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 through Anixter Inc. and its subsidiaries (collectively "Anixter").
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.
In 1998, the Company sold its remaining 19% interest in ANTEC Corporation and its subsidiaries (collectively "ANTEC"), a broadband communications technology company. As of January 2, 1998, the Company owned approximately 19% of ANTEC, which was reduced from 31% in February 1997, by the issuance of additional stock by ANTEC in connection with a merger.
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 electronic industry.
In August 1997, the Company purchased approximately 93% of the outstanding common stock of Accu-Tech Corporation, a networking and wiring systems specialist distributing products for data, voice, video and electrical applications.
In 1996, the Company changed its fiscal year end from a calendar year ending December 31 to the Friday nearest December 31 and included 52 weeks in 1999, 1998, 1997, and 53 weeks in 1996. This change did not have a significant effect on the results of operations for the year ended January 3, 1997.
In 1995, the Company largely completed its strategy of selling its non-core businesses and investments including the sale of its 9% investment in the common stock of Santa Fe Energy Resources, Inc. ("Energy").
(B) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
For certain financial information concerning the Registrant's business segments, see Note 12 "Business Segments" of the Notes to the Consolidated Financial Statements of this report.
(C) NARRATIVE DESCRIPTION OF BUSINESS
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. All narrative descriptions and year to year comparisons have been restated to exclude Integration.
Anixter is a leading global distributor of communication products used in building enterprise and Service Provider (companies that offer telecommunications services, including internet service providers, cable companies and wireless communications providers), data, voice and video networks. In addition, Anixter is a leading distributor of specialty wire and cable products to original equipment manufacturers ("OEM") and to industrial companies for maintenance and repair operations ("MRO"). Anixter stocks and/or sells a full line of these products from a network of 86 locations in the United States, 19 in Canada, 10 in the United Kingdom, 27 in Continental Europe, 17 in Latin America, 4 in Australia, and 13 in Asia. Anixter sells approximately 65,000 products to 85,000 active customers and works with over 1,000 active suppliers. Its customers include international, national, regional and local companies that are end users of these products and engage in manufacturing, telecommunications, Internet service, finance, education, health care, transportation, utilities and government. Also, Anixter sells products to resellers such as contractors, installers, system
integrators, value added resellers, architects, engineers and wholesale distributors. The average order size is approximately $1,700.
The products distributed by Anixter include communication (voice, data and video) products used to connect personal computers, peripheral equipment, mainframe equipment and various networks to each other. The products include an assortment of transmission media (copper and fiber optic cable) and components, as well as active data components for networking applications. In the Enterprise Network Communications market, Anixter sells products that are incorporated in local area networks ("LANs"), the internetworking of LANs to form wide area networks ("WANs") 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's products also include electrical wiring system products used for the transmission of electrical energy and control/monitoring of industrial processes.
Anixter also provides contractual supply chain management of installation and repair-related materials for customers who install and/or maintain communication equipment ("Integrated Supply"). Such contracts are generally for time periods in excess of one year and include interfacing of Anixter and customer information systems, the procurement, warehousing and delivery of goods by Anixter, and in certain cases, the maintenance of dedicated warehouse facilities.
Prior to 1989, Anixter's operations were primarily limited to North America and the United Kingdom. In 1989, Anixter made a major commitment to expand its operations into the international voice, data and video communications markets. Since then, Anixter has opened businesses throughout Western and Central Europe and in significant markets in the Pacific Rim (other than Japan) and Latin America.
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 networking, communications cabling and electrical wiring systems products. 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 47% of Anixter's dollar volume purchases in 1999 were from its five largest suppliers.
Anixter cost-effectively serves its customers' needs through its proprietary computer system, which connects all 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. In addition, Anixter operates a series of large modern hub warehouses in key distribution centers in North America, Europe, Asia and Latin America which provide for cost effective and reliable storage and delivery of products to its customers. The hub warehouses store the bulk of the Company's inventory and are to a certain degree specialized by broad product category. Some smaller warehouses are also maintained to provide for the local pick-up needs of customers in certain cities. 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.
The Company competes with distributors and manufacturers who sell products directly or through existing distribution channels to end users or other resellers. In addition, future performance could be subject to economic downturns, possible rapid changes in applicable technologies or regulatory changes, which substantially change 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. 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.
INVESTMENT IN ANTEC
ANTEC is a communications technology company, specializing in the design and engineering of hybrid fiber/coax (HFC) broadband networks and the manufacturing, materials management and distribution of products for these networks.
During the first half of 1998, the Company sold its remaining 7.1 million shares of ANTEC stock, resulting in net after tax proceeds of approximately $100 million. On February 6, 1997, a wholly owned subsidiary of ANTEC was merged into TSX Corporation. Under the terms of the transaction, TSX Corporation shareholders received one share of ANTEC Corporation stock for each share of TSX Corporation stock that they owned. The transaction was accounted for as a pooling of interests. Upon consummation of this transaction the Company's ownership interest in ANTEC was reduced to approximately 19% which resulted in the cessation of equity method accounting for this investment after February 6, 1997.
MISCELLANEOUS
At December 31, 1999, the Company and its subsidiaries employed approximately 5,200 people. Backlog orders are not material as a significant amount of orders are shipped within 24 to 48 hours of receipt.
(D) FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND EXPORT SALES
For information concerning foreign and domestic operations and export sales, see Note 9 "Income Taxes" and Note 12 "Business Segments" of this report.
ITEM 2.
ITEM 2. PROPERTIES.
Substantially all of the Company's facilities are leased.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS.
In the ordinary course of business, the Company and its subsidiaries became 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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
During the fourth quarter of 1999, no matters were submitted to a vote of the security holders.
EXECUTIVE OFFICERS OF THE REGISTRANT
The following table lists the name, age as of March 7, 2000, 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.
PART II
ITEM 5.
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 ("Quarterly Summary (unaudited)") of this report. As of March 1, 2000, the Registrant had 4,221 shareholders of record.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA.
- --------------- Notes:
(a) 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.
(b) All shares and per share data have been adjusted to reflect the dividend paid in the form of a two-for-one stock split on October 25, 1995.
(c) Stockholders' equity reflects treasury stock purchases, including, in 1995, common stock repurchase commitments, of $91.9 million, $101.8 million, $14.2 million, $52.1 million and $152.6 million in 1999, 1998, 1997, 1996, and 1995, respectively.
(d) Stockholders' equity includes unrealized after-tax gains on marketable equity securities available-for-sale of $19.8 million at January 2, 1998.
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
The following Management's Discussion and Analysis of Financial Condition and Results of Operations may contain various "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which 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 the discussion which follows. Other factors could also cause actual results to differ materially from expected results included in these statements.
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 information contained in this financial review should be read in conjunction with the consolidated financial information on pages 16 to 32 of this Report.
FINANCIAL LIQUIDITY AND CAPITAL RESOURCES
Asset Sales and Other Dispositions
ANTEC Investment: During the first half of 1998, the Company sold its remaining 7.1 million shares of ANTEC stock, resulting in net after tax proceeds of approximately $100 million. As of January 2, 1998, the Company's interest in ANTEC was approximately 19%. On February 6, 1997, a wholly owned subsidiary of ANTEC was merged into TSX Corporation. Under the terms of the transaction, TSX Corporation shareholders received one share of ANTEC Corporation stock for each share of TSX Corporation stock that they owned. The transaction was accounted for as a pooling of interests. Upon consummation of this transaction the Company's ownership interest in ANTEC was reduced to approximately 19% which resulted in the cessation of equity method accounting for this investment after February 6, 1997.
Discontinued Operations and Assets held for Sale: 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. 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. Total proceeds received from the sale of the Integration business were $238 million, resulting in an after-tax gain of $50.6 million. (Loss)/Income from discontinued operations was $(2.5) million, $7.7 million and $7.9 million in 1999, 1998 and 1997, respectively. See Note 3 "Discontinued Operations" in the Notes to the Consolidated Financial Statements for further information.
The Company sold certain other assets for $25.1 million and $43.0 million, resulting in an after-tax loss/(gain) of $2.0 million and ($13.2) million in 1999 and 1998, respectively.
Cash Flow
Year ended December 31, 1999: Consolidated net cash provided by continuing operating activities was $3.8 million in 1999 compared to $44.0 million used in 1998. Cash provided by continuing operating activities increased primarily as a result of an increase in operating income and timing of inventory payments. Consolidated net cash used by investing activities was $15.9 million in 1999 versus $39.4 million provided in 1998. The decline in proceeds from investing activities resulted from the sale of the Company's remaining investment in ANTEC for $104.3 million in 1998. This was partially offset in 1998 by the acquisition of Pacer Electronics, Inc. for $38.1 million. 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 $13.8 million and $26.4 million in 1999 and 1998, respectively. Capital expenditures are expected to be approximately $15-$18 million in 2000. Consolidated net cash used by financing activities was $160.3 million for 1999 in comparison to $30.0 million
in 1998. The change primarily resulted from a net paydown of long term debt of $73.0 million in 1999 versus net proceeds from the issuance of long-term debt of $73.3 million in 1998. Proceeds of $238 million received from the sale of the Integration business were used to paydown long term debt and purchase treasury stock.
Year ended January 1, 1999: Consolidated net cash used by continuing operating activities was $44.0 million in 1998 compared to $48.1 million provided in 1997. Cash used by continuing operating activities increased primarily as the result of the timing of inventory payments and a decline in operating net income. Consolidated net cash provided by investing activities was $39.4 million in 1998 versus $51.1 million used in 1997. The increase in proceeds by investing activities resulted from the sale of the investment in ANTEC for $104.3 million. This was partially offset by the acquisition of Pacer Electronics, Inc. for $38.1 million. In 1997, the Company purchased Accu-Tech for $27.6 million in cash and assumed $15.2 million of additional debt. Capital expenditures were $26.4 million and $22.5 million in 1998 and 1997, respectively. Consolidated net cash used by financing activities was $30.0 million for 1998 in comparison to $22.3 million in 1997. The change resulted from $101.8 million being used to purchase treasury stock in 1998 compared to $14.2 million in 1997. Net proceeds from the issuance of long-term debt was $73.3 million in 1998 versus a net paydown of $10.1 million in 1997. Proceeds were used to fund higher working capital requirements.
Interest Expense: Interest expense from continuing operations was $34.9 million, $31.7 million and $27.9 million for 1999, 1998 and 1997, respectively. The Company has entered into interest rate agreements which effectively fix or cap, for a period of time, the interest rate on a portion of its floating-rate obligations. As a result, the interest rate on approximately 65% of debt obligations at December 31, 1999, is fixed or capped. The impact of interest rate swaps and caps for 1999, 1998 and 1997, was to increase interest expense by $1.3 million, $.5 million and $.8 million, respectively.
Financings
In September 1996, the Company increased Anixter's secured domestic revolving line of credit to $550 million, obtained a release of collateral making the facility unsecured, lowered the interest rate spreads, and extended the expiration to 2001. Anixter filed a shelf registration statement with the Securities and Exchange Commission to offer from time to time up to $200 million aggregate principal amount of unsecured notes. On September 17, 1996, Anixter issued $100 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.
At December 31, 1999, $202 million was available under the bank revolving lines of credit at Anixter and Accu-Tech, of which $25.4 million was available to the Company for general corporate purposes.
Income Taxes
During the third quarter of 1998, the Internal Revenue Service completed its examination for the years 1993 to 1995, which included an examination of net operating losses and credit 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-year period of time, 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.
Various foreign subsidiaries of the Company had aggregate cumulative NOL carryforwards for foreign income tax purposes of approximately $163.6 million at December 31, 1999, which are subject to various tax provisions of each respective country. Approximately $52.7 million of this amount expires between 2000 and 2009 and $110.9 million of the amount has an indefinite life. Of the $163.6 million NOL carryforwards of foreign subsidiaries, $84.9 million relates to losses that have already provided a tax benefit in the U.S. due to rules permitting flow-through of such losses in certain circumstances. Without such losses included, the cumulative NOL carryforwards at December 31, 1999 are approximately $78.7 million, which are subject to various provisions of each respective country. Approximately $39.5 million of this amount expires between 2000 and 2009 and $39.2 million of the amount has an indefinite life. The deferred tax asset, and valuation
allowance, relating to foreign NOL carryforwards have been adjusted to reflect only the carryforwards in which the Company has not taken a tax benefit in the U.S.
Liquidity Considerations and Other
Certain debt agreements entered into by the Company's operating subsidiaries contain various restrictions including restrictions on payments to the Company. Such 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 has experienced increased sales due to the continued growth of the North American communications and electrical wire and cable businesses, along with its continuing worldwide expansion. 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 future performance could be affected by economic downturns, possible rapid changes in applicable technologies or regulatory changes that substantially change the cost and/or availability of public networking bandwidth.
Year ended December 31, 1999: Income from continuing operations was $69.7 million in 1999 compared with $44.7 million in 1998. The comparative results were favorably impacted by a 14% growth in sales and lower operating expenses as a percentage of sales. 1998 results were favorably impacted by a $24.3 million gain realized on the sale of the Company's investment in ANTEC. In 1999, the Company repurchased 6.5 million of its outstanding shares for $91.9 million. Excluding the repurchases, diluted income per share from continuing operations would have been $1.63 as compared to $1.83 reported.
Net sales grew by 14% to $2.7 billion. The North American sales from continuing operations experienced 19% growth to $2.0 billion from $1.7 billion in 1998. Improvement was a result of strong growth in the core Enterprise Network Communications and Electrical Wire and Cable product sets along with over $100 million of new volume from the Service Provider sector and a 72% increase in Integrated Supply. Improvement in Electrical Wire and Cable resulted from both volume increases and higher copper prices. In Europe, sales of $518.7 million were flat compared to last year. Excluding the effect of changes in exchange rates, sales improved 3%. Europe was negatively impacted by soft networking product sales and a stronger dollar. Asia Pacific and Latin America net sales were down 4% to $141.2 million in 1999 from $147.2 million in 1998. The decline is a result of soft economic conditions along with weaker local currencies for the first three quarters of 1999. Asia Pacific and Latin America ended the year with sales up 12% in the fourth quarter over 1998.
Net sales by major market are presented in the following table:
In 1999, operating income increased to $112.8 million from $87.0 million in 1998. Gross margin declined to 23.5% in 1999 from 24.5% in 1998. The very strong sales growth of the Service Provider and Logistic Service businesses, both of which have lower gross margins, have reduced the overall gross margin rate. Operating expenses as a percent of sales decreased from 20.5% in 1998 to 19.0% in 1999. The lower gross margins in the Service Provider and Logistic Service businesses corresponds with the higher operating productivity that is inherent in the nature of those businesses. 1999 expenses include $3.0 million for headcount reductions and the write-down of inventory to net realizable value for the Latin American operations. In 1998, the Company incurred $3.2 million of expenses for the consolidation and relocation of
certain distribution and office facilities in Europe, while Asia Pacific incurred $1.0 million in costs primarily relating to headcount reductions.
In North America, operating margins declined to 5.3% in 1999 from 5.6% in 1998. The slight decline resulted primarily from higher spending on Year 2000 compliance efforts and retained overhead costs associated with the North American Integration business. Europe operating margins improved from 2.5% in 1998 to 4.0% in 1999. Excluding the $3.2 million consolidation and relocation costs noted above, 1998 operating margin was 3.1%. The improvement resulted from realizing the benefits of the 1998 restructuring and continued aggressive expense management in light of the weak sales growth. As noted above, excluding the 1999 $3.0 million of costs for Latin America and the 1998 $1.0 million of costs for Asia Pacific, the operating loss for Asia and Latin America was reduced by 44%. The improvement primarily resulted from Asia, where the Company realized the benefits from the 1998 restructuring and expense reduction efforts.
Operating income (loss) by major market is presented in the following table:
Consolidated interest expense increased to $34.9 million in 1999 from $31.7 million in 1998. The increase resulted from higher working capital requirements. Foreign exchange and other expense declined from $3.1 million expense in 1998 to $.3 million income in 1999. The expense in 1998 primarily relates to the third quarter devaluation of the Mexican peso.
Excluding the $24.3 million tax benefit previously discussed in "Financial Liquidity and Capital Resources", the 1999 effective income tax rate on continuing operations was 42.0% as compared with 41.6% in 1998. The effective tax rate exceeds the combined federal and state rate of approximately 40% primarily as a result of non-tax-deductible goodwill amortization and start-up losses in some foreign countries where there is no current year benefit.
Year ended January 1, 1999: Income from continuing operations was $44.7 million in 1998 compared with $37.4 million in 1997. The 1998 results were favorably impacted by a 12% growth in sales and the $24.3 million gain on the sale of the Company's investment in ANTEC.
Net sales grew by 12% to $2.3 billion. The North American continuing operations experienced a 16% growth to $1.7 billion from $1.5 billion in 1997. Improvement was a result of continued growth in demand for all major product sets. In addition, $93 million of the $227 million overall increase in 1998 sales is attributed to the inclusion of a full year for Accu-Tech, which was acquired in August 1997, and Pacer Electronics, Inc., which was purchased in June 1998. Lower copper prices resulted in lower sales prices, hindering the growth of the Wire and Cable business. In Europe, sales of $518.1 million represented growth of 6% as compared to 14% in 1997. The slowdown in sales growth is largely attributed to soft sales growth in the U.K. Asia Pacific and Latin America net sales were essentially flat to last year at $147.2 million. Excluding the effect of changes in exchange rates, net sales grew 10%. Significant volume growth in Latin America was offset by a decline in Asia Pacific, which was negatively impacted by poor economic conditions in Southeast Asia.
Net sales by major market are presented in the following table:
In 1998, operating income decreased to $87.0 million from $91.1 million in 1997. Gross margin declined to 24.5% in 1998 from 25.0% in 1997. The decline was primarily a result of unfavorable inventory costing adjustments in Latin America, poor economic conditions in Southeast Asia and planned price reductions in North American communications in pursuit of greater market share. Operating expenses as a percent of sales increased slightly from 20.3% in 1997 to 20.5% in 1998. In 1998, the Company incurred $3.2 million of expenses for the consolidation and relocation of certain distribution and office facilities in Europe to improve future productivity and lower costs. In addition, in 1997, $7.1 million of income was realized on the sale of an investment in a start-up telecommunications company and management fees relating to the collection of certain receivables. Excluding these unusual items, operating expenses as a percentage of sales continued to improve, declining from 20.7% in 1997 to 20.4% in 1998. Improvement primarily relates to headcount reductions in Asia Pacific and Europe, partially offset by increased operating expenses in North America.
In North America, operating margins declined to 5.6% in 1998 from 6.8% in 1997. Excluding the $7.1 million increase noted in the paragraph above, 1997 operating margin was 6.3%. North American communications margins declined, resulting from the effects of lower copper prices on electrical wire and cable products, higher facility costs and increased headcount in pursuing greater market share. Europe operating margins improved from 2.2% in 1997 to 2.5% in 1998. Excluding the $3.2 million consolidation and relocation costs noted above, 1998 operating margin was 3.1%. The improvement resulted from reductions in headcount and improved gross margins due to lower costs and favorable inventory adjustments. Asia and Latin America continued to operate at a loss on flat sales due to the poor economy in Southeast Asia and unfavorable year end inventory adjustments in Latin America.
Operating income (loss) by major market is presented in the following table:
Consolidated interest expense increased to $31.7 million in 1998 from $27.9 million in 1997. The increase resulted from higher working capital requirements. Foreign exchange and other expense rose to $3.1 million in 1998 from $.6 million in 1997. The increase primarily relates to the third quarter devaluation of the Mexican peso.
The 1998 effective income tax rate on continuing operations was 41.6% as compared with 42.3% in 1997. The effective tax rate exceeds the combined federal and state rate of approximately 40% primarily as a result of non-tax-deductible goodwill amortization and start-up losses in some foreign countries where there is no current year benefit.
Impact of Year 2000: In 1999, the Company completed upgrading the mainframe operating system and modified software so that computer systems would function properly with respect to dates in the year 2000 and thereafter. The Company also completed the assessment of PC hardware and software systems and non-
information technology systems for Year 2000 compliance. Over the life of the project, the Company incurred and expensed approximately $4.5 million, primarily for assessment of the Year 2000 issue, mainframe operating system upgrades and code modifications. The time and expense of the project did not have a material impact on the Company's financial condition. As a result of these modifications, the Company did not incur any significant problems relating to Year 2000 issues. There was no interruption of business with key suppliers or downturn in economic activity caused by problems with Year 2000 issues. As of March 1, 2000, the Company has not been notified of any warranty issues relating to Year 2000 for the products it has sold and therefore, the Company believes it should have no material exposure to contingencies related to the Year 2000 issue for the products it has sold. The Company will continue to monitor its computer applications and those of its suppliers and vendors throughout the year 2000 to ensure that any latent Year 2000 matters that may arise are addressed promptly.
Impact of Inflation: Inflation is currently not an important determinant of Anixter's results of operations due, in part, to rapid inventory turnover.
ITEM 7A.
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 has entered into interest rate agreements which effectively fix or cap the LIBOR component of the interest rate on a portion of its floating rate obligations. As a result, the interest rate on approximately 65% and 40% of debt obligations at December 31, 1999 and January 1, 1999, respectively, is fixed or capped. See Note 1, "Interest Rate Agreements," and Note 7, "Debt," of the consolidated financial statements for further detail on interest agreements and debt obligations outstanding.
The Company prepared sensitivity analyses of its derivatives and other financial instruments assuming a 1 percentage point adverse change in interest rates and a 10 percent adverse change in the foreign currency contracts outstanding. Holding all other variables constant, the hypothetical adverse changes would increase interest expense by $2.8 million and foreign exchange losses by $2.5 million. The effect of the interest change on the fair market value of the outstanding debt is insignificant. These analyses did not consider the effects of the reduced level of economic activity that could exist in such an environment and certain other factors. Further, in the event of a change of such magnitude, management would likely take actions to further mitigate its exposure to possible changes. However, due to the uncertainty of the specific actions that would be taken and their possible effects, the sensitivity analyses assume no changes in the Company's financial structure.
ITEM 8.
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
Not applicable.
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 December 31, 1999, and January 1, 1999, and the related consolidated statements of operations, stockholders' equity and cash flows for each of the three years in the period ended December 31, 1999. Our audits also included the financial statement schedules listed in the Index at Item 14(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 December 31, 1999, and January 1, 1999, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 1999, 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.
ERNST & YOUNG LLP
Chicago, Illinois February 7, 2000
ANIXTER INTERNATIONAL INC.
CONSOLIDATED STATEMENT OF OPERATIONS (IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
See accompanying notes to the consolidated financial statements.
ANIXTER INTERNATIONAL INC.
CONSOLIDATED BALANCE SHEET (IN MILLIONS, EXCEPT SHARE AMOUNTS)
See accompanying notes to the consolidated financial statements.
ANIXTER INTERNATIONAL INC.
CONSOLIDATED STATEMENT OF CASH FLOWS (IN MILLIONS)
See accompanying notes to the consolidated financial statements.
ANIXTER INTERNATIONAL INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (IN MILLIONS)
See accompanying notes to the consolidated financial statements.
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 providing networking and cabling solutions for private network infrastructure requirements 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 (collectively "the Company") after elimination of intercompany transactions. The Company's fiscal year ends on the Friday nearest December 31 and included 52 weeks in 1999, 1998 and 1997.
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.
INVENTORIES: Inventories, consisting primarily of finished goods, are stated at the lower of cost or market. Cost is determined using the average-cost method.
PROPERTY AND EQUIPMENT: Capital expenditures, primarily equipment, are recorded at cost and depreciated on the straight-line method over their estimated useful lives ranging 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.
GOODWILL: Goodwill primarily relates to the excess of cost over the fair value of the net tangible assets of businesses acquired. The Company continually reviews goodwill to assess recoverability from estimated undiscounted future cash flows at the aggregate business unit level. Goodwill is amortized on a straight-line basis over periods ranging from 20 to 40 years.
INVESTMENT IN ANTEC: In 1998, the Company sold its remaining 7.1 million shares of ANTEC stock which resulted in net after tax proceeds of approximately $100 million and an after-tax gain of $14.6 million. On February 6, 1997, a wholly-owned subsidiary of ANTEC was merged into TSX Corporation. Under the terms of the transaction, TSX Corporation shareholders received one share of ANTEC Corporation stock for each share of TSX Corporation stock that they owned. The transaction was accounted for as a pooling of interests. Upon consummation of this transaction, the Company's ownership interest in ANTEC was reduced to approximately 19%, which resulted in the cessation of equity method accounting for this investment after that date. As a result of this change, the Company recorded a $1.2 million after-tax gain. As of January 2, 1998, the market value of the Company's investment in ANTEC was $112.0 million. The Company reported its investment in ANTEC at fair value. All unrealized gains and losses, net of taxes, were recorded in stockholders' equity until realized.
INTEREST RATE AGREEMENTS: In addition to the fixed rate 8.0% Senior Notes, the Company has entered into interest rate agreements which effectively fix or cap, for a period of time, the LIBOR component of an interest rate on a portion of its floating rate obligations. As a result, the interest rate on approximately 65% and 40%, of debt obligations at December 31, 1999 and January 1, 1999, respectively, is fixed or capped. At December 31, 1999 and January 1, 1999, the Company had an interest rate swap agreement outstanding with a notional amount of $25 million. This swap agreement obligated the Company to pay a fixed rate of approximately 6.1% through January 2003. At December 31, 1999 and January 1, 1999, the Company also had one interest rate collar agreement with a notional amount of $50 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 is required to pay the bank the difference between 6.3% and the floating rate when it is below 5.3%. This interest rate collar matures in January 2002. At December 31, 1999 and January 1, 1999, the
ANIXTER INTERNATIONAL INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Company had three additional interest rate swap agreements outstanding with a notional amount aggregating $100 million that obligated the Company to pay a fixed rate of approximately 6.1% through July 2000. At December 31, 1999, the Company had an interest rate swap agreement outstanding with a notional amount of $25 million. This swap agreement obligated the Company to pay a fixed rate of 6.1% through July 2002. At December 31, 1999, the Company had a cancelable interest rate swap agreement outstanding with a notional amount of $50 million. This swap agreement obligated the Company to pay a fixed rate of 5.7% through August 2002. However, the counterparty exercised their right to cancel the swap in February 2000. The fair value, which is the estimated amount at the current interest rate that the Company would receive or pay to enter into similar interest rate agreements on the reporting date, of all of the Company's interest rate agreements at December 31, 1999, and January 1, 1999, would be to receive $1.4 million and pay $3.8 million, respectively. The impact of these interest rate agreements for fiscal years 1999, 1998 and 1997, was to increase interest expense by $1.3 million, $.5 million and $.8 million, respectively. The Company does not enter into interest rate transactions for speculative purposes.
FOREIGN CURRENCY FORWARD CONTRACTS: The Company has purchased short-term foreign currency forward contracts to minimize the effect of fluctuating foreign currencies on its reported income. The impact of these foreign currency forward contracts on the income statement was insignificant in 1999, 1998 and 1997. The forward contracts are revalued at current foreign exchange rates, with the changes in valuation reflected directly in income. At December 31, 1999, and January 1, 1999, the Company had approximately $24.3 million and $32.7 million, respectively, in foreign currency forward contracts outstanding.
REVENUE RECOGNITION: Sales and related cost of sales are recognized upon shipment of products.
ADVERTISING AND SALES PROMOTION: Advertising and sales promotion costs are expensed as incurred. Advertising and promotion costs were $11.1 million, $13.3 million and $13.7 million in 1999, 1998 and 1997, respectively.
STOCK BASED COMPENSATION: In accordance with the Accounting Principles Board Opinion 25, "Accounting for Stock Issued to 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 attributable to stock options exercised are credited to capital in excess of par.
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.
NEW ACCOUNTING PRONOUNCEMENTS
Accounting for Derivatives Instruments and Hedging Activities: In June 1998, the Financial Accounting Standards Board issued Statement No. 133, "Accounting for Derivative Instruments and Hedging Activities," which is required to be adopted in the first quarter of fiscal year 2001. Because of the Company's minimal use of derivatives, management does not anticipate that the adoption of the new Statement will have a significant effect on earnings or the financial position of the Company.
ANIXTER INTERNATIONAL INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 2. INCOME PER SHARE
The following table sets forth the computation of basic and diluted income per share from continuing operations:
NOTE 3. DISCONTINUED OPERATIONS
In the fourth quarter of 1998, the Company decided to exit its Integration segment and accordingly, the Integration segment is reflected as a discontinued operation in these financial statements. 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. 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 and $13.2 million in 1999 and 1998, respectively. Included in the fiscal year 1999 gain on sale of assets, is 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 was $238 million.
Net sales and income from discontinued operations are as follows:
NOTE 4. ACQUISITION OF PACER ELECTRONICS, INC. AND ACCU-TECH CORPORATION
In June 1998, the Company purchased Pacer Electronics, Inc. ("Pacer") for approximately $38 million. Pacer is an electrical and data cabling distributor largely centered in the Northeast portion of the United States, with additional locations in North Carolina and Florida. The majority of Pacer's sales come from the
ANIXTER INTERNATIONAL INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
sale of wire, cable, connectors and related products and 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 for $27.6 million in cash and assumed $15.2 million of debt. Accu-Tech Corporation is a networking and wiring specialist distributing products for data, voice, video and electrical applications.
Both the Pacer acquisition and the Accu-Tech Corporation acquisition were accounted for using the purchase method of accounting. Had these acquisitions occurred at the beginning of their respective years of acquisition, the impact on the Company's operating results would not have been significant.
NOTE 5. SUMMARIZED FINANCIAL INFORMATION OF ANIXTER INC.
At December 31, 1999, and January 1, 1999, the Company had an ownership interest of approximately 99% 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 SHEET
ANIXTER INC. CONDENSED CONSOLIDATED STATEMENT OF OPERATION
ANIXTER INTERNATIONAL INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 6. ACCRUED EXPENSES
Accrued expenses consists of the following:
NOTE 7. DEBT
Debt is summarized below:
Anixter has various revolving bank lines of credit worldwide which provide for up to $565 million of borrowings of which $550 million is domestic. At December 31, 1999, approximately $363 million was borrowed and $202 million was available under the bank revolving lines of credit, of which $25.4 million was available for general corporate purposes. These lines of credit reduce or mature at various dates from 2001 through 2002. The $550 million domestic revolving line of credit matures in 2001. Floating and fixed interest rate options, based on the prime or LIBOR rate, are available under these facilities. The weighted average interest rate at December 31, 1999, and January 1, 1999, was 6.7% and 6.1%, respectively. Facility fees of .2% payable on the revolving lines of credit 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 million aggregate principal amount of unsecured notes. On September 17, 1996, Anixter issued $100 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.
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 $372.9 million and $362.5 million at December 31, 1999 and January 1, 1999, respectively.
Aggregate annual maturities of debt are as follows: 2000 - none; 2001 - $362.8 million; 2002 - none; 2003 - $100.0 million; 2004 - none; and $5.2 million thereafter.
Interest paid in 1999, 1998, and 1997 was $34.5 million, $36.6 million, and $31.0 million, respectively.
The carrying amount of the Company's debt generally approximates fair value.
ANIXTER INTERNATIONAL INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 8. LEASE COMMITMENTS
Substantially all of the Company's office and warehouse facilities and equipment are leased under operating leases. Certain of these leases are long-term operating leases and expire at various dates through 2013. Minimum lease commitments under operating leases at December 31, 1999 are as follows: 2000 -- $41.8 million; 2001 -- $32.1 million; 2002 -- $25.6 million; 2003 -- $16.4 million; 2004 -- $11.9 million; beyond 2004 -- $54.4 million. Total rental expense was $41.9 million, $39.6 million and $35.6 million in 1999, 1998 and 1997, respectively.
NOTE 9. INCOME TAXES
The Company and its U.S. subsidiaries file their federal income tax return on a consolidated basis. As of December 31, 1999, the Company had no NOL or ITC carryforwards for 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 assessment relating to that 17-year period of time, the Company recorded a $24.3 million tax benefit in continuing operations for the reversal of previously established tax reserves which were determined to be no longer necessary.
At December 31, 1999, various foreign subsidiaries of the Company had aggregate cumulative NOL carryforwards for foreign income tax purposes of approximately $163.6 million, which are subject to various provisions of each respective country. Approximately $52.7 million of this amount expires between 2000 and 2009 and $110.9 million of the amount has an indefinite life.
Of the $163.6 million NOL carryforwards of foreign subsidiaries mentioned above, $84.9 million relates to losses that have already provided a tax benefit in the U.S. due to rules permitting flow-through of such losses in certain circumstances. Without such losses included, the cumulative NOL carryforwards at December 31, 1999 are approximately $78.7 million, which are subject to various provisions of each respective country. Approximately $39.5 million of this amount expires between 2000 and 2009 and $39.2 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 $76.0 million, $84.0 million and $62.5 million for 1999, 1998 and 1997, respectively. Foreign income (loss) from continuing operations before income taxes was $2.2 million, $(7.5) million and $2.3 million for 1999, 1998 and 1997, respectively.
The Company paid income taxes in 1999, 1998 and 1997 of $64.9 million, $63.8 million and $35.3 million, respectively.
ANIXTER INTERNATIONAL INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Significant components of the Company's deferred tax assets and (liabilities) were as follows:
Income tax expense (benefit) was comprised of:
Reconciliation of income tax expense to the statutory corporate federal tax rate of 35% are as follows:
ANIXTER INTERNATIONAL INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 10. 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 ERISA and the Code. Plan assets consist primarily of equity securities and mutual fund investments.
In 1999, the Company completed the disposal of the Integration segment which resulted in a curtailment gain of $4.4 million, and accordingly, is classified as a gain on disposal of discontinued operations.
ANIXTER INTERNATIONAL INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company has several plans where the fair value of assets are in excess of the projected benefit obligation. The fair value of the plans' assets were $8.7 million and $7.3 million, and had projected benefit obligations of $6.4 million and $5.7 million in 1999 and 1998, respectively.
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 $1.5 million in 1999, $1.9 million in 1998 and $1.7 million in 1997. The Company's liability for post-retirement benefits other than pensions is not material.
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 1999 and 1998.
Stock Options and Stock Grants--
At December 31, 1999, the Company has stock incentive plans which authorize 2.0 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. Employee restricted stock vests over a four year period. 2000 will be the first year in which restricted stock will be issued. The director options fully vest in one year. All options expire ten years after the date of grant.
The following table summarizes the 1999, 1998 and 1997 activity under the employee and director option plans.
ANIXTER INTERNATIONAL INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table summarizes information relating to options outstanding and exercisable at December 31, 1999, using various ranges of exercise prices:
EMPLOYEE OPTIONS
DIRECTOR OPTIONS
Additionally, 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, 1999, or at the end of the ESPP year, June 30, 2000. Under the ESPP, the Company sold 123,700 shares, 175,900 shares, and 217,600 shares to employees in 1999, 1998 and 1997, respectively.
STOCK OPTION PLANS OF ANIXTER--
In 1995 and prior, Anixter granted to key employees options to purchase the common stock of Anixter. Substantially all options have been 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.
ANIXTER INTERNATIONAL INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
At December 31, 1999, the Company owned 99% of the approximately 32.6 million shares of outstanding Anixter common stock. The following table summarizes the 1999, 1998 and 1997 option activity:
Exercise prices for options outstanding as of December 31, 1999, range from $9.00 to $14.50 per share and have a weighted average remaining life of 2.0 years.
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 1999, having an aggregate value at grant date of $540 thousand.
The following table summarizes the 1999, 1998, and 1997 activity under the DSUP.
ANIXTER INTERNATIONAL INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Accounting for Stock Based Compensation--
The Company has adopted the disclosure-only provisions of Statement of Financial Accounting Standards No. 123, "Accounting for Stock Based Compensation". Accordingly, no compensation expense has been recognized in the income statement 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:
Pro forma diluted income per share has not been presented for 1999, 1998 and 1997 as the conversion of stock options and warrants would have had an anti-dilutive effect.
The fair value for the Company's stock options (which was $5.50 per share in 1999, $7.63 per share in 1998 and $6.69 per share in 1997) was estimated at the date of grant using the Black-Scholes option pricing model with the following assumptions for 1999, 1998 and 1997, respectively: expected stock price volatility of 39%, 42% and 37%; expected dividend yield of zero; risk-free interest rate of 5.6%, 4.9% and 6.6% and an expected 5 year life.
The pro forma effect on income from continuing operations for 1997 is not representative of the pro forma effect on earnings in future years because the pro forma calculation, as required by SFAS No. 123, does not take into consideration outstanding non-vested awards granted prior to 1995.
The Black-Scholes option pricing model was used in 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.
ANIXTER INTERNATIONAL INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 12. BUSINESS SEGMENTS
The Company is engaged in the distribution of communications and specialty wire and cable products from top suppliers to contractors and installers and to end users, including manufacturers, natural resources companies, utilities and OEM's. The Company obtains and coordinates financing, legal and other related services, certain of which are rebilled to subsidiaries.
The following table is a geographic breakdown of the Company's operations. Sales to a single customer did not exceed 10 percent of total sales. Export sales are insignificant.
NOTE 13. CONTINGENCIES AND LITIGATION
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.
ANIXTER INTERNATIONAL INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 14. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
The following is a summary of the unaudited interim results of operations and the price range of the common stock composite for each quarter in the years ended December 31, 1999, and January 1, 1999. The Company has not paid cash dividends on its common stock since 1979.
- --------------- * In the first quarter of 1999, the Company realized a $45.9 million net gain on the disposal of discontinued operations from the sale of its North American and European Integration business. 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.
PART III
ITEM 10.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT.
See Registrant's Proxy Statement for the 2000 Annual Meeting of Stockholders -- "Election of Directors."
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION.
See Registrant's Proxy Statement for the 2000 Annual Meeting of Stockholders--"Executive Compensation," "Compensation of Directors," "Employment Contracts and Termination of Employment and Changes in Control Arrangements," and "Compensation Committee Interlocks and Insider Participation."
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
See Registrant's Proxy Statement for the 2000 Annual Meeting of Stockholders -- "Security Ownership of Management" and "Security Ownership of Principal Stockholders."
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
See Registrant's Proxy Statement for the 2000 Annual Meeting of Stockholders -- "Certain Relationships and Related Transactions."
PART IV
ITEM 14.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) Exhibits.
The exhibits listed below in Item 14(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) INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES.
(1) Financial Statements.
The following Consolidated Financial Statements of Anixter International Inc. and Report of Independent Auditors are filed as part of this report.
(2) Financial Statement Schedules.
The following financial statement schedules of Anixter International Inc. are filed as part of this Report and should be read in conjunction with the Consolidated Financial Statements of Anixter International Inc.:
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.
Each management contract or compensation plan required to be filed as an exhibit is identified by an asterisk(*).
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.
ANIXTER INTERNATIONAL INC.
SCHEDULE I -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT ANIXTER INTERNATIONAL INC. (PARENT COMPANY)
STATEMENT OF OPERATION (IN MILLIONS)
ANIXTER INTERNATIONAL INC.
SCHEDULE I -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT ANIXTER INTERNATIONAL INC. (PARENT COMPANY)
BALANCE SHEET (IN MILLIONS)
ANIXTER INTERNATIONAL INC.
SCHEDULE I -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT ANIXTER INTERNATIONAL INC. (PARENT COMPANY)
STATEMENT OF CASH FLOWS (IN MILLIONS)
ANIXTER INTERNATIONAL INC.
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS AND RESERVES YEARS ENDED DECEMBER 31, 1999, JANUARY 1, 1999 AND JANUARY 2, 1998 (IN MILLIONS)
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 7th day of March 7, 2000.
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.
Dennis J. Letham, as attorney in fact for each person indicated.