 20.827.2
Accounts receivable (less allowances of $15.4 and $20.9 in
2002 and $14.8 in 2001, and 2000, respectively)........................... 188.2 154.1 293.3
Note receivable --- unconsolidated subsidiarysubsidiary.............. 69.6 111.4
126.1
InventoriesInventories............................................... 498.8 495.7 738.4
Inventories returnable to vendor, net - 120.0
Deferred income taxestaxes..................................... 26.5 32.0 25.5
Other current assetsassets...................................... 10.0 8.6
10.3
------------ -------------------- --------
Total current assetsassets................................. 812.2 829.0 1,334.4
Property and equipment, at costcost............................. 191.1 167.4
167.1
Accumulated depreciationdepreciation.................................... (132.0) (112.4)
(110.6)
------------ -------------------- --------
Net property and equipmentequipment........................... 59.1 55.0 56.5
Goodwill (less accumulated amortization of $96.0 and $95.4
in 2002 and $86.8 in 2001, and 2000, respectively)........................... 247.6 231.6
239.3
Other assetsassets................................................ 107.1 83.2
55.8
------------ -------------------- --------
$1,226.0 $1,198.8
$1,686.0
============ ==================== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payablepayable.......................................... $ 257.3 $ 251.0
$ 499.1
Accrued expensesexpenses.......................................... 83.5 86.2
139.6
Accrued restructuringrestructuring..................................... 4.2 11.1 -
Income taxes payablepayable...................................... 4.7 4.4
8.1
------------ -------------------- --------
Total current liabilitiesliabilities............................ 349.7 352.7
646.8
Long-term debtdebt.............................................. 195.1 241.1
451.9
Other liabilitiesliabilities........................................... 46.4 41.9
32.4
------------ -------------------- --------
Total liabilitiesliabilities.................................... 591.2 635.7 1,131.1
STOCKHOLDERS' EQUITY
Common stock - --- $1.00 par value, 100,000,000 shares
authorized, 36,917,31337,500,878 and 37,654,88536,917,313 shares issued and
outstanding in 2002 and 2001, and 2000, respectivelyrespectively............. 37.5 36.9
37.7
Capital surplussurplus........................................... 45.2 32.5
46.9
Accumulated other comprehensive income (59.5) (52.6)Foreign currency translation.............................. (43.9) (64.6)
Minimum pension liability................................. (0.3) --
Unrealized gain on foreign exchange contracts............. -- 5.1
Retained earningsearnings......................................... 596.3 553.2
522.9
------------ -------------------- --------
Total stockholders' equityequity........................... 634.8 563.1
554.9
------------ -------------------- --------
$1,226.0 $1,198.8
$1,686.0
============ ==================== ========
See accompanying notes to the consolidated financial statements.
21
ANIXTER INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
YEARS ENDED
---------------------------------------------------------------------------------------
JANUARY 3, DECEMBER 28, DECEMBER 29,
DECEMBER 31,2003 2001 2000
1999----------- ------------ ------------
------------(IN MILLIONS)
Operating activitiesOPERATING ACTIVITIES
Net incomeincome............................................. $ 43.1 $ 30.3 $ 78.7 $ 124.2
Adjustments to reconcile net income to net cash
provided by continuing operating activities:
Income from discontinued operations - - (54.5)
Extraordinary lossloss................................ 0.4 3.3 - ---
Gain on sale or disposal of fixed assets and
securities..................................... (2.9) -- --
Depreciation and amortizationamortization..................... 23.5 32.4 29.6 26.5
Accretion of zero-coupon convertible notesnotes........ 11.9 14.7 7.0
-
Non-cash restructuring costscosts...................... -- 6.6 - ---
Income tax savings from employee stock plansplans...... 2.5 5.3 11.2
2.6
Deferred income taxestaxes............................. (0.8) (12.5) (3.2) (28.6)
Changes in assets and liabilities:
Accounts receivablereceivable............................ 37.8 128.5 91.4
(70.3)
InventoryInventory...................................... 81.4 357.1 (329.7) (115.4)
Accounts payable and accrualsaccruals.................. (31.1) (294.5) 181.8
127.9
Restructuring costsand other charges................ (10.8) 17.7 - ---
Other, netnet..................................... 10.7 (0.4) 0.7
(5.5)
------------ ----------- ------------------- ------- ---------
Net cash provided by continuing operating
activitiesactivities................................ 165.7 288.5 67.5 6.9
INVESTING ACTIVITIES
Capital expendituresexpenditures................................... (16.9) (22.0) (22.6)
(13.8)
Acquisitions and divestiture -divestiture........................... (110.4) -- (3.7) (2.6)
Proceeds from sale of fixed assetsassets..................... 2.9 1.5 - -
Other, net - - 0.5
------------ ----------- --------------
Proceeds from sale of securities....................... 2.0 -- --
------- ------- ---------
Net cash used in continuing investing
activitiesactivities................................ (122.4) (20.5) (26.3) (15.9)
FINANCING ACTIVITIES
Proceeds from long-term borrowingsborrowings..................... 262.6 795.2 1,557.0 897.2
Repayment of long-term borrowingsborrowings...................... (200.0) (937.6) (1,578.5)
(970.2)
RepaymentRetirement of notes payablepayable............................ (118.3) (86.5) - ---
Proceeds from issuance of common stockstock................. 7.5 22.3 34.9
7.4Debt issuance costs.................................... (0.6) -- (8.3)
Purchases of common stock for treasurytreasury................. -- (46.9) (15.4)
(91.9)
Debt issuance costs - (8.3) -
Other, netnet............................................. -- (2.3) (14.1)
(5.9)
------------ ----------- ------------------- ------- ---------
Net cash used in continuing financing
activitiesactivities................................ (48.8) (255.8) (24.4)
(163.4)
------------ ----------- ------------------- ------- ---------
(DECREASE) INCREASE (DECREASE) IN CASH FROM CONTINUING OPERATIONSOPERATIONS... (5.5) 12.2 16.8
(172.4)
Cash (used in) provided byused in discontinued operationsoperations..................... (2.6) (5.8) (13.5) 169.4
Cash at beginning of yearyear................................ 27.2 20.8 17.5
20.5
------------ ----------- ------------------- ------- ---------
Cash at end of yearyear...................................... $ 19.1 $ 27.2 $ 20.8
$ 17.5
============ =========== =================== ======= =========
See accompanying notes to the consolidated financial statements.
22
ANIXTER INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In millions)
ACCUMULATED
COMMON STOCK OTHER
COMPREHENSIVE INCOME
--------------------------
UNREALIZED
GAIN ON
CUMULATIVE FOREIGN
COMMON--------------- CAPITAL RETAINED TRANSLATION EXCHANGE COMPREHENSIVE STOCKCOMPREHENSIVE
SHARES AMOUNT SURPLUS EARNINGS ADJUSTMENTS CONTRACTS INCOME ---------- ---------- ----------INCOME
------ ------ ------- -------- ------------- ----------- -------------
(IN MILLIONS)
Balance at January 1, 1999 $ 41.8 $ - $ 409.4 $ (39.7) $ -
Net income - - 124.2 - - $124.2
Other comprehensive income:
Foreign currency translation adjustments - - - 2.1 - 2.1
-------------
Comprehensive income $126.3
Issuance of common stock and =============
related tax benefits 0.6 9.9 - - -
Purchase and retirement of
treasury stock (6.5) (9.9) (75.5) - -
---------- ---------- ---------- ------------- -----------
Balance at December 31, 19991999................ 35.9 - 458.1 (37.6) -$ 35.9 $ -- $458.1 $(37.6)
Net income - -income.................................. -- -- -- 78.7 - --- $ 78.7
Other comprehensive income:
Foreign currency translation adjustments - - -translation.............. -- -- -- -- (15.0) - (15.0)
-------------------
Comprehensive incomeincome........................ $ 63.7
======
Issuance of common stock and =============
related tax
benefitsbenefits.................................. 2.5 2.5 47.7 - - --- --
Purchase and retirement of treasury stockstock... (0.7) (0.7) (0.8) (13.9) - -
---------- ---------- ---------- ------------- -------------
---- ------ ------ ------ ------
Balance at December 29, 20002000................ 37.7 37.7 46.9 522.9 (52.6)
-
Net income - -income.................................. -- -- 30.3 - --- $ 30.3
Other comprehensive income:
Foreign currency translation adjustments - - -translation.............. -- -- -- -- (12.0) - (12.0)
Cumulative effect of change in accounting
principle, net of tax of $1.8 - - - -$1.8........... -- -- -- -- 2.7 2.7
Change in fair market value of foreign
exchange contracts, net of tax of
$1.6 - - - -$1.6.................................... -- -- -- -- 2.4 2.4
-------------------
Comprehensive incomeincome........................ $ 23.4
======
Issuance of common stock and =============
related tax
benefitsbenefits.................................. 1.3 1.3 30.4 - - --- --
Purchase and retirement of treasury stockstock... (2.1) (2.1) (44.8) - - -
---------- ---------- ---------- ------------- ------------- --
---- ------ ------ ------ ------
Balance at December 28, 20012001................ 36.9 36.9 32.5 553.2 (59.5)
Net income.................................. -- -- -- 43.1 -- $ 36.943.1
Other comprehensive income:
Foreign currency translation.............. -- -- -- -- 20.7 20.7
Minimum pension liability, 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........................ $ 32.558.4
======
Issuance of common stock and related tax
benefits.................................. 0.6 0.6 12.7 -- --
---- ------ ------ ------ ------
Balance at January 3, 2003.................. 37.5 $ 553.237.5 $ (64.6) $ 5.1
========== ========== ========== ============= ===========45.2 $596.3 $(44.2)
==== ====== ====== ====== ======
See accompanying notes to the consolidated financial statements.
23
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,
excluding Anixter Receivables Corporation (collectively "the Company"), after
elimination of intercompany transactions. The Company's fiscal year ends on the
Friday nearest December 31 and included 53 weeks in 2002 and 52 weeks in 2001
2000 and 1999.2000.
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.
Certain amounts for prior years have been reclassified to conform to the
current year presentation.
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, "Accumulated other comprehensive income." Gains and losses
from foreign currency transactions are included in income.RECEIVABLES AND ALLOWANCE FOR DOUBTFUL ACCOUNTS: The Company recognized $5.3 million, $0.9 million and $2.8 million in net foreign exchange
losses in 2001, 2000 and 1999, respectively.
ACCOUNTS RECEIVABLE PROGRAM:carries its
accounts receivable at their face amounts less an allowance for doubtful
accounts. On October 6, 2000,a regular basis, the Company entered into
anevaluates its accounts receivable securitization program. The programand
establishes the allowance for doubtful accounts based on a combination of
specific customer circumstances, as well as credit conditions and based on a
history of write-offs and collections. A receivable is conducted through
Anixter Receivables Corporation ("ARC"), which is a wholly owned unconsolidated
subsidiary of the Company, on terms equivalent to those in an arms-length
transaction. The investment is accounted for using the equity method. At
December 28, 2001 and December 29, 2000, Anixter's investment in ARC was $34.2
million and $17.1 million, respectively. 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 ARC and consists of a series of 364-day
facilities. ARC may in turn sell an interest in these receivables to a financial
institution and borrow up to $225.0 million. Prior to October 6, 2001, ARC could
borrow up to $275.0 million. The Companyconsidered past due if
payments have not been received within agreed to continue servicing the sold
receivables for the financial institution at market rates that approximate cost;
accordingly, no servicing asset or liability has been recorded. At December 28,
2001 and December 29, 2000, the outstanding balance of accounts receivable sold
to ARC totaled $296.0 million and $388.3 million, respectively. Accordingly,
these accounts receivable were removed from the balance sheet. In order to fund
the purchases of the accounts receivable from Anixter, ARC has incurred
long-term debt of $143.7 million and $236.3 million and has a subordinated note
payable to Anixter of $111.4 million and $126.1 million at December 28, 2001 and
December 29, 2000, respectively. Net charges associated with the accounts
receivable securitization program of $8.7 million and $3.8 million were recorded
as other expenses in the 2001 and 2000 consolidated statements of operations,
respectively. These costs primarily relate to the interest expense on the
long-term debt incurred by ARC. Additionally, charges of $8.8 million relating
to the discount on the initial sale of accounts receivable to ARC were recorded
as other expenses in the 2000 consolidated statement of operations. The Company
expects to substantially recover the charges on the initial sale during the
course of the program.upon invoice terms.
NOTE RECEIVABLE: At January 3, 2003 and December 28, 2001, and December 29, 2000, the Company's
note receivable of $111.4$69.6 million and $126.1$111.4 million, respectively, represents
the amount due to Anixter from ARCAnixter Receivables Corporation ("ARC") primarily
for the sale of accounts receivable and is subordinated to ARC's repayment of
ARC long-term debt.
INVENTORIES: Inventories, consisting primarily of finished goods, are
stated at the lower of cost or market. Cost is determined using the average-cost
method. In fiscal year 2000, inventories returnableThe 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 represent those
inventories that have been paid forwill 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 inventory was returnedCompany considers these agreements in determining its reserve for
cash in the first quarter of 2001.obsolescence.
PROPERTY AND EQUIPMENT: Capital expenditures are primarily for equipment,
leasehold improvements, computer software and computer software.the construction of a new
corporate headquarters in 2002 to be completed in 2003. Equipment and computer
software are recorded at cost and depreciated by applying the straight-line
method over their estimated useful lives, andwhich range from 3 to 10 years.
Leasehold improvements are depreciated over the term of the related lease. 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 $19.1 million, $18.7 million and $17.1 million in 2002, 2001 and
$18.5 million in 2001, 2000, and 1999,
respectively.
GOODWILL: Goodwill primarily relates tois the excess of cost over the fair value of the net
tangible assets of businesses acquired. The ongoing valueCompany adopted the provisions of Statement
of Financial Accounting Standards ("SFAS") No. 142, "Goodwill and remainingOther
Intangible Assets," as of December 29, 2001. SFAS No. 142 required that goodwill
and other intangible assets with an indefinite useful life no longer be
amortized. Retroactive restatement for all prior periods presented was not
required. Goodwill is reviewed annually for impairment. The Company performs its
impairment tests utilizing the two step process outlined in SFAS No. 142. If the
carrying amount of unamortizeda reporting unit's goodwill are subjectexceeds the implied fair value of
that goodwill, an impairment loss would be
24
ANIXTER INTERNATIONAL INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
recognized in an amount equal to periodic evaluation
andthat excess, not to exceed the carrying amount
of the goodwill. The Company currently expects the carrying amount to be fully
recoverable.
Should events and circumstances indicateINTANGIBLE ASSETS: Intangible assets primarily consist of customer
relationships that goodwill might be impaired, an
undiscounted cash flow methodology would be used to determine whether an
impairment loss would be recognized. Goodwill isare being amortized on a straight-line basis over periods
ranging from 208 to 4010 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.
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 anthe interest rate on a portion of its floating rate
obligations. There were no interest rate agreements outstanding at December 28,
2001 because the Company had minimal floating rate obligations outstanding. At
December 29, 2000,January 3, 2003, as a result of thesethis type of interest rate agreements,agreement, the
interest rate on approximately 91%83% of debt obligations, was fixed or capped. In
June 2001, the Company cancelled two hedge agreements and one interest rate collar
agreement for which there were no longer
outstanding borrowings and incurred $1.7 million in interest expense related to
the cancellation. At December 29,
2000,January 3, 2003, the Company had two interest rate swap
agreements outstanding with a notional amount of $25.0 million each.$30.0 million. These swap
agreements obligatedobligate the Company to pay a fixed rate of approximately 6.1%3.5%
through October 2007. At January 3, 2003, and July
2002. At December 29, 2000, the Company also had onefair market value of outstanding
interest rate collar
agreement with a notional amount of $50.0 million which entitled the Company to
receive from the bank the amount by which the LIBOR component of the floating
rate interest payments exceed 6.5%. In addition, the Company was required to pay
the bank the difference between 6.3% and the floating rate when it was below
5.3%. This interest rate collar was cancelled in June 2001. The fair value,agreements, which is the estimated amount at the current interest rate that the Company would
receivehave received or paypaid to enter into similar interest rate agreements at December
29, 2000, would have been to pay $0.5the
current interest rate, was a liability of $0.1 million. The impact of these interest
rate agreements was to increase interest expense by $0.1 million and $0.3
million in 2002 and 2001, respectively, and decrease interest expense by $0.7
million in 2000 and increase interest expense by $1.3
million in 1999.2000. The Company does not enter into interest rate transactions for
speculative purposes.
FOREIGN CURRENCY FORWARD CONTRACTS: The Company alsouses 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 accounted for as cash flow hedges, to minimize the
effect of fluctuating foreign currenciescurrency denominated payables (cash flow hedge) on
its reported income. The impact of
these foreign currency forward contracts on the income statement was
insignificant in 2001, 2000 and 1999. The forward contracts were revalued at current foreign
exchange rates, with the changes in valuation reflected directly in income.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 2002, 2001 and 2000. At January 3,
2003 and December 28, 2001, and December 29, 2000, the face amount of the foreign currency forward
contracts outstanding was approximately $74.0$55.9 million and $73.9$28.1 million,
respectively. The Company recognized the difference between the face amount and
the fair value of its forward contracts and recorded an asset of $0.2 million
and a liability of $0.1 million at January 3, 2003 and December 28, 2001,
respectively.
The Company previously purchased a foreign exchange forward contract to
hedge the exposure related to a foreign currency denominated intercompany loan
(cash flow hedge). The contract was revalued at current foreign exchange rates,
with the changes in valuation initially recorded in Accumulated Other
Comprehensive Income. The intercompany loan was settled during the first quarter
of 2002. No net gain or loss has been recognized in the statements of
operations. At December 28, 2001, the face amount of the foreign currency
forward contract was approximately $45.9 million. At December 28, 2001, the
amount by which the fair value exceeded the face amount of the foreign exchange
contractscontract was $8.5 million and was included in otherOther assets on the consolidated balance sheet.Consolidated
Balance Sheet.
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
25
ANIXTER INTERNATIONAL INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 $0.1 million, $5.3 million and $0.9 million
in net foreign exchange losses in 2002, 2001 and 2000, respectively.
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 $6.3 million, $10.9
million and $11.3 million in 2002, 2001 and $11.1 million in 2001, 2000, and 1999, respectively.
SHIPPING AND HANDLING FEES AND COSTS: The Company incurred shipping and
handling fees and costs totaling $60.8 million, $76.5 million $90.6 million and $70.1$90.6 million for the
years ended 2002, 2001 2000 and 1999,2000, respectively. These costs are included in
operatingOperating expenses in the consolidated statementsConsolidated Statements of operations.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: In accordance with the Accounting Principles
Board Opinion 25, "Accounting for Stock Issued to Employees",Employees," compensation cost
of stock options is 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. Income tax benefits
totaling $5.3 million, $11.2 million and $2.6 million in 2001, 2000 and 1999,
respectively, attributable to stock options exercised totaled $2.5 million, $5.3 million and
$11.2 million in 2002, 2001 and 2000, respectively, and were credited to capitalCapital
surplus.
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.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS: In July 2001, the Financial
Accounting Standards Board ("FASB") issued Statement of Financial Accounting
Standards ("SFAS") No. 141 "Business Combinations". SFAS No. 141 supercedes
prior guidance and requires that all business combinations initiated after June
30, 2001 beThe Company accounted for using the purchase method, thereby eliminating the use
of the pooling of interest method. The Company adopted this statement as
required on July 1, 2001 and will account for all future business combinationscompensation expense under the provisions of this statement.
In July 2001, the FASB issued SFAS No. 142 "Goodwillintrinsic value
method and Other Intangible
Assets", effective for fiscal years beginning after December 15, 2001. Under the
new rules, goodwill will no longer be amortized, but will be subject to annual
impairment tests in accordance with the statements. Amortization of goodwill was
$9.0 million, $8.4 million and $7.4 million in 2001, 2000 and 1999,
respectively. Other intangible assets will continue to be amortized over their
useful lives. The Company will apply the new rules on accounting for goodwill
and other intangible assets beginning in the first quarter of 2002. During 2002,
the Company will perform the first of the required impairment tests of goodwill
as of December 29, 2001 and does not anticipate that the effect of these tests
will have a material impact on the Company's results of operations or financial
position.
In August 2001, the FASB issued SFAS No. 144 "Accounting for the
Impairment or Disposal of Long Lived Assets". Consistent with prior guidance,
SFAS No. 144 continues to require a three-step approach for recognizing and
measuring the impairment of assets to be held and used. Assets to be sold must
be stated at the lower of the asset's carrying amount or fair value and
depreciation is no longer recognized. SFAS No. 144 is effective for fiscal years
beginning after December 15, 2001. The adoption of SFAS No. 144 is not expected
to have a material effect on the Company's results of operations or financial
position.
NOTE 2. INCOME (LOSS) PER SHARE
The following table sets forth the computation of basic and diluted
income (loss) per share:
(In millions, except per share data) YEARS ENDED
----------------------------------------------------
DECEMBER 28, DECEMBER 29, DECEMBER 31,
2001 2000 1999
------------ ------------ ------------
BASIC INCOME (LOSS) PER SHARE:
Income before extraordinary loss $ 33.6 $ 78.7 $ 69.7
Extraordinary loss (3.3) - -
------------ ------------ ------------
Net income (numerator) $ 30.3 $ 78.7 $ 69.7
============ ============ ============
Weighted-average common shares
outstanding (denominator) 36.5 36.6 37.5
Income per share before
extraordinary loss $ 0.92 $ 2.15 $ 1.86
Extraordinary loss per share (0.09) - -
Net income per share $ 0.83 $ 2.15 $ 1.86
DILUTED INCOME (LOSS) PER SHARE:
Income before extraordinary loss $ 33.6 $ 78.7 $ 69.7
Interest impact of assumed
conversion of convertible notes - 4.3 -
------------ ------------ ------------
Adjusted income before
extraordinary loss (numerator) 33.6 83.0 69.7
Extraordinary loss (3.3) - -
------------ ------------ ------------
Net income $ 30.3 $ 83.0 $ 69.7
============ ============ ============
Weighted-average common shares
outstanding 36.5 36.6 37.5
Effect of dilutive securities:
Stock options, warrants and
convertible notes 1.3 4.3 0.6
------------ ------------ ------------
Weighted-average common shares
outstanding (denominator) 37.8 40.9 38.1
============ ============ ============
Income per share before
extraordinary loss $ 0.89 $ 2.03 $ 1.83
Extraordinary loss per share (0.09) - -
Net income per share $ 0.80 $ 2.03 $ 1.83
In 2001, the Company excluded 5.9 million of common stock equivalents,
primarily relating to the Convertible Notes from its calculation of diluted
income (loss) per share because the effect would have been antidilutive. Because
the Convertible Notes were antidilutive, the related $9.0 million of net
interest expense was not excluded from the determination of income in the
calculation of diluted income (loss) per share. Potentially dilutive securities
that were excluded from the calculation of diluted income per share were
insignificant in 2000 and1999.
NOTE 3. DISCONTINUED OPERATIONS
In 1999, the Company completed the disposal of the Integration segment
and, accordingly, the Integration segment is reflected as a discontinued
operation in these financial statements. The North America Integration business
was sold in the first quarter of 1999 and the Asia Pacific Integration business
was sold in the fourth quarter of 1999. Interest expense has been allocated to
discontinued operations based on the percentage of total identifiable assets.
The Company recorded an after-tax gain from the sale of discontinued
assets of $57.0 million in 1999. The $57.0 million gain included a tax benefit
of $8.4 million resulting from the reversal of certain tax reserves associated
with prior years' reported sales of discontinued assets. Total proceeds received
from the sale of the Integration business were $238.3 million. There was no
significant activity in 2001 or 2000.
Net sales and income from discontinued operations for the year ended
December 31, 1999, were as follows:
(In millions)
Net sales $196.3
Costs and expenses (199.5)
-------
Operating loss (3.2)
Gain on sale of assets 81.1
Net interest expense and other (1.0)
Income tax expense (22.4)
-------
Income from discontinued operations $ 54.5
=======
NOTE 4. ACQUISITION AND DIVESTITURE OF BUSINESSES
In January 2000, the Company acquired 100% of the stock of allNET
Technologies Pty. Limited ("allNET") for $6.7 million. allNET is a
communications products distributor located in Australia. This acquisition was
accounted for using the purchase method of accounting. In September 2000, the
Company sold the net assets of a wholly owned subsidiary of Accu-Tech
Corporation for $3.0 million in cash and $1.6 million in notes receivable. The
effect of these transactions on the operating results of the Company was not
significant.
NOTE 5. SUMMARIZED FINANCIAL INFORMATION OF ANIXTER INC.
At December 28, 2001 and December 29, 2000, the Company had an ownership
interest of 99.9% and 99.7%, respectively, in Anixter Inc., which is included in
the consolidated financial statements of the Company. The following summarizes
the financial information of Anixter Inc. and reflects the Integration segment
of the Company as a discontinued operation:
ANIXTER INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
DECEMBER 28, DECEMBER 29,
(In millions) 2001 2000
------------ ------------
Assets:
Current assets $ 827.1 $ 1,331.0
Property, net 55.0 56.5
Goodwill 231.6 239.3
Other assets 83.1 53.8
------------ ------------
$ 1,196.8 $ 1,680.6
============ ============
Liabilities and Stockholders' Equity:
Current liabilities $ 352.9 $ 645.1
Other liabilities 41.5 28.6
Long-term debt 19.3 244.9
Subordinated notes payable to parent 244.8 250.5
Stockholders' equity 538.3 511.5
------------ ------------
$ 1,196.8 $ 1,680.6
============ ============
ANIXTER INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED
--------------------------------------------------
DECEMBER 28, DECEMBER 29, DECEMBER 31,
(In millions) 2001 2000 1999
------------ ------------ ------------
Net sales $3,144.2 $3,514.4 $2,686.9
Operating income $ 103.5 $ 191.6 $ 114.6
Income from continuing operations before
income taxes and extraordinary loss $ 58.7 $ 135.1 $ 79.9
Income from continuing operations before
extraordinary loss $ 34.2 $ 76.3 $ 43.6
Extraordinary loss $ 3.3 -
Net income $ 30.9 $ 75.7 $ 91.7
NOTE 6. RESTRUCTURING COSTS
Due to increased economic softness and deteriorating market conditions
in the communications products market, the Company announced a one-time
restructuring charge of $31.7 million during the third quarter of 2001. The
components of the charge are identified below.
STAFF REDUCTIONS - The Company planned to reduce approximately 700
employees across all business functions and geographic areas and communicated
these intentions to the employees in the third quarter of 2001. The reductions
started during that time and as of December 28, 2001, approximately 600
employees have been terminated. In 2001, the Company recorded a restructuring
charge of $9.8 million primarily relating to severance and fringe benefits of
the approximately 700 employees to be terminated.
FACILITY RESTRUCTURING - The Company recorded a restructuring charge of
$13.9 million to cover primarily the future lease payments on the excess
facilities located in North America. Included in this amount was management's
assumption that certain facilities could be sublet for a total of $7.2 million
and the write-off of related leasehold improvements and equipment of $2.0
million.
KOREA - The Company decided to leave the Korean market and, as a result,
recorded a restructuring charge of $6.2 million. The major components of this
charge included accounts receivable bad debts of $3.1 million and legal fees,
settlements and other shutdown costs totaling $3.1 million.
OTHER ITEMS - The Company expensed purchased software that it decided not
to implement and provided for legal fees associated with the restructuring. The
total charge for these items was $1.8 million.
The following table summarizes the restructuring costs:
TOTAL NON-CASH CASH ACCRUED
COSTS CHARGES PAYMENTS COSTS
----- -------- -------- -------
Staff Reductions $ 9.8 $ - $ 5.5 $ 4.3
Facility Restructuring 13.9 2.0 0.9 11.0
Korea 6.2 3.7 0.9 1.6
Other 1.8 0.9 0.1 0.8
----- -------- -------- ------
Total $31.7 $ 6.6 $ 7.4 $17.7
===== ======== ======== ======
Amounts related to the net lease expense due to the consolidation of
facilities will be paid over the respective lease terms through the year 2008.
The Company expects to complete a majority of the implementation of the
restructuring initiative by the second quarter of 2002.
NOTE 7. ACCRUED EXPENSES
Accrued expenses consisted of the following:
DECEMBER 28, DECEMBER 29,
(In millions) 2001 2000
------------ ------------
Salaries and fringe benefits $ 37.5 $ 60.0
Taxes 4.8 21.0
Discontinued operations 11.9 17.6
Freight 4.1 7.2
Other 27.9 33.8
------------ ------------
$ 86.2 $139.6
============ ============
NOTE 8. DEBT
Debt is summarized below:
DECEMBER 28, DECEMBER 29,
(In millions) 2001 2000
------------ ------------
7% Zero-coupon convertible notes $ 221.8 $ 207.0
8% Senior notes 18.6 100.0
Bank revolving lines of credit 0.5 142.2
Other 0.2 2.7
------------ ------------
Total debt $ 241.1 $ 451.9
============ ============
On June 28, 2000, the Company issued $792 million of 7% zero-coupon
convertible notes ("Convertible Notes") due 2020. The net proceeds from the
issue were $193.4 million and were initially used to repay 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 28, 2020 using the effective interest rate method. Issuance costs
were $6.5 million and are being amortized through June 28, 2020 using the
straight-line method.
Holders of the Convertible Notes 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
5.9 million shares. Additionally, holders may require the Company to purchase
all or a portion of their Convertible Notes on June 28, 2005, at a price of
$356.28 per Convertible Note, on June 28, 2010, at a price of $502.57 per
Convertible Note and on June 28, 2015, at a price of $708.92 per Convertible
Note. The Company may choose to pay the purchase price in cash or common stock
or a combination of both.
On October 6, 2000, Anixter entered into a new financing arrangement to
replace the existing $550.0 million revolving credit agreement set to mature in
2001. The new agreement consisted of a $500.0 million, senior unsecured,
revolving credit line which includes a $390.0 million agreement, due 2005, plus
a $110.0 million, 364-day agreement which was cancelled in the second quarter of
2001. Anixter has various other revolving bank lines of credit worldwide that
provide for up to $18.7 million of additional borrowings, none of which are
domestic. These international lines of credit reduce or mature at various dates
in 2002 through 2004. Floating and fixed interest rate options, based on the
prime or LIBOR rate, are available under these facilities.
At December 28, 2001, $0.5 million was borrowed and $408.2 million was
available under the bank revolving lines of credit at Anixter, of which $25.7
million was available to pay the Company for intercompany liabilities. The
weighted average interest rate on debt, excluding the fixed rate notes, at
December 28, 2001 and December 29, 2000, was 5.0% and 8.0%, respectively.
Facility fees of 0.25% payable on the 5 year agreement and 0.23% payable on the
364-day agreement totaled $1.1 million in 2001 and were included in interest
expense in the consolidated statement of operations. Facility fees for 2000 were
insignificant.
In September 1996, Anixter filed a shelf registration statement with the
Securities and Exchange Commission to offer from time to time up to $200.0
million aggregate principal amount of unsecured notes. On September 17, 1996,
Anixter issued $100.0 million of these notes due September 2003. The notes,
which bear interest at 8%, contain various restrictions with respect to secured
borrowings and are unconditionally guaranteed by the Company. The Company
repurchased $81.3 million of its 8% senior notes for $86.5 million during the
year ended December 28, 2001. Additionally, in 2001, the Company expensed $0.3
million of debt issuance costs associated with the cancellation of the $110.0
million revolving credit agreement. Accordingly, the Company recorded an
extraordinary loss on the early extinguishment of debt of $5.5 million ($3.3
million, net of tax), in its consolidated statements of operations for the year
ended December 28, 2001.
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 subsidiaries were approximately $410.1 million and
$404.5 million at December 28, 2001 and December 29, 2000, respectively.
Aggregate annual maturities of debt at December 28, 2001, were as
follows: 2002-$0.7 million; 2003-$18.6 million; 2004-none; 2005-none; 2006-none;
and $221.8 million thereafter. The amount due in 2002 was classified as
long-term due to the Company's ability and intent to refinance through its
long-term facilities.
Interest paid in 2001, 2000 and 1999, was $18.2 million, $39.1 million
and $34.5 million, respectively.
The estimated fair value of the Company's debt at December 28, 2001 and
December 29, 2000, was $245.9 million and $425.0 million respectively, based on
public quotations and current market rates.
NOTE 9. LEASE 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 and expire at various dates through 2018. Minimum
lease commitments under operating leases at December 28, 2001 are as follows:
2002 - $46.0 million; 2003 - $35.0 million; 2004 - $26.7 million; 2005 - $17.7
million; 2006 - $12.1 million; beyond 2006 - $34.9 million. Total rental expense
was $57.8 million, $52.3 million and $58.3 million in 2001, 2000 and 1999,
respectively.
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
which 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.
NOTE 10. INCOME TAXES
The Company and its U.S. subsidiaries file their federal income tax
return on a consolidated basis. As of December 28, 2001, the Company had no net
operating loss ("NOL") or investment tax credit carryforwards for U.S. federal
income tax purposes. During the third quarter of 1998, the Internal Revenue
Service completed its examination for the years 1993 to 1995, which included an
examination of net operating losses and credit carryovers dating back to 1979.
As a result of the lapsing, during the third quarter of 1999, of all relevant
statutes of limitations on assessments relating to that 17-year period of time,
the Company recorded a $24.3 million tax benefit in continuing operations for
the reversal of previously established tax reserves which were determined to be
no longer necessary.
At December 28, 2001, various foreign subsidiaries of the Company had
aggregate cumulative NOL carryforwards for foreign income tax purposes of
approximately $167.6 million, which are subject to various provisions of each
respective country. Approximately $56.1 million of this amount expires between
2002 and 2011 and $111.5 million of the amount has an indefinite life.
Of the $167.6 million NOL carryforwards of foreign subsidiaries mentioned
above, $89.4 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 28, 2001, are approximately $78.2 million, which are subject to various
provisions of each respective country. Approximately $48.6 million of this
amount expires between 2002 and 2011 and $29.6 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 U.S.
Domestic income from continuing operations before income taxes was $55.5
million, $110.1 million and $76.0 million for 2001, 2000 and 1999, respectively.
Foreign income from continuing operations before income taxes was $2.7 million,
$24.5 million and $2.2 million for 2001, 2000 and 1999, respectively.
Undistributed earnings of the Company's foreign subsidiaries amounted to
approximately $83.7 million at December 28, 2001. Those earnings are considered
to be indefinitely reinvested and, accordingly, no provision for U.S. federal
and state income taxes has been provided. 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. According to the Company's
computations as of December 28, 2001, unrecognized foreign tax credit
carryforwards would be available to fully offset the U.S. regular corporate
income tax liability that would arise upon such a distribution. Additionally,
with respect to the countries that have undistributed earnings as of December
28, 2001, according to the foreign laws and treaties in place at that time,
withholding taxes of approximately $1.0 million would be payable upon the
remittance of all earnings at December 28, 2001.
The Company paid income taxes in 2001, 2000 and 1999 of $33.7 million,
$46.8 million and $64.9 million, respectively.
Significant components of the Company's deferred tax assets and
(liabilities) were as follows:
DECEMBER 28, DECEMBER 29,
(In millions) 2001 2000
------------ ------------
Gross deferred tax liabilities $ (17.4) $ (15.8)
Foreign NOL carryforwards 29.6 29.8
Deferred compensation 14.7 11.8
Inventory reserves 17.2 11.1
Allowance for doubtful accounts 3.0 5.8
Other 10.5 6.8
------------ ------------
Gross deferred tax assets 75.0 65.3
Valuation allowance (24.5) (25.5)
------------ ------------
Net deferred tax asset $ 33.1 $ 24.0
============ ============
Net current deferred tax assets $ 32.0 $ 25.5
Net non-current deferred tax assets (liabilities) 1.1 (1.5)
------------ ------------
$ 33.1 $ 24.0
============ ============
Income tax expense (benefit) was comprised of:
YEARS ENDED
---------------------------------------------------
DECEMBER 28, DECEMBER 29, DECEMBER 31,
(In millions) 2001 2000 1999
------------ ------------ ------------
Current--Foreign $ 10.1 $ 11.8 $ 7.6
State 3.3 8.1 4.5
Federal 25.1 36.7 25.0
------------ ------------ ------------
38.5 56.6 37.1
Deferred--Foreign (0.7) (0.7) (1.5)
State (2.3) (2.4) (1.1)
Federal (10.9) 2.4 (26.0)
------------ ------------ ------------
(13.9) (0.7) (28.6)
------------ ------------ ------------
$ 24.6 $ 55.9 $ 8.5
============ ============ ============
Reconciliations of income tax expense to the statutory corporate federal
tax rate of 35% were as follows:
YEARS ENDED
--------------------------------------------------
DECEMBER 28, DECEMBER 29, DECEMBER 31,
(In millions) 2001 2000 1999
------------ ------------ ------------
Statutory tax expense $ 20.4 $ 47.1 $ 27.4
Increase (reduction) in taxes resulting from:
Amortization of goodwill 2.6 2.5 2.2
Losses on foreign operations 0.9 2.3 2.5
State income taxes 0.5 3.7 2.3
Adjustment to prior year tax accounts - - (24.3)
Other, net 0.2 0.3 (1.6)
------------ ------------ ------------
$ 24.6 $ 55.9 $ 8.5
============ ============ ============
NOTE 11. PENSION PLANS, POST-RETIREMENT BENEFITS AND OTHER BENEFITS
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 Employee
Retirement Income Security Act and the Internal Revenue Service. Plan assets
consisted primarily of equity securities and mutual fund investments.
In 2000, the Company incurred a $3.2 million loss on settlement of a
supplemental employee retirement plan. In 1999, the Company completed the
disposal of the Integration segment that resulted in a curtailment gain of $4.4
million and, accordingly, was classified as a gain on disposal of discontinued
operations.
PENSION BENEFITS
-------------------------------
2001 2000
-------- --------
(IN MILLIONS)
CHANGE IN PROJECTED BENEFIT OBLIGATION:
Beginning balance $ 107.4 $ 104.2
Service cost 7.0 6.2
Interest cost 7.6 6.9
Amendments .7 -
Actuarial loss (gain) 3.2 (0.2)
Settlement/Curtailment loss - 3.4
Benefits paid (3.4) (11.0)
Foreign currency exchange rate changes (1.3) (2.1)
-------- --------
Ending balance $ 121.2 $ 107.4
======== ========
CHANGE IN PLAN ASSETS AT FAIR VALUE:
Beginning balance $ 99.8 $ 97.8
Actual return on plan assets (2.7) 4.8
Company contributions 2.7 2.7
Benefits paid (3.4) (3.8)
Foreign currency exchange rate changes (1.1) (1.7)
-------- --------
Ending balance $ 95.3 $ 99.8
======== ========
RECONCILIATION OF FUNDED STATUS:
Projected benefit obligation $(121.2) $(107.4)
Plan assets at fair value 95.3 99.8
-------- --------
Funded status (25.9) (7.6)
Unrecognized net actuarial loss (gain) 2.2 (11.7)
Unrecognized prior service cost 2.4 2.0
Unrecognized transition obligation (0.2) (0.4)
-------- --------
Accrued benefit cost $ (21.5) $ (17.7)
======== ========
WEIGHTED AVERAGE ASSUMPTIONS:
Discount rate 6.81% 7.25%
Expected return on plan assets 8.53% 8.63%
Salary growth rate 4.96% 5.42%
PENSION COSTS
----------------------------------
2001 2000 1999
------ ------ ------
(IN MILLIONS)
COMPONENTS OF NET PERIODIC COST:
Service cost $ 7.0 $ 6.2 $ 8.4
Interest cost 7.6 6.9 7.2
Expected return on plan assets (8.4) (8.4) ( 7.9)
Net amortization (0.4) (0.7) ( 0.2)
------ ------ ------
Periodic benefit cost prior to settlement/curtailment 5.8 4.0 7.5
Settlement/Curtailment loss (gain) - 3.0 (4.4)
------ ------ ------
Net periodic benefit cost $ 5.8 $ 7.0 $ 3.1
====== ====== ======
The Company has four plans in 2001 and three plans in 2000 where the
accumulated benefit obligation is in excess of the fair value of plan assets.
The accumulated benefit obligation was $4.2 million and $4.0 million and the
fair value of the plans' assets was $0.2 million and $0.1 million in 2001 and
2000, respectively.
The Company had two plans in 2000 where the fair value of assets were in
excess of the projected benefit obligation. The fair value of the plans' assets
was $8.6 million and had projected benefit obligations of $7.1 million.
The Company has several savings plans. The Company's contributions to
these plans are based upon various levels of employee participation. The total
cost of these plans was $1.6 million in 2001, $1.5 million in 2000 and $1.5
million in 1999. The Company's liability for post-retirement benefits other than
pensions is not material.
NOTE 12. PREFERRED STOCK AND COMMON STOCK
PREFERRED STOCK--
The Company has the authority to issue 15 million shares of preferred
stock, par value $1.00 per share, none of which was outstanding at the end of
2001 or 2000.
STOCK OPTIONS AND STOCK GRANTS--
At December 28, 2001, the Company had stock incentive plans that
authorize 2.6 million shares for additional stock option awards or stock grants.
Options 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.
Under its Enhanced Management Incentive Plan, in 2001 the Company issued
31,340 shares of restricted stock and granted 161,039 executive stock units.
During 2000, the first year restricted stock was granted, the Company issued
281,173 shares of restricted stock. Restricted stock and executive stock units
fully vest after four years from the date of grant. Compensation expense
associated with the restricted stock grants and executive stock units was $3.6
million and $1.7 million in 2001 and 2000, respectively.
The following table summarizes the 2001, 2000 and 1999 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 January 1, 1999 4,683.2 $16.48 390.0 $14.35
Granted 1,115.5 12.70 -- --
Exercised (452.0) 13.35 (30.0) 11.63
Canceled (163.1) 16.96 -- --
--------- -------- -------- --------
Balance at December 31, 1999 5,183.6 15.92 360.0 14.57
Granted 1,127.5 20.59 -- --
Exercised (2,003.0) 16.14 (100.0) 11.30
Canceled (147.1) 16.91 -- --
--------- -------- -------- --------
Balance at December 29, 2000 4,161.0 17.06 260.0 15.83
Granted 1,190.0 25.24 -- --
Exercised (1,128.1) 16.91 (40.0) 17.24
Canceled (138.3) 20.17 -- --
--------- -------- -------- --------
Balance at December 28, 2001 4,084.6 $19.37 220.0 $15.57
========= ======== ======== ========
Options Exercisable at year-end
1999 2,679.3 $16.49 360.0 $14.57
2000 2,031.3 $16.75 260.0 $15.83
2001 1,649.0 $16.72 220.0 $15.57
The following table summarizes information relating to options
outstanding and exercisable at December 28, 2001, using various ranges of
exercise prices:
EMPLOYEE OPTIONS
(options in thousands)
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
----------------------------------------- -------------------------
WEIGHTED WEIGHTED WEIGHTED
RANGE OF AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE REMAINING EXERCISE
PRICES OUTSTANDING PRICE YEARS EXERCISABLE PRICE
-------- ----------- -------- --------- ----------- ---------
$9.11 100.0 $ 9.11 1.0 100.0 $ 9.11
$12.69-$15.75 984.7 $13.65 7.1 576.9 $14.32
$17.44-$21.13 1,837.4 $19.26 7.4 967.5 $18.89
$25.20-$32.00 1,162.5 $25.28 10.0 4.6 $28.18
DIRECTOR OPTIONS
(options in thousands)
WEIGHTED WEIGHTED
RANGE OF AVERAGE AVERAGE
EXERCISE OUTSTANDING & EXERCISE REMAINING
PRICES EXERCISABLE PRICE YEARS
-------- ------------- -------- ---------
$8.38-$8.46 60.0 $ 8.42 1.0
$15.00-$20.69 160.0 $ 18.26 3.3
In addition, the Company has an Employee Stock Purchase Plan ("ESPP")
covering most employees. Participants can request that up to 10% of their base
compensation be applied toward the purchase of common stock under the Company's
ESPP. The purchase price is the lower of 85% of the fair market value of the
common stock at the beginning of the ESPP year, July 1, 2001, or at the end of
the ESPP year, June 30, 2002. Under the ESPP, the Company sold 110,128 shares,
114,100 shares and 123,700 shares to employees in 2001, 2000 and 1999,
respectively.
STOCK OPTION PLANS OF ANIXTER--
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 vest over four years and terminate seven to ten years from
the date of grant. At December 28, 2001, the Company owned 99.97% of the
approximately 32.2 million shares of outstanding Anixter common stock.
The following table summarizes the 2001, 2000 and 1999 option activity:
WEIGHTED
AVERAGE
EXERCISE
OPTIONS PRICE
------- ---------
(Options in thousands)
Balance at January 1, 1999 982.3 $11.57
Exercised (586.6) 11.21
Canceled (26.2) 12.28
-------
Balance at December 31, 1999 369.5 12.08
Exercised (323.7) 11.92
Canceled (0.5) 14.50
-------
Balance at December 29, 2000 45.3 13.23
Exercised (27.3) 12.40
Canceled - -
-------
Balance at December 28, 2001 18.0 $14.50
=======
Options exercisable at year-end
1999 369.5 $12.08
2000 45.3 $13.23
2001 18.0 $14.50
The exercise price for options outstanding as of December 28, 2001, was
$14.50 per share and all options expired in January 2002.
UNITS--
The Company adopted a Director Stock Unit Plan ("DSUP") 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 the pre-arranged time
selected by each director. Stock units were granted to eight directors in 2001
and nine directors in 2000, having an aggregate value at grant date of $480,000
and $540,000, respectively.
The following table summarizes the 2001, 2000 and 1999 activity under the
DSUP:
DSUP
STOCK UNITS
(In thousands) -----------
Balance at January 1, 1999 81.6
Granted 29.7
Converted (3.5)
-----------
Balance at December 31, 1999 107.8
Granted 20.4
Converted (31.2)
-----------
Balance at December 29, 2000 97.0
Granted 18.4
Converted (31.8)
Canceled (0.6)
-----------
Balance at December 28, 2001 83.0
===========
ACCOUNTING FOR STOCK BASED COMPENSATION--
The Company applied the disclosure-only provisions of SFAS No. 123, "Accounting
for Stock Based Compensation".Compensation." Accordingly, no compensation expense has been
recognized in the income statementConsolidated Statements of Operations for the stock option
plans. Had
compensation costs for the plans been determined based on the fair value at the
grant date for awards beginning in 1995 and amortized over the respective
vesting period, the Company's income from continuing operations would have been
reduced to the pro forma amounts indicated below:
(In millions, except per share data)
2001 2000 1999
---- ---- ----
Basic income from continuing operations
--as reported $33.6 $78.7 $69.7
--pro forma $26.5 $72.7 $64.0
Diluted income from continuing operations
plus assumed conversion
--as reported $33.6 $83.0 $69.7
--pro forma $26.5 $77.0 $64.0
Basic income per share from
continuing operations
--as reported $0.92 $2.15 $1.86
--pro forma $0.72 $1.99 $1.71
Diluted income per share from
continuing operations
--as reported $0.89 $2.03 $1.83
--pro forma $0.71 $1.90 --
Pro forma diluted income per share has not been presented for 1999, as
the conversion of stock options and warrants would have had an anti-dilutive
effect.
The weighted average fair value for the Company's stock options (which
was $14.92 per share in 2001, $11.74 per share in 2000 and $5.50 per share in
1999) was estimated at the date of grant using the Black-Scholes option pricing
model with the following assumptions for 2001, 2000 and 1999, respectively:
expected stock price volatility of 52%, 45%, and 39%; expected dividend yield of
zero each year; risk-free interest rate of 5.2%, 6.5% and 5.6%; and, an expected
7 year life for 2001 and 2000 and a 5 year life for 1999. 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
26
NOTE 13. BUSINESS SEGMENTANIXTER INTERNATIONAL INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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:
2002 2001 2000
------ ------ ------
(IN MILLIONS, EXCEPT PER
SHARE DATA)
Net income as reported...................................... $43.1 $30.3 $78.7
Deduct: Stock-based employee compensation expense, net...... (8.0) (7.1) (6.0)
----- ----- -----
Basic pro forma net income.................................. 35.1 23.2 72.7
Interest impact of assumed conversion of convertible
notes..................................................... -- -- 4.3
----- ----- -----
Diluted pro forma net income................................ $35.1 $23.2 $77.0
===== ===== =====
Basic earnings per share:
as reported............................................... $1.17 $0.83 $2.15
pro forma................................................. $0.95 $0.63 $1.99
Diluted earnings per share:
as reported............................................... $1.13 $0.80 $2.03
pro forma................................................. $0.95 $0.62 $1.90
The weighted average fair value of the Company's stock options (which was
$14.74 per share in 2002, $14.92 per share in 2001 and $11.74 per share in 2000)
was estimated at the date of grant using the Black-Scholes option pricing model
with the following assumptions for 2002, 2001 and 2000, respectively: expected
stock price volatility of 46%, 52% and 45%; expected dividend yield of zero each
year; risk-free interest rate of 4.7%, 5.2% and 6.5%; and an average expected
life of 8 years for 2002 and 7 years for 2001 and 2000.
ACCOUNTS RECEIVABLE PROGRAM: On October 6, 2000, the Company entered into
an accounts receivable securitization program. The underlying agreements for
this program were amended and restated in October 2002. The program is conducted
through Anixter Receivables Corporation ("ARC"), which is a wholly owned
unconsolidated subsidiary of the Company, on terms equivalent to those in an
arms-length transaction. The investment is accounted for using the equity
method. At January 3, 2003 and December 28, 2001, Anixter's investment in ARC
was $43.5 million and $34.2 million, respectively. 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 ARC and consists of a
series of 364-day facilities. ARC may in turn sell an interest in these
receivables to a financial institution and borrow up to $225.0 million. Prior to
the October 6, 2001 borrowing capacity reduction, ARC could borrow up to $275.0
million. Under this arrangement, Anixter continues to service the sold
receivables by performing the collection and cash application functions in order
to maintain relationships with its customers. These services are billed by
Anixter to ARC at cost. At January 3, 2003 and December 28, 2001, the
outstanding balance of accounts receivable sold to ARC totaled $248.6 million
and $296.0 million, respectively. Accordingly, these accounts receivable were
removed from the balance sheet. In order to fund the purchases of the accounts
receivable from Anixter, ARC incurred long-term debt of $129.7 million and
$143.7 million and has a subordinated note payable to Anixter of $69.6 million
and $111.4 million at January 3, 2003 and December 28, 2001, respectively. Net
charges associated with the accounts receivable securitization program of $2.7
million, $8.7 million and $3.8 million were recorded as Other expenses in the
2002, 2001 and 2000 Consolidated Statements of Operations, respectively. These
costs primarily relate to the interest expense on the long-term debt incurred by
ARC. Additionally, charges of $8.8 million relating to the discount on the
initial sale of accounts receivable to ARC were recorded as Other expenses in
the 2000 Consolidated Statement of Operations. The Company operatesexpects to
substantially recover the charges on the initial sale during the course of the
program. The net charges are detailed as follows:
27
ANIXTER INTERNATIONAL INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2002 2001 2000
------ ------ ------
(IN MILLIONS)
Loss on sales of receivables................................ $ 24.5 $ 40.3 $ 21.3
Gain on collection of receivables by ARC.................... (25.2) (41.5) (12.8)
Interest expense incurred by ARC............................ 3.4 9.9 4.1
2.7 8.7 12.6
------ ------ ------
Less initial discount....................................... -- -- 8.8
------ ------ ------
Total..................................................... $ 2.7 $ 8.7 $ 3.8
====== ====== ======
Anixter had total billings to ARC of $1,544.2 million, $2,027.4 million and
$986.1 million in 2002, 2001 and 2000, 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 $1,586.0 million, $2,042.1 million and $860.0 million in 2002, 2001 and
2000, respectively, as payment for Anixter billings.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS: In April 2002, the Financial
Accounting Standards Board ("FASB") issued SFAS No. 145, "Rescission of FASB
Statements No. 4, 44, 64, Amendment of FASB Statement No. 13, and Technical
Corrections," effective for fiscal years beginning after May 15, 2002. SFAS No.
145 will require gains and losses on extinguishment of debt to be classified as
income or loss from continuing operations rather than as extraordinary items as
previously required under SFAS No. 4. The Company adopted SFAS No. 145 as
required on January 4, 2003. As a result, any gain or loss from the
extinguishment of debt will be recorded as other income or expense before income
taxes. Any gain or loss on extinguishment of debt that was classified as an
extraordinary item in the Consolidated Statements of Operations will be
reclassified in accordance with this Statement. In 2002 and 2001, the Company
had extraordinary losses on the early extinguishment of debt, net of tax, of
$0.4 million and $3.3 million, respectively. Accordingly, the adoption of SFAS
No. 145 is not expected to have a material effect on the Company's results of
operations, financial position or debt covenants. See Note 7 "Debt" herein for
information regarding the Company's extinguishment of debt.
In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities." SFAS No. 146 nullifies Emerging
Issues Task Force Issue No. 94-3 ("EITF 94-3"), "Liability Recognition for
Certain Employee Termination Benefits and Other Costs to Exit an Activity
(including Certain Costs Incurred in a Restructuring)." SFAS No. 146 requires
that a liability for a cost associated with an exit or disposal activity be
recognized when the liability is incurred. Therefore, SFAS No. 146 eliminates
the definition and requirements for recognition of exit costs in EITF 94-3. The
provisions of SFAS No. 146 are effective for exit or disposal activities that
are initiated after December 31, 2002. The adoption of SFAS No. 146 is not
expected to have a material effect on the Company's results of operations,
financial position or debt covenants.
In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation - Transition and Disclosure," an amendment to FASB Statement No.
123. SFAS No. 148 amends SFAS No. 123 to provide alternative methods of
transition for a voluntary change to the fair value-based method of accounting
for stock-based employee compensation. In addition, SFAS No. 148 requires
prominent disclosures in both annual and interim financial statements about the
method of accounting for stock-based compensation and the effect of the method
used on reported results. The provisions of SFAS No. 148 are effective for
fiscal years ending after December 15, 2002. The adoption of SFAS No. 148 did
not have a material effect on the Company's results of operations, financial
position or debt covenants.
28
ANIXTER INTERNATIONAL INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 2. INCOME (LOSS) PER SHARE
The table below sets forth the computation of basic and diluted income
(loss) per share. The Company adopted SFAS No. 142 "Goodwill and Other
Intangible Assets" as of December 29, 2001, which requires that goodwill no
longer be amortized (see Note 1 "Summary of Significant Accounting Policies").
For comparative purposes, earnings per share have been adjusted to exclude
goodwill amortization reported in 2001 and 2000.
YEARS ENDED
------------------------------------------
JANUARY 3, DECEMBER 28, DECEMBER 29,
2003 2001 2000
------------ ------------ ------------
(IN MILLIONS, EXCEPT PER SHARE DATA)
BASIC INCOME (LOSS) PER SHARE:
Reported income before extraordinary loss... $ 43.5 $ 33.6 $78.7
Goodwill amortization....................... -- 9.0 8.4
------ ------ -----
Adjusted income before extraordinary loss... 43.5 42.6 87.1
Extraordinary loss.......................... (0.4) (3.3) --
------ ------ -----
Adjusted net income......................... $ 43.1 $ 39.3 $87.1
====== ====== =====
Weighted-average common shares
outstanding.............................. 37.0 36.5 36.6
Reported income per share before
extraordinary loss....................... $ 1.18 $ 0.92 $2.15
Goodwill amortization per share............. -- 0.24 0.23
Adjusted income per share before
extraordinary loss....................... $ 1.18 $ 1.16 $2.38
Extraordinary loss per share................ $(0.01) $(0.09) $ --
Adjusted net income per share............... $ 1.17 $ 1.08 $2.38
DILUTED INCOME (LOSS) PER SHARE:
Reported income before extraordinary loss... $ 43.5 $ 33.6 $78.7
Goodwill amortization....................... -- 9.0 8.4
Interest impact of assumed conversion of
convertible notes........................ -- -- 4.3
Adjusted net income before extraordinary
loss..................................... 43.5 42.6 91.4
Extraordinary loss.......................... (0.4) (3.3) --
------ ------ -----
Adjusted net income......................... $ 43.1 $ 39.3 $91.4
====== ====== =====
Weighted-average common shares
outstanding.............................. 37.0 36.5 36.6
Effect of dilutive securities:
Stock options and warrants.................. 1.0 1.3 4.3
------ ------ -----
Weighted-average common shares
outstanding.............................. 38.0 37.8 40.9
====== ====== =====
Reported income per share before
extraordinary loss....................... $ 1.14 $ 0.89 $2.03
Goodwill amortization per share............. $ -- $0.24
Adjusted income per share before
extraordinary loss....................... $ 1.14 $ 1.13 $2.23
Extraordinary loss per share................ $(0.01) $(0.09) $ --
Adjusted net income per share............... $ 1.13 $ 1.04 $2.23
In 2002 and 2001, the Company excluded 3.1 million and 5.9 million,
respectively, of common stock equivalents, primarily relating to the 7%
zero-coupon convertible notes ("Convertible Notes"), from its calculation of
diluted income (loss) per share because the effect would have been antidilutive.
Because the Convertible Notes were antidilutive, the related $7.3 million and
$9.0 million for 2002 and 2001, respectively, of net interest expense was not
excluded from the determination of income in the calculation of diluted income
29
ANIXTER INTERNATIONAL INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(loss) per share. Potentially dilutive securities that were excluded from the
calculation of diluted income per share were insignificant in 2000.
NOTE 3. ACQUISITION AND DIVESTITURE OF BUSINESSES
ACQUISITION OF PENTACON, INC.
On September 20, 2002, the Company completed the purchase of the operations
and assets of Pentacon, Inc. ("Pentacon"), pursuant to Pentacon's plan of
reorganization filed under Chapter 11 of the United States Bankruptcy Code.
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. The Company believes
Pentacon's business model and position as a value-added distributor are perfect
compliments to our current Industrial Wire and Cable - Original Equipment
Manufacturer market focus. The Company paid a total of $108.5 million for
tangible assets with a fair value of approximately $81.7 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, intangible assets have also
been recorded at estimated fair value as follows: $13.8 million of intangible
assets with finite lives (customer relationships) and a $1.8 million intangible
asset with an indefinite life (trade name). Goodwill resulting from the
transaction totaled $14.1 million. The Company agreed to hire the existing
Pentacon employees and assume the lease obligations for certain of its operating
facilities. The acquired assets will be used in substantially the same manner in
which they were utilized by Pentacon. The Company has incurred approximately
$2.9 million of transaction-related costs that have been capitalized as part of
the acquisition. In addition, the Company agreed to pay $1.2 million in
retention bonuses, $1.0 million of which was expensed in the fourth quarter of
2002 and $0.1 million will be expensed in each year of 2003 and 2004. The
acquisition was accounted for as a purchase and the results of operations of the
acquired business are included in the consolidated financial statements from the
date of acquisition. Included in the results of the Company for 2002 are $51.5
million of sales and $0.5 million of operating profit related to Pentacon.
Pentacon had sales of $205.3 million in 2002.
The chairman of the Company, Samuel Zell, was an indirect beneficial owner
of 24.5% of Pentacon's senior subordinated notes.
Pro Forma Information
The following unaudited consolidated pro forma information reflects the
results of the Company's operations for the years ended January 3, 2003 and
December 28, 2001, as if the Pentacon acquisition had occurred on December 30,
2000. The pro forma results are not necessarily indicative of the actual results
that would have occurred had the purchase been made at the beginning of the
period presented, nor do they purport to indicate the results of the future
operations of the Company.
JANUARY 3, DECEMBER 29,
2003 2001*
-------------- --------------
(IN MILLIONS, EXCEPT PER SHARE
AMOUNTS)
Net sales........................................... $2,673.9 $3,403.6
Income before extraordinary item.................... $ 46.3 $ 17.6
Net income.......................................... $ 45.9 $ 14.3
Diluted income per share before extraordinary
item.............................................. $ 1.22 $ 0.47
Diluted net income per share........................ $ 1.21 $ 0.38
*Restructuring and other charges: In 2001, Pentacon initiated a plan to
restructure its current business operations and conducted an assessment of its
business in the aerospace and telecommunication industries in view of the impact
of the September 11, 2001 events in
30
ANIXTER INTERNATIONAL INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
New York and Washington, D.C., as well as the financial difficulties in the
telecommunications industry. As a result, Pentacon recorded restructuring and
other charges of $54.6 million. Included in cost of sales are charges totaling
$39.1 million for the write-off of inventory. Of that total, $33.5 million
related to non-cash write-offs of excess aerospace and telecommunications
inventory based on a review of the anticipated future demand for the inventory
resulting from decreased usage levels. The remaining $5.6 million represented a
non-cash charge resulting from offering $9.8 million of slower moving inventory
at substantially reduced prices in order to take advantage of the cash flows and
tax benefits. The remaining $15.5 million of restructuring and other charges
resulted from the write-down of deferred tax assets, termination benefit costs,
the closing of five distribution facilities, professional fees and write-off of
debt issuance costs.
The pro forma adjustments (before income taxes and extraordinary item) that
were made as if the purchase had occurred at the beginning of the earliest
period presented are as follows:
JANUARY 3, DECEMBER 28,
2003 2001
------------ ------------
(IN MILLIONS)
Rental expense.............................................. $ 0.7 $ 1.2
Legal and professional fees................................. 4.5 1.0
Depreciation expense........................................ 0.9 1.2
Amortization of intangibles................................. (1.2) 1.9
Interest expense, net....................................... 4.9 12.8
----- -----
Income before taxes and extraordinary item.................. $ 9.8 $18.1
===== =====
The pro forma adjustments included in each of the periods presented above
relate to: 1) rental expense for leased facilities that were not acquired, 2)
legal and professional fees that were directly related to the bankruptcy
proceedings of Pentacon, 3) depreciation expense savings due to the net
write-down of acquired fixed assets to their fair market value, 4) the exclusion
of the 2001 goodwill amortization expense incurred by Pentacon, partially offset
by purchase accounting adjustments for the amortization of $13.8 million of
other intangibles with finite lives, and 5) the exclusion of the total interest
expense incurred by Pentacon, partially offset by the interest expense that
would have been incurred by Anixter resulting from $110.4 million of borrowings
used to fund the acquisition at an annualized interest rate of 4.75% over the
respective period.
Allocation of Purchase Price
Assets and liabilities have been recorded at estimated fair value based on
the following allocation of purchase price. During the fourth quarter of 2002,
the Company completed a third party valuation of Pentacon and identified certain
intangible assets. Intangible assets with finite lives (customer relationships)
totaling $13.8 million will be amortized over their useful lives of 8 to 10
years, while an intangible asset with an indefinite life (trade name) of $1.8
million will not be amortized. In addition, the Company recorded $14.1 million
of goodwill, which has been reported under the North America business segment
and will not be amortized. The total amount of goodwill recorded is expected to
be deductible for income tax purposes.
31
ANIXTER INTERNATIONAL INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Purchase price............................................. $108.5
Other transaction-related costs............................ 2.9
------
Total investment......................................... 111.4
Cash....................................................... 1.0
Accounts receivable........................................ 27.3
Inventories................................................ 69.0
Other current assets....................................... 5.5
Fixed assets............................................... 8.0
Other assets, net.......................................... 0.2
Intangible assets.......................................... 15.6
Accounts payable........................................... (25.0)
Accrued expenses........................................... (4.3)
------
Net assets acquired...................................... 97.3
------
Goodwill................................................. $ 14.1
======
OTHER ACQUISITION AND DIVESTITURE
In January 2000, the Company acquired 100% of the stock of allNET
Technologies Pty. Limited ("allNET") for $6.7 million. allNET is a
communications products distributor located in Australia. This acquisition was
accounted for using the purchase method of accounting. In September 2000, the
Company sold the net assets of a wholly owned subsidiary of Accu-Tech
Corporation for $3.0 million in cash and $1.6 million in notes receivable. The
effect of these transactions on the operating results of the Company was not
significant.
NOTE 4. SUMMARIZED FINANCIAL INFORMATION OF ANIXTER INC.
The Company guarantees, fully and unconditionally, substantially all of the
debt of its subsidiaries, which includes Anixter Inc. 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
32
ANIXTER INTERNATIONAL INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
adverse impact on the Company's ability to meet its cash obligations. The
following summarizes the financial information for Anixter Inc.:
ANIXTER INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
JANUARY 3, DECEMBER 29,
2003 2001
------------ ------------
(IN MILLIONS)
Assets:
Current assets......................................... $ 813.4 $ 827.1
Property, net.......................................... 59.1 55.0
Goodwill and other intangibles......................... 263.2 231.6
Other assets........................................... 88.5 83.1
-------- --------
$1,224.2 $1,196.8
======== ========
Liabilities and Stockholders' Equity:
Current liabilities.................................... $ 347.3 $ 352.9
Subordinated notes payable to parent................... 210.2 244.8
Long-term debt......................................... 71.1 19.3
Other liabilities...................................... 46.2 41.5
Stockholders' equity................................... 549.4 538.3
-------- --------
$1,224.2 $1,196.8
======== ========
ANIXTER INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED
---------------------------------------------------------
JANUARY, 3 DECEMBER 28, DECEMBER 29,
2003 2001 2000
----------------- ----------------- -----------------
(IN MILLIONS)
Net sales........................... $2,520.1 $3,144.2 $3,514.4
Operating income.................... $ 88.5 $ 103.5 $ 191.6
Income from continuing operations
before income taxes and
extraordinary loss................ $ 71.1 $ 58.7 $ 135.1
Income from continuing operations
before extraordinary loss......... $ 35.7 $ 34.2 $ 76.3
Extraordinary loss.................. $ (0.3) $ (3.3) $ --
Discontinued operations gain
(loss)............................ $ 0.3 $ -- $ (0.6)
Net income.......................... $ 35.7 $ 30.9 $ 75.7
NOTE 5. RESTRUCTURING COSTS
Due to increased general economic softness and deteriorating market
conditions in the communications products market, during the third quarter of
2001 the Board of Directors approved the restructuring plan (as outlined below)
and the Company incurred restructuring and other charges of $31.7 million. The
Company's remaining liability at January 3, 2003 was $6.9 million, $4.2 million
of which was classified as short-term. As
33
ANIXTER INTERNATIONAL INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
of September 27, 2002, the Company had implemented all of the restructuring
initiatives. Activity related to the accrued costs during 2002 is identified
below:
STAFF FACILITY KOREA
REDUCTIONS RESTRUCTURING CLOSURE OTHER TOTAL
---------- ------------- ------- ----- -----
(IN MILLIONS)
Balance at December 28, 2001........... $ 4.3 $ 11.0 $ 1.6 $ 0.8 $ 17.7
Accrual adjustments.................... 0.4 1.0 (0.4) (0.7) 0.3
Cash payments.......................... (4.5) (6.3) -- (0.3) (11.1)
Reclassification....................... -- (0.5) -- 0.5 --
Foreign exchange....................... -- (0.2) 0.2 -- --
----- ------ ----- ----- ------
Balance at January 3, 2003............. $ 0.2 $ 5.0 $ 1.4 $ 0.3 $ 6.9
===== ====== ===== ===== ======
Staff Reductions -- In 2001, the Company recorded a restructuring charge of
$9.8 million relating to severance and outplacement costs. The Company
implemented a plan to reduce approximately 700 employees across all business
functions and geographical areas. The headcount reductions occurred in the
following functional areas - administrative 100, sales and marketing 350 and
operations 250. These reductions approximated 13% of the total workforce prior
to the announcement. Most of the staff reductions occurred during the last half
of 2001. During the 53 weeks ended January 3, 2003, the Company paid $4.5
million in severance and outplacement benefits. As of September 27, 2002, the
Company had completed all staff reductions associated with this initiative.
During the second quarter of 2002, Europe recorded an additional charge of $0.4
million for severance associated with headcount reductions. The Company's
consolidated results of operations were not impacted by this charge, as it was
offset by the reversal of excess accruals in North America and Asia Pacific.
Facility Restructuring -- In 2001, the Company recorded a restructuring
charge of $13.9 million to cover the costs of vacating 900,000 square feet of
space in approximately 35 warehouses and sales locations that were primarily
located in North America. The reduction in square feet represented approximately
18% of the total square footage the Company occupied prior to the restructuring
initiative. The major components of the charge included the following items -
$19.1 million for the gross value of committed future lease payments and related
costs and $2.0 million for impaired asset write-offs. These charges were
partially offset by management's estimate of realizing sublet income totaling
$7.2 million. The sublet income was estimated based on a review of each facility
with a local real estate broker to determine the potential for subletting each
of the properties and the expected rental income per square foot. During the 53
weeks ended January 3, 2003, the Company paid $6.3 million associated with the
facility restructuring. As of September 27, 2002, the Company had vacated all of
the space. In lieu of subletting some of these leased facilities, the company
paid additional penalties to be released from its future lease obligations.
Therefore, the sublet income is currently estimated to be $3.2 million, $2.4
million of which has been committed. During 2002, the Company received $0.1
million of sublet income. The remaining accrued expense of $5.0 million for the
facility restructuring is reasonable based on the Company's current estimates.
During the second quarter of 2002, Europe recorded an additional charge for the
facility consolidation in the Company's UK operation of $1.0 million. The
Company's consolidated results of operations were not impacted by this charge,
as it was offset by the reduction of excess accruals in North America and Asia
Pacific. The Company has classified $2.7 million of the net lease obligations
due to the consolidation of facilities as long-term and estimates that it will
be paid over the respective lease terms through the year 2008.
Korea -- In 2001, the Company decided to exit the Korean market and, as a
result, recorded restructuring and other charges of $6.2 million. The major
portions of the charge included reserving for the net remaining accounts
receivable balance of $3.1 million, legal proceedings brought against Anixter
Korea of $2.1 million and other closure costs of $1.0 million. Exiting the
Korean market had no material impact on the Company's consolidated revenue as
Korean sales accounted for less than 0.2% of the Company's total sales.
34
ANIXTER INTERNATIONAL INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The remaining accrued expense of $1.4 million is needed to cover the legal
proceedings against Anixter Korea. There was no cash paid out in 2002.
Other Items -- In 2001, the Company expensed purchased software that it
decided not to implement due to the general economic downturn and provided for
legal costs associated with the restructuring. The total charge for these items
was $1.8 million. The remaining accrual balance of $0.3 million is needed for
legal costs associated with the restructuring.
NOTE 6. ACCRUED EXPENSES
Accrued expenses consisted of the following:
JANUARY 3, DECEMBER 28,
2003 2001
------------ ------------
(IN MILLIONS)
Salaries and fringe benefits................................ $39.4 $37.5
Discontinued operations..................................... 9.3 11.9
Taxes....................................................... 6.5 5.5
Selling and promotion....................................... 4.4 4.5
Freight..................................................... 3.5 4.1
Other....................................................... 20.4 22.7
----- -----
Total accrued expenses............................ $83.5 $86.2
===== =====
NOTE 7. DEBT
Debt is summarized below:
JANUARY 3, DECEMBER 28,
2003 2001
------------ ------------
(IN MILLIONS)
7% Zero-coupon convertible notes............................ $124.0 $221.8
Bank revolving lines of credit.............................. 62.2 0.5
8% Senior notes............................................. 8.0 18.6
Other....................................................... 0.9 0.2
------ ------
Total debt.................................................. $195.1 $241.1
====== ======
On June 28, 2000, the Company issued $792.0 million of Convertible Notes
due 2020 and subsequently repurchased $378.7 million of this issue in 2002. The
discount associated with the issuance is being amortized through June 28, 2020
using the effective interest rate method. Gross issuance costs totaling $3.7
million, after $2.8 million of write-offs due to note repurchases, are being
amortized through June 28, 2020 using the straight-line method.
Holders of the Convertible Notes 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
3.1 million shares. Additionally, holders may require the Company to purchase,
at book value, all or a portion of their Convertible Notes on June 28, 2005, at
a price of $356.28 per Convertible Note; on June 28, 2010, at a price of $502.57
per Convertible Note; and on June 28, 2015, at a price of $708.92 per
Convertible Note. The Company may choose to pay the purchase price in cash or
common stock or a combination of both.
35
ANIXTER INTERNATIONAL INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
On October 6, 2000, Anixter entered into a new financing arrangement to
replace the existing $550.0 million revolving credit agreement set to mature in
2001. The new agreement consisted of a $500.0 million, senior unsecured,
revolving credit line which includes a $390.0 million agreement, due 2005, plus
a $110.0 million, 364-day agreement that was cancelled in the second quarter of
2001. Anixter has various other revolving bank lines of credit worldwide that
provide for up to $17.5 million of additional borrowings, none of which are
domestic. These international lines of credit reduce or mature at various dates
in 2003 through 2004. Floating and fixed interest rate options, based on the
prime or LIBOR rate, are available under these facilities.
At January 3, 2003, $62.2 million was borrowed and $345.3 million was
available under the bank revolving lines of credit at Anixter, $10.8 million of
which was available to pay the Company for intercompany liabilities. The
weighted average interest rate on debt, excluding the fixed rate notes, at
January 3, 2003 and December 28, 2001, was 3.0% and 5.0%, respectively. Facility
fees of 0.25% payable on the 5 year agreement and 0.23% payable on the 364-day
agreement totaled $1.0 million and $1.1 million in 2002 and 2001, respectively,
and were included in Interest expense in the Consolidated Statements of
Operations. Facility fees for 2000 were insignificant. Interest paid in 2002,
2001 and 2000 was $5.0 million, $18.2 million and $39.1 million, respectively.
In September 1996, Anixter filed a shelf registration statement with the
Securities and Exchange Commission to offer from time to time up to $200.0
million aggregate principal amount of unsecured notes. On September 17, 1996,
Anixter issued $100.0 million of these notes due September 2003 and has
subsequently repurchased $92.0 million. The notes, which bear interest at 8%,
contain various restrictions with respect to secured borrowings and are
unconditionally guaranteed by the Company.
During the years ended January 3, 2003 and December 28, 2001, the Company
repurchased a portion of its Convertible Notes and its 8% senior notes and
subsequently wrote-off debt issuance costs associated with the Convertible Notes
and the cancellation of the $110.0 million 364-day revolving credit agreement.
The following table reflects the repurchase activity:
YEARS ENDED
-----------------------------------
JANUARY 3, 2003 DECEMBER 28, 2001
--------------- -----------------
BOOK BOOK
VALUE COST VALUE COST
------ ------ ------- -------
(IN MILLIONS)
8% Senior notes...................................... $ 10.7 $ 11.1 $ 81.3 $ 86.5
7% Zero-coupon convertible notes..................... $109.7 $107.2 $ -- $ --
Debt issuance costs written-off...................... $ 2.8 $ -- $ 0.3 $ --
Accordingly, for the year ended January 3, 2003, the Company recorded an
extraordinary loss on the early extinguishment of debt in its Consolidated
Statement of Operations of $0.7 million ($0.4 million, net of tax). For the year
ended December 28, 2001, the Company recorded an extraordinary loss on the early
extinguishment of debt of $5.5 million ($3.3 million, net of tax).
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 subsidiaries were approximately $516.2 million and
$415.8 million at January 3, 2003 and December 28, 2001, respectively.
Aggregate annual maturities of debt at January 3, 2003, were as follows:
2003-$8.9 million; 2004-$2.7 million; 2005-$59.5 million; 2006-none; 2007-none
and $124.0 million thereafter. The amount due in 2003 was classified as
long-term due to the Company's ability and intent to refinance through its
long-term facilities.
36
ANIXTER INTERNATIONAL INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The estimated fair value of the Company's debt at January 3, 2003 and
December 28, 2001 was $201.3 million and $245.9 million, respectively, based on
public quotations and current market rates.
NOTE 8. 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 and expire at various dates through 2018. Most
operating leases entered into by the Company contain renewal options. Minimum
lease commitments under operating leases at January 3, 2003 are as follows:
2003 -- $35.8 million; 2004 -- $26.4 million; 2005 -- $17.7 million;
2006 -- $10.5 million; 2007 -- $7.4 million; beyond 2007 -- $18.8 million. Total
rental expense was $50.5 million, $57.8 million and $52.3 million in 2002, 2001
and 2000, respectively. Aggregate future minimum rentals to be received under
noncancelable subleases at January 3, 2003 was $2.4 million.
In 2002, the Company entered into a contract for construction of its new
corporate headquarters. The contract is paid on a percentage-of-completion
basis. As of January 3, 2003, the contract has a remaining obligation of
approximately $18.0 million, due in the first half of 2003.
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.
NOTE 9. INCOME TAXES
The Company and its U.S. subsidiaries file their federal income tax return
on a consolidated basis. As of January 3, 2003, the Company had no net operating
loss ("NOL") or investment tax credit carryforwards for U.S. federal income tax
purposes.
At January 3, 2003, various foreign subsidiaries of the Company had
aggregate cumulative NOL carryforwards for foreign income tax purposes of
approximately $144.7 million, which are subject to various provisions of each
respective country. Approximately $52.3 million of this amount expires between
2003 and 2012 and $92.4 million of the amount has an indefinite life.
Of the $144.7 million NOL carryforwards of foreign subsidiaries mentioned
above, $68.6 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
January 3, 2003 were approximately $76.1 million, which are subject to various
provisions of each respective country. Approximately $43.5 million of this
amount expires between 2003 and 2012 and $32.6 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 U.S.
Domestic income before income taxes and extraordinary loss was $63.5
million, $55.5 million and $110.1 million for 2002, 2001 and 2000, respectively.
Foreign income before income taxes was $9.0 million, $2.7 million and $24.5
million for 2002, 2001 and 2000, respectively.
Undistributed earnings of the Company's foreign subsidiaries amounted to
approximately $67.1 million at January 3, 2003. Those earnings are considered to
be indefinitely reinvested and, accordingly, no provision for U.S. federal and
state income taxes has been provided. 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. According to the
37
ANIXTER INTERNATIONAL INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Company's computations as of January 3, 2003, unrecognized foreign tax credit
carryforwards would be available to fully offset the U.S. regular corporate
income tax liability that would arise upon such a distribution. Additionally,
with respect to the countries that have undistributed earnings as of January 3,
2003, according to the foreign laws and treaties in place at that time,
withholding taxes of approximately $1.6 million would be payable upon the
remittance of all earnings at January 3, 2003.
The Company paid income taxes in 2002, 2001 and 2000 of $26.1 million,
$33.7 million and $46.8 million, respectively.
Significant components of the Company's deferred tax assets and
(liabilities) were as follows:
JANUARY 3, DECEMBER 28,
2003 2001
------------ ------------
(IN MILLIONS)
Gross deferred tax liabilities.............................. $ (8.8) $(17.4)
Foreign NOL carryforwards................................... 24.1 29.6
Deferred compensation....................................... 18.0 14.7
Inventory reserves.......................................... 12.6 17.2
Allowance for doubtful accounts............................. 6.3 3.0
Other....................................................... 9.8 10.5
------ ------
Gross deferred tax assets................................. 70.8 75.0
Valuation allowance......................................... (23.8) (24.5)
------ ------
Net deferred tax assets................................... $ 38.2 $ 33.1
====== ======
Net current deferred tax assets............................. $ 26.5 $ 32.0
Net non-current deferred tax assets......................... 11.7 1.1
------ ------
Net deferred tax assets................................... $ 38.2 $ 33.1
====== ======
Income tax expense (benefit) was comprised of:
YEARS ENDED
------------------------------------------
JANUARY 3, DECEMBER 28, DECEMBER 29,
2003 2001 2000
------------ ------------ ------------
(IN MILLIONS)
Current:
Foreign....................................... $ 9.7 $ 10.1 $ 11.8
State......................................... 1.9 3.3 8.1
Federal....................................... 15.7 25.1 36.7
------ ------ ------
27.3 38.5
Deferred:
Foreign....................................... 4.3 (0.7) (0.7)
State......................................... 0.2 (2.3) (2.4)
Federal....................................... ( 2.8) (10.9) 2.4
------ ------ ------
1.7 (13.9)
------ ------ ------
Income tax expense............................ $ 29.0 $ 24.6 $ 55.9
====== ====== ======
38
ANIXTER INTERNATIONAL INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Reconciliations of income tax expense to the statutory corporate federal
tax rate of 35% were as follows:
YEARS ENDED
------------------------------------------
JANUARY 3, DECEMBER 28, DECEMBER 29,
2003 2001 2000
------------ ------------ ------------
(IN MILLIONS, EXCEPT PER SHARE DATA)
Statutory tax expense......................... $ 25.4 $20.4 $47.1
Increase (reduction) in taxes resulting from:
Losses on foreign operations.................. 6.5 0.9 2.3
State income taxes............................ 1.4 0.5 3.7
Amortization of goodwill...................... -- 2.6 2.5
Other, net.................................... (4.3) 0.2 0.3
------ ----- -----
Income tax expense............................ $ 29.0 $24.6 $55.9
====== ===== =====
NOTE 10. PENSION PLANS, POST-RETIREMENT BENEFITS AND OTHER BENEFITS
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 and the Internal Revenue Service.
Plan assets consisted primarily of equity securities and mutual fund
investments. In 2000, the Company incurred a $3.2 million loss on settlement of
a supplemental employee retirement plan.
39
ANIXTER INTERNATIONAL INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
PENSION BENEFITS
-----------------
2002 2001
------- -------
(IN MILLIONS)
Change in projected benefit obligation:
Beginning balance......................................... $ 121.2 $ 107.4
Service cost.............................................. 7.1 7.0
Interest cost............................................. 8.3 7.6
Amendments.................................................. (0.1) 0.7
Actuarial loss (gain)..................................... 2.6 3.2
Benefits paid............................................. (3.5) (3.4)
Foreign currency exchange rate changes...................... 3.6 (1.3)
------- -------
Ending balance............................................ $ 139.2 $ 121.2
======= =======
Change in plan assets at fair value:
Beginning balance......................................... $ 95.3 $ 99.8
Actual return on plan assets.............................. (10.7) (2.7)
Company contributions..................................... 2.3 2.7
Benefits paid............................................. (3.5) (3.4)
Foreign currency exchange rate changes.................... 2.5 (1.1)
------- -------
Ending balance............................................ $ 85.9 $ 95.3
======= =======
Reconciliation of funded status:
Projected benefit obligation.............................. $(139.2) $(121.2)
Plan assets at fair value................................. 85.9 95.3
------- -------
Funded status............................................. (53.3) (25.9)
Unrecognized net actuarial loss (gain).................... 24.0 2.2
Unrecognized prior service cost........................... 2.2 2.4
Unrecognized transition obligation........................ -- (0.2)
------- -------
Accrued benefit cost...................................... $ (27.1) $ (21.5)
======= =======
Weighted average assumptions:
Discount rate............................................. 6.45% 6.81%
Expected return on plan assets............................ 8.43% 8.53%
Salary growth rate........................................ 4.82% 4.96%
40
ANIXTER INTERNATIONAL INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
PENSION BENEFITS
---------------------------
2002 2001 2000
------- ------- -------
(IN MILLIONS)
Components of net periodic cost:
Service cost.......................................... $ 7.1 $ 7.0 $ 6.2
Interest cost......................................... 8.3 7.6 6.9
Expected return on plan assets........................ (8.2) (8.4) (8.4)
Net amortization...................................... (0.1) (0.4) (0.7)
------- ------- -------
Periodic benefit cost prior to
settlement/curtailment............................. 7.1 5.8 4.0
Net settlement/curtailment loss....................... -- -- 3.0
------- ------- -------
Net periodic cost..................................... $ 7.1 $ 5.8 $ 7.0
======= ======= =======
The Company has six plans in 2002 and four plans in 2001 where the
accumulated benefit obligation is in excess of the fair value of plan assets.
The accumulated benefit obligation was $94.8 million and $4.2 million and the
fair values of the plans' assets were $74.5 million and $0.2 million in 2002 and
2001, respectively.
In 2002, the Company was required to record a minimum pension liability of
$0.8 million relating to the primary domestic plan. 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. There was no
income statement impact as the offset to the minimum pension liability
adjustment was accumulated other comprehensive income.
The Company has several savings plans. The Company's contributions to
these plans are based upon various levels of employee participation. The total
cost of these plans was $1.6 million in 2002, $1.6 million in 2001 and $1.5
million in 2000. The Company's liability for post-retirement benefits other than
pensions is not material.
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 1.4 and adjusted if certain goals are achieved. The plan provides for
benefit payments upon retirement, death, disability, termination or other
scheduled dates determined by the participant. At January 3, 2003 and December
28, 2001, the long-term deferred compensation liability was $15.1 million and
$13.6 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 fund additional liabilities, fixed general account
"increasing whole life" insurance policies were purchased on the lives of
certain participants in both the deferred compensation plan and an executive
excess defined benefit plan. The Company pays level annual premiums on the above
policies that are owned by the Company. Policy proceeds are payable to the
Company upon the insured participant's death. At January 3, 2003 and December
28, 2001, the cash surrender value of $18.5 million and $19.1 million,
respectively, was recorded under this program and reflected in Other assets on
the Consolidated Balance Sheets.
NOTE 11. PREFERRED STOCK AND COMMON STOCK
Preferred Stock
The Company has the authority to issue 15 million shares of preferred
stock, par value $1.00 per share, none of which was outstanding at the end of
2002 or 2001.
41
ANIXTER INTERNATIONAL INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Stock Options and Stock Grants
At January 3, 2003, the Company had reserved a total of 4.4 million shares
for future issuance, 3.1 million of which was reserved for the holders of the
Convertible Notes as discussed in Note 7 "Debt" herein. Additionally, the
Company had stock incentive plans that reserve 1.3 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 business segmentyear. All options expire ten years after the
date of grant.
In 2002, the Company issued 4,000 shares of restricted stock with a
weighted-average grant date fair value of $21.49 per share. In 2001, the Company
granted 31,340 shares of restricted stock and granted 161,039 executive stock
units, both with a weighted-average grant date fair value of $18.81 per share.
During 2000, the first year that restricted stock was granted, the Company
issued 281,173 shares of restricted stock, of which 94,637 shares had a
weighted-average grant date fair value of $27.25 per share and 186,536 shares
had a weighted-average grant date fair value of $20.44 per share. Restricted
stock and executive stock units fully vest after four years from the date of
grant. Compensation expense associated with the restricted stock grants and
executive stock units was $2.8 million, $3.6 million and $1.7 million in 2002,
2001 and 2000, respectively.
The following table summarizes the 2002, 2001 and 2000 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 31, 1999........................... 5,183.6 $15.92 360.0 $14.57
Granted................................................ 1,127.5 20.59 -- --
Exercised.............................................. (2,003.0) 16.14 (100.0) 11.30
Canceled............................................... (147.1) 16.91 -- --
-------- ------ ------ ------
Balance at December 29, 2000........................... 4,161.0 17.06 260.0 15.83
Granted................................................ 1,190.0 25.24 -- --
Exercised.............................................. (1,128.1) 16.91 (40.0) 17.24
Canceled............................................... (138.3) 20.17 -- --
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
Options exercisable at year-end:
2000................................................... 2,031.3 $16.75 260.0 $15.83
2001................................................... 1,649.0 $16.72 220.0 $15.57
2002................................................... 2,184.9 $18.49 160.0 $18.26
42
ANIXTER INTERNATIONAL INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table summarizes information relating to options outstanding
and exercisable at January 3, 2003, 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)
$12.69-$15.75.................... 874.3 $13.73 6.0 680.1 $14.02
$17.44-$24.33.................... 1,755.5 $19.44 6.6 1,237.9 $18.90
$25.20-$32.00.................... 2,207.7 $25.77 9.5 266.9 $27.97
DIRECTOR OPTIONS
WEIGHTED WEIGHTED
AVERAGE AVERAGE
RANGE OF OUTSTANDING & EXERCISE REMAINING
EXERCISE PRICES EXERCISABLE PRICE YEARS
- --------------- ------------- -------- ---------
(OPTIONS IN THOUSANDS)
$15.00-$16.65....................................... 80.0 $15.82 1.5
$20.69.............................................. 80.0 $20.69 3.0
In addition, the Company has an Employee Stock Purchase Plan ("ESPP")
covering most employees. Participants can request that up to 10% of their base
compensation be applied toward the purchase of common stock under the Company's
ESPP. The purchase price is the lower of 85% of the fair market value of the
common stock at the beginning of the ESPP year, July 1, 2002, or at the end of
the ESPP year, June 30, 2003. Under the ESPP, the Company sold 81,900 shares,
110,128 shares and 114,100 shares to employees in 2002, 2001 and 2000,
respectively.
Stock Option Plans of Anixter
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 vest over four years and terminate seven to ten years from
the date of grant. At January 3, 2003, the Company owned 99.97% of the
approximately 30.6 million shares of outstanding Anixter common stock.
43
ANIXTER INTERNATIONAL INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table summarizes the 2002, 2001 and 2000 option activity:
WEIGHTED
AVERAGE
EXERCISE
OPTIONS PRICE
-------- ---------
(OPTIONS IN THOUSANDS)
Balance at December 31, 1999................................ 369.5 $12.08
Exercised................................................... (323.7) 11.92
Canceled.................................................... (0.5) 14.50
------ ------
Balance at December 29, 2000................................ 45.3 13.23
Exercised................................................... (27.3) 12.40
Canceled.................................................... -- --
------ ------
Balance at December 28, 2001................................ 18.0 14.50
Exercised................................................... (18.0) 14.50
Canceled.................................................... -- --
------ ------
Balance at January 3, 2003.................................. -- --
====== ======
Options exercisable at year-end:
2000...................................................... 45.3 $13.23
2001...................................................... 18.0 $14.50
Stock Units
The Company adopted a Director Stock Unit Plan ("DSUP") 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 the pre-arranged time
selected by each director. Stock units were granted to nine directors in 2002
and eight directors in 2001, having an aggregate value at grant date of $540,000
and $480,000, respectively.
44
ANIXTER INTERNATIONAL INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table summarizes the 2002, 2001 and 2000 activity under the
DSUP:
DSUP
STOCK UNITS
--------------
(IN THOUSANDS)
Balance at December 31, 1999................................ 107.8
Granted..................................................... 107.8
Converted................................................... 20.4
Balance at December 29, 2000
Granted..................................................... 97.0
Converted................................................... 18.4
Canceled.................................................... (0.6)
Balance at December 28, 2001
Granted..................................................... 83.0
Converted................................................... 24.8
Converted................................................... (6.6)
-----
Balance at January 3, 2003.................................. 101.2
=====
NOTE 12. BUSINESS SEGMENTS
The Company is engaged in the distribution of communications and specialty
wire and cable products and fasteners and small parts 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 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. The following table isInterest expense and other non-operating items are
not allocated to the segments or reviewed on a geographic breakdown of the Company's
operations.segment basis.
45
ANIXTER INTERNATIONAL INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In 2001, the Company reported sales in all segments to a single customer
that represented 10.3% of total net sales. No other customer accountsaccounted for 10%
or more of sales in 2002, 2001 2000 or 1999.2000. Export sales were insignificant. (In millions) WORLDWIDE OPERATIONS
---------------------------------------Segment
information for 2002, 2001 and 2000 1999
--------- --------- ---------was as follows:
WORLDWIDE OPERATIONS
------------------------------
2002 2001 2000
-------- -------- --------
(IN MILLIONS)
Net sales United States................................ $1,771.6 $2,179.5 $2,453.9
Canada................................................. 224.6 254.0 285.4
-------- -------- --------
North America........................................ 1,996.2 2,433.5 2,739.3
Europe............................................... 344.9 502.1 587.1
Asia Pacific and Latin America....................... 179.0 208.6 188.0
-------- -------- --------
$2,520.1 $3,144.2 $3,514.4
Operating income (loss)*
United States........................................ $ 72.1 $ 79.4 $ 144.6
Canada............................................... 11.6 10.3 19.6
North America........................................ 83.7 89.7 164.2
Europe............................................... 5.3 21.2 24.6
Asia Pacific and Latin America....................... (1.3) (8.9) 1.0
-------- -------- --------
$ 87.7 $ 102.0 $ 189.8
Depreciation
United States........................................ $ 15.2 $ 14.3 $ 12.1
Canada............................................... 0.9 0.9 0.8
-------- -------- --------
North America........................................ 16.1 15.2 12.9
Europe............................................... 1.82.2 2.9
Asia Pacific and Latin America....................... 1.2 1.3 1.3
-------- -------- --------
$ 19.1 $ 18.7 $ 17.1
Amortization
United States........................................ $ 4.4 $ 12.7 11.5
Canada............................................... -- 0.4 0.4
North America........................................ 4.4 13.1 0.3
Europe............................................... 4.4 13.1 11.9
Asia Pacific and Latin America....................... -- 0.3 0.3
$ 4.4 $ 13.7 $ 12.5
======== ======== ========
Total assets
United States........................................ $ 842.7 $ 770.2 $1,028.0
Canada............................................... 96.8 105.2 147.5
North America........................................ 939.5 875.4 1,175.5
Europe............................................... 171.2 197.9 375.6
Asia Pacific and Latin America....................... 115.3 125.5 134.9
-------- -------- --------
$1,226.0 $1,198.8 $1,686.0
======== ======== ========
46
ANIXTER INTERNATIONAL INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
WORLDWIDE OPERATIONS
------------------------------
2002 2001 2000
-------- -------- --------
(IN MILLIONS)
Tangible long-lived assets
United States........................................ $ 126.1 $ 119.2 $ 89.8
Canada............................................... 1.9 2.7 3.7
-------- -------- --------
North America 128.0 121.9 93.5
Europe 3.5 4.7 5.2
Asia Pacific and Latin America....................... 3.1 3.3 4.2
-------- -------- --------
$ 134.6 $ 129.9 $ 102.9
======== ======== ========
Capital expenditures
United States........................................ $ 15.2 $ 17.8 $ 18.4
Canada............................................... 0.1 1.4 0.9
-------- -------- --------
North America........................................ 15.3 19.2 19.3
Europe............................................... 0.7 2.0 1.4
Asia Pacific and Latin America....................... 0.9 0.8 1.9
-------- -------- --------
$ 16.9 22.0 $ 22.6
======== ======== ========
*The year ended December 28, 2001 includes restructuring costs and other
charges for the United States, $2,179.5 $2,453.9 $1,833.4Canada, Europe 502.1 587.1 523.0
Canada 254.0 285.4 213.9and Asia Pacific and Latin America
208.6 188.0 141.7
--------- --------- ---------
$3,144.2 $3,514.4 $2,712.0
========= ========= =========
Operating incomeof $20.7 million, $2.4 million, $2.3 million and $6.3 million, respectively. The
years ended December 28, 2001 and December 29, 2000 include goodwill
amortization for the United States $ 79.4 $ 144.6 $ 93.3and Canada of $8.0 million and $0.4 million
and $7.4 million and $0.4 million, respectively. In addition, Europe 21.2 24.6 20.6
Canada 10.3 19.6 12.9and Asia
Pacific and Latin America (8.9) 1.0 (14.0)
--------- --------- ---------
102.0 $ 189.8 $ 112.8
========= ========= =========
Tangible long-lived assets
United States $ 119.2 $ 89.8 $ 66.8
Europe 4.7 5.2 7.1
Canada 2.7 3.7 3.9
Asia Pacific and Latin America 3.3 4.2 5.0
--------- --------- ---------
$ 129.9 $ 102.9 $ 82.8
========= ========= =========
include goodwill amortization of $0.3 million each for
both years.
NOTE 14.13. 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 January 3, 2003 and December 28, 2001 and December 29, 2000.2001. The Company has never paid cash
dividends on its common stock.stock and has not adopted a plan to pay cash dividends
in the foreseeable future.
47
ANIXTER INTERNATIONAL INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FIRST SECOND THIRD FOURTH
(In millions, except per share amounts) QUARTER QUARTER QUARTER QUARTER
------- ------- ------- --------------- -------- -------- --------
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
YEAR ENDED JANUARY 3, 2003
Net sales.............................................. $ 614.7 $ 617.3 $ 626.3 $ 661.8
Cost of sales.......................................... (472.9) (469.6) (476.4) (495.8)
Operating income....................................... 20.5 22.5 23.1 21.6
Income before income taxes and extraordinary (loss)
gain................................................. 15.8 21.3 18.0 17.4
Income before extraordinary (loss) gain................ 9.5 12.8 10.8 10.4
Extraordinary (loss) gain on early extinguishment of
debt, net of tax..................................... (0.6) (0.4) 0.8 (0.2)
Net income............................................. 8.9 12.4 11.6 10.2
Basic income (loss) per share:
Income before extraordinary (loss) gain.............. 0.26... 0.35 0.29 0.28
Extraordinary (loss) gain............................ (0.02) (0.01) 0.02 (0.01)
Net income............................................. 0.24 0.34 0.31 0.27
Diluted income (loss) per share:
Income before extraordinary (loss) gain.............. 0.25 0.33 0.28 0.27
Extraordinary (loss) gain............................ (0.02) (0.01) 0.02 (0.01)
Net income........................................... 0.23 0.33 0.30 .27
Composite stock price range:
High................................................. 30.68 31.25 24.65 .24
Low.................................................. 25.87 22.03 20.39 18.95
Close................................................ 29.63 23.50 20.39 23.77
YEAR ENDED DECEMBER 28, 2001
Net sales $880.3 $839.8 $761.5 $662.6sales.............................................. $ 880.3 $ 839.8 $ 761.5 $ 662.6
Cost of salessales.......................................... (668.3) (639.3) (590.8) (508.9)
Operating income (loss)................................ 49.7 43.2 (10.0) 19.1
Income (loss) before income taxes and extraordinary
lossloss................................................. 35.6 30.9 (19.7) 11.4
Income (loss) before extraordinary lossloss................ 20.9 18.7 (11.7) 5.7
Extraordinary loss on early extinguishment of debt, net
of tax -tax............................................... -- (0.8) (0.2) (2.3)
Net income (loss)...................................... 20.9 17.9 (11.9) 3.4
Basic income (loss) per share:
Income (loss) before extraordinary lossloss.............. 0.57 0.52 (0.32) 0.16
Extraordinary loss -loss................................... -- (0.02) (0.01) (0.06)
Net income (loss).................................... 0.57 0.50 (0.33) 0.10
Diluted income (loss) per share:DILUTED INCOME (LOSS) PER SHARE:
Income (loss) before extraordinary lossloss.............. 0.53 0.49 (0.32) 0.15
Extraordinary loss -loss................................... -- (0.02) (0.01) (0.06)
Net income (loss).................................... 0.53 0.47 (0.33) 0.09
Composite stock price range:
High 29.25High................................................. 29.25.. 31.80 31.69 30.86
Low 18.81Low.................................................. 18.81.. 23.30 23.15 23.85
Close 24.10Close................................................ 24.10.. 30.70 24.78 28.82
YEAR ENDED DECEMBER 29, 2000
Net sales $758.8 $920.9 $971.8 $862.9
Cost of sales (571.8) (712.2) (754.1) (654.4)
Operating income 37.5 50.0 53.9 48.4
Income before income taxes 27.7 39.2 40.9 26.8
Income from continuing operations 16.1 22.7 24.0 15.9
Net income 16.1 22.7 24.0 15.9
Basic income per share:
Continuing 0.45 0.62 0.65 0.42
Net income 0.45 0.62 0.65 0.42
Diluted income per share:
Continuing 0.44 0.60 0.59 0.41
Net income 0.44 0.60 0.59 0.41
Composite stock price range:
High 29.94 34.00 37.00 29.19
Low 18.69 26.50 27.06 17.75
Close 27.88 26.52 29.13 21.63
48
ANIXTER INTERNATIONAL INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In the third quarter of 2001, the Company recorded a $31.7 million ($19.0
million after-tax) one-time restructuring charge for severance and costs associated with
closing and consolidating certain facilities. As a result, basic and diluted
income per share were reduced by $0.52 and $0.50, respectively. Additionally,
the year ended December 28, 2001 includes goodwill amortization of $2.2 million
in the first quarter, $2.3 million in the second quarter, $2.2 million in the
third quarter and $2.3 million in the fourth quarter. As a result, basic and
diluted income per share were reduced by $0.06 and $0.05, respectively, in the
first and second quarter and by $0.06 in the third and fourth quarters of 2001
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.None
49
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT.
See Registrant's Proxy Statement for the 2002 Annual Meeting of
Stockholders--"Election of Directors."
EXECUTIVE OFFICERS OF THE REGISTRANT
The following table lists the name, age as of March 8, 2002,2003, 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.
John A. Dul, 41 General Counsel42........................... Secretary of the Company since November 2002; General
Counsel since May 1998; Assistant Secretary of the Company
sincefrom May
1995;1995 to November 2002; General Counsel and Secretary of
Anixter since January 1996.
Terrance A. Faber, 5051..................... Vice-President Controller of the Company since October
2000; Chief Financial Officer of International Survey
Research from January 2000 to October 2000; Corporate
Controller of BT Office Products International from
August 1997 to January 2000;
Corporate Controller of The Bradford Exchange from October 1994 to August 1997.2000.
Robert W. Grubbs Jr., 4546.................. President and Chief Executive Officer of the Company
since February 1998; President and Chief Executive
Officer of Anixter since July 1994.
James E. Knox, 64 Senior Vice-President--Law and Secretary of the Company since 1986.
Dennis J. Letham, 5051...................... Chief Financial Officer, Senior Vice-President--Finance
of the Company since January 1995; Chief Financial
Officer, Executive Vice President of Anixter since July
1993.
Philip F. Meno, 4344........................ Vice-President--Taxes of the Company since May 1993.
Rodney A. Shoemaker, 4445................... Vice-President--Treasurer of the Company and Anixter
since July 1999; Assistant Treasurer of the Company and
Anixter sincefrom October 1994 to July 1999; Assistant
Treasurer of the Company and Anixter from October 1994 to July 1999.
Samuel Zell, 60 Chairman of the Board of Directors of the Company since January 1985.
ITEM 11. EXECUTIVE COMPENSATION.
See Registrant's Proxy Statement for the 20022003 Annual Meeting of
Stockholders--"Executive Compensation," "Compensation of Directors," "Employment
Contracts and Termination of Employment and Changes in Control Arrangements,"Arrangements" and
"Compensation Committee Interlocks and Insider Participation."
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
See Registrant's Proxy Statement for the 20022003 Annual Meeting of
Stockholders--"Security Ownership of Management" and "Security Ownership of
Principal Stockholders."
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
See Registrant's Proxy Statement for the 20022003 Annual Meeting of
Stockholders--Stockholders-"Certain Relationships and Related Transactions."
PART IV
ITEM 14. CONTROLS AND PROCEDURES
Within the 90 day period prior to the filing of this report, evaluations
were carried out under the supervision and with the participation of the
Company's management, including our Chief Executive Officer and Chief Financial
Officer, of the effectiveness of the design and operation of our disclosure
controls and
50
procedures (as defined in Rule 13a-14 (c) and 15d-14(c) under the Securities
Exchange Act of 1934). Based upon these evaluations, the Chief Executive Officer
and Chief Financial Officer concluded that the design and operation of these
disclosure controls and procedures were effective. No significant changes have
been made in our internal controls or in the factors that could significantly
affect these controls subsequent to the date of the evaluations.
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) Exhibits.
The exhibits listed below in Items 14(a)15(a)1, 2 and 3 are filed as part of
this annual report. Each management contract or compensatory plan
required to be filed as an exhibit is identified by an asterisk (*).
(b) Reports on Form 8-K.
None.
(A)8-K
On November 12, 2002, the Company filed a Current Report on Form 8-K
under "Item 9. Regulation FD Disclosure," disclosing that on November
11, 2002, each of the President and Chief Executive Officer, Robert W.
Grubbs, and the Senior Vice President-Finance and Chief Financial
Officer, Dennis J. Letham, of Anixter International, Inc. submitted to
the Commission sworn statements pursuant to the Commission's June 27,
2002 Order Requiring the Filing of Sworn Statements Pursuant to Section
21 (a) (1) of the Securities Exchange Act of 1934 (No. 4-460).
On November 27, 2002, the Company filed a Current Report on Form 8-K/A
under "Item 7. Financial Statements, Pro Forma Financial Information and
Exhibits." The filing was an amendment to its Current Report on Form 8-K
filed September 20, 2002, announcing the completion of the purchase of
the operations and assets of Pentacon, Inc.
(a) INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND FINANCIAL STATEMENT
SCHEDULESSCHEDULES.
(1) FINANCIAL STATEMENTS.Financial Statements.
The following Consolidated Financial Statements of Anixter International
Inc. and Report of Independent Auditors are filed as part of this report.
PAGE
Report of Independent Auditors 14
Consolidated Statements of Operations for the years ended
December 28, 2001, December 29, 2000 and December 31, 1999 15
Consolidated Balance Sheets at December 28, 2001 and December 29, 2000 16
Consolidated Statements of Cash Flows for the years ended
December 28, 2001, December 29, 2000 and December 31, 1999 17
Consolidated Statements of Stockholders' Equity for the years
ended December 28, 2001, December 29, 2000 and December 31, 1999
PAGE
----
Report of Independent Auditors.............................. 17
Consolidated Statements of Operations for the years ended
January 3, 2003, December 28, 2001 and December 29,
2000...................................................... 18
Consolidated Balance Sheets at January 3, 2003 and December
28, 2001.................................................. 19
Consolidated Statements of Cash Flows for the years ended
January 3, 2003, December 28, 2001 and December 29,
2000...................................................... 20
Consolidated Statements of Stockholders' Equity for the
years ended January 3, 2003, December 28, 2001 and
December 29, 2000......................................... 21
Notes to the Consolidated Financial Statements.............. 22
(2) Financial Statements 19
(2) FINANCIAL STATEMENT SCHEDULES.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 40
II. Valuation and qualifying accounts and reserves 44
PAGE
----
I. Condensed financial information of Registrant............ 48
II. Valuation and qualifying accounts and reserves.......... 52
All other schedules are omitted because they are not required or are not
applicable, or the required information is shown in the Consolidated Financial
Statements or notes thereto.
(3) EXHIBIT LIST.
EachExhibit 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 9, 1995 (Incorporated by reference
from Anixter International Inc. Annual Report on Form
10-K for the year ended December 31, 1995, 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 333-09185, filed August 27, 1996,
Exhibit 4.1).
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 (a) Five-Year, $390 million, Revolving Credit
Agreement, dated October 6, 2000, among Anixter Inc.,
Bank of America, N.A., as Agent, and other banks
named therein. (Incorporated by reference from
Anixter International Inc. Annual Report on Form 10-K
for the year ended December 29, 2000, Exhibit 4.3).
(b)Amendment No. 1 to Anixter Five-Year, $390.0
million, Revolving Credit Agreement, dated October 6,
2000.
4.4 Receivables Sale Agreement, dated October 6, 2000,
between Anixter Inc. and Anixter Receivables
Corporation. (Incorporated by reference from Anixter
International Inc. Annual Report on Form 10-K for the
year ended December 29, 2000, Exhibit 4.5).
4.5 Receivables Purchase Agreement, dated October 6,
2000, among Anixter Receivables Corporation, as
Seller, Anixter Inc., as Servicer, Bank One, NA, as
Agent, and the other financial institutions named
therein. (Incorporated by reference from Anixter
International Inc. Annual Report on Form 10-K for the
year ended December 29, 2000, Exhibit 4.6).51
(10) MATERIAL CONTRACTS.
10.1 (a) Asset Purchase Agreement, dated February 22, 1999
(Incorporated by reference from Anixter International
Inc. Current Report on Form 8-K dated April 2, 1999).
(b) First Amendment to Asset Purchase Agreement,
dated March 29, 1999 (Incorporated by reference from
Anixter International Inc. Current Report on Form 8-K
dated April 2, 1999).
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).
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).
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.
(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 333-09185, filed August 27, 1996, Exhibit 4.1)
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 (a)Five-Year, $390.0 million, Revolving Credit Agreement,
dated October 6, 2000, among Anixter Inc., Bank of America,
N.A., as Agent, and other banks named therein (Incorporated
by reference from Anixter International Inc. Annual Report
on Form 10-K for the year ended December 29, 2000, Exhibit
4.3)
(b)Amendment No. 1 to Anixter Five-Year, $390.0 million,
Revolving Credit Agreement, dated October 6, 2000.
(Incorporated by reference from Anixter International Inc.
Annual Report on Form 10-K for the year ended December 28,
2001, Exhibit 4.3 (b))
(c)Amendment No. 2 to Anixter Five-Year, $390.0 million,
Revolving Credit Agreement, dated October 6, 2000.
4.4 Receivables Sale Agreement, dated October 6, 2000, between
Anixter Inc. and Anixter Receivables Corporation
(Incorporated by reference from Anixter International Inc.
Annual Report on Form 10-K for the year ended December 29,
2000, Exhibit 4.5)
4.5 Receivables Purchase Agreement, dated October 6, 2000,
among Anixter Receivables Corporation, as Seller, Anixter
Inc., as Servicer, Bank One, NA, as Agent, and the other
financial institutions named therein. (Incorporated by
reference from Anixter International Inc. Annual Report on
Form 10-K for the year ended December 29, 2000, Exhibit 4.6)
4.6 Amended and Restated Receivables Sale Agreement, dated
October 3, 2002, between Anixter Inc. and Anixter
Receivables Corporation
4.7 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
(10) Material contracts.
10.1 (a)Asset Purchase Agreement, dated February 22, 1999
(Incorporated by reference from Anixter International Inc.
Current Report on Form 8-K dated April 2, 1999)
(b)First Amendment to Asset Purchase Agreement, dated March
29, 1999 (Incorporated by reference from Anixter
International Inc. Current Report on Form 8-K dated April 2,
1999)
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)
52
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.
(c) Amendment No. 1 to Anixter 1999 Restated Deferred
Compensation Plan.
(d) Amendment No. 2 to Anixter 1999 Restated Deferred
Compensation Plan.
10.13* Financial Advisory Agreement, dated August 4, 1999
(Incorporated by reference from Anixter International
Inc. Quarterly Report on Form 10-Q for the quarterly
period ended October 1, 1999, Exhibit 10.21).
10.14* 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).
10.15* 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).
10.16* Anixter International Inc. Management Incentive Plan
(Incorporated by reference from Anixter International
Inc. Quarterly Report on form 10Q for the quarterly
period ended June 30, 2000, Exhibit 10.20).
10.17* 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).
10.18* Anixter International Inc. 2001 Stock Incentive Plan.
(21) Subsidiaries OF THE REGISTRANT.
PAGE
21.1 List of Subsidiaries of the Registrant. 46
(23) Consents OF EXPERTS AND COUNSEL.
23.1 Consent of Ernst & Young LLP 48
(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, John R. Petty, Stuart M.
Sloan, Thomas C. Theobald, Matthew Zell and Samuel
Zell 49
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
------- ----------------------
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)
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
10.13* Financial Advisory Agreement, dated August 4, 1999
(Incorporated by reference from Anixter International Inc.
Quarterly Report on Form 10-Q for the quarterly period ended
October 1, 1999, Exhibit 10.21)
10.14* 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)
10.15* 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)
53
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
------- ----------------------
10.16* Anixter International Inc. Management Incentive Plan
(Incorporated by reference from Anixter International Inc.
Quarterly Report on form 10Q for the quarterly period ended
June 30, 2000, Exhibit 10.20)
10.17* 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)
10.18* 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
10.19* Anixter International Inc. 2001 Mid-Level Stock Option Plan
10.20* Anixter International Inc. 1998 Mid-Level Stock Option Plan
(21) Subsidiaries of the Registrant.
21.1 List of Subsidiaries of the Registrant
(23) Consents of experts and counsel.
23.1 Consent of Ernst & Young LLP
(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,
John R. Petty, Stuart M. Sloan, Thomas C. Theobald, Mary
Agnes Wilderotter, Matthew Zell and Samuel Zell
(99) Additional Exhibits.
99.1 Robert W. Grubbs, President and Chief Executive Officer,
Certification Pursuant to 18 U.S.C Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
99.2 Dennis J. Letham, Senior Vice-President Finance and Chief
Financial Officer, Certification Pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
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.
54
ANIXTER INTERNATIONAL INC.
SCHEDULE I--CONDENSED FINANCIAL INFORMATION OF REGISTRANT
ANIXTER INTERNATIONAL INC. (PARENT COMPANY)
STATEMENTS OF OPERATIONS
(IN MILLIONS)
YEARS ENDED
--------------------------------------------------------------------------------------------
JANUARY 3, DECEMBER 28, DECEMBER 29,
DECEMBER 31,2003 2001 2000 1999
------------ ------------ ------------
Operating lossloss.......................................... $(1.9) $(1.5) $(4.1) $ (2.5)(4.1)
Other income (expenses):
Interest income, including intercompanyintercompany............... 5.6 5.3 6.6
3.1
OtherOther................................................. -- -- (0.6)
--
------------ ------------ ----------------- ----- ------
Income from operations before income taxes, and equity in
earnings of subsidiaries and extraordinary loss....... 3.7 3.8 1.9 0.6
Income tax (expense) benefitbenefit............................ 5.5 (1.8) 1.9 27.4
Equity in earnings of subsidiariessubsidiaries...................... 34.0 28.3 74.9
96.2
------------ ------------ ------------Extraordinary loss...................................... (0.1 -- --
----- ----- ------
Net incomeincome.............................................. $43.1 $30.3 $78.7 $124.2
============ ============ ============$ 78.7
===== ===== ======
55
ANIXTER INTERNATIONAL INC.
SCHEDULE I--CONDENSED FINANCIAL INFORMATION OF REGISTRANT
ANIXTER INTERNATIONAL INC. (PARENT COMPANY)
BALANCE SHEETS
(IN MILLIONS)
ASSETS
DECEMBER 28, DECEMBER 29,
2001 2000
------------ -------------
Current assets:
Cash $ 0.8 $ 0.4
Accounts receivable 2.8 2.5
Amounts currently due from affiliates, net 2.7 3.4
Other assets 0.2 0.1
------------ -------------
Total current assets 6.5 6.4
Investment in and advances to subsidiaries 788.6 765.1
Other assets 6.8 7.0
------------ -------------
$ 801.9 $ 778.5
============ =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and accrued expenses,
due currently $ 2.2 $ 2.8
Long-term debt 221.8 207.0
Income taxes, net, primarily deferred 14.8 13.8
------------ -------------
Total liabilities 238.8 223.6
Stockholders' equity:
Common stock 36.9 37.7
Capital surplus 32.5 46.9
Accumulated other comprehensive income (59.5) (52.6)
Retained earnings 553.2 522.9
------------ -------------
Total stockholders' equity 563.1 554.9
------------ -------------
$ 801.9 $ 778.5
============ =============
JANUARY, 3 DECEMBER 28,
2003 2001
------------ ------------
ASSETS
Current assets:
Cash...................................................... $ 0.4 $ 0.8
Accounts receivable....................................... 2.9 2.8
Amounts currently due from affiliates, net................ -- 2.7
Other assets.............................................. 0.6 0.2
------ ------
Total current assets.............................. 3.9 6.5
Investment in and advances to subsidiaries.................. 762.8 788.6
Other assets................................................ 3.1 6.8
------ ------
$769.8 $801.9
====== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and accrued expenses, due currently........ $ 2.3 $ 2.2
Amounts currently due to affiliates, net.................... 4.3 --
Long-term debt.............................................. 124.0 221.8
Income taxes, net, primarily deferred....................... 4.4 14.8
------ ------
Total liabilities................................. 135.0 238.8
Stockholders' equity:
Common stock.............................................. 37.5 36.9
Capital surplus........................................... 45.2 32.5
Accumulated other comprehensive income.................... (44.2) (59.5)
Retained earnings......................................... 596.3 553.2
------ ------
Total stockholders' equity........................ 634.8 563.1
------ ------
$769.8 $801.9
====== ======
56
ANIXTER INTERNATIONAL INC.
SCHEDULE I--CONDENSED FINANCIAL INFORMATION OF REGISTRANT
ANIXTER INTERNATIONAL INC. (PARENT COMPANY)
STATEMENTS OF CASH FLOWS
(IN MILLIONS)
YEARS ENDED
------------------------------------------------------------------------------------------
JANUARY 3, DECEMBER 28, DECEMBER 29,
DECEMBER 31,2003 2001 2000 1999
------------ ------------ ------------
Operating activities:
Net incomeincome......................................... $ 43.1 $ 30.3 $ 78.7
$ 124.2Extraordinary loss................................. 0.1 -- --
Adjustments to reconcile net income to net cash
provided by operating activities:
Income tax expense (benefit).................. (5.5) 1.8 (1.9) (27.4)
Equity in earnings of subsidiariessubsidiaries............ (34.0) (28.3) (74.9) (96.2)
Accretion of zero-coupon convertible notes 14.7 7.0notes.... (1.9) -- --
Income tax savings from employee stock
plansplans....................................... 2.5 5.3 11.2
2.6
Intercompany transactions 0.7 2.9 (1.7)transactions..................... 6.4 (7.2) (9.3)
Change in other operating items 6.3 (4.7) 63.9
------------ ------------ ------------items............... (0.9) 2.6 7.5
------- ------- ------
Net cash provided by operating activities 30.8 18.3 65.4activities..... 9.6 4.5 11.3
Investing activities:
Proceeds from sale of businessesAnixter Inc. shares to Anixter
Inc................................................ 66.7 -- --
28.3
------------ ------------ ------------------- ------- ------
Net cash provided by investing activitiesactivities..... 66.7 -- --
28.3
Financing activities:
Proceeds from long-term debtRetirement of 7% zero-coupon convertible notes........ (107.1) -- 200.0 --
Loans to(to) from subsidiaries, net (5.8) (231.4) (12.1)
Purchase of treasury stock (46.9) (15.4) (91.9)net..................... 22.9 20.5 (224.4)
Proceeds from issuance of common stockstock................ 7.5 22.3 34.9
7.4Purchase of treasury stock............................ -- (46.9) (15.4)
Proceeds from long-term debt.......................... -- -- 200.0
Debt issuance costscosts................................... -- -- (6.4)
--
------------ ------------ ------------------- ------- ------
Net cash used in financing activities (30.4) (18.3) (96.6)
------------ ------------ ------------activities......... (76.7) (4.1) (11.3)
------- ------- ------
Cash provided (used).................................... (0.4) 0.4 -- (2.9)
Cash at beginning of yearyear............................... 0.8 0.4 0.4
3.3
------------ ------------ ------------------- ------- ------
Cash at end of yearyear..................................... $ 0.4 $ 0.8 $ 0.4
$ 0.4
============ ============ =================== ======= ======
57
ANIXTER INTERNATIONAL INC.
SCHEDULE I--CONDENSED FINANCIAL INFORMATION OF REGISTRANT
ANIXTER INTERNATIONAL INC. (PARENT COMPANY)
NOTE TO CONDENSED FINANCIAL STATEMENTS
NOTE A - BASISA--BASIS OF PRESENTATION
In the parent company 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.
58
ANIXTER INTERNATIONAL INC.
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
YEARS ENDED JANUARY 3, 2003, DECEMBER 28, 2001 AND DECEMBER 29, 2000
(IN MILLIONS)
ANIXTER INTERNATIONAL INC.
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
YEARS ENDED DECEMBER 28, 2001, DECEMBER 29, 2000 AND DECEMBER 31, 1999
(IN MILLIONS)
ADDITIONS
---------------------------
BALANCE AT CHARGED CHARGED BALANCE AT
BEGINNING OF TO TO OTHER END OF THE
DESCRIPTION THE PERIOD INCOME ACCOUNTS DEDUCTIONS THE PERIOD
- ----------- ---------- ------------------ ------- -------- ---------- ----------
Year ended January 3, 2003:
Allowance for doubtful accounts......... $20.9 $13.9 $(2.5) $(16.9) $15.4
Allowance for deferred tax asset........ $24.5 $(0.7) -- -- $23.8
Year ended December 28, 2001:
Allowance for doubtful accountsaccounts......... $14.8 $ 11.5 $ 0.1$11.5 $(0.1) $ (5.5) $20.9
Allowance for deferred tax assetasset........ $25.5 $( 1.0)$(1.0) -- -- $24.5
Year ended December 29, 2000:
Allowance for doubtful accountsaccounts......... $10.3 $ 8.1 $ (0.4)$(0.4) $ (3.2) $14.8
Allowance for deferred tax assetasset........ $26.3 $(0.8) -- -- $25.5
Year ended December 31, 1999:
Allowance for
doubtful accounts $ 11.0 $ 5.7 $ (0.9) $(5.5) $10.3
Allowance for
deferred tax asset $ 24.0 $ 2.3 -- -- $26.3$25.5
59
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 SKOKIE,
STATE OF ILLINOIS, ON THE 13TH18TH DAY OF MARCH, 2002.2003.
ANIXTER INTERNATIONAL INC.
By: /s/ DENNIS J. LETHAM
-----------------------------------------------------------------
Dennis J. Letham
SENIOR VICE PRESIDENT - FINANCE
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.
ROBERT W. GRUBBS Chief Executive Officer
- ---------------------- and President March 13, 2002
Robert W. Grubbs (Principal Executive Officer)
DENNIS J. LETHAM Senior Vice President--Finance March 13, 2002
- ---------------------- (Chief Financial Officer)
Dennis J. Letham
TERRANCE A. FABER Vice President--Controller March 13, 2002
- ---------------------- (Chief Accounting Officer)
Terrance A. Faber
LORD JAMES BLYTH* Director March 13, 2002
- ----------------------
Lord James Blyth
ROBERT L. CRANDELL* Director March 13, 2002
- ----------------------
Robert L. Crandall
ROBERT W. GRUBBS Director March 13, 2002
- ----------------------
Robert W. Grubbs
F. PHILIP HANDY* Director March 13, 2002
- ----------------------
F. Philip Handy
MELVYN N. KLEIN* Director March 13, 2002
- ----------------------
Melvyn N. Klein
JOHN R. PETTY* Director March 13, 2002
- ----------------------
John R. Petty
STUART M. SLOAN* Director March 13, 2002
- ----------------------
Stuart M. Sloan
THOMAS C. THEOBALD* Director March 13, 2002
- ----------------------
Thomas C. Theobald
Director March 13, 2002
- ----------------------
Mary Agnes Wilderotter
MATTHEW ZELL* Director March 13, 2002
- ----------------------
Matthew Zell
SAMUEL ZELL* Director March 13, 2002
- ----------------------
Samuel Zell
*By DENNIS J. LETHAM
----------------------------------------
Dennis J. Letham (ATTORNEY IN FACT)President Finance
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 Chief Executive Officer and President March 18, 2003
- ------------------------------------------ (Principal Executive Officer)
Robert W. Grubbs
/s/ DENNIS J. LETHAM Senior Vice President--Finance March 18, 2003
- ------------------------------------------ (Chief Financial Officer)
Dennis J. Letham
/s/ TERRANCE A. FABER Vice President--Controller March 18, 2003
- ------------------------------------------ (Chief Accounting Officer)
Terrance A. Faber
/s/ LORD JAMES BLYTH* Director March 18, 2003
- ------------------------------------------
Lord James Blyth
/s/ ROBERT L. CRANDALL* Director March 18, 2003
- ------------------------------------------
Robert L. Crandall
/s/ ROBERT W. GRUBBS Director March 18, 2003
- ------------------------------------------
Robert W. Grubbs
/s/ F. PHILIP HANDY* Director March 18, 2003
- ------------------------------------------
F. Philip Handy
/s/ MELVYN N. KLEIN* Director March 18, 2003
- ------------------------------------------
Melvyn N. Klein
/s/ JOHN R. PETTY* Director March 18, 2003
- ------------------------------------------
John R. Petty
/s/ STUART M. SLOAN* Director March 18, 2003
- ------------------------------------------
Stuart M. Sloan
/s/ THOMAS C. THEOBALD* Director March 18, 2003
- ------------------------------------------
Thomas C. Theobald
Director March 13, 2002
- ------------------------------------------
Mary Agnes Wilderotter
/s/ MATTHEW ZELL* Director March 18, 2003
- ------------------------------------------
Matthew Zell
/s/ SAMUEL ZELL* Director March 18, 2003
- ------------------------------------------
Samuel Zell
*By /s/ DENNIS J. LETHAM
-------------------------------------
Dennis J. Letham (Attorney in fact)
Dennis J. Letham, as attorney in fact for each person indicated.indicated
60
EXHIBIT 21.1
ANIXTER INTERNATIONAL SCHEDULE 21
LIST OF SUBSIDIARIES
JURISDICTION
COMPANY NAME OF INCORPORATION
Anixter Inc. Delaware
Accu-Tech Corporation Georgia
Wallace Electronics, Inc. Georgia
Anixter Australia Pty. Ltd. Australia
allNET Technologies Pty. Ltd. Australia
Anixter Cables y Manufacturas, S.A. de C.V. Mexico
Anixter Chile S.A. Chile
Anixter Colombia S.A. Colombia
Anixter Costa Rica S.A. Costa Rica
Anixter del Peru, S.A.C. Peru
Anixter de Mexico, S.A. de C.V. Mexico
Anixter do Brazil Ltda. Brazil
Anixter Financial Inc. Delaware
Anixter Communications (Malaysia) Sdn Bhd Malaysia
Anixter Singapore Pte Ltd. Singapore
Anixter Hong Kong Limited Hong Kong
Anixter Trading (Shanghai) Company Limited China
Anixter Thailand Inc. Delaware
Anixter Holdings, Inc. Delaware
Anixter Argentina S.A. Argentina
Anixter AEH Holdings Inc. Delaware
Anixter Europe Holdings B.V. Netherlands
Anixter Austria GmbH Austria
Anixter (CIS) L.L.C. (Russia) Russia
Anixter Danmark A/S Denmark
Anixter Deutschland GmbH Germany
Anixter Eurofin B.V. Netherlands
Anixter Canada Inc. Canada
WireXpress Ltd. Canada
Anixter Eurinvest B.V. Netherlands
Anixter Belgium B.V.B.A. Belgium
Anixter Espana S.L. Spain
Anixter France SARL France
Anixter International B.V.B.A. Belguim
Anixter Italia S.r.l. Italy
Anixter International Ltd. United Kingdom
Anixter Power & Construction Ltd. United Kingdom
Anixter U.K. Ltd. United Kingdom
Anixter Logistics, Europe B.V.B.A. Belgium
Anixter Nederland B.V. Netherlands
Anixter Switzerland Sarl Switzerland
Anixter Hungary Ltd. Hungary
Anixter Iletsim Sistemleri Pazarlama ve Ticaret A.S. Turkey
Anixter Network Systems Greece L.L.C. Greece
Anixter Norge A.N.S. Norway
Anixter Poland Sp.z.o.o. Poland
Anixter Portugal S.A. Portugal
Anixter Sverige AB Sweden
B.E.L. Corporation Delaware
Anixter Information Systems Corporation Illinois
Anixter (Barbados), Inc. Barbados
Anixter Korea Limited Korea
Anixter Philippines Inc. Delaware
Anixter Puerto Rico, Inc. Delaware
Anixter-Real Estate Inc. Illinois
Anixter Receivables Corporation Delaware
Anixter Venezuela Inc. Delaware
GL HoldingPRESIDENT AND CHIEF EXECUTIVE OFFICER CERTIFICATION
I, Robert W. Grubbs, certify that:
(1) I have reviewed this annual report on Form 10-K of Delaware, Inc. Delaware
Itel Corporation California
Itel Container Ventures Inc. Delaware
ICV GP Inc. Delaware
ICV LP Inc. Delaware
Itel Rail Holdings Corporation Delaware
Fox River Valley Railroad Corporation Wisconsin
Green Bay & Western Railroad Company Wisconsin
Michigan & Western Railroad Company Michigan
Signal Capital Corporation Delaware
Richdale, Ltd. Delaware
Signal Capital Projects, Inc. Delaware
Signal Capital Norwalk Inc. Delaware
Railcar Services Corporation Delaware
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration
Statement (Form S-8 No. 2-93173) pertaining to the Anixter
International Inc.
1983 Stock Incentive Plan,;
(2) Based on my knowledge, this annual report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the Registration Statement (Form S-8 No. 33-13486)
pertaining to the Anixter International Inc. Key Executive Equity Plan, the
Registration Statement (Form S-8 No. 33-21656) pertaining to the Anixter
International Inc. 1988 Employee Stock Purchase Plan, the Registration Statement
(Form S-8 No. 33-38364) pertaining to the Anixter International Inc. 1989
Employee Stock Incentive Plan, the Registration Statement (Form S-8 No.
33-60676) pertaining to the Anixter International Inc. 1993 Directorstatements made, in light of Stock
Option Plan, the Registration Statement (Form S-8 No. 33-05907) pertaining to
the Anixter International Inc. 1996 Stock Incentive Plan, the Registration
Statement (Form S-8 No. 333-56815) pertaining to the Anixter International Inc.
1998 Mid-level Stock Option Plan, the Registration Statement (Form S-8 No.
333-56935) pertaining to the Anixter International Inc. 1998 Stock Incentive
Plan and the Registration Statement (Form S-3 No. 333-42788) pertaining to the
Anixter International Inc. zero-coupon convertible notes due 2020 of our report
dated January 28, 2002,circumstances under
which such statements were made, not misleading with respect to the consolidatedperiod
covered by this annual report;
(3) Based on my knowledge, the financial statements, and schedulesother
financial information included in this annual report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
annual report;
(4) The registrant's other certifying officers and I are responsible
for establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we
have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report is
being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the filing
date of this annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
(5) The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons performing
the equivalent functions):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's ability
to record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and
(6) The registrant's other certifying officers and I have indicated in
this annual report whether there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
By: /s/ ROBERT W. GRUBBS
------------------------------------
Robert W. Grubbs
President and Chief Executive
Officer
March 18, 2003
61
SENIOR VICE PRESIDENT - FINANCE AND CHIEF FINANCIAL OFFICER
CERTIFICATION
I, Dennis J. Letham, certify that:
(1) I have reviewed this annual report on Form 10-K of Anixter
International Inc.;
(2) Based on my knowledge, this annual report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of circumstances under
which such statements were made, not misleading with respect to the period
covered by this annual report;
(3) Based on my knowledge, the financial statements, and other
financial information included in this Annual Report (Form
10-K)annual report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the year ended December 28, 2001.
ERNST & YOUNG LLP
Chicago, Illinois
March 13, 2002
EXHIBIT 24.1
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS,periods presented in this
annual report;
(4) The registrant's other certifying officers and I are responsible
for establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we
have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the undersigned officer and/or
director of Anixter International Inc., a Delaware corporation (the
"Corporation"),registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which is about to file anthis annual report pursuant to Section 13
or 15(d)is
being prepared;
b) evaluated the effectiveness of the Securities Exchange Actregistrant's disclosure
controls and procedures as of 1934,a date within 90 days prior to the filing
date of this annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as amended,of the Evaluation Date;
(5) The registrant's other certifying officers and I have disclosed, based
on Form 10-K hereby
constitutesour most recent evaluation, to the registrant's auditors and appointsthe audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's ability
to record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and
(6) The registrant's other certifying officers and I have indicated in
this annual report whether there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
By: /s/ DENNIS J. LETHAM
------------------------------------
Dennis J. Letham
John A. DulSenior Vice President--Finance and
Terrance A. Faber,
and each of them, his or her true and lawful attorney-in-fact and agents, with
full power and all capacities, to sign the Corporation's Form 10-K and any or
all amendments thereto, and any other documents in connection therewith, to be
filed with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as she or he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or their substitute or substitutes, may lawfully do or cause to be done
by virtue hereof.
IN WITNESS WHEREOF, the undersigned and hereunto set her or his hand and
seal as of the 21st day of February 2002.
/s/ Lord James Blyth /s/ John R. Petty
/s/ Robert L. Crandall /s/ Stuart M. Sloan
/s/ Robert W. Grubbs /s/ Thomas C. Theobald
/s/ F. Philip Handy /s/ Matthew Zell
/s/ Melvyn N. Klein /s/ Samuel ZellChief Financial Officer
March 18, 2003
62