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NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization: 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 security products, electrical 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 subsidiaries. The Company's fiscal year ends on the Friday nearest December 31 and included 52 weeks in 2011, 2010 and 2009. Certain amounts have been reclassified to conform to the current year presentation. Also, as a result of the divestiture of a business, described in Note 4. "Discontinued Operations," the Company began recording the results of the divested business as discontinued operations in 2011 and all prior periods have been revised to reflect this classification.
Use of estimates: 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.
Cash and cash equivalents: Cash equivalents consist of short-term, highly liquid investments that mature within three months or less. Such investments are stated at cost, which approximates fair value.
Receivables and allowance for doubtful accounts: The Company carries its accounts receivable at their face amounts less an allowance for doubtful accounts which was $19.5 million and $23.7 million at the end of 2011 and 2010, respectively. On a regular basis, the Company evaluates its accounts receivable and establishes the allowance for doubtful accounts based on a combination of specific customer circumstances, as well as credit conditions and history of write-offs and collections. During 2011, the Company reached favorable settlements of several customer bankruptcy and disputes which were fully reserved at the beginning of 2011. The provision for doubtful accounts was $8.0 million, $12.8 million and $11.7 million in 2011, 2010 and 2009, respectively. A receivable is considered past due if payments have not been received within the agreed upon invoice terms. Receivables are written off and deducted from the allowance account when the receivables are deemed uncollectible.
Inventories: Inventories, consisting primarily of finished goods, are stated at the lower of cost or market. Cost is determined using the average-cost method. The Company has agreements with some of its vendors that provide a right to return products. This right is typically limited to a small percentage of the Company's total purchases from that vendor. Such rights provide that the Company can return slow-moving product and the vendor will replace it with faster-moving product chosen by the Company. Some vendor agreements contain price protection provisions that require the manufacturer to issue a credit in an amount sufficient to reduce the Company's current inventory carrying cost down to the manufacturer's current price. The Company considers these agreements in determining its reserve for obsolescence.
At December 30, 2011 and December 31, 2010, the Company reported inventory of $1,070.7 million and $870.3 million, respectively (net of inventory reserves of $61.2 million and $66.8 million, respectively). Each quarter the Company reviews for excess inventories and makes an assessment of the net realizable value. There are many factors that management considers in determining whether or not the amount by which a reserve should be established. These factors include the following:
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Return or rotation privileges with vendors; |
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Price protection from vendors; |
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Expected future usage; |
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Whether or not a customer is obligated by contract to purchase the inventory; |
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Current market pricing; |
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Historical consumption experience; and |
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Risk of obsolescence. |
If circumstances related to the above factors change, there could be a material impact on the net realizable value of the inventories.
Costs for software developed for internal use are capitalized when the preliminary project stage is complete and the Company has committed funding for projects that are likely to be completed. Costs that are incurred during the preliminary project stage are expensed as incurred. Once the capitalization criteria have been met, external direct costs of materials and services consumed in developing internal-use computer software, payroll and payroll-related costs for employees who are directly associated with and who devote time to the internal-use computer software project (to the extent of their time spent directly on the project) and interest costs incurred when developing computer software for internal use are capitalized. At December 30, 2011 and December 31, 2010, capitalized costs, net of accumulated amortization, for software developed for internal use was approximately $27.9 million and $22.4 million, respectively. Interest expense incurred in connection with the development of internal use software is capitalized based on the amounts of accumulated expenditures and the weighted-average cost of borrowings for the period. Interest costs capitalized for fiscal 2011, 2010 or 2009 were insignificant.
Goodwill: On an annual basis, the Company tests for goodwill impairment using a two-step process, unless there is a triggering event, in which case a test would be performed at the time that such triggering event occurs. The first step is to identify a potential impairment by comparing the fair value of a reporting unit with its carrying amount. For all periods presented, the Company's reporting units are consistent with its operating segments of North America, Europe, Latin America and Asia Pacific. The estimates of fair value of a reporting unit are determined using the income approach based on a discounted cash flow analysis. A discounted cash flow analysis requires the Company to make various judgmental assumptions, including assumptions about future cash flows, growth rates and discount rates. The assumptions about future cash flows and growth rates are based on management's forecast of each reporting unit. Discount rate assumptions are based on an assessment of the risk inherent in the future cash flows of the respective reporting units from the perspective of market participants. The Company also reviews market multiple information to corroborate the fair value conclusions recorded through the aforementioned income approach. If step one indicates a carrying value above the estimated fair value, the second step of the goodwill impairment test is performed by comparing the implied fair value of the reporting unit's goodwill with the carrying amount of that goodwill. The implied fair value of goodwill is determined in the same manner as the amount of goodwill recognized in a business combination.
The Company performed its 2011 annual impairment analysis during the third quarter of 2011 and concluded that no impairment existed. The Company expects the carrying amount of remaining goodwill to be fully recoverable.
Due to business and economic conditions that existed in 2009, the Company concluded that there were impairment indicators for the North America, Europe and Asia Pacific reporting units that required an interim impairment analysis be performed under Generally Accepted Accounting Principles ("U.S. GAAP") during the second fiscal quarter of that year.
In the first step of the impairment analysis, the Company performed valuation analyses utilizing the income approach to determine the fair value of its reporting units. The Company also considered the market approach as described in U.S. GAAP. Under the income approach, the Company determined the fair value based on estimated future cash flows discounted by an estimated weighted-average cost of capital, which reflects the overall level of inherent risk of the reporting unit and the rate of return an outside investor would expect to earn. The inputs used for the income approach were significant unobservable inputs, or Level 3 inputs, in the fair value hierarchy described in recently issued accounting guidance on fair value measurements. Estimated future cash flows were based on the Company's internal projection models, industry projections and other assumptions deemed reasonable by management as those that would be made by a market participant. Based on the results of the Company's assessment in step one, it was determined that the carrying value of the Europe reporting unit exceeded its estimated fair value while North America and Asia Pacific's fair value exceeded the carrying value.
Therefore, the Company performed a second step of the impairment test to estimate the implied fair value of goodwill in Europe. In the second step of the impairment analysis, the Company determined the implied fair value of goodwill for the Europe reporting unit by allocating the fair value of the reporting unit to all of Europe's assets and liabilities, as if the reporting unit had been acquired in a business combination and the price paid to acquire it was the fair value. The analysis indicated that there would be an implied value attributable to goodwill of $12.1 million in the Europe reporting unit and accordingly, in the second quarter of 2009, the Company recorded a non-cash impairment charge related to the write-off of the remaining goodwill of $100.0 million associated with its Europe reporting unit.
Convertible Debt: The Company separately accounts for the liability and equity components of convertible debt instruments that may be settled in cash upon conversion (including partial cash settlement). The liability and equity components are accounted for in a manner that reflects an issuer's nonconvertible debt borrowing rate. The bifurcation of the component of debt, classification of that component in equity and the accretion of the resulting discount on the debt is recognized as part of interest expense in the Company's Consolidated Statements of Operations. These provisions impact the accounting associated with the Company's $300 million convertible notes due 2013 ("Notes due 2013") and the Company's 3.25% zero coupon convertible notes due 2033 ("Notes due 2033") which are described further in Note 5. "Debt". The Notes due 2033 were retired in the third quarter of 2011.
The following table provides additional information about the Company's convertible debt instruments that are subject to these accounting requirements:
December 30, 2011 | December 31, 2010 | |||||||||||
Notes due 2013 | Notes due 2013 | Notes due 2033 | ||||||||||
($ and shares in millions, except conversion prices) | ||||||||||||
Carrying amount of the equity component |
$ | 53.3 | $ | 53.3 | $ | (45.7 | ) | |||||
Principal amount of the liability component |
$ | 300.0 | $ | 300.0 | $ | 100.2 | ||||||
Unamortized discount of liability component (a) |
$ | (19.7 | ) | $ | (35.8 | ) | $ | (51.7 | ) | |||
Net carrying amount of liability component |
$ | 280.3 | $ | 264.2 | $ | 48.5 | ||||||
Remaining amortization period of discount (a) |
14 months | (c | ) | (c | ) | |||||||
Conversion price |
$ | 59.78 | (c | ) | (c | ) | ||||||
Number of shares to be issued upon conversion |
5.0 | (c | ) | (c | ) | |||||||
If-converted value exceeds principal amount (b) |
$ | — | (c | ) | (c | ) |
(a) | The Notes due 2013 and Notes due 2033 were issued in February of 2007 and July of 2003, respectively. The Notes due 2033 were retired in the third quarter of 2011. For convertible debt accounting purposes, the expected life of the Notes due 2013 and the Notes due 2033 were determined to be six years and four years from the issuance date, respectively. As such, the Company is amortizing the unamortized discount through interest expense through February of 2013 for the Notes due 2013. |
(b) | If-converted value amounts are for disclosure purposes only. The Notes due 2013 are convertible when the closing price of the Company's common stock for at least 20 trading days in the 30 consecutive trading days ending on the last trading day of the immediately preceding fiscal quarter is more than $77.71. Based on the Company's stock prices during the year, the Notes due 2013 have not been convertible during 2011 and 2010. |
(c) | Data not required for comparative purposes. |
The fair value of the liability component related to the Notes due 2013 was initially calculated based on a discount rate of 7.1%, representing the Company's nonconvertible debt borrowing rate at issuance for debt instruments with similar terms and characteristics. For accounting purposes, the expected life for a similar instrument was six years which was used to develop this nonconvertible debt borrowing rate. Interest cost relates to both the contractual interest coupon and amortization of the discount on the liability component. Non-cash interest cost recognized for the Notes due 2013 was $16.1 million, $15.1 million and $14.1 million for fiscal years 2011, 2010 and 2009, respectively. Cash interest cost recognized for the Notes due 2013 was $3.0 million in 2011, 2010 and 2009.
The fair value of the liability component related to the Notes due 2033 was initially calculated based on a discount rate of 6.1%, representing the Company's nonconvertible debt borrowing rate at issuance for debt instruments with similar terms and characteristics. For accounting purposes, the expected life for a similar instrument was four years which was used to develop this nonconvertible debt borrowing rate. Therefore, the amount of interest expense associated with the initial discount was fully recognized as of the end of 2007 (i.e., four years from issuance of these notes). Interest cost recognized for the Notes due 2033 was $0.5 million, $2.9 million and $5.2 million for fiscal years 2011, 2010 and 2009, respectively, based on the zero-coupon rate of 3.25% associated with the Notes due 2033.
Intangible assets: Intangible assets, included in other assets on the consolidated balance sheets, primarily consist of customer relationships that are being amortized over periods ranging from 8 to 15 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. At December 30, 2011 and December 31, 2010, the Company's gross carrying amount of intangible assets subject to amortization was $130.4 million and $130.6 million, respectively. Accumulated amortization was $60.5 million and $50.4 million at December 30, 2011 and December 31, 2010, respectively. Intangible amortization expense related to all of the Company's net intangible assets of $69.9 million at December 30, 2011 is expected to be approximately $10.1 million per year for the next five years.
Foreign currency translation: The Company's investments in several subsidiaries are recorded in currencies other than the U.S. dollar. As these foreign currency denominated investments are translated at the end of each period during consolidation using period-end exchange rates, fluctuations of exchange rates between the foreign currency and the U.S. dollar increase or decrease the value of those investments. These fluctuations and 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 assets and liabilities-related translation adjustments are recorded as a separate component of Stockholders' Equity, "Foreign currency translation," which is a component of accumulated other comprehensive income (loss). In addition, as the Company's subsidiaries maintain investments denominated in currencies other than local currencies, exchange rate fluctuations will occur. Borrowings are raised in certain foreign currencies to minimize the exchange rate translation adjustment risk.
Several of the Company's subsidiaries conduct business in a currency other than the legal entity's functional currency. Transactions may produce receivables or payables that are fixed in terms of the amount of foreign currency that will be received or paid. A change in exchange rates between the functional currency and the currency in which a transaction is denominated increases or decreases the expected amount of functional currency cash flows upon settlement of the transaction. That increase or decrease in expected functional currency cash flows is a foreign currency transaction gain or loss that is included in "Other, net" in the Consolidated Statements of Operations. The Company recognized $7.1 million, $2.5 million and $23.2 million in net foreign exchange losses in 2011, 2010 and 2009, respectively. See "Other, net" discussion herein for further information regarding these losses.
The Company purchases foreign currency forward contracts to minimize the effect of fluctuating foreign currency-denominated accounts on its reported income. The foreign currency forward contracts are not designated as hedges for accounting 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 (e.g., various foreign currency-denominated accounts). The Company's counterparties to its foreign currency forward contracts have investment-grade credit ratings. The Company expects the creditworthiness of its counterparties to remain intact through the term of the transactions. The Company regularly monitors the creditworthiness of its counterparties to ensure no issues exist which could affect the value of the derivatives.
The Company does not hedge 100% of its foreign currency-denominated accounts and results of the hedging can vary significantly based on various factors, such as the timing of executing the foreign currency forward contracts versus the movement of the currencies as well as the fluctuations in the account balances throughout each reporting period. The fair value of the foreign currency forward contracts is based on the difference between the contract rate and the current exchange rate. The fair value of the foreign currency forward contracts is measured using observable market information. These inputs would be considered Level 2 in the fair value hierarchy. At December 30, 2011 and December 31, 2010, foreign currency forward contracts were revalued at then-current foreign exchange rates, with the changes in valuation reflected directly in "Other, net" in the Consolidated Statements of Operations offsetting the transaction gain/loss recorded on the foreign currency-denominated accounts. At December 30, 2011 and December 31, 2010, the notional amount of the foreign currency forward contracts outstanding was approximately $161.3 million and $223.0 million, respectively. The fair value of the Company's foreign currency forward contracts was not significant at December 30, 2011 or December 31, 2010.
The following activity relates to foreign exchange gains and losses reflected in "Other, net" in the Company's Consolidated Statements of Operations (in millions):
Years Ended | ||||||||||||
Income (Loss) | December 30, 2011 |
December 31, 2010 |
January 1, 2010 |
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Remeasurement of multicurrency balances |
$ | (0.6 | ) | $ | (1.7 | ) | $ | (11.2 | ) | |||
Revaluation of foreign currency forward contracts |
(4.0 | ) | 1.2 | (8.1 | ) | |||||||
Hedge costs |
(2.5 | ) | (2.0 | ) | (3.9 | ) | ||||||
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Total foreign exchange loss |
$ | (7.1 | ) | $ | (2.5 | ) | $ | (23.2 | ) | |||
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Interest rate agreements: The Company uses interest rate swaps to reduce its exposure to fluctuations in interest rates. The objective of the currently outstanding interest rate swap (cash flow hedge) is to convert variable interest to fixed interest associated with forecasted interest payments resulting from revolving borrowings in the U.K. and are designated as hedging instruments. The Company does not enter into interest rate swaps for speculative purposes. Changes in the value of the interest rate swap is expected to be highly effective in offsetting the changes attributable to fluctuations in the variable rates. The Company's counterparty to its interest rate swap contract has an investment-grade credit rating. The Company expects the creditworthiness of its counterparty to remain intact through the term of the transaction. When entered into, the financial instrument is designated as a hedge of underlying exposures (interest payments associated with the U.K. borrowings) attributable to changes in the respective benchmark interest rate.
As of December 30, 2011, the Company had one interest rate swap agreement outstanding with a notional amount of GBP 15 million. The GBP swap agreement obligates the Company to pay a fixed rate through July 2012. The fair value of the Company's interest rate swap is determined by means of a mathematical model that calculates the present value of the anticipated cash flows from the transaction using mid-market prices and other economic data and assumptions, or by means of pricing indications from one or more other dealers selected at the discretion of the respective banks. These inputs would be considered Level 2 in the fair value hierarchy described in recently issued accounting guidance on fair value measurements. At December 30, 2011, the interest rate swap was revalued at current interest rates, with the change in valuation reflected directly in "Accumulated Other Comprehensive Loss" in the Company's Consolidated Balance Sheets. The fair market value of this agreement, which is the estimated exit price that the Company would pay to cancel the agreement, was not significant at December 30, 2011.
Revenue recognition: Sales to customers, resellers and distributors and related cost of sales are recognized upon transfer of title, which generally occurs upon shipment of products, when the price is fixed and determinable and when collectability is reasonably assured. Revenue is recorded net of sales taxes, customer discounts, rebates and similar charges. The Company also establishes a reserve for returns and credits provided to customers in certain instances. The reserve is established based on an analysis of historical experience and was $30.7 million and $29.1 million at December 30, 2011 and December 31, 2010, respectively.
In connection with the sales of its products, the Company often provides certain supply chain services. These services are provided exclusively in connection with the sales of products, and as such, the price of such services are included in the price of the products delivered to the customer. The Company does not account for these services as a separate element, as the services do not have stand-alone value and cannot be separated from the product element of the arrangement. There are no significant post-delivery obligations associated with these services.
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 generally takes title to the goods when shipped by the manufacturer and then bills the customer for the product upon transfer of the title to the customer.
Sales taxes: Sales tax amounts collected from customers for remittance to governmental authorities are presented on a net basis in the Company's Consolidated Statements of Operations.
Advertising and sales promotion: Advertising and sales promotion costs are expensed as incurred. Advertising and promotion costs included in operating expenses on the Consolidated Statements of Operations were $12.1 million, $10.0 million and $9.9 million in 2011, 2010 and 2009, respectively. The majority of the Company's advertising and sales promotion costs are recouped through various cooperative advertising programs with vendors.
Shipping and handling fees and costs: The Company includes shipping and handling fees billed to customers in net sales. Shipping and handling costs associated with outbound freight are included in operating expenses on the Consolidated Statements of Operations, which were $108.4 million, $94.6 million and $84.8 million for the years ended 2011, 2010 and 2009, respectively.
Stock-based compensation: In accordance with U.S. accounting rules, the Company measures the cost of all employee share-based payments to employees, including grants of employee stock options, using a fair-value-based method. Compensation costs for the plans have been determined based on the fair value at the grant date using the Black-Scholes option pricing model and amortized on a straight-line basis over the respective vesting period representing the requisite service period.
Other, net: The following represents the components of "Other, net" as reflected in the Company's Consolidated Statements of Operations for the fiscal years 2011, 2010 and 2009:
Years Ended | ||||||||||||
(In millions) |
December 30, 2011 |
December 31, 2010 |
January 1, 2010 |
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Other, net loss: |
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Foreign exchange |
$ | (7.1 | ) | $ | (2.5 | ) | $ | (23.2 | ) | |||
Cash surrender value of life insurance policies |
(0.9 | ) | 3.0 | 3.4 | ||||||||
Settlement of interest rate swaps |
— | — | (2.1 | ) | ||||||||
Other |
(1.2 | ) | (2.0 | ) | 2.7 | |||||||
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$ | (9.2 | ) | $ | (1.5 | ) | $ | (19.2 | ) | ||||
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Due to the sharp increase of the U.S. dollar in 2011 against certain foreign currencies, primarily in the Emerging Markets where there are few cost-effective means of hedging, the Company recorded a foreign exchange loss of $7.1 million in 2011. In 2010, the Company recognized a foreign exchange gain of $2.1 million associated with the remeasurement of Venezuela's bolivar-denominated monetary assets on the Venezuelan balance sheet at the parallel exchange rate. The Company also recorded a foreign exchange loss of $13.8 million in 2009 due to the repatriation of cash from Venezuela and the remeasurement of monetary items on the Venezuelan balance sheet at the parallel exchange rate. The Company recorded other foreign exchange losses of $4.6 million and $9.4 million in 2010 and 2009, respectively. Further, the combined effect of declines in both the equity and bond markets resulted in a $0.9 million decline in the cash surrender value of Company owned life insurance policies associated with the Company sponsored deferred compensation program in 2011. This compares to a $3.0 million and $3.4 million increase in the cash surrender value of life insurance policies in 2010 and 2009, respectively. In 2009, the Company recorded a loss of $2.1 million associated with the cancellation of interest rate hedging contracts resulting from the repayment of the related borrowings. In 2009, the Company also recorded other income of $3.4 million related to the expiration of liabilities associated with a prior asset sale.
Income taxes: Deferred taxes are recognized for the future tax effects of temporary differences between financial and income tax reporting based upon enacted tax laws and rates. The Company maintains valuation allowances to reduce deferred tax assets if it is more likely than not that some portion or all of the deferred tax asset will not be realized. The Company recognizes the benefit of tax positions when a benefit is more likely than not (i.e., greater than 50% likely) to be sustained on its technical merits. Recognized tax benefits are measured at the largest amount that is more likely than not to be sustained, based on cumulative probability, in final settlement of the position.
Net income (loss) per share: Diluted net income (loss) per share reflects the potential dilution that would occur if securities or other contracts to issue common stock were exercised or converted into common stock.
In 2011 and 2010, 0.4 million and 0.5 million additional shares, respectively, related to stock options and stock units were included in the computation of diluted earnings per share because the effect of those common stock equivalents were dilutive during these periods. The Company excludes antidilutive stock options and units from the calculation of weighted-average shares for diluted earnings per share. The Company excluded 0.4 million, 0.4 million, and 0.5 million antidilutive stock options and units for 2011, 2010 and 2009, respectively
Due to the Company's obligation to settle the outstanding par value of the Notes due 2013 and Notes due 2033 in cash upon conversion, the Company is not required to include any shares underlying the convertible notes in its diluted weighted average shares outstanding until the average stock price per share for the period exceeds the conversion price of the respective instruments. Although the Notes due 2033 were retired during 2011, they were dilutive during the period as well as the corresponding period in 2010. At such time that the average stock price per share for the period exceeds the conversion price of the convertible notes, only the number of shares that would be potentially issuable (under the treasury stock method of accounting for share dilution) would be included in the dilutive share calculation, which is based upon the amount by which the average stock price exceeds the conversion price.
As a result of the conversion value exceeding the average accreted principal value during 2011 and 2010, the Company included 0.2 million and 0.9 million additional shares, respectively, related to the Notes due 2033 in the diluted weighted-average common shares outstanding. The Company's average stock price for 2009 did not exceed the average accreted principal value and, therefore, the Notes due 2033 were antidilutive for this period.
As a result of the Company's average stock price exceeding the conversion price during 2011, 0.3 million additional shares related to the Notes due 2013 were included in the diluted weighted-average common shares outstanding. The Company's average stock price for 2010 and 2009 did not exceed the conversion price and, therefore, the Notes due 2013 were antidilutive for these periods.
In June 2011, the FASB issued an update to Accounting Standards Codification ("ASC") No. 220, Presentation of Comprehensive Income, which eliminates the option to present other comprehensive income and its components in the statement of stockholders' equity. The Company can elect to present the items of net income and other comprehensive income in a single continuous statement of comprehensive income or in two separate, but consecutive statements. Under either method, the statement would need to be presented with equal prominence as the other primary financial statements. The amended guidance, which must be applied retrospectively, is effective for fiscal years, and interim periods within those years, beginning after December 15, 2011, with earlier adoption permitted. In December 2011, the FASB deferred the requirements related to reclassification adjustments out of accumulated other comprehensive income.
In September 2011, the FASB issued Accounting Standard Update ("ASU") 2011-08, Intangibles - Goodwill and Other (Topic 350): Testing Goodwill for Impairment, which gives companies the option to perform a qualitative assessment to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount and, in some cases, skip the two-step impairment test. The ASU is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011 with early adoption permitted. Adoption of this guidance at the beginning of fiscal 2012 is not expected to have a material impact on the Company's consolidated financial statements.
In December 2011, the FASB issued guidance to amend the requirements related to balance sheet offsetting. These amendments would require the Company to disclose information about rights of offset and related arrangements to enable users of its financial statements to understand the effect or potential effect of those arrangements on its financial position. The amended guidance is effective for fiscal years, and interim periods within those years, beginning on or after January 1, 2013 with required disclosures made retrospectively for all comparative periods presented. Adoption of this guidance at the beginning of fiscal 2014 is not expected to have a material impact on the Company's consolidated financial statements.
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NOTE 2. ACCRUED EXPENSES
Accrued expenses consisted of the following:
December 30, 2011 |
December 31, 2010 |
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(In millions) | ||||||||
Salaries and fringe benefits |
$ | 102.5 | $ | 92.5 | ||||
Other accrued expenses |
214.9 | 123.0 | ||||||
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Total accrued expenses |
$ | 317.4 | $ | 215.5 | ||||
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Accrued expenses increased to $317.4 million at the end of fiscal 2011 from $215.5 million at the end of fiscal 2010 primarily due to an increase in income taxes payable and higher variable costs, including employee incentives, due to the growth in sales during fiscal 2011.
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NOTE 3. RESTRUCTURING CHARGE
In order to improve the profitability of the Company's European segment, management approved a facility consolidation and headcount reduction plan during the first quarter of 2011 that will eliminate a number of European facilities and reduce operating costs. As a result, the Company recorded a pre-tax charge of $5.3 million which is included in "Operating Expenses" in the Company's Consolidated Statement of Operations for the fiscal year ended December 30, 2011. The charge includes certain exit costs and employee severance charges which are expected to be fully paid by the end of fiscal 2013. Additional costs of approximately $0.8 million related to moving expenses are expected to be recorded when incurred.
In 2009, the Company undertook expense reduction actions that resulted in $5.7 million of severance costs primarily related to staffing reductions needed to re-align the Company's business in response to current market conditions. The majority of these costs were incurred in North America while the balance of the expenses was primarily incurred in Europe. The 2009 obligations for these expense reduction actions were fully paid by the end of 2010.
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NOTE 4. DISCONTINUED OPERATIONS
Discontinued Operations: In August of 2011, the Company's board of directors approved the sale of the Company's Aerospace Hardware business ("Aerospace") and the transaction closed on August 26, 2011. Although the Company's historical performance in Aerospace has been strong, customer and supplier consolidation has resulted in a business model distinctly different than the Company's overall strategy. The transaction will enable the Company to focus its attention and resources on its core operations and strategic initiatives. Beginning in the third quarter of 2011, the Company began to record the results of this business as "Discontinued Operations" and all prior periods have been revised to reflect this classification. North America and Europe segment information which is presented in Note 10. "Business Segments" has also been revised from the prior year presentation to reflect the discontinued operations.
The sales price of $155.0 million resulted in net proceeds of $143.6 million after adjusting for working capital adjustments and amounts paid by the Company for legal and advisory fees. The Company reported a net loss from discontinued operations in 2011 of $12.5 million, which included a net loss on the sale of $21.0 million primarily due to the write off of goodwill of $19.0 million.
An additional $30.0 million will be paid to the Company if certain financial targets are achieved on or before December 31, 2013. The contingent payment of $30.0 million was not recorded, nor was it included in the calculation of the loss on the sale of Aerospace as it is the Company's policy to recognize contingent receivables in connection with a divestiture on the date the contingent receivable is realized.
The following represents the components of the results from Discontinued Operations as reflected in the Company's Consolidated Statement of Operations (in millions):
Years Ended | ||||||||||||
December 30, 2011 (a) |
December 31, 2010 |
January 1, 2010 |
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Net sales |
$ | 123.2 | $ | 197.6 | $ | 202.8 | ||||||
Operating income (loss) |
13.4 | (1.0 | ) | 18.6 | ||||||||
(Loss) income from discontinued operations before tax |
(9.3 | ) | (0.9 | ) | 18.8 | |||||||
Income tax expense |
3.2 | 0.1 | 6.7 | |||||||||
(Loss) income from discontinued operations, net of tax |
(12.5 | ) | (1.0 | ) | 12.1 |
(a) Includes the results through the date of the divestiture on August 26, 2011, including the pre-tax loss on sale of business of $22.6 million ($21.0 million, net of tax).
As reflected on the Company's Consolidated Balance Sheet as of December 31, 2010, the Company has reclassified the assets and liabilities of Aerospace to discontinued operations as follows (in millions):
December 31, 2010 |
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Assets of discontinued operations: |
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Accounts receivable |
$ | 29.4 | ||
Inventories |
132.4 | |||
Goodwill |
19.0 | |||
Other assets(a) |
6.0 | |||
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Total assets of discontinued operations |
$ | 186.8 | ||
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Liabilities of discontinued operations: |
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Accounts payable |
$ | 9.4 | ||
Accrued expenses(a) |
3.4 | |||
Other liabilities |
1.8 | |||
|
|
|||
Total liabilities of discontinued operations |
$ | 14.6 | ||
|
|
(a) Certain assets and liabilities, primarily related to a legal accrual, were not reclassified to discontinued operations as they were retained by the Company. See Note 6. "Commitments and Contingencies" for further information.
|
NOTE 5. DEBT
Debt is summarized below:
(In millions) | December 30, 2011 |
December 31, 2010 |
||||||
Long-term debt: |
||||||||
Convertible senior notes due 2013 |
$ | 280.3 | $ | 264.2 | ||||
Senior notes due 2015 |
200.0 | 200.0 | ||||||
Accounts receivable securitization facility |
175.0 | — | ||||||
Revolving lines of credit and other |
120.4 | 145.4 | ||||||
Senior notes due 2014 |
31.1 | 30.6 | ||||||
Convertible notes due 2033 |
— | 48.5 | ||||||
|
|
|
|
|||||
Total long-term debt |
806.8 | 688.7 | ||||||
Short-term debt |
3.0 | 203.4 | ||||||
|
|
|
|
|||||
Total debt |
$ | 809.8 | $ | 892.1 | ||||
|
|
|
|
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. The Company has guaranteed substantially all of the debt of its subsidiaries.
Aggregate annual maturities of debt at December 30, 2011 were as follows: 2012 — $3.0 million; 2013 — $455.8 million; 2014 — $31.1 million; 2015 — $200.0 million and 2016 — $119.9 million. The estimated fair value of the Company's debt at December 30, 2011 and December 31, 2010 was $881.6 million and $1,021.6 million, respectively, based on public quotations and current market rates. Interest paid in 2011, 2010 and 2009 was $31.6 million, $36.4 million and $37.2 million, respectively. The Company's average borrowings outstanding were $988.0 million and $845.0 million for the fiscal years ending December 30, 2011 and December 31, 2010, respectively. The Company's weighted-average cost of borrowings was 5.1%, 6.3% and 6.7% for the years ended December 30, 2011 and December 31, 2010 and January 1, 2010, respectively.
Retirement of Debt
During 2011, the Company retired its Notes due 2033 as a result of repurchases and bondholder conversions. The Company paid approximately $93.8 million in cash and $14.9 million was settled in stock. Available borrowings under the Company's long-term revolving credit facility were used to retire these notes. In connection with the retirement of debt, the Company reduced the accreted value of debt by $48.9 million and recorded a gross reduction to stockholders' equity of $44.9 million.
During 2010, the Company's primary operating subsidiary, Anixter Inc., retired $133.7 million of accreted value of its 10% Senior Notes due 2014 ("Notes due 2014") for $165.5 million. Available cash and other borrowings were used to retire these notes. The Company also retired $67.0 million of accreted value of its Notes due 2033 for $119.6 million. Long-term revolving credit borrowings were used to repurchase these notes. In connection with these repurchases, the Company reduced the accreted value of debt by $200.7 million and recorded a gross reduction to stockholders' equity of $54.0 million.
During 2009, Anixter Inc. retired $23.6 million of accreted value of its Notes due 2014 for $27.7 million ($1.2 million of which was accrued at year-end 2009). Available cash was used to retire these notes. The Company also retired $60.1 million of accreted value of its Notes due 2033 for $90.8 million. Long-term revolving credit borrowings were used to repurchase these notes. In connection with these repurchases, the Company reduced the accreted value of debt by $83.7 million and recorded a gross reduction to stockholders' equity of $34.3 million.
The retirement of debt in 2011 did not have a significant impact on the Company's Consolidated Statement of Operations. As a result of the retirement of debt in 2010 and 2009, the Company recognized a pre-tax loss of $31.9 million and $1.1 million, respectively.
Revolving Lines of Credit
At the end of fiscal 2011, the Company had approximately $313.0 million in available, committed, unused credit lines with financial institutions that have investment-grade credit ratings. As such, the Company expects to have access to this availability based on its assessment of the viability of the associated financial institutions which are party to these agreements. Long-term borrowings under the committed credit facilities totaled $120.4 million and $145.4 million at December 30, 2011 and December 31, 2010, respectively.
In the second quarter of 2011, Anixter Inc. refinanced its senior unsecured revolving credit facility. At December 30, 2011, long-term borrowings under this agreement, which is guaranteed by the Company, were $111.0 million as compared to $131.1 million of outstanding long-term borrowings at the end of fiscal 2010. The following are the key terms to the revolving credit agreement:
|
The size of the credit facility is $400 million (or the equivalent in Euros) and matures in April 2016. |
|
The pricing grid is a leverage-based pricing grid. Based on Anixter Inc.'s current leverage ratio, the applicable margin is Libor plus 200 basis points. |
|
As of the end of 2011, the consolidated fixed charge coverage ratio (as defined in the revolving credit agreement) requires a minimum coverage 2.50 times. As of December 30, 2011, the consolidated fixed charge coverage ratio was 4.51. |
|
The consolidated leverage ratio (as defined in the revolving credit agreement) limits the maximum leverage allowed to 3.25. As of December 30, 2011, the consolidated leverage ratio was 1.35. |
|
Anixter Inc. will be permitted to direct funds to the Company for payment of dividends and share repurchases to a maximum of $175 million plus 50 percent of Anixter Inc.'s cumulative net income from the effective date of the new agreement. As of December 30, 2011, Anixter Inc. has the ability to distribute $152.7 million of funds to the Company. |
|
Anixter Inc. will be allowed to prepay, purchase or redeem indebtedness of the Company, provided that its proforma leverage ratio (as defined in the agreement) is less than or equal to 2.75 to 1.00 and that its unrestricted domestic cash balance plus availability under the revolving credit agreement and the accounts receivable securitization facility is equal to or greater than $175 million. |
The Company is in compliance with all of the covenant ratios and believes that there is adequate margin between the covenant ratios and the actual ratios given the current trends of the business. As of December 30, 2011, the total availability of all revolving lines of credit at Anixter Inc. would be permitted to be borrowed.
Excluding the primary revolving credit facility at December 30, 2011 and December 31, 2010, certain subsidiaries had long-term borrowings under other bank revolving lines of credit and miscellaneous facilities of $9.4 million and $14.3 million, respectively, which mature beyond twelve months of the Company's fiscal year end December 30, 2011.
Senior Notes Due 2014
In March 2009, the Company's primary operating subsidiary, Anixter Inc., issued $200 million in principal of its Notes due 2014 which were priced at a discount to par that resulted in a yield to maturity of 12%. The Notes due 2014 pay interest semiannually at a rate of 10% per annum and mature on March 15, 2014. In addition, before March 15, 2012, Anixter Inc. may redeem up to 35% of the Notes due 2014 at the redemption price of 110% of their principal amount plus accrued interest, using the net cash proceeds from public sales of the Company's stock. Net proceeds from this offering were approximately $180.4 million after deducting discounts, commissions and expenses of $4.8 million which are being amortized through March 2014. At December 30, 2011 and December 31, 2010, the Notes due 2014 outstanding were $31.1 million and $30.6 million, respectively. The Company fully and unconditionally guarantees the Notes due 2014, which are unsecured obligations of Anixter Inc.
Convertible Debt
Convertible Senior Notes Due 2013
In February 2007, the Company completed a private placement of $300.0 million principal amount of Notes due 2013. In May 2007, the Company registered the Notes due 2013 and shares of the Company's common stock issuable upon conversion of the Notes due 2013 for resale by certain selling security holders. The Notes due 2013 are structurally subordinated to the indebtedness of Anixter.
The Notes due 2013 pay interest semiannually at a rate of 1.00% per annum. The Notes due 2013 are convertible, at the holders' option, at a conversion rate of 16.727 shares per $1,000 principal amount of Notes due 2013 (for an aggregate of 5.0 million shares), equivalent to a conversion price of $59.78 per share. The Company has sufficient authorized shares to settle such conversion.
In periods during which the Notes due 2013 are convertible, any conversion will be settled in cash up to the principal amount, and any excess conversion value will be delivered, at the Company's election in cash, common stock or a combination of cash and common stock. Based on the Company's stock price at the end of fiscal 2011, the Notes due 2013 are not currently convertible.
In connection with the issuance of the Notes due 2013, the Company purchased a call option that covers 5.0 million shares of its common stock, subject to customary anti-dilution adjustments. The purchased call option currently has an exercise price of $59.78 per share.
Concurrently with purchasing the call option, the Company sold to the counterparty a warrant to purchase shares of its common stock, subject to customary anti-dilution adjustments. The sold warrant currently has an exercise price of $77.98 and may not be exercised prior to the maturity of the notes. The shares related to the warrant are 5.0 million shares.
Holders of the Notes due 2013 may convert them prior to the close of business on the business day before the maturity date based on the applicable conversion rate only under the following circumstances:
Conversion Based on Common Stock Price
Holders may convert during any fiscal quarter and only during any fiscal quarter, if the closing price of the Company's common stock for at least 20 trading days in the 30 consecutive trading days ending on the last trading day of the immediately preceding fiscal quarter is more than 130% of the conversion price per share, or $77.71. The conversion price per share is equal to $1,000 divided by the then applicable conversion rate (currently 16.727 shares per $1,000 principal amount).
Conversion Based on Trading Price of Notes
Holders may convert during the five business day period after any period of five consecutive trading days in which the trading price per $1,000 principal amount of Notes due 2013 for each trading day of that period was less than 98% of the product of the closing price of the Company's common stock for each trading day of that period and the then applicable conversion rate.
Conversion Upon Certain Distributions
If the Company elects to:
|
distribute, to all holders of the Company's common stock, any rights entitling them to purchase, for a period expiring within 45 days of distribution, common stock, or securities convertible into common stock, at less than, or having a conversion price per share less than, the closing price of the Company's common stock; or |
|
distribute, to all holders of the Company's common stock, assets, cash, debt securities or rights to purchase the Company's securities, which distribution has a per share value exceeding 15% of the closing price of such common stock, |
holders may surrender their Notes due 2013 for conversion at any time until the earlier of the close of business on the business day prior to the ex-dividend date or the Company's announcement that such distribution will not take place.
Conversion Upon a Fundamental Change
Holders may surrender Notes due 2013 for conversion at any time beginning 15 days before the anticipated effective date of a fundamental change and until the Company makes any required purchase of the Notes due 2013 as a result of the fundamental change. A "fundamental change" means the occurrence of a change of control or a termination of trading of the Company's common stock. Certain change of control events may give rise to a make whole premium.
Conversion at Maturity
Holders may surrender their Notes due 2013 for conversion at any time beginning on January 15, 2013 and ending at the close of business on the business day immediately preceding the maturity date.
The "conversion rate" is 16.727 shares of the Company's common stock, subject to certain customary anti-dilution adjustments. These adjustments consist of adjustments for:
|
stock dividends and distributions, share splits and share combinations, |
|
the issuance of any rights to all holders of the Company's common stock to purchase shares of such stock at an issuance price of less than the closing price of such stock, exercisable within 45 days of issuance, |
|
the distribution of stock, debt or other assets, to all holders of the Company's common stock, other than distributions covered above, and |
|
issuer tender offers at a premium to the closing price of the Company's common stock. |
The "conversion value" of the Notes due 2013 means the average of the daily conversion values, as defined below, for each of the 20 consecutive trading days of the conversion reference period. The "daily conversion value" means, with respect to any trading day, the product of (1) the applicable conversion rate and (2) the volume weighted-average price per share of the Company's common stock on such trading day.
The "conversion reference period" means:
|
for Notes due 2013 that are converted during the one month period prior to maturity date of the notes, the 20 consecutive trading days preceding and ending on the maturity date, subject to any extension due to a market disruption event, and |
|
in all other instances, the 20 consecutive trading days beginning on the third trading day following the conversion date. |
The "conversion date" with respect to the Notes due 2013 means the date on which the holder of the Notes due 2013 has complied with all the requirements under the indenture to convert such Notes due 2013.
Convertible Notes Due 2033
The Company retired its Notes due 2033 in 2011. At the end of 2010, the Notes due 2033 had an aggregate principal amount at maturity of $100.2 million and a book value of $48.5 million. Although the Notes due 2033 were convertible at the end of 2010 and the holders could have required the Company to purchase their notes on July 7, 2011, they were classified as long-term as the Company had the intent and ability to refinance the accreted value under existing long-term financing agreements.
Senior Notes Due 2015
Anixter Inc. also has the $200.0 million 5.95% Senior Notes due 2015 ("Notes due 2015"), which are fully and unconditionally guaranteed by the Company. Interest of 5.95% on the Notes due 2015 is payable semi-annually on March 1 and September 1 of each year.
Other Borrowings
As of December 30, 2011 and December 31, 2010, the Company's short-term debt outstanding was $3.0 million and $203.4 million, respectively. At December 31, 2010, short-term debt consisted primarily of the funding related to the Anixter Receivables Corporation ("ARC") facility which was amended in the second quarter of 2011 by the Anixter Inc. The following key changes were made to the program:
|
The size of the program increased from $200 million to $275 million. |
|
The liquidity termination date of the program will be May 2013 (formerly the termination date was during July 2011). |
|
The renewed program carries an all-in drawn funding cost of Commercial Paper ("CP") plus 90 basis points (previously CP plus 115 basis points). |
|
Unused capacity fees decreased from a range of 57.5 to 60 basis points to a range of 45 to 55 basis points depending on utilization. |
All other material terms and conditions remain unchanged. As a result of the change in maturity, the $175.0 million outstanding at December 30, 2011 is classified as long-term on the Company's Consolidated Balance Sheet at December 30, 2011 (formerly short-term debt as of December 31, 2010).
Under Anixter's accounts receivable securitization program, the Company sells, on an ongoing basis without recourse, a majority of the accounts receivable originating in the United States to ARC, which is considered a wholly-owned, bankruptcy-remote variable interest entity ("VIE"). The Company has the authority to direct the activities of the VIE and, as a result, the Company has concluded that it maintains control of the VIE and is the primary beneficiary as defined by accounting guidance and, therefore, consolidates the account balances of ARC. As of December 30, 2011 and December 31, 2010, $524.6 million and $407.8 million of the Company's receivables were sold to ARC, respectively. ARC in turn sells an interest in these receivables to a financial institution for proceeds up to $275.0 million. The assets of ARC are not available to Anixter until all obligations of ARC are satisfied in the event of bankruptcy or insolvency proceedings.
Fair Value of Debt
The fair value of the Company's debt instruments is measured using observable market information which would be considered Level 2 in the fair value hierarchy described in accounting guidance on fair value measurements.
The Company's fixed-rate debt primarily consists of nonconvertible and convertible debt as follows:
|
Nonconvertible fixed-rate debt consisting of the Notes due 2015 and Notes due 2014. |
|
Convertible fixed-rate debt. |
At December 30, 2011, the Company's carrying value of its fixed-rate debt was $511.4 million as compared to $543.3 million at December 31, 2010. The estimated fair market value of the Company's fixed-rate debt at December 30, 2011 and December 31, 2010 was $583.2 million and $672.8 million, respectively. The decline in the carrying value and estimated fair market value is primarily due to the retirement of the Notes due 2033 during 2011. As of December 30, 2011 and December 31, 2010, the Company's carrying value of its variable-rate debt was $298.4 million and $348.8 million, respectively, which approximates the estimated fair market value.
|
NOTE 6. COMMITMENTS AND CONTINGENCIES
Substantially all of the Company's office and warehouse facilities and equipment are leased under operating leases. A certain number of these leases are long-term operating leases containing rent escalation clauses and expire at various dates through 2027. Most operating leases entered into by the Company contain renewal options.
Minimum lease commitments under operating leases at December 30, 2011 are as follows (in millions):
2012 |
$ | 61.8 | ||
2013 |
49.0 | |||
2014 |
39.6 | |||
2015 |
28.5 | |||
2016 |
20.4 | |||
2017 and thereafter |
43.7 | |||
|
|
|||
Total |
$ | 243.0 | ||
|
|
Total rental expense was $82.1 million, $76.4 million and $78.2 million in 2011, 2010 and 2009, respectively. Aggregate future minimum rentals to be received under non-cancelable subleases at December 30, 2011 were $1.7 million.
In April 2008, the Company voluntarily disclosed to the U.S. Departments of Treasury and Commerce that one of its foreign subsidiaries may have violated U.S. export control laws and regulations in connection with re-exports of goods to prohibited parties or destinations including Cuba and Syria, countries identified by the State Department as state sponsors of terrorism. The Company performed a thorough review of its export and re-export transactions and did not identify any other potentially significant violations. The Company determined and took appropriate corrective actions. The Company submitted the results of its review and its corrective action plan to the applicable U.S. government agencies. On November 1, 2011, the Company received a warning letter from the U.S. Commerce Department and on December 20, 2011, the Company received a cautionary letter from the U.S. Treasury Department stating that each department was officially closing the matter without fines, penalties or other consequences to the Company.
In May 2009, Raytheon Co. filed for arbitration against one of the Company's subsidiaries, Anixter Inc., alleging that it had supplied non-conforming parts to Raytheon. Raytheon sought damages of approximately $26 million. The arbitration hearing concluded in October 2010 and the arbitration panel rendered its decision at the end of 2010. The arbitration panel entered an interim award against the Company in the amount of $20.8 million. In April 2011, the arbitration panel entered a final award that reiterated the $20.8 million liability and added additional liability of $1.5 million in favor of Raytheon for certain of its attorneys' fees and costs in the arbitration proceeding. In the fourth quarter of 2010, the Company recorded a pre-tax charge of $20.0 million which approximates the expected cost of the award after consideration of insurance proceeds, fees, costs and interest on the award at 10% per annum until paid. As a result of the Company's sale of its Aerospace business in the third quarter of 2011 the charge related to this matter was reclassified to discontinued operations in the Company's Consolidated Statement of Operations for the year ended December 31, 2010. Assets and liabilities related to the Raytheon matter were retained by the Company and were not reclassified to assets and liabilities of discontinued operations. In June 2011, the Company filed a motion to vacate the arbitration award in the Superior Court of Maricopa County, Arizona. In November 2011, the court denied the Company's motion and confirmed the arbitration award in full. During the fourth quarter of 2011, the Company recorded an additional $2.5 million in discontinued operations to cover expected interest associated with further appeal proceedings. In February 2012, the Company filed a notice of appeal, appealing the judgment confirming the arbitration award to the Arizona Court of Appeals. See Note 13. "Subsequent Event" for further information.
In September 2009, the Garden City Employees' Retirement System filed a purported class action under the federal securities laws in the United States District Court for the Northern District of Illinois against the Company, its current and former chief executive officers and its former chief financial officer. In November 2009, the Court entered an order appointing the Indiana Laborers Pension Fund as lead plaintiff and appointing lead plaintiff's counsel. In January 2010, the lead plaintiff filed an amended complaint. The amended complaint principally alleges that the Company made misleading statements during 2008 regarding certain aspects of its financial performance and outlook. The amended complaint seeks unspecified damages on behalf of persons who purchased the common stock of the Company between January 29 and October 20, 2008. In March 2011, the Court dismissed the complaint but allowed the lead plaintiff the opportunity to re-plead its complaint. The plaintiff did so in April 2011. The Company and the other defendants intend to continue to defend themselves vigorously against the allegations. Based on facts known to management at this time, the Company cannot estimate the amount of loss, if any, and, therefore, has not made any accrual for this matter in these financial statements.
In October 2009, the Company disclosed to the U.S. Government that it may have violated laws and regulations restricting entertainment of government employees. The Inspector General of the relevant federal agency is investigating the disclosure and the Company is cooperating in the investigation. Civil and or criminal penalties could be assessed against the Company in connection with any violations that are determined to have occurred. In January 2012, the Company was informed by the Department of Justice, Civil Division, that it is investigating this matter and that a qui tam action has been filed under the False Claims Act, which remains under seal pursuant to statute. The Department of Justice has received an order partially lifting the seal to permit the government to discuss the matter with the Company; however, the government has instructed Anixter that it must maintain the confidentiality of the matter. Based on facts known to management at this time, the Company cannot estimate the amount of loss, if any, and, therefore, has not made any accrual for this matter in these financial statements.
From time to time, in the ordinary course of business, the Company and its subsidiaries become involved as plaintiffs or defendants in various other legal proceedings not enumerated above. The claims and counterclaims in such other legal proceedings, 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 on the advice of its counsel, that the ultimate disposition of those proceedings will not be material. As of December 30, 2011, the Company does not believe there is a reasonable possibility that any material loss exceeding the amounts already recognized for these proceedings and matters has been incurred. However, the ultimate resolutions of these proceedings and matters are inherently unpredictable. As such, the Company's financial condition and results of operations could be adversely affected in any particular period by the unfavorable resolution of one or more of these proceedings or matters.
|
NOTE 7. INCOME TAXES
Taxable Income: Domestic income from continuing operations before income taxes was $204.5 million, $113.8 million and $79.6 million for 2011, 2010 and 2009, respectively. Foreign income from continuing operations before income taxes (and before goodwill impairment loss) was $99.0 million, $66.4 million and $18.8 million for fiscal years 2011, 2010 and 2009, respectively.
Tax Provisions and Reconciliation to the Statutory Rate: The components of the Company's tax expense on continuing operations and the reconciliation to the statutory federal rate are identified below.
Income tax expense (benefit) was comprised of (in millions):
Years Ended | ||||||||||||
December 30, 2011 |
December 31, 2010 |
January 1, 2010 |
||||||||||
Current: |
||||||||||||
Foreign |
$ | 28.3 | $ | 21.0 | $ | 18.2 | ||||||
State |
8.1 | 4.0 | (0.4 | ) | ||||||||
Federal |
59.2 | 24.1 | 23.6 | |||||||||
|
|
|
|
|
|
|||||||
95.6 | 49.1 | 41.4 | ||||||||||
Deferred: |
||||||||||||
Foreign |
(14.9 | ) | 0.4 | (5.9 | ) | |||||||
State |
1.7 | 2.3 | 0.2 | |||||||||
Federal |
20.4 | 18.9 | 4.1 | |||||||||
|
|
|
|
|
|
|||||||
7.2 | 21.6 | (1.6 | ) | |||||||||
|
|
|
|
|
|
|||||||
Income tax expense |
$ | 102.8 | $ | 70.7 | $ | 39.8 | ||||||
|
|
|
|
|
|
Reconciliations of income tax expense to the statutory corporate federal tax rate of 35% were as follows (in millions):
Years Ended | ||||||||||||
December 30, 2011 |
December 31, 2010 |
January 1, 2010 |
||||||||||
Statutory tax expense |
$ | 106.2 | $ | 63.1 | $ | (0.6 | ) | |||||
Increase (reduction) in taxes resulting from: |
||||||||||||
Nondeductible goodwill impairment loss |
— | — | 35.0 | |||||||||
State income taxes, net |
6.5 | 4.0 | 2.1 | |||||||||
Foreign tax effects |
(1.4 | ) | 1.7 | 8.6 | ||||||||
Changes in valuation allowances(a) |
(11.3 | ) | — | (4.5 | ) | |||||||
Other, net |
2.8 | 1.9 | (0.8 | ) | ||||||||
|
|
|
|
|
|
|||||||
Income tax expense |
$ | 102.8 | $ | 70.7 | $ | 39.8 | ||||||
|
|
|
|
|
|
(a) In 2011, the Company recorded a tax benefit of $11.3 million, net, related to changes in tax valuation allowances primarily in certain foreign jurisdictions. Approximately $7.4 million, net, of the tax benefit was a correction of an error from prior periods to reverse valuation allowances for deferred tax assets in certain foreign jurisdictions where sufficient evidence existed to support the realization of these deferred tax assets at a more likely than not level. The Company has determined the error is not material to previously issued financial statements, and the correction of these errors is not material to the results of operations for the fiscal year ended December 30, 2011.
Tax Payments: The Company made net payments for income taxes in 2011, 2010 and 2009 of $41.9 million, $61.9 million and $56.2 million, respectively.
Net Operating Losses: The Company and its U.S. subsidiaries file their federal income tax return on a consolidated basis. The Company had no tax credit carryforwards for U.S. federal income tax purposes.
At December 30, 2011, various foreign subsidiaries of the Company had aggregate cumulative net operating losses ("NOL") carryforwards for foreign income tax purposes of approximately $110.0 million, which are subject to various provisions of each respective country. Approximately $98.0 million of the NOL carryforwards may be carried forward indefinitely. The remaining NOL carryforwards expire at various times between 2012 and 2021.
Undistributed Earnings: The undistributed earnings of the Company's foreign subsidiaries amounted to approximately $432.5 million at December 30, 2011. The Company considers those earnings to be indefinitely reinvested and, accordingly, no provision for U.S. federal and state income taxes or any withholding taxes has been recorded. Upon distribution of those earnings in the form of dividends or otherwise, the Company may be subject to both U.S. income taxes (subject to adjustment for foreign tax credits) and withholding taxes payable to the various foreign countries. With respect to the countries that have undistributed earnings as of December 30, 2011, according to the foreign laws and treaties in place at that time, estimated U.S. federal income tax of approximately $50.0 million and various foreign jurisdiction withholding taxes of approximately $26.7 million would be payable upon the remittance of all earnings at December 30, 2011.
Deferred Income Taxes: Significant components of the Company's deferred tax assets and (liabilities) were as follows (in millions):
December 30, 2011 |
December 31, 2010 |
|||||||
Property, equipment, intangibles and other |
$ | (21.5 | ) | $ | (21.6 | ) | ||
Accreted interest (Notes due 2033) |
— | (6.0 | ) | |||||
|
|
|
|
|||||
Gross deferred tax liabilities |
(21.5 | ) | (27.6 | ) | ||||
Deferred compensation and other postretirement benefits |
75.3 | 57.7 | ||||||
Inventory reserves |
12.5 | 31.5 | ||||||
Foreign NOL carryforwards and other |
33.7 | 21.8 | ||||||
Allowance for doubtful accounts |
5.8 | 8.3 | ||||||
Other |
16.6 | 10.8 | ||||||
|
|
|
|
|||||
Gross deferred tax assets |
143.9 | 130.1 | ||||||
|
|
|
|
|||||
Deferred tax assets, net of deferred tax liabilities |
122.4 | 102.5 | ||||||
Valuation allowance |
(20.3 | ) | (18.8 | ) | ||||
|
|
|
|
|||||
Net deferred tax assets |
$ | 102.1 | $ | 83.7 | ||||
|
|
|
|
|||||
Net current deferred tax assets |
$ | 37.7 | $ | 50.3 | ||||
Net non-current deferred tax assets |
64.4 | 33.4 | ||||||
|
|
|
|
|||||
Net deferred tax assets |
$ | 102.1 | $ | 83.7 | ||||
|
|
|
|
Uncertain Tax Positions and Jurisdictions Subject to Examinations: A reconciliation of the beginning and ending amount of unrecognized tax benefits for fiscal 2009, 2010 and 2011 is as follows:
(in millions) | ||||
Balance at January 2, 2009 |
$ | 5.8 | ||
Additions for tax positions of prior years |
4.0 | |||
Reductions for tax positions of prior years |
(5.2 | ) | ||
|
|
|||
Balance at January 1, 2010 |
$ | 4.6 | ||
Additions for tax positions of prior years |
1.9 | |||
Reductions for tax positions of prior years |
(2.5 | ) | ||
|
|
|||
Balance at December 31, 2010 |
$ | 4.0 | ||
Additions for tax positions of prior years |
20.2 | |||
Reductions for tax positions of prior years |
(1.3 | ) | ||
|
|
|||
Balance at December 30, 2011 |
$ | 22.9 | ||
|
|
In 2009 and 2010, the Company recorded adjustments to stockholders' equity of $18.7 million for tax benefits attributable to deductions claimed in 2009 and 2010 tax returns related to financing activities. In 2011, the Company determined that such deductions do not meet the more likely than not standard for recognition of the related tax benefits and recorded $18.7 million of accrued taxes payable with an offsetting entry to stockholders' equity. This balance has been included in the table above for uncertain tax positions. The Company has determined that the error is not material to previously issued financial statements and the correction of the error is not material to the results of operations for the fiscal year ended December 30, 2011.
Interest and penalties related to taxes were minimal in 2011 and $1.4 million in 2010. Interest and penalties are reflected in the "Other, net" line in the Consolidated Statement of Operations. The Company has accrued $1.3 million and $1.9 million at December 30, 2011 and December 31, 2010, respectively, for the payment of interest and penalties.
The Company estimates that of the unrecognized tax benefit balance of $24.2 million, all of which would affect the effective tax rate, $3.8 million may be resolved in a manner that would impact the effective rate within the next twelve months. The reserves for uncertain tax positions, including interest and penalties, of $24.2 million cover a range of issues, in particular, certain financing-related activities of the Company, intercompany charges and withholding taxes, and involve numerous different taxing jurisdictions.
Only the returns for fiscal tax years 2008 and later remain subject to examination by the Internal Revenue Service ("IRS") in the United States, which is the most significant tax jurisdiction for the Company. An IRS examination of fiscal tax years 2008 and 2009 was completed in January 2012. For most states, fiscal tax years 2008 and later remain subject to examination, although for some states the period subject to examination ranges back to as early as fiscal tax year 2003. In Canada, the fiscal tax years 2007 and later are still subject to examination, while in the United Kingdom, the fiscal tax years 2008 and later remain subject to examination.
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NOTE 8. PENSION PLANS, POST-RETIREMENT BENEFITS AND OTHER BENEFITS
The Company has various defined benefit and defined contribution pension plans. The defined benefit plans of the Company are the Anixter Inc. Pension Plan, Executive Benefit Plan and Supplemental Executive Retirement Plan (SERP) (together the "Domestic Plans") and various pension plans covering employees of foreign subsidiaries ("Foreign Plans"). The majority of the Company's pension plans are non-contributory and cover substantially all full-time domestic employees and certain employees in other countries. Retirement benefits are provided based on compensation as defined in both the Domestic and Foreign Plans. The Company's policy is to fund all Domestic Plans as required by the Employee Retirement Income Security Act of 1974 ("ERISA") and the IRS and all Foreign Plans as required by applicable foreign laws. The Executive Benefit Plan and SERP are the only two plans that are unfunded. Assets in the various plans consist primarily of equity securities and fixed income investments.
The assets are held in separate independent trusts and managed by independent third party advisors. The investment objective of both the Domestic and Foreign Plans is to ensure, over the long-term life of the plans, an adequate level of assets to fund the benefits to employees and their beneficiaries at the time they are payable. In meeting this objective, Anixter seeks to achieve a high level of total investment return consistent with a prudent level of portfolio risk. The risk tolerance of Anixter indicates an above average ability to accept risk relative to that of a typical defined benefit pension plan as the duration of the projected benefit obligation is longer than the average company. The risk preference indicates a willingness to accept some increases in short-term volatility in order to maximize long-term returns. However, the duration of the fixed income portion of the Domestic Plan approximates the duration of the projected benefit obligation to reduce the effect of changes in discount rates that are used to measure the funded status of the Plan. The measurement date for all plans of the Company is equal to the fiscal year end.
The Domestic Plans' and Foreign Plans' asset mixes as of December 30, 2011 and December 31, 2010 and the Company's asset allocation guidelines for such plans are summarized as follows:
Domestic Plans | ||||||||||||||||||||
December 30, |
December 31, | Allocation Guidelines | ||||||||||||||||||
2011 | 2010 | Min | Target | Max | ||||||||||||||||
Large capitalization U.S. stocks |
32.8 | % | 33.2 | % | 20 | % | 30 | % | 40 | % | ||||||||||
Small capitalization U.S. stocks |
16.8 | 17.3 | 15 | 20 | 25 | |||||||||||||||
International stocks |
16.3 | 16.6 | 15 | 20 | 25 | |||||||||||||||
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Total equity securities |
65.9 | 67.1 | 70 | |||||||||||||||||
Fixed income investments |
29.9 | 30.3 | 25 | 30 | 35 | |||||||||||||||
Other investments |
4.2 | 2.6 | — | — | — | |||||||||||||||
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100.0 | % | 100.0 | % | 100 | % | |||||||||||||||
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Foreign Plans | ||||||||||||
December 30, 2011 |
December 31, 2010 |
Allocation Guidelines | ||||||||||
Target | ||||||||||||
Equity securities |
43.3 | % | 46.2 | % | 49 | % | ||||||
Fixed income investments |
48.7 | 44.9 | 43 | |||||||||
Other investments |
8.0 | 8.9 | 8 | |||||||||
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100.0 | % | 100.0 | % | 100.0 | % | |||||||
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The pension committees meet regularly to assess investment performance and re-allocate assets that fall outside of its allocation guidelines. The variations between the allocation guidelines and actual asset allocations reflect relative performance differences in asset classes. From time to time, the Company periodically rebalances its asset portfolios to be in line with its allocation guidelines.
The North American investment policy guidelines are as follows:
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Each asset class is actively managed by one investment manager; |
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Each asset class may be invested in a commingled fund, mutual fund, or separately managed account; |
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Each manager is expected to be "fully invested" with minimal cash holdings; |
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The use of options and futures is limited to covered hedges only; |
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Each equity asset manager has a minimum number of individual company stocks that need to be held and there are restrictions on the total market value that can be invested in any one industry and the percentage that any one company can be of the portfolio total. The domestic equity funds are limited as to the percentage that can be invested in international securities; |
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The international stock fund is limited to readily marketable securities; and |
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The fixed income fund has a duration that approximates the duration of the projected benefit obligations. |
The investment policies for the European plans are the responsibility of the various trustees. Generally, the investment policy guidelines are as follows:
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Make sure that the obligations to the beneficiaries of the Plan can be met; |
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Maintain funds at a level to meet the minimum funding requirements; and |
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The investment managers are expected to provide a return, within certain tracking tolerances, close to that of the relevant market's indices. |
The expected long-term rate of return on both the Domestic and Foreign Plans' assets reflects the average rate of earnings expected on the invested assets and future assets to be invested to provide for the benefits included in the projected benefit obligation. The Company uses historic plan asset returns combined with current market conditions to estimate the rate of return. The expected rate of return on plan assets is a long-term assumption and generally does not change annually. The weighted-average expected rate of return on plan assets used in the determination of net periodic pension cost for 2011 is 6.91%.
Included in accumulated other comprehensive income as of December 30, 2011 are the deferred prior service cost, deferred net transition obligation and deferred net actuarial loss of $0.7 million, $0.1 million and $84.5 million, respectively. Included in accumulated other comprehensive income as of December 31, 2010 are the deferred prior service cost, deferred net transition obligation and deferred net actuarial loss of $3.3 million, $0.1 million and $40.5 million, respectively. During the year ended December 30, 2011, the Company reduced accumulated other comprehensive income by $41.4 million (net of tax of $21.4 million), $43.9 million of which related to deferred actuarial losses (net of tax of $23.0 million) offset by a reduction of deferred prior service costs of $2.5 million (net of tax of $1.6 million). Included in these reductions to accumulated other comprehensive income during 2011 were actuarial losses and prior service costs of $2.2 million and $0.4 million, respectively, as a result of being recognized as components of net periodic pension cost. Over the next fiscal year, the Company expects to amortize actuarial losses and prior service costs of $9.0 million and $0.1 million, respectively, from accumulated other comprehensive income into net periodic pension cost. Amortization of the transition obligation over the next fiscal year will be insignificant.
The following represents a reconciliation of the funded status of the Company's pension plans from the beginning of fiscal 2010 to the end of fiscal 2011:
Pension Benefits | ||||||||||||||||||||||||
Domestic | Foreign | Total | ||||||||||||||||||||||
2011 | 2010 | 2011 | 2010 | 2011 | 2010 | |||||||||||||||||||
(In millions) | ||||||||||||||||||||||||
Change in projected benefit obligation: |
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Beginning balance |
$ | 225.4 | $ | 197.9 | $ | 174.6 | $ | 175.9 | $ | 400.0 | $ | 373.8 | ||||||||||||
Service cost |
7.0 | 6.1 | 5.3 | 4.7 | 12.3 | 10.8 | ||||||||||||||||||
Interest cost |
12.0 | 11.6 | 9.7 | 9.9 | 21.7 | 21.5 | ||||||||||||||||||
Plan participants contributions |
— | — | 0.4 | 0.3 | 0.4 | 0.3 | ||||||||||||||||||
Actuarial loss (gain) |
49.7 | 15.3 | 11.1 | (6.1 | ) | 60.8 | 9.2 | |||||||||||||||||
Benefits paid |
(6.1 | ) | (6.1 | ) | (6.3 | ) | (5.6 | ) | (12.4 | ) | (11.7 | ) | ||||||||||||
Foreign currency exchange rate changes |
— | — | (2.0 | ) | (4.5 | ) | (2.0 | ) | (4.5 | ) | ||||||||||||||
Other |
(0.3 | ) | 0.6 | — | — | (0.3 | ) | 0.6 | ||||||||||||||||
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Ending balance |
$ | 287.7 | $ | 225.4 | $ | 192.8 | $ | 174.6 | $ | 480.5 | $ | 400.0 | ||||||||||||
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Change in plan assets at fair value: |
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Beginning balance |
$ | 148.0 | $ | 127.3 | $ | 165.8 | $ | 149.5 | $ | 313.8 | $ | 276.8 | ||||||||||||
Actual (loss) return on plan assets |
5.7 | 19.9 | 9.1 | 15.0 | 14.8 | 34.9 | ||||||||||||||||||
Company contributions |
10.4 | 6.9 | 9.8 | 10.0 | 20.2 | 16.9 | ||||||||||||||||||
Plan participants contributions |
— | — | 0.4 | 0.3 | 0.4 | 0.3 | ||||||||||||||||||
Benefits paid |
(6.1 | ) | (6.1 | ) | (6.3 | ) | (5.6 | ) | (12.4 | ) | (11.7 | ) | ||||||||||||
Foreign currency exchange rate changes |
— | — | (1.7 | ) | (3.4 | ) | (1.7 | ) | (3.4 | ) | ||||||||||||||
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Ending balance |
$ | 158.0 | $ | 148.0 | $ | 177.1 | $ | 165.8 | $ | 335.1 | $ | 313.8 | ||||||||||||
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Reconciliation of funded status: |
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Projected benefit obligation |
$ | (287.7 | ) | $ | (225.4 | ) | $ | (192.8 | ) | $ | (174.6 | ) | $ | (480.5 | ) | $ | (400.0 | ) | ||||||
Plan assets at fair value |
158.0 | 148.0 | 177.1 | 165.8 | 335.1 | 313.8 | ||||||||||||||||||
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Funded status |
$ | (129.7 | ) | $ | (77.4 | ) | $ | (15.7 | ) | $ | (8.8 | ) | $ | (145.4 | ) | $ | (86.2 | ) | ||||||
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Included in the 2011 and 2010 funded status is accrued benefit cost of approximately $17.9 million and $13.0 million, respectively, related to two non-qualified plans, which cannot be funded pursuant to tax regulations. | ||||||||||||||||||||||||
Noncurrent asset |
$ | — | $ | — | $ | 5.3 | $ | 2.0 | $ | 5.3 | $ | 2.0 | ||||||||||||
Current liability |
(0.8 | ) | (0.6 | ) | — | — | (0.8 | ) | (0.6 | ) | ||||||||||||||
Noncurrent liability |
(128.9 | ) | (76.8 | ) | (21.0 | ) | (10.8 | ) | (149.9 | ) | (87.6 | ) | ||||||||||||
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Funded status |
$ | (129.7 | ) | $ | (77.4 | ) | $ | (15.7 | ) | $ | (8.8 | ) | $ | (145.4 | ) | $ | (86.2 | ) | ||||||
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Weighted-average assumptions used for measurement of the projected benefit obligation: |
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Discount rate |
4.37 | % | 5.53 | % | 4.84 | % | 5.43 | % | 4.56 | % | 5.49 | % | ||||||||||||
Salary growth rate |
3.90 | % | 3.91 | % | 3.13 | % | 3.57 | % | 3.57 | % | 3.76 | % |
The following represents the funded components of net periodic pension cost as reflected in the Company's Consolidated Statements of Operations and the weighted-average assumptions used to measure net periodic cost for the years ended December 30, 2011, December 31, 2010 and January 1, 2010:
Pension Benefits | ||||||||||||||||||||||||||||||||||||
Domestic | Foreign | Total | ||||||||||||||||||||||||||||||||||
2011 | 2010 | 2009 | 2011 | 2010 | 2009 | 2011 | 2010 | 2009 | ||||||||||||||||||||||||||||
(In millions) | ||||||||||||||||||||||||||||||||||||
Components of net periodic cost: |
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Service cost |
$ | 7.0 | $ | 6.1 | $ | 6.6 | $ | 5.3 | $ | 4.7 | $ | 4.0 | $ | 12.3 | $ | 10.8 | $ | 10.6 | ||||||||||||||||||
Interest cost |
12.0 | 11.6 | 11.0 | 9.7 | 9.9 | 8.6 | 21.7 | 21.5 | 19.6 | |||||||||||||||||||||||||||
Expected return on plan assets |
(11.8 | ) | (10.8 | ) | (9.9 | ) | (10.1 | ) | (8.9 | ) | (7.9 | ) | (21.9 | ) | (19.7 | ) | (17.8 | ) | ||||||||||||||||||
Net amortization |
3.4 | 3.5 | 3.7 | 0.3 | 0.6 | (0.1 | ) | 3.7 | 4.1 | 3.6 | ||||||||||||||||||||||||||
Curtailment loss |
0.6 | — | — | — | — | — | 0.6 | — | — | |||||||||||||||||||||||||||
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Net periodic cost |
$ | 11.2 | $ | 10.4 | $ | 11.4 | $ | 5.2 | $ | 6.3 | $ | 4.6 | $ | 16.4 | $ | 16.7 | $ | 16.0 | ||||||||||||||||||
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Weighted-average assumption used to measure net periodic cost: |
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Discount rate |
5.53 | % | 5.99 | % | 5.90 | % | 5.43 | % | 5.77 | % | 6.45 | % | 5.49 | % | 5.88 | % | 6.12 | % | ||||||||||||||||||
Expected return on plan assets |
8.00 | % | 8.50 | % | 8.50 | % | 5.93 | % | 6.02 | % | 6.02 | % | 6.91 | % | 7.16 | % | 7.26 | % | ||||||||||||||||||
Salary growth rate |
3.91 | % | 3.91 | % | 4.43 | % | 3.57 | % | 3.59 | % | 3.66 | % | 3.76 | % | 3.79 | % | 4.05 | % |
Fair Value Measurements
The following presents information about the Plan's assets measured at fair value on a recurring basis at the end of fiscal 2011, and the valuation techniques used by the Plan to determine those fair values. The inputs used in the determination of these fair values are categorized according to the fair value hierarchy as being Level 1, Level 2 or Level 3.
In general, fair values determined by Level 1 inputs use quoted prices in active markets for identical assets that the Plan has the ability to access. The majority of the Company's pension assets valued by Level 1 inputs are comprised of Domestic equity and fixed income securities which are traded actively on public exchanges and valued at quoted prices at the end of the fiscal year.
Fair values determined by Level 2 inputs use other inputs that are observable, either directly or indirectly. These Level 2 inputs include quoted prices for similar assets in active markets, and other inputs such as interest rates and yield curves that are observable at commonly quoted intervals. The majority of the Company's pension assets valued by Level 2 inputs are comprised of common/collective/pool funds (i.e., mutual funds) which are not exchange traded. These assets are valued at their Net Asset Values ("NAV") and considered observable inputs, or Level 2.
Level 3 inputs are unobservable inputs, including inputs that are available in situations where there is little, if any, market activity for the related asset. The Company does not have any pension assets valued by Level 3 inputs.
In instances where inputs used to measure fair value fall into different levels in the above fair value hierarchy, fair value measurements in their entirety are categorized based on the lowest level input that is significant to the valuation. The Plan's assessment of the significance of particular inputs to these fair value measurements requires judgment and considers factors specific to each asset.
Disclosures concerning assets measured at fair value on a recurring basis at the end of each fiscal year, which have been categorized under the fair value hierarchy for the Domestic and Foreign Plans by the Company are as follows:
Pension Assets | ||||||||||||||||||||||||||||||||||||
Domestic | Foreign | Total | ||||||||||||||||||||||||||||||||||
Level 1 | Level 2 | Total | Level 1 | Level 2 | Total | Level 1 | Level 2 | Total | ||||||||||||||||||||||||||||
(In millions) | ||||||||||||||||||||||||||||||||||||
Asset Categories: |
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Cash and short-term investments |
$ | 6.6 | $ | — | $ | 6.6 | $ | 1.4 | $ | — | $ | 1.4 | $ | 8.0 | $ | — | $ | 8.0 | ||||||||||||||||||
Equity securities: |
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Domestic |
78.4 | — | 78.4 | 0.1 | 30.7 | 30.8 | 78.5 | 30.7 | 109.2 | |||||||||||||||||||||||||||
International |
— | 25.7 | 25.7 | — | 45.8 | 45.8 | — | 71.5 | 71.5 | |||||||||||||||||||||||||||
Fixed income securities: |
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Domestic |
31.7 | 1.0 | 32.7 | 0.5 | 65.6 | 66.1 | 32.2 | 66.6 | 98.8 | |||||||||||||||||||||||||||
Corporate bonds |
— | 14.6 | 14.6 | 0.4 | 19.9 | 20.3 | 0.4 | 34.5 | 34.9 | |||||||||||||||||||||||||||
Insurance funds |
— | — | — | — | 12.2 | 12.2 | — | 12.2 | 12.2 | |||||||||||||||||||||||||||
Other |
— | — | — | 0.1 | 0.4 | 0.5 | 0.1 | 0.4 | 0.5 | |||||||||||||||||||||||||||
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Total |
$ | 116.7 | $ | 41.3 | $ | 158.0 | $ | 2.5 | $ | 174.6 | $ | 177.1 | $ | 119.2 | $ | 215.9 | $ | 335.1 | ||||||||||||||||||
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The Company's estimated future benefits payments are as follows at the end of 2011:
Estimated Future Benefit Payments |
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Domestic | Foreign | Total | ||||||||||
(In millions) | ||||||||||||
2012 |
$ | 8.8 | $ | 5.7 | $ | 14.5 | ||||||
2013 |
8.1 | 5.7 | 13.8 | |||||||||
2014 |
8.8 | 6.3 | 15.1 | |||||||||
2015 |
9.4 | 6.2 | 15.6 | |||||||||
2016 |
10.1 | 6.5 | 16.6 | |||||||||
2017-2021 |
63.9 | 37.4 | 101.3 | |||||||||
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Total |
$ | 109.1 | $ | 67.8 | $ | 176.9 | ||||||
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The accumulated benefit obligation in 2011 and 2010 was $251.7 million and $202.0 million, respectively, for the Domestic Plans and $161.4 million and $148.5 million, respectively, for the Foreign Plans. The Company had six plans in 2011 and seven plans in 2010 where the accumulated benefit obligation was in excess of the fair value of plan assets. For pension plans with accumulated benefit obligations in excess of plan assets the aggregate pension accumulated benefit obligation was $256.3 million and $209.4 million for 2011 and 2010, respectively, and aggregate fair value of plan assets was $161.8 million and $154.5 million for 2011 and 2010, respectively.
The Company currently estimates that it will make contributions of approximately $14.2 million to its Domestic Plans and $9.2 million to its Foreign Plans in 2012.
Non-union domestic employees of the Company hired on or after June 1, 2004 earn a benefit under a personal retirement account (hypothetical account balance). Each year, a participant's account receives a credit equal to 2.0% of the participant's salary (2.5% if the participant's years of service at August 1 of the plan year are five years or more). Beginning January 1, 2011, active participants with three years of service became fully vested in their hypothetical personal retirement account (previously, participants vested after five years of service). Interest earned on the credited amount is not credited to the personal retirement account, but is contributed to the participant's account in the Anixter Inc. Employee Savings Plan. The interest contribution equals the interest earned on the personal retirement account in the Domestic Plan and is based on the 10-year Treasury note rate as of the last business day of December.
Anixter Inc. adopted the Anixter Inc. Employee Savings Plan effective January 1, 1994. The Plan is a defined-contribution plan covering all non-union domestic employees of the Company. Participants are eligible and encouraged to enroll in the tax-deferred plan on their date of hire, and are automatically enrolled approximately 60 days after their date of hire unless they opt out. The savings plan is subject to the provisions of ERISA. The Company makes a matching contribution equal to 25% of a participant's contribution, up to 6% of a participant's compensation. The Company also has certain foreign defined contribution plans. The Company's contributions to these plans are based upon various levels of employee participation and legal requirements. The total expense related to defined contribution plans was $5.9 million, $5.4 million and $5.0 million in 2011, 2010 and 2009, respectively.
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 monthly on the deferred compensation balances based on the average 10-year Treasury note rate for the previous three months times a factor of 1.4, and the rate is further adjusted if certain financial goals of the Company are achieved. The plan provides for benefit payments upon retirement, death, disability, termination or other scheduled dates determined by the participant. At December 30, 2011 and December 31, 2010, the deferred compensation liability included in other liabilities on the Consolidated Balance Sheets was $44.1 million and $42.3 million, respectively.
Concurrent with the implementation of the deferred compensation plan, the Company purchased variable, separate account life insurance policies on the plan participants with benefits accruing to the Company. To provide for the liabilities associated with the deferred compensation plan and an executive non-qualified defined benefit plan, fixed general account "increasing whole life" insurance policies were purchased on the lives of certain participants. Prior to 2006, the Company paid level annual premiums on the above company-owned policies. The last premium was paid in 2005. Policy proceeds are payable to the Company upon the insured participant's death. At December 30, 2011 and December 31, 2010, the cash surrender value of $33.9 million and $34.8 million, respectively, was recorded under this program and reflected in "Other assets" on the consolidated balance sheets.
The Company has no other post-retirement benefits other than the pension and savings plans described herein.
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NOTE 9. STOCKHOLDERS' EQUITY
Preferred Stock
The Company has the authority to issue 15.0 million shares of preferred stock, par value $1.00 per share, none of which were outstanding at the end of fiscal 2011 and 2010.
Common Stock
The Company has the authority to issue 100.0 million shares of common stock, par value $1.00 per share, of which 33.2 million shares and 34.3 million shares were outstanding at the end of fiscal 2011 and 2010, respectively.
Special Dividend
On September 23, 2010, the Company's Board of Directors declared a special dividend of $3.25 per common share, or approximately $113.7 million, as a return of excess capital to shareholders. The dividend declared was recorded as a reduction to retained earnings as of the end of the third quarter of 2010 and was paid on October 28, 2010 to shareholders of record on October 15, 2010.
In accordance with the antidilution provisions of the Company's stock incentive plans, the exercise price and number of options outstanding were adjusted to reflect the special dividend. The average exercise price of outstanding options decreased from $43.88 to $41.16, and the number of outstanding options increased from 1.3 million to 1.4 million. In addition, the dividend will be paid to holders of stock units upon vesting of the units. These changes resulted in no additional compensation expense.
The conversion rate of the Notes due 2013 was adjusted in October 2010 to reflect the special dividend. Holders of the Notes due 2013 may convert each Note into 16.727 shares, compared to 15.753 shares before the adjustment, of the Company's common stock, for which the Company has reserved 5.0 million of its authorized shares, compared to 4.7 million shares before adjustment.
Stock-Based Compensation
In 2010, the Company's shareholders approved the 2010 Stock Incentive Plan consisting of 1.8 million shares of the Company's common stock. At December 30, 2011, there were 2.3 million shares reserved for issuance under all incentive plans.
Stock Units
The Company granted 157,790, 268,701 and 371,131 stock units to employees in 2011, 2010 and 2009, respectively, with a weighted-average grant date fair value of $69.91, $42.72 and $29.41 per share, respectively. The grant-date value of the stock units is amortized and converted to outstanding shares of common stock on a one-for-one basis primarily over a four-year or six-year vesting period from the date of grant based on the specific terms of the grant. Compensation expense associated with the stock units was $6.8 million, $11.6 million and $10.3 million in 2011, 2010 and 2009, respectively.
The Company's Director Stock Unit Plan allows the Company to pay its non-employee directors annual retainer fees and, at their election, meeting fees in the form of stock units. Currently, these units are granted quarterly and vest immediately. Therefore, the Company includes these units in its common stock outstanding on the date of vesting as the conditions for conversion are met. However, the actual issuance of shares related to all director units are deferred until a pre-arranged time selected by each director. Stock units were granted to ten directors in 2011 and twelve directors in 2010 and 2009 having an aggregate value at grant date of $1.6 million, $1.3 million and $1.9 million, respectively. Compensation expense associated with the director stock units was $1.6 million, $1.7 million and $1.9 million in 2011, 2010 and 2009, respectively.
The following table summarizes the activity under the director and employee stock unit plans:
Director Stock Units (1) |
Weighted Average Grant Date Value (2) |
Employee Stock Units |
Weighted Average Grant Date Value (2) |
|||||||||||||
(Units in thousands) | ||||||||||||||||
Outstanding balance at January 2, 2009 |
193.9 | $ | 40.14 | 582.6 | $ | 54.74 | ||||||||||
Granted |
48.9 | 38.39 | 371.1 | 29.41 | ||||||||||||
Converted |
(2.7 | ) | 46.91 | (177.4 | ) | 46.02 | ||||||||||
Cancelled |
— | — | (17.2 | ) | 47.79 | |||||||||||
|
|
|
|
|||||||||||||
Outstanding balance at January 1, 2010 |
240.1 | 39.71 | 759.1 | 44.55 | ||||||||||||
Granted |
26.8 | 47.32 | 268.7 | 42.72 | ||||||||||||
Converted |
(37.2 | ) | 38.14 | (197.4 | ) | 51.09 | ||||||||||
Cancelled |
— | — | (6.7 | ) | 45.32 | |||||||||||
|
|
|
|
|||||||||||||
Outstanding balance at December 31, 2010 |
229.7 | 40.85 | 823.7 | 42.38 | ||||||||||||
Granted |
27.7 | 59.14 | 157.8 | 69.91 | ||||||||||||
Converted |
(7.2 | ) | 45.74 | (281.9 | ) | 44.67 | ||||||||||
Cancelled |
— | — | (82.5 | ) | 43.99 | |||||||||||
|
|
|
|
|||||||||||||
Outstanding balance at December 30, 2011 |
250.2 | $ | 42.74 | 617.1 | $ | 48.16 | ||||||||||
|
|
|
|
(1) | Generally, stock units are included in the Company's common stock outstanding on the date of vesting as the conditions for conversion have been met. However, director units are considered convertible units if vested and the individual has elected to defer for conversion until a pre-arranged time selected by each individual. All of the director stock units outstanding are convertible. |
(2) | Director and employee stock units are granted at no cost to the participants. |
The Company's stock price was $59.64, $59.73 and $47.10 at December 30, 2011, December 31, 2010 and January 1, 2010, respectively. The weighted-average remaining contractual term for outstanding employee units is 1.9 years.
The aggregate intrinsic value of units converted into stock represents the total pre-tax intrinsic value (calculated using the Company's stock price on the date of conversion multiplied by the number of units converted) that was received by unit holders. The aggregate intrinsic value of units converted into stock for 2011, 2010 and 2009 was $20.0 million, $10.4 million and $5.3 million, respectively.
The aggregate intrinsic value of units outstanding represents the total pre-tax intrinsic value (calculated using the Company's closing stock price on the last trading day of the fiscal year multiplied by the number of units outstanding) that will be received by the unit recipients upon vesting. The aggregate intrinsic value of units outstanding for 2011, 2010 and 2009 was $51.7 million, $62.9 million and $47.1 million, respectively.
The aggregate intrinsic value of units convertible represents the total pre-tax intrinsic value (calculated using the Company's closing stock price on the last trading day of the fiscal year multiplied by the number of units convertible) that would have been received by the unit holders. The aggregate intrinsic value of units convertible for 2011, 2010 and 2009 was $14.9 million, $14.1 million and $12.0 million, respectively.
Stock Options
Options previously granted under these plans have been granted with exercise prices at the fair market value of the common stock on the date of grant. All options expire ten years after the date of grant. The Company generally issues new shares to satisfy stock option exercises as opposed to adjusting treasury shares. In accordance with U.S. GAAP, the fair value of stock option grants is amortized over the respective vesting period representing the requisite service period.
During 2011, 2010 and 2009, the Company granted 75,886, 96,492 and 97,222 stock options, respectively, to employees with a grant-date fair market value of approximately $2.2 million, $1.6 million and $1.2 million, respectively. These options were granted with vesting periods of four years representing the requisite service period based on the specific terms of the grant. The weighted-average fair value of the 2011, 2010 and 2009 stock option grants was $28.50, $17.10 and $12.37 per share, respectively, which was estimated at the date of the grants using the Black-Scholes option pricing model with the following assumptions:
Expected Stock Price Volatility |
Risk-Free Interest Rate |
Expected Dividend Yield |
Average Expected Life |
|||||||||||||
2011 Grants |
37.9 | % | 2.4 | % | — | 6.13 years | ||||||||||
2010 Grants |
36.2 | % | 2.7 | % | — | 6.13 years | ||||||||||
2009 Grants |
35.4 | % | 2.7 | % | — | 7 years |
Primarily due to the change in the population of employees that receive options together with changes in the stock compensation plans (which now include restricted stock units as well as stock options), historical exercise behavior on previous grants do not provide a reasonable estimate for future exercise activity. Therefore, the average expected term was calculated using the simplified method, as defined by U.S. GAAP, for estimating the expected term.
The Company's compensation expense associated with the stock options in 2011, 2010 and 2009 was $2.7 million, $3.4 million and $3.0 million, respectively.
The following table summarizes the activity under the employee option plans (Options in thousands):
Employee Options |
Weighted- average Exercise Price |
|||||||
Balance at January 2, 2009 |
1,729.8 | $ | 33.78 | |||||
Granted |
97.2 | 29.41 | ||||||
Exercised |
(264.8 | ) | 18.21 | |||||
Cancelled |
— | — | ||||||
|
|
|||||||
Balance at January 1, 2010 |
1,562.2 | 36.15 | ||||||
Adjusted (a) |
87.2 | 37.87 | ||||||
Granted |
96.5 | 42.71 | ||||||
Exercised |
(510.9 | ) | 21.25 | |||||
Cancelled |
(0.1 | ) | 22.39 | |||||
|
|
|||||||
Balance at December 31, 2010 |
1,234.9 | 40.27 | ||||||
Granted |
75.9 | 69.54 | ||||||
Exercised |
(502.5 | ) | 29.92 | |||||
Cancelled |
(52.0 | ) | 52.33 | |||||
|
|
|||||||
Balance at December 31, 2011 |
756.3 | $ | 49.26 | |||||
|
|
|||||||
Options exercisable at year-end: |
||||||||
2009 |
956.8 | $ | 20.43 | |||||
2010 (a) |
661.2 | $ | 26.12 | |||||
2011 |
405.5 | $ | 28.20 |
(a) | In accordance with the provisions of the stock option plan, the exercise price and number of options outstanding and exercisable were adjusted to reflect the special dividend in 2010. |
The Company's stock price was $59.64, $59.73 and $47.10 at December 30, 2011, December 31, 2010 and January 1, 2010, respectively. The weighted-average remaining contractual term for options outstanding for 2011 was 6.7 years. The weighted-average remaining contractual term for options exercisable for 2011 was 5.6 years.
The aggregate intrinsic value of options exercised represents the total pre-tax intrinsic value (calculated as the difference between the Company's stock price on the date of exercise and the exercise price, multiplied by the number of options exercised) that was received by the option holders. The aggregate intrinsic value of options exercised for 2011, 2010 and 2009 was $18.1 million, $15.5 million and $5.8 million, respectively.
The aggregate intrinsic value of options outstanding represents the total pre-tax intrinsic value (calculated as the difference between the Company's closing stock price on the last trading day of each fiscal year and the weighted-average exercise price, multiplied by the number of options outstanding at the end of the fiscal year) that could be received by the option holders if such option holders exercised all options outstanding at fiscal year-end. The aggregate intrinsic value of options outstanding for 2011, 2010 and 2009 was $25.4 million, $39.9 million and $43.4 million, respectively.
The aggregate intrinsic value of options exercisable represents the total pre-tax intrinsic value (calculated as the difference between the Company's closing stock price on the last trading day of each fiscal year and the weighted-average exercise price, multiplied by the number of options exercisable at the end of the fiscal year) that would have been received by the option holders had all option holders elected to exercise the options at fiscal year-end. The aggregate intrinsic value of options exercisable for 2011, 2010 and 2009 was $12.7 million, $22.2 million and $25.5 million, respectively.
Summary of Non-Vested Shares
The following table summarizes the changes to the unvested employee stock units and options:
Non-vested Shares |
Weighted-average Grant Date Fair Value |
|||||||
(shares in thousands) | ||||||||
Non-vested shares at December 31, 2010 |
1,391.3 | $ | 32.82 | |||||
Granted |
233.7 | 56.46 | ||||||
Vested |
(522.6 | ) | 33.51 | |||||
Cancelled |
(134.5 | ) | 34.71 | |||||
|
|
|||||||
Non-vested shares at December 30, 2011 |
967.9 | $ | 37.89 | |||||
|
|
As of December 30, 2011, there was $15.5 million of total unrecognized compensation cost related to unvested stock units and options granted to employees which is expected to be recognized over a weighted-average period of 1.8 years.
Share Repurchases
During 2011, the Company repurchased 2.0 million shares in the open market at an average cost of $53.73 per share. Purchases were made in the open market and financed from a portion of the proceeds from the sale of Aerospace. During 2010, the Company purchased 1.0 million shares at an average cost of $41.24 per share. Purchases were made in the open market using available cash on hand and available borrowings. During 2009, the Company purchased 1.0 million shares at an average cost of $34.95 per share. Purchases were made in the open market and were financed from cash generated by operations and the net proceeds from the issuance of the Notes due 2014.
|
NOTE 10. BUSINESS SEGMENTS
The Company is engaged in the distribution of communication and security products, electrical and electronic wire and cable products and fasteners and other small parts ("C" Class inventory components) from top suppliers to contractors and installers, and also to end users including manufacturers, natural resources companies, utilities and original equipment manufacturers who use the Company's products as a component in their end product. The Company is organized by geographic regions, and accordingly, has identified North America (United States and Canada), Europe and Emerging Markets (Asia Pacific and Latin America) as reportable segments. The Company obtains and coordinates financing, tax, information technology, legal and other related services, certain of which are rebilled to subsidiaries. Certain corporate expenses are allocated to the segments based primarily on specific identification, projected sales and estimated use of time. Interest expense and other non-operating items are not allocated to the segments or reviewed on a segment basis. Intercompany transactions are not significant. No customer accounted for more than 3% of sales in 2011. Export sales were insignificant.
The Company attributes foreign sales based on the location of the customer purchasing the product. In North America, sales in the United States were $3,561.7 million, $3,081.4 million and $2,830.3 million in 2011, 2010 and 2009, respectively. Canadian sales were $740.8 million, $619.8 million and $567.5 million in 2011, 2010 and 2009, respectively. No other individual foreign country's net sales within the Europe or Emerging Markets' geographic segments were material to the Company in 2011, 2010 or 2009. The Company's tangible long-lived assets primarily consist of property, plant and equipment in the United States. No other individual foreign country's tangible long-lived assets are material to the Company.
Segment information for 2011, 2010 and 2009 was as follows (in millions):
North America |
Europe | Emerging Markets |
Total | |||||||||||||
2011 |
||||||||||||||||
Net sales |
$ | 4,302.5 | $ | 1,150.0 | $ | 694.4 | $ | 6,146.9 | ||||||||
Operating income |
307.7 | 15.7 | 39.4 | 362.8 | ||||||||||||
Depreciation |
14.5 | 5.6 | 2.0 | 22.1 | ||||||||||||
Amortization of intangibles |
5.2 | 6.1 | 0.1 | 11.4 | ||||||||||||
Tangible long-lived assets |
99.6 | 28.3 | 6.3 | 134.2 | ||||||||||||
Total assets |
2,015.9 | 622.3 | 395.8 | 3,034.0 | ||||||||||||
Capital expenditures |
18.3 | 5.2 | 2.9 | 26.4 | ||||||||||||
2010 |
||||||||||||||||
Net sales |
$ | 3,701.2 | $ | 1,008.4 | $ | 564.9 | $ | 5,274.5 | ||||||||
Operating income (loss) |
235.1 | (0.9 | ) | 33.0 | 267.2 | |||||||||||
Depreciation |
14.7 | 5.6 | 2.2 | 22.5 | ||||||||||||
Amortization of intangibles |
5.0 | 6.2 | 0.1 | 11.3 | ||||||||||||
Tangible long-lived assets |
95.9 | 24.5 | 5.5 | 125.9 | ||||||||||||
Total assets |
2,043.9 | 586.7 | 302.7 | 2,933.3 | ||||||||||||
Capital expenditures |
16.6 | 1.9 | 1.1 | 19.6 | ||||||||||||
2009 |
||||||||||||||||
Net sales |
$ | 3,397.8 | $ | 887.9 | $ | 493.9 | $ | 4,779.6 | ||||||||
Operating income (loss) |
175.1 | (120.0 | ) | 29.7 | 84.8 | |||||||||||
Depreciation |
15.0 | 7.0 | 2.1 | 24.1 | ||||||||||||
Amortization of intangibles |
6.3 | 6.6 | 0.1 | 13.0 | ||||||||||||
Tangible long-lived assets |
92.2 | 32.5 | 5.5 | 130.2 | ||||||||||||
Total assets |
1,869.5 | 545.6 | 256.6 | 2,671.7 | ||||||||||||
Capital expenditures |
17.0 | 2.9 | 2.0 | 21.9 |
The following table summarizes net sales by end market for the years ended December 30, 2011, December 31, 2011 and January 1, 2010 (in millions):
Years Ended | ||||||||||||||||||||||||
December 30, 2011 | December 31, 2010 | January 1, 2010 | ||||||||||||||||||||||
Net Sales | % of Total Net Sales |
Net Sales | % of Total Net Sales |
Net Sales | % of Total Net Sales |
|||||||||||||||||||
Enterprise Cabling and Security |
$ | 3,245.9 | 52.8 | % | $ | 2,912.6 | 55.2 | % | $ | 2,744.1 | 57.4 | % | ||||||||||||
Electrical Wire and Cable |
1,949.5 | 31.7 | % | 1,602.5 | 30.4 | % | 1,385.7 | 29.0 | % | |||||||||||||||
OEM Supply |
951.5 | 15.5 | % | 759.4 | 14.4 | % | 649.8 | 13.6 | % | |||||||||||||||
|
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|
|
|
|
|
|
|
|||||||||||||
Net Sales |
$ | 6,146.9 | 100.0 | % | $ | 5,274.5 | 100.0 | % | $ | 4,779.6 | 100.0 | % | ||||||||||||
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The categorization of net sales by end market is determined using a variety of data points including the technical characteristics of the product, the "sold to" customer information, the "ship to" customer information and the end customer product or application into which the Company's product will be incorporated. As data systems for capturing and tracking this data evolve and improve, the categorization of products by end market can vary over time. When this occurs, the Company reclassifies net sales by end market for prior periods. Such reclassifications typically do not materially change the sizing of, or the underlying trends of results within, each end market.
The following table presents the changes in goodwill allocated to the Company's reportable segments from January 1, 2010 to December 30, 2011 (in millions):
North America |
Europe(a) | Emerging Markets |
Total | |||||||||||||
Balance as of January 1, 2010(b) |
$ | 316.3 | $ | 11.7 | $ | 10.7 | $ | 338.7 | ||||||||
Acquisition related (c) |
15.3 | — | — | 15.3 | ||||||||||||
Foreign currency translation |
0.8 | (0.7 | ) | 1.2 | 1.3 | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Balance as of December 31, 2010 |
$ | 332.4 | $ | 11.0 | $ | 11.9 | $ | 355.3 | ||||||||
Acquisition related(c) |
(2.8 | ) | — | — | (2.8 | ) | ||||||||||
Foreign currency translation |
(0.4 | ) | (0.1 | ) | (0.3 | ) | (0.8 | ) | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Balance as of December 30, 2011 |
$ | 329.2 | $ | 10.9 | $ | 11.6 | $ | 351.7 | ||||||||
|
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|
|
|
|
|
|
(a) | Europe's goodwill balance includes $100.0 million of accumulated impairment losses for all periods presented. |
(b) | As a result of the disposition of the Company's Aerospace business in the third quarter of 2011, goodwill of $19.0 million allocated to the North America and Europe reportable segments was written off and prior period amounts were reclassified to "Assets of discontinued operations" on the Company's Consolidated Balance Sheet as of January 1, 2010. |
(c) | In the year ended December 30, 2011, the Company adjusted goodwill recognized in 2010 by $2.8 million, related to the acquisition of Clark Security Products, Inc and General Lock, LLC (collectively "Clark") for which the Company paid $36.4 million in 2010 (offset in 2011 by $1.6 million which was returned to the Company as a result of net working capital adjustments). The purchase price, as well as the allocation thereof, was finalized in 2011. |
|
NOTE 11. SUMMARIZED FINANCIAL INFORMATION OF ANIXTER INC.
The Company guarantees, fully and unconditionally, substantially all of the debt of its subsidiaries, which include Anixter Inc. The Company has no independent assets or operations and all subsidiaries other than Anixter Inc. are minor.The following summarizes the financial information for Anixter Inc. (in millions):
ANIXTER INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
December 30, 2011 |
December 31, 2010 |
|||||||
Assets: |
||||||||
Current assets(a) |
$ | 2,404.0 | $ | 2,309.1 | ||||
Property, equipment and capital leases, net |
102.3 | 98.3 | ||||||
Goodwill |
351.7 | 355.3 | ||||||
Other assets |
190.2 | 187.0 | ||||||
|
|
|
|
|||||
$ | 3,048.2 | $ | 2,949.7 | |||||
|
|
|
|
|||||
Liabilities and Stockholder's Equity: |
||||||||
Current liabilities(a) |
$ | 1,023.3 | $ | 1,069.0 | ||||
Subordinated notes payable to parent |
6.0 | 8.5 | ||||||
Long-term debt |
543.9 | 394.3 | ||||||
Other liabilities |
198.2 | 159.1 | ||||||
Stockholder's equity |
1,276.8 | 1,318.8 | ||||||
|
|
|
|
|||||
$ | 3,048.2 | $ | 2,949.7 | |||||
|
|
|
|
(a) |
Includes assets and liabilities related to discontinued operations of $186.8 and $14.6, respectively, at December 31, 2010 (see Note 4. "Discontinued Operations.") |
ANIXTER INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended | ||||||||||||
December 30, 2011 |
December 31, 2010 |
January 1, 2010 |
||||||||||
Net sales |
$ | 6,146.9 | $ | 5,274.5 | $ | 4,779.6 | ||||||
Operating income |
$ | 368.3 | $ | 273.0 | $ | 90.5 | ||||||
Income from continuing operations before income taxes |
$ | 328.0 | $ | 204.2 | $ | 21.1 | ||||||
Net (loss) income from discontinued operations |
$ | (12.5 | ) | $ | (1.0 | ) | $ | 12.1 | ||||
Net income (loss) |
$ | 203.3 | $ | 123.2 | $ | (15.4 | ) |
|
NOTE 12. 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 30, 2011 and December 31, 2010. The Company has never paid ordinary cash dividends on its common stock. However, in 2010, the Company declared a special dividend of $3.25 per common share, or $113.7 million, as a return of excess capital to shareholders and was paid on October 28, 2010 to shareholders of record on October 15, 2010. As of February 17, 2012, the Company had 2,209 shareholders of record.
(In millions, except per share amounts) | First Quarter (1) |
Second Quarter |
Third Quarter (2) |
Fourth Quarter (3) |
||||||||||||
Year ended December 30, 2011 |
||||||||||||||||
Net sales |
$ | 1,470.8 | $ | 1,565.3 | $ | 1,611.8 | $ | 1,499.0 | ||||||||
Cost of goods sold |
1,132.1 | 1,207.3 | 1,249.8 | 1,150.3 | ||||||||||||
Operating income |
77.5 | 92.0 | 101.7 | 91.6 | ||||||||||||
Income from continuing operations before income taxes |
65.4 | 77.6 | 83.3 | 77.2 | ||||||||||||
Net income from continuing operations |
40.9 | 48.4 | 61.6 | 49.8 | ||||||||||||
Income (loss) from discontinued operations, net |
3.4 | 3.7 | (18.1 | ) | (1.5 | ) | ||||||||||
Net income |
$ | 44.3 | $ | 52.1 | $ | 43.5 | $ | 48.3 | ||||||||
Income (loss) per share |
||||||||||||||||
Basic: |
||||||||||||||||
Continuing operations |
$ | 1.19 | $ | 1.39 | $ | 1.80 | $ | 1.50 | ||||||||
Discontinued operations |
$ | 0.10 | $ | 0.11 | $ | (0.53 | ) | $ | (0.05 | ) | ||||||
Net income |
$ | 1.29 | $ | 1.50 | $ | 1.27 | $ | 1.45 | ||||||||
Diluted: |
||||||||||||||||
Continuing operations |
$ | 1.13 | $ | 1.33 | $ | 1.78 | $ | 1.49 | ||||||||
Discontinued operations |
$ | 0.10 | $ | 0.10 | $ | (0.52 | ) | $ | (0.05 | ) | ||||||
Net income |
$ | 1.23 | $ | 1.43 | $ | 1.26 | $ | 1.44 | ||||||||
Stock price range: |
||||||||||||||||
High |
$ | 73.56 | $ | 76.16 | $ | 68.15 | $ | 62.99 | ||||||||
Low |
$ | 59.52 | $ | 60.54 | $ | 47.38 | $ | 44.52 | ||||||||
Close |
$ | 68.30 | $ | 66.10 | $ | 47.44 | $ | 59.64 |
(1) |
In the first quarter of 2011, the Company recorded a pre-tax charge of $5.3 million related to facility consolidations and headcount reductions in Europe. See Note 3. "Restructuring Charge." |
(2) |
In the third quarter of 2011, the Company recorded a tax benefit of $8.8 million which was primarily related to the reversal of deferred income tax valuation allowances in certain foreign jurisdictions. See Note 7. "Income Taxes." |
(3) |
During the fourth quarter of 2011, the Company recorded a tax benefit of $2.0 million primarily related to the reversal of deferred income tax valuation allowances in certain foreign jurisdictions. |
(In millions, except per share amounts) | First Quarter (1) |
Second Quarter (2) |
Third Quarter (3) |
Fourth Quarter (4) |
||||||||||||
Year ended December 31, 2010 |
||||||||||||||||
Net sales |
$ | 1,221.8 | $ | 1,321.3 | $ | 1,344.9 | $ | 1,386.5 | ||||||||
Cost of goods sold |
945.8 | 1,020.7 | 1,035.8 | 1,064.6 | ||||||||||||
Operating income |
51.4 | 66.5 | 70.8 | 78.5 | ||||||||||||
Income from continuing operations before income taxes |
4.3 | 53.6 | 57.3 | 65.0 | ||||||||||||
Net income from continuing operations |
2.6 | 32.2 | 32.6 | 42.1 | ||||||||||||
Income (loss) from discontinued operations, net |
3.3 | 2.4 | 3.9 | (10.6 | ) | |||||||||||
Net income |
$ | 5.9 | $ | 34.6 | $ | 36.5 | $ | 31.5 | ||||||||
Income (loss) per share |
||||||||||||||||
Basic: |
||||||||||||||||
Continuing operations |
$ | 0.08 | $ | 0.95 | $ | 0.96 | $ | 1.23 | ||||||||
Discontinued operations |
$ | 0.09 | $ | 0.07 | $ | 0.11 | $ | (0.31 | ) | |||||||
Net income |
$ | 0.17 | $ | 1.02 | $ | 1.07 | $ | 0.92 | ||||||||
Diluted: |
||||||||||||||||
Continuing operations |
$ | 0.07 | $ | 0.91 | $ | 0.92 | $ | 1.18 | ||||||||
Discontinued operations |
$ | 0.09 | $ | 0.07 | $ | 0.11 | $ | (0.30 | ) | |||||||
Net income |
$ | 0.16 | $ | 0.98 | $ | 1.03 | $ | 0.88 | ||||||||
Stock price range: |
||||||||||||||||
High |
$ | 48.85 | $ | 54.16 | $ | 54.99 | $ | 61.17 | ||||||||
Low |
$ | 38.42 | $ | 41.31 | $ | 41.27 | $ | 52.10 | ||||||||
Close |
$ | 47.16 | $ | 41.90 | $ | 54.28 | $ | 59.73 |
(1) |
During the first quarter of 2010, the Company repurchased a portion of its Notes due 2014 which resulted in the recognition of a pre-tax loss of $30.5 million ($18.9 million, net of tax). |
(2) |
Net income in the second quarter includes a foreign exchange gain of $2.1 million ($0.8 million, net of tax) due to the remeasurement of Venezuela's bolivar-denominated balance sheet at the new government rate. During the second quarter of 2010, the Company repurchased a portion of its Notes due 2033 which resulted in the recognition of a pre-tax gain of $0.8 million ($0.5 million, net of tax). |
(3) |
During third quarter of 2010, the Company repurchased a portion of its Notes due 2014 and 2033 which resulted in the recognition of a pre-tax loss of $2.7 million ($1.7 million, net of tax). |
(4) |
During the fourth quarter of 2010, the Company repurchased a portion of its Notes due 2033 which resulted in the recognition of a pre-tax gain of $0.5 million ($0.3 million, net of tax). Also during the fourth quarter of 2010, the Company recorded a tax benefit of $1.3 million for the reversal of prior year foreign taxes. |
|
NOTE 13. SUBSEQUENT EVENT
In February 2012, the Company appealed to the Arizona Court of Appeals the Maricopa County Superior Court judgment confirming the arbitration award related to the Raytheon matter which is discussed in more detail in Note 6. "Commitments and Contingencies." As part of the appellate process, the Company has posted collateral by tendering $10.0 million to Raytheon in cash and posting a bond in favor of Raytheon in the amount of $12.4 million. In the event the judgment is upheld, Raytheon has agreed that post-judgment interest will not accrue on $10.0 million of the judgment from the date that the Company tendered the cash collateral. In the event the judgment is not upheld, the Company will receive a return of the cash and the bond.
|
SCHEDULE I — CONDENSED FINANCIAL INFORMATION OF REGISTRANT
ANIXTER INTERNATIONAL INC. (PARENT COMPANY)
STATEMENTS OF OPERATIONS
Years Ended | ||||||||||||
(In millions) | December 30, 2011 |
December 31, 2010 |
January 1, 2010 |
|||||||||
Operating loss |
$ | (4.3 | ) | $ | (4.6 | ) | $ | (4.2 | ) | |||
Other (expense) income: |
||||||||||||
Interest expense, including intercompany |
(16.2 | ) | (17.3 | ) | (18.4 | ) | ||||||
Other |
0.2 | 1.7 | 4.2 | |||||||||
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|
|
|
|
|
|||||||
Loss before income taxes and equity in earnings of subsidiaries |
(20.3 | ) | (20.2 | ) | (18.4 | ) | ||||||
Income tax benefit |
7.7 | 7.7 | 6.7 | |||||||||
|
|
|
|
|
|
|||||||
Loss before equity in earnings of subsidiaries |
(12.6 | ) | (12.5 | ) | (11.7 | ) | ||||||
Equity in earnings (loss) of subsidiaries |
200.8 | 121.0 | (17.6 | ) | ||||||||
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|
|
|
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Net income (loss) |
$ | 188.2 | $ | 108.5 | $ | (29.3 | ) | |||||
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|
|
|
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See accompanying note to the condensed financial information of registrant.
BALANCE SHEETS
(In millions) | December 30, 2011 |
December 31, 2010 |
||||||
ASSETS | ||||||||
Current assets: |
||||||||
Cash and cash equivalents |
$ | 0.4 | $ | 0.4 | ||||
Other assets |
0.4 | 0.5 | ||||||
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|
|
|
|||||
Total current assets |
0.8 | 0.9 | ||||||
Investment in and advances to subsidiaries |
1,284.8 | 1,328.9 | ||||||
Other assets |
1.0 | 1.9 | ||||||
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|
|
|||||
$ | 1,286.6 | $ | 1,331.7 | |||||
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|
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LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||
Liabilities: |
||||||||
Accounts payable and accrued expenses, due currently |
$ | 2.3 | $ | 2.3 | ||||
Amounts currently due to affiliates, net |
1.9 | 4.1 | ||||||
Long-term debt |
280.4 | 312.7 | ||||||
Other non-current liabilities |
0.8 | 1.8 | ||||||
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|
|
|
|||||
Total liabilities |
285.4 | 320.9 | ||||||
Stockholders' equity: |
||||||||
Common stock |
33.2 | 34.3 | ||||||
Capital surplus |
196.5 | 230.1 | ||||||
Accumulated other comprehensive loss |
(85.5 | ) | (27.8 | ) | ||||
Retained earnings |
857.0 | 774.2 | ||||||
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|
|
|
|||||
Total stockholders' equity |
1,001.2 | 1,010.8 | ||||||
|
|
|
|
|||||
$ | 1,286.6 | $ | 1,331.7 | |||||
|
|
|
|
See accompanying note to the condensed financial information of registrant.
STATEMENTS OF CASH FLOWS
(In millions) | Years Ended | |||||||||||
December 30, 2011 |
December 31, 2010 |
January 1, 2010 |
||||||||||
Operating activities: |
||||||||||||
Net income (loss) |
$ | 188.2 | $ | 108.5 | $ | (29.3 | ) | |||||
Adjustments to reconcile net income (loss) to net cash provided by operating activities: |
||||||||||||
Dividend from subsidiary |
201.3 | 271.8 | 125.7 | |||||||||
Equity in earnings of subsidiaries |
(200.8 | ) | (121.0 | ) | 17.6 | |||||||
Net gain on retirement of debt |
(0.1 | ) | (1.4 | ) | (3.6 | ) | ||||||
Accretion of debt discount |
16.6 | 18.0 | 19.3 | |||||||||
Stock-based compensation |
1.6 | 1.8 | 1.9 | |||||||||
Amortization of deferred financing costs |
0.9 | 0.9 | 0.8 | |||||||||
Intercompany transactions |
(13.8 | ) | (0.9 | ) | (12.4 | ) | ||||||
Income tax benefit |
(7.7 | ) | (7.7 | ) | (6.7 | ) | ||||||
Changes in assets and liabilities, net |
0.1 | (2.1 | ) | (0.3 | ) | |||||||
|
|
|
|
|
|
|||||||
Net cash provided by operating activities |
186.3 | 267.9 | 113.0 | |||||||||
Investing activities |
— | — | — | |||||||||
Financing activities: |
||||||||||||
Purchase of common stock for treasury |
(107.5 | ) | (41.2 | ) | (34.9 | ) | ||||||
Retirement of Notes due 2033 – debt component |
(48.9 | ) | (65.6 | ) | (56.5 | ) | ||||||
Retirement of Notes due 2033 – equity component |
(44.9 | ) | (54.0 | ) | (34.3 | ) | ||||||
Proceeds from issuance of common stock |
13.4 | 8.7 | 2.5 | |||||||||
Loans (to) from subsidiaries, net |
2.5 | (5.0 | ) | 11.0 | ||||||||
Payment of cash dividend |
(0.9 | ) | (111.0 | ) | (0.3 | ) | ||||||
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|
|
|
|
|
|||||||
Net cash used in financing activities |
(186.3 | ) | (268.1 | ) | (112.5 | ) | ||||||
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|
|
|
|
|
|||||||
(Decrease) increase in cash and cash equivalents |
— | (0.2 | ) | 0.5 | ||||||||
Cash and cash equivalents at beginning of year |
0.4 | 0.6 | 0.1 | |||||||||
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|
|
|
|
|
|||||||
Cash and cash equivalents at end of year |
$ | 0.4 | $ | 0.4 | $ | 0.6 | ||||||
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|
|
|
|
|
See accompanying note to the condensed financial information of registrant.
NOTE TO THE CONDENSED FINANCIAL INFORMATION OF REGISTRANT
Note A — Basis of Presentation
In the parent company condensed financial statements, the Company's investment in subsidiaries is stated at cost plus equity in undistributed earnings of subsidiaries since the date of acquisition. The Company's share of net income of its unconsolidated subsidiaries is included in consolidated income using the equity method. The parent company financial statements should be read in conjunction with the Company's consolidated financial statements.
|
ANIXTER INTERNATIONAL INC.
SCHEDULE II — VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
Years ended December 30, 2011, December 31, 2010 and January 1, 2010
(In millions) | Balance at beginning of the period |
Charged to income |
Charged to other accounts |
Deductions | Balance at end of the period |
|||||||||||||||||||
Description |
||||||||||||||||||||||||
Year ended December 30, 2011: |
||||||||||||||||||||||||
Allowance for doubtful accounts |
$ | 23.7 | $ | 8.0 | $ | (2.7 | ) | $ | (9.5 | ) | $ | 19.5 | ||||||||||||
Allowance for deferred tax asset |
$ | 18.8 | $ | (17.3 | ) | $ | 18.8 | $ | — | $ | 20.3 | |||||||||||||
Year ended December 31, 2010: |
||||||||||||||||||||||||
Allowance for doubtful accounts |
$ | 24.8 | $ | 12.8 | $ | (0.4 | ) | $ | (13.5 | ) | $ | 23.7 | ||||||||||||
Allowance for deferred tax asset |
$ | 18.7 | $ | 1.7 | $ | (1.6 | ) | $ | — | $ | 18.8 | |||||||||||||
Year ended January 1, 2010: |
||||||||||||||||||||||||
Allowance for doubtful accounts |
$ | 29.4 | $ | 11.7 | $ | 0.2 | $ | (16.5 | ) | $ | 24.8 | |||||||||||||
Allowance for deferred tax asset |
$ | 13.8 | $ | (6.6 | ) | $ | 11.5 | $ | — | $ | 18.7 |
|
Organization: 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 security products, electrical 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 subsidiaries. The Company's fiscal year ends on the Friday nearest December 31 and included 52 weeks in 2011, 2010 and 2009. Certain amounts have been reclassified to conform to the current year presentation. Also, as a result of the divestiture of a business, described in Note 4. "Discontinued Operations," the Company began recording the results of the divested business as discontinued operations in 2011 and all prior periods have been revised to reflect this classification.
Use of estimates: 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.
Cash and cash equivalents: Cash equivalents consist of short-term, highly liquid investments that mature within three months or less. Such investments are stated at cost, which approximates fair value.
Inventories: Inventories, consisting primarily of finished goods, are stated at the lower of cost or market. Cost is determined using the average-cost method. The Company has agreements with some of its vendors that provide a right to return products. This right is typically limited to a small percentage of the Company's total purchases from that vendor. Such rights provide that the Company can return slow-moving product and the vendor will replace it with faster-moving product chosen by the Company. Some vendor agreements contain price protection provisions that require the manufacturer to issue a credit in an amount sufficient to reduce the Company's current inventory carrying cost down to the manufacturer's current price. The Company considers these agreements in determining its reserve for obsolescence.
At December 30, 2011 and December 31, 2010, the Company reported inventory of $1,070.7 million and $870.3 million, respectively (net of inventory reserves of $61.2 million and $66.8 million, respectively). Each quarter the Company reviews for excess inventories and makes an assessment of the net realizable value. There are many factors that management considers in determining whether or not the amount by which a reserve should be established. These factors include the following:
|
Return or rotation privileges with vendors; |
|
Price protection from vendors; |
|
Expected future usage; |
|
Whether or not a customer is obligated by contract to purchase the inventory; |
|
Current market pricing; |
|
Historical consumption experience; and |
|
Risk of obsolescence. |
If circumstances related to the above factors change, there could be a material impact on the net realizable value of the inventories.
Costs for software developed for internal use are capitalized when the preliminary project stage is complete and the Company has committed funding for projects that are likely to be completed. Costs that are incurred during the preliminary project stage are expensed as incurred. Once the capitalization criteria have been met, external direct costs of materials and services consumed in developing internal-use computer software, payroll and payroll-related costs for employees who are directly associated with and who devote time to the internal-use computer software project (to the extent of their time spent directly on the project) and interest costs incurred when developing computer software for internal use are capitalized. At December 30, 2011 and December 31, 2010, capitalized costs, net of accumulated amortization, for software developed for internal use was approximately $27.9 million and $22.4 million, respectively. Interest expense incurred in connection with the development of internal use software is capitalized based on the amounts of accumulated expenditures and the weighted-average cost of borrowings for the period. Interest costs capitalized for fiscal 2011, 2010 or 2009 were insignificant.
Goodwill: On an annual basis, the Company tests for goodwill impairment using a two-step process, unless there is a triggering event, in which case a test would be performed at the time that such triggering event occurs. The first step is to identify a potential impairment by comparing the fair value of a reporting unit with its carrying amount. For all periods presented, the Company's reporting units are consistent with its operating segments of North America, Europe, Latin America and Asia Pacific. The estimates of fair value of a reporting unit are determined using the income approach based on a discounted cash flow analysis. A discounted cash flow analysis requires the Company to make various judgmental assumptions, including assumptions about future cash flows, growth rates and discount rates. The assumptions about future cash flows and growth rates are based on management's forecast of each reporting unit. Discount rate assumptions are based on an assessment of the risk inherent in the future cash flows of the respective reporting units from the perspective of market participants. The Company also reviews market multiple information to corroborate the fair value conclusions recorded through the aforementioned income approach. If step one indicates a carrying value above the estimated fair value, the second step of the goodwill impairment test is performed by comparing the implied fair value of the reporting unit's goodwill with the carrying amount of that goodwill. The implied fair value of goodwill is determined in the same manner as the amount of goodwill recognized in a business combination.
The Company performed its 2011 annual impairment analysis during the third quarter of 2011 and concluded that no impairment existed. The Company expects the carrying amount of remaining goodwill to be fully recoverable.
Due to business and economic conditions that existed in 2009, the Company concluded that there were impairment indicators for the North America, Europe and Asia Pacific reporting units that required an interim impairment analysis be performed under Generally Accepted Accounting Principles ("U.S. GAAP") during the second fiscal quarter of that year.
In the first step of the impairment analysis, the Company performed valuation analyses utilizing the income approach to determine the fair value of its reporting units. The Company also considered the market approach as described in U.S. GAAP. Under the income approach, the Company determined the fair value based on estimated future cash flows discounted by an estimated weighted-average cost of capital, which reflects the overall level of inherent risk of the reporting unit and the rate of return an outside investor would expect to earn. The inputs used for the income approach were significant unobservable inputs, or Level 3 inputs, in the fair value hierarchy described in recently issued accounting guidance on fair value measurements. Estimated future cash flows were based on the Company's internal projection models, industry projections and other assumptions deemed reasonable by management as those that would be made by a market participant. Based on the results of the Company's assessment in step one, it was determined that the carrying value of the Europe reporting unit exceeded its estimated fair value while North America and Asia Pacific's fair value exceeded the carrying value.
Therefore, the Company performed a second step of the impairment test to estimate the implied fair value of goodwill in Europe. In the second step of the impairment analysis, the Company determined the implied fair value of goodwill for the Europe reporting unit by allocating the fair value of the reporting unit to all of Europe's assets and liabilities, as if the reporting unit had been acquired in a business combination and the price paid to acquire it was the fair value. The analysis indicated that there would be an implied value attributable to goodwill of $12.1 million in the Europe reporting unit and accordingly, in the second quarter of 2009, the Company recorded a non-cash impairment charge related to the write-off of the remaining goodwill of $100.0 million associated with its Europe reporting unit.
Convertible Debt: The Company separately accounts for the liability and equity components of convertible debt instruments that may be settled in cash upon conversion (including partial cash settlement). The liability and equity components are accounted for in a manner that reflects an issuer's nonconvertible debt borrowing rate. The bifurcation of the component of debt, classification of that component in equity and the accretion of the resulting discount on the debt is recognized as part of interest expense in the Company's Consolidated Statements of Operations. These provisions impact the accounting associated with the Company's $300 million convertible notes due 2013 ("Notes due 2013") and the Company's 3.25% zero coupon convertible notes due 2033 ("Notes due 2033") which are described further in Note 5. "Debt". The Notes due 2033 were retired in the third quarter of 2011.
The following table provides additional information about the Company's convertible debt instruments that are subject to these accounting requirements:
December 30, 2011 | December 31, 2010 | |||||||||||
Notes due 2013 | Notes due 2013 | Notes due 2033 | ||||||||||
($ and shares in millions, except conversion prices) | ||||||||||||
Carrying amount of the equity component |
$ | 53.3 | $ | 53.3 | $ | (45.7 | ) | |||||
Principal amount of the liability component |
$ | 300.0 | $ | 300.0 | $ | 100.2 | ||||||
Unamortized discount of liability component (a) |
$ | (19.7 | ) | $ | (35.8 | ) | $ | (51.7 | ) | |||
Net carrying amount of liability component |
$ | 280.3 | $ | 264.2 | $ | 48.5 | ||||||
Remaining amortization period of discount (a) |
14 months | (c | ) | (c | ) | |||||||
Conversion price |
$ | 59.78 | (c | ) | (c | ) | ||||||
Number of shares to be issued upon conversion |
5.0 | (c | ) | (c | ) | |||||||
If-converted value exceeds principal amount (b) |
$ | — | (c | ) | (c | ) |
(a) | The Notes due 2013 and Notes due 2033 were issued in February of 2007 and July of 2003, respectively. The Notes due 2033 were retired in the third quarter of 2011. For convertible debt accounting purposes, the expected life of the Notes due 2013 and the Notes due 2033 were determined to be six years and four years from the issuance date, respectively. As such, the Company is amortizing the unamortized discount through interest expense through February of 2013 for the Notes due 2013. |
(b) | If-converted value amounts are for disclosure purposes only. The Notes due 2013 are convertible when the closing price of the Company's common stock for at least 20 trading days in the 30 consecutive trading days ending on the last trading day of the immediately preceding fiscal quarter is more than $77.71. Based on the Company's stock prices during the year, the Notes due 2013 have not been convertible during 2011 and 2010. |
(c) | Data not required for comparative purposes. |
The fair value of the liability component related to the Notes due 2013 was initially calculated based on a discount rate of 7.1%, representing the Company's nonconvertible debt borrowing rate at issuance for debt instruments with similar terms and characteristics. For accounting purposes, the expected life for a similar instrument was six years which was used to develop this nonconvertible debt borrowing rate. Interest cost relates to both the contractual interest coupon and amortization of the discount on the liability component. Non-cash interest cost recognized for the Notes due 2013 was $16.1 million, $15.1 million and $14.1 million for fiscal years 2011, 2010 and 2009, respectively. Cash interest cost recognized for the Notes due 2013 was $3.0 million in 2011, 2010 and 2009.
The fair value of the liability component related to the Notes due 2033 was initially calculated based on a discount rate of 6.1%, representing the Company's nonconvertible debt borrowing rate at issuance for debt instruments with similar terms and characteristics. For accounting purposes, the expected life for a similar instrument was four years which was used to develop this nonconvertible debt borrowing rate. Therefore, the amount of interest expense associated with the initial discount was fully recognized as of the end of 2007 (i.e., four years from issuance of these notes). Interest cost recognized for the Notes due 2033 was $0.5 million, $2.9 million and $5.2 million for fiscal years 2011, 2010 and 2009, respectively, based on the zero-coupon rate of 3.25% associated with the Notes due 2033.
Intangible assets: Intangible assets, included in other assets on the consolidated balance sheets, primarily consist of customer relationships that are being amortized over periods ranging from 8 to 15 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. At December 30, 2011 and December 31, 2010, the Company's gross carrying amount of intangible assets subject to amortization was $130.4 million and $130.6 million, respectively. Accumulated amortization was $60.5 million and $50.4 million at December 30, 2011 and December 31, 2010, respectively. Intangible amortization expense related to all of the Company's net intangible assets of $69.9 million at December 30, 2011 is expected to be approximately $10.1 million per year for the next five years.
Foreign currency translation: The Company's investments in several subsidiaries are recorded in currencies other than the U.S. dollar. As these foreign currency denominated investments are translated at the end of each period during consolidation using period-end exchange rates, fluctuations of exchange rates between the foreign currency and the U.S. dollar increase or decrease the value of those investments. These fluctuations and 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 assets and liabilities-related translation adjustments are recorded as a separate component of Stockholders' Equity, "Foreign currency translation," which is a component of accumulated other comprehensive income (loss). In addition, as the Company's subsidiaries maintain investments denominated in currencies other than local currencies, exchange rate fluctuations will occur. Borrowings are raised in certain foreign currencies to minimize the exchange rate translation adjustment risk.
Several of the Company's subsidiaries conduct business in a currency other than the legal entity's functional currency. Transactions may produce receivables or payables that are fixed in terms of the amount of foreign currency that will be received or paid. A change in exchange rates between the functional currency and the currency in which a transaction is denominated increases or decreases the expected amount of functional currency cash flows upon settlement of the transaction. That increase or decrease in expected functional currency cash flows is a foreign currency transaction gain or loss that is included in "Other, net" in the Consolidated Statements of Operations. The Company recognized $7.1 million, $2.5 million and $23.2 million in net foreign exchange losses in 2011, 2010 and 2009, respectively. See "Other, net" discussion herein for further information regarding these losses.
The Company purchases foreign currency forward contracts to minimize the effect of fluctuating foreign currency-denominated accounts on its reported income. The foreign currency forward contracts are not designated as hedges for accounting 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 (e.g., various foreign currency-denominated accounts). The Company's counterparties to its foreign currency forward contracts have investment-grade credit ratings. The Company expects the creditworthiness of its counterparties to remain intact through the term of the transactions. The Company regularly monitors the creditworthiness of its counterparties to ensure no issues exist which could affect the value of the derivatives.
The Company does not hedge 100% of its foreign currency-denominated accounts and results of the hedging can vary significantly based on various factors, such as the timing of executing the foreign currency forward contracts versus the movement of the currencies as well as the fluctuations in the account balances throughout each reporting period. The fair value of the foreign currency forward contracts is based on the difference between the contract rate and the current exchange rate. The fair value of the foreign currency forward contracts is measured using observable market information. These inputs would be considered Level 2 in the fair value hierarchy. At December 30, 2011 and December 31, 2010, foreign currency forward contracts were revalued at then-current foreign exchange rates, with the changes in valuation reflected directly in "Other, net" in the Consolidated Statements of Operations offsetting the transaction gain/loss recorded on the foreign currency-denominated accounts. At December 30, 2011 and December 31, 2010, the notional amount of the foreign currency forward contracts outstanding was approximately $161.3 million and $223.0 million, respectively. The fair value of the Company's foreign currency forward contracts was not significant at December 30, 2011 or December 31, 2010.
The following activity relates to foreign exchange gains and losses reflected in "Other, net" in the Company's Consolidated Statements of Operations (in millions):
Years Ended | ||||||||||||
Income (Loss) | December 30, 2011 |
December 31, 2010 |
January 1, 2010 |
|||||||||
Remeasurement of multicurrency balances |
$ | (0.6 | ) | $ | (1.7 | ) | $ | (11.2 | ) | |||
Revaluation of foreign currency forward contracts |
(4.0 | ) | 1.2 | (8.1 | ) | |||||||
Hedge costs |
(2.5 | ) | (2.0 | ) | (3.9 | ) | ||||||
|
|
|
|
|
|
|||||||
Total foreign exchange loss |
$ | (7.1 | ) | $ | (2.5 | ) | $ | (23.2 | ) | |||
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|
|
|
|
|
Interest rate agreements: The Company uses interest rate swaps to reduce its exposure to fluctuations in interest rates. The objective of the currently outstanding interest rate swap (cash flow hedge) is to convert variable interest to fixed interest associated with forecasted interest payments resulting from revolving borrowings in the U.K. and are designated as hedging instruments. The Company does not enter into interest rate swaps for speculative purposes. Changes in the value of the interest rate swap is expected to be highly effective in offsetting the changes attributable to fluctuations in the variable rates. The Company's counterparty to its interest rate swap contract has an investment-grade credit rating. The Company expects the creditworthiness of its counterparty to remain intact through the term of the transaction. When entered into, the financial instrument is designated as a hedge of underlying exposures (interest payments associated with the U.K. borrowings) attributable to changes in the respective benchmark interest rate.
As of December 30, 2011, the Company had one interest rate swap agreement outstanding with a notional amount of GBP 15 million. The GBP swap agreement obligates the Company to pay a fixed rate through July 2012. The fair value of the Company's interest rate swap is determined by means of a mathematical model that calculates the present value of the anticipated cash flows from the transaction using mid-market prices and other economic data and assumptions, or by means of pricing indications from one or more other dealers selected at the discretion of the respective banks. These inputs would be considered Level 2 in the fair value hierarchy described in recently issued accounting guidance on fair value measurements. At December 30, 2011, the interest rate swap was revalued at current interest rates, with the change in valuation reflected directly in "Accumulated Other Comprehensive Loss" in the Company's Consolidated Balance Sheets. The fair market value of this agreement, which is the estimated exit price that the Company would pay to cancel the agreement, was not significant at December 30, 2011.
Revenue recognition: Sales to customers, resellers and distributors and related cost of sales are recognized upon transfer of title, which generally occurs upon shipment of products, when the price is fixed and determinable and when collectability is reasonably assured. Revenue is recorded net of sales taxes, customer discounts, rebates and similar charges. The Company also establishes a reserve for returns and credits provided to customers in certain instances. The reserve is established based on an analysis of historical experience and was $30.7 million and $29.1 million at December 30, 2011 and December 31, 2010, respectively.
In connection with the sales of its products, the Company often provides certain supply chain services. These services are provided exclusively in connection with the sales of products, and as such, the price of such services are included in the price of the products delivered to the customer. The Company does not account for these services as a separate element, as the services do not have stand-alone value and cannot be separated from the product element of the arrangement. There are no significant post-delivery obligations associated with these services.
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 generally takes title to the goods when shipped by the manufacturer and then bills the customer for the product upon transfer of the title to the customer.
Sales taxes: Sales tax amounts collected from customers for remittance to governmental authorities are presented on a net basis in the Company's Consolidated Statements of Operations.
Advertising and sales promotion: Advertising and sales promotion costs are expensed as incurred. Advertising and promotion costs included in operating expenses on the Consolidated Statements of Operations were $12.1 million, $10.0 million and $9.9 million in 2011, 2010 and 2009, respectively. The majority of the Company's advertising and sales promotion costs are recouped through various cooperative advertising programs with vendors.
Shipping and handling fees and costs: The Company includes shipping and handling fees billed to customers in net sales. Shipping and handling costs associated with outbound freight are included in operating expenses on the Consolidated Statements of Operations, which were $108.4 million, $94.6 million and $84.8 million for the years ended 2011, 2010 and 2009, respectively.
Other, net: The following represents the components of "Other, net" as reflected in the Company's Consolidated Statements of Operations for the fiscal years 2011, 2010 and 2009:
Years Ended | ||||||||||||
(In millions) |
December 30, 2011 |
December 31, 2010 |
January 1, 2010 |
|||||||||
Other, net loss: |
||||||||||||
Foreign exchange |
$ | (7.1 | ) | $ | (2.5 | ) | $ | (23.2 | ) | |||
Cash surrender value of life insurance policies |
(0.9 | ) | 3.0 | 3.4 | ||||||||
Settlement of interest rate swaps |
— | — | (2.1 | ) | ||||||||
Other |
(1.2 | ) | (2.0 | ) | 2.7 | |||||||
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$ | (9.2 | ) | $ | (1.5 | ) | $ | (19.2 | ) | ||||
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|
|
Due to the sharp increase of the U.S. dollar in 2011 against certain foreign currencies, primarily in the Emerging Markets where there are few cost-effective means of hedging, the Company recorded a foreign exchange loss of $7.1 million in 2011. In 2010, the Company recognized a foreign exchange gain of $2.1 million associated with the remeasurement of Venezuela's bolivar-denominated monetary assets on the Venezuelan balance sheet at the parallel exchange rate. The Company also recorded a foreign exchange loss of $13.8 million in 2009 due to the repatriation of cash from Venezuela and the remeasurement of monetary items on the Venezuelan balance sheet at the parallel exchange rate. The Company recorded other foreign exchange losses of $4.6 million and $9.4 million in 2010 and 2009, respectively. Further, the combined effect of declines in both the equity and bond markets resulted in a $0.9 million decline in the cash surrender value of Company owned life insurance policies associated with the Company sponsored deferred compensation program in 2011. This compares to a $3.0 million and $3.4 million increase in the cash surrender value of life insurance policies in 2010 and 2009, respectively. In 2009, the Company recorded a loss of $2.1 million associated with the cancellation of interest rate hedging contracts resulting from the repayment of the related borrowings. In 2009, the Company also recorded other income of $3.4 million related to the expiration of liabilities associated with a prior asset sale.
Net income (loss) per share: Diluted net income (loss) per share reflects the potential dilution that would occur if securities or other contracts to issue common stock were exercised or converted into common stock.
In 2011 and 2010, 0.4 million and 0.5 million additional shares, respectively, related to stock options and stock units were included in the computation of diluted earnings per share because the effect of those common stock equivalents were dilutive during these periods. The Company excludes antidilutive stock options and units from the calculation of weighted-average shares for diluted earnings per share. The Company excluded 0.4 million, 0.4 million, and 0.5 million antidilutive stock options and units for 2011, 2010 and 2009, respectively
Due to the Company's obligation to settle the outstanding par value of the Notes due 2013 and Notes due 2033 in cash upon conversion, the Company is not required to include any shares underlying the convertible notes in its diluted weighted average shares outstanding until the average stock price per share for the period exceeds the conversion price of the respective instruments. Although the Notes due 2033 were retired during 2011, they were dilutive during the period as well as the corresponding period in 2010. At such time that the average stock price per share for the period exceeds the conversion price of the convertible notes, only the number of shares that would be potentially issuable (under the treasury stock method of accounting for share dilution) would be included in the dilutive share calculation, which is based upon the amount by which the average stock price exceeds the conversion price.
As a result of the conversion value exceeding the average accreted principal value during 2011 and 2010, the Company included 0.2 million and 0.9 million additional shares, respectively, related to the Notes due 2033 in the diluted weighted-average common shares outstanding. The Company's average stock price for 2009 did not exceed the average accreted principal value and, therefore, the Notes due 2033 were antidilutive for this period.
As a result of the Company's average stock price exceeding the conversion price during 2011, 0.3 million additional shares related to the Notes due 2013 were included in the diluted weighted-average common shares outstanding. The Company's average stock price for 2010 and 2009 did not exceed the conversion price and, therefore, the Notes due 2013 were antidilutive for these periods.
In June 2011, the FASB issued an update to Accounting Standards Codification ("ASC") No. 220, Presentation of Comprehensive Income, which eliminates the option to present other comprehensive income and its components in the statement of stockholders' equity. The Company can elect to present the items of net income and other comprehensive income in a single continuous statement of comprehensive income or in two separate, but consecutive statements. Under either method, the statement would need to be presented with equal prominence as the other primary financial statements. The amended guidance, which must be applied retrospectively, is effective for fiscal years, and interim periods within those years, beginning after December 15, 2011, with earlier adoption permitted. In December 2011, the FASB deferred the requirements related to reclassification adjustments out of accumulated other comprehensive income.
In September 2011, the FASB issued Accounting Standard Update ("ASU") 2011-08, Intangibles - Goodwill and Other (Topic 350): Testing Goodwill for Impairment, which gives companies the option to perform a qualitative assessment to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount and, in some cases, skip the two-step impairment test. The ASU is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011 with early adoption permitted. Adoption of this guidance at the beginning of fiscal 2012 is not expected to have a material impact on the Company's consolidated financial statements.
In December 2011, the FASB issued guidance to amend the requirements related to balance sheet offsetting. These amendments would require the Company to disclose information about rights of offset and related arrangements to enable users of its financial statements to understand the effect or potential effect of those arrangements on its financial position. The amended guidance is effective for fiscal years, and interim periods within those years, beginning on or after January 1, 2013 with required disclosures made retrospectively for all comparative periods presented. Adoption of this guidance at the beginning of fiscal 2014 is not expected to have a material impact on the Company's consolidated financial statements.
|
December 30, 2011 | December 31, 2010 | |||||||||||
Notes due 2013 | Notes due 2013 | Notes due 2033 | ||||||||||
($ and shares in millions, except conversion prices) | ||||||||||||
Carrying amount of the equity component |
$ | 53.3 | $ | 53.3 | $ | (45.7 | ) | |||||
Principal amount of the liability component |
$ | 300.0 | $ | 300.0 | $ | 100.2 | ||||||
Unamortized discount of liability component (a) |
$ | (19.7 | ) | $ | (35.8 | ) | $ | (51.7 | ) | |||
Net carrying amount of liability component |
$ | 280.3 | $ | 264.2 | $ | 48.5 | ||||||
Remaining amortization period of discount (a) |
14 months | (c | ) | (c | ) | |||||||
Conversion price |
$ | 59.78 | (c | ) | (c | ) | ||||||
Number of shares to be issued upon conversion |
5.0 | (c | ) | (c | ) | |||||||
If-converted value exceeds principal amount (b) |
$ | — | (c | ) | (c | ) |
(a) |
The Notes due 2013 and Notes due 2033 were issued in February of 2007 and July of 2003, respectively. The Notes due 2033 were retired in the third quarter of 2011. For convertible debt accounting purposes, the expected life of the Notes due 2013 and the Notes due 2033 were determined to be six years and four years |
from the issuance date, respectively. As such, the Company is amortizing the unamortized discount through interest expense through February of 2013 for the Notes due 2013. |
(b) |
If-converted value amounts are for disclosure purposes only. The Notes due 2013 are convertible when the closing price of the Company's common stock for at least 20 trading days in the 30 consecutive trading days ending on the last trading day of the immediately preceding fiscal quarter is more than $77.71. Based on the Company's stock prices during the year, the Notes due 2013 have not been convertible during 2011 and 2010. |
(c) |
Data not required for comparative purposes. |
Years Ended | ||||||||||||
Income (Loss) | December 30, 2011 |
December 31, 2010 |
January 1, 2010 |
|||||||||
Remeasurement of multicurrency balances |
$ | (0.6 | ) | $ | (1.7 | ) | $ | (11.2 | ) | |||
Revaluation of foreign currency forward contracts |
(4.0 | ) | 1.2 | (8.1 | ) | |||||||
Hedge costs |
(2.5 | ) | (2.0 | ) | (3.9 | ) | ||||||
|
|
|
|
|
|
|||||||
Total foreign exchange loss |
$ | (7.1 | ) | $ | (2.5 | ) | $ | (23.2 | ) | |||
|
|
|
|
|
|
Years Ended | ||||||||||||
(In millions) |
December 30, 2011 |
December 31, 2010 |
January 1, 2010 |
|||||||||
Other, net loss: |
||||||||||||
Foreign exchange |
$ | (7.1 | ) | $ | (2.5 | ) | $ | (23.2 | ) | |||
Cash surrender value of life insurance policies |
(0.9 | ) | 3.0 | 3.4 | ||||||||
Settlement of interest rate swaps |
— | — | (2.1 | ) | ||||||||
Other |
(1.2 | ) | (2.0 | ) | 2.7 | |||||||
|
|
|
|
|
|
|||||||
$ | (9.2 | ) | $ | (1.5 | ) | $ | (19.2 | ) | ||||
|
|
|
|
|
|
|
December 30, 2011 |
December 31, 2010 |
|||||||
(In millions) | ||||||||
Salaries and fringe benefits |
$ | 102.5 | $ | 92.5 | ||||
Other accrued expenses |
214.9 | 123.0 | ||||||
|
|
|
|
|||||
Total accrued expenses |
$ | 317.4 | $ | 215.5 | ||||
|
|
|
|
|
Years Ended | ||||||||||||
December 30, 2011 (a) |
December 31, 2010 |
January 1, 2010 |
||||||||||
Net sales |
$ | 123.2 | $ | 197.6 | $ | 202.8 | ||||||
Operating income (loss) |
13.4 | (1.0 | ) | 18.6 | ||||||||
(Loss) income from discontinued operations before tax |
(9.3 | ) | (0.9 | ) | 18.8 | |||||||
Income tax expense |
3.2 | 0.1 | 6.7 | |||||||||
(Loss) income from discontinued operations, net of tax |
(12.5 | ) | (1.0 | ) | 12.1 |
(a) Includes the results through the date of the divestiture on August 26, 2011, including the pre-tax loss on sale of business of $22.6 million ($21.0 million, net of tax).
December 31, 2010 |
||||
Assets of discontinued operations: |
||||
Accounts receivable |
$ | 29.4 | ||
Inventories |
132.4 | |||
Goodwill |
19.0 | |||
Other assets(a) |
6.0 | |||
|
|
|||
Total assets of discontinued operations |
$ | 186.8 | ||
|
|
|||
Liabilities of discontinued operations: |
||||
Accounts payable |
$ | 9.4 | ||
Accrued expenses(a) |
3.4 | |||
Other liabilities |
1.8 | |||
|
|
|||
Total liabilities of discontinued operations |
$ | 14.6 | ||
|
|
(a) Certain assets and liabilities, primarily related to a legal accrual, were not reclassified to discontinued operations as they were retained by the Company. See Note 6. "Commitments and Contingencies" for further information.
|
(In millions) | December 30, 2011 |
December 31, 2010 |
||||||
Long-term debt: |
||||||||
Convertible senior notes due 2013 |
$ | 280.3 | $ | 264.2 | ||||
Senior notes due 2015 |
200.0 | 200.0 | ||||||
Accounts receivable securitization facility |
175.0 | — | ||||||
Revolving lines of credit and other |
120.4 | 145.4 | ||||||
Senior notes due 2014 |
31.1 | 30.6 | ||||||
Convertible notes due 2033 |
— | 48.5 | ||||||
|
|
|
|
|||||
Total long-term debt |
806.8 | 688.7 | ||||||
Short-term debt |
3.0 | 203.4 | ||||||
|
|
|
|
|||||
Total debt |
$ | 809.8 | $ | 892.1 | ||||
|
|
|
|
|
2012 |
$ | 61.8 | ||
2013 |
49.0 | |||
2014 |
39.6 | |||
2015 |
28.5 | |||
2016 |
20.4 | |||
2017 and thereafter |
43.7 | |||
|
|
|||
Total |
$ | 243.0 | ||
|
|
|
Years Ended | ||||||||||||
December 30, 2011 |
December 31, 2010 |
January 1, 2010 |
||||||||||
Current: |
||||||||||||
Foreign |
$ | 28.3 | $ | 21.0 | $ | 18.2 | ||||||
State |
8.1 | 4.0 | (0.4 | ) | ||||||||
Federal |
59.2 | 24.1 | 23.6 | |||||||||
|
|
|
|
|
|
|||||||
95.6 | 49.1 | 41.4 | ||||||||||
Deferred: |
||||||||||||
Foreign |
(14.9 | ) | 0.4 | (5.9 | ) | |||||||
State |
1.7 | 2.3 | 0.2 | |||||||||
Federal |
20.4 | 18.9 | 4.1 | |||||||||
|
|
|
|
|
|
|||||||
7.2 | 21.6 | (1.6 | ) | |||||||||
|
|
|
|
|
|
|||||||
Income tax expense |
$ | 102.8 | $ | 70.7 | $ | 39.8 | ||||||
|
|
|
|
|
|
Years Ended | ||||||||||||
December 30, 2011 |
December 31, 2010 |
January 1, 2010 |
||||||||||
Statutory tax expense |
$ | 106.2 | $ | 63.1 | $ | (0.6 | ) | |||||
Increase (reduction) in taxes resulting from: |
||||||||||||
Nondeductible goodwill impairment loss |
— | — | 35.0 | |||||||||
State income taxes, net |
6.5 | 4.0 | 2.1 | |||||||||
Foreign tax effects |
(1.4 | ) | 1.7 | 8.6 | ||||||||
Changes in valuation allowances(a) |
(11.3 | ) | — | (4.5 | ) | |||||||
Other, net |
2.8 | 1.9 | (0.8 | ) | ||||||||
|
|
|
|
|
|
|||||||
Income tax expense |
$ | 102.8 | $ | 70.7 | $ | 39.8 | ||||||
|
|
|
|
|
|
(a) In 2011, the Company recorded a tax benefit of $11.3 million, net, related to changes in tax valuation allowances primarily in certain foreign jurisdictions. Approximately $7.4 million, net, of the tax benefit was a correction of an error from prior periods to reverse valuation allowances for deferred tax assets in certain foreign jurisdictions where sufficient evidence existed to support the realization of these deferred tax assets at a more likely than not level. The Company has determined the error is not material to previously issued financial statements, and the correction of these errors is not material to the results of operations for the fiscal year ended December 30, 2011.
December 30, 2011 |
December 31, 2010 |
|||||||
Property, equipment, intangibles and other |
$ | (21.5 | ) | $ | (21.6 | ) | ||
Accreted interest (Notes due 2033) |
— | (6.0 | ) | |||||
|
|
|
|
|||||
Gross deferred tax liabilities |
(21.5 | ) | (27.6 | ) | ||||
Deferred compensation and other postretirement benefits |
75.3 | 57.7 | ||||||
Inventory reserves |
12.5 | 31.5 | ||||||
Foreign NOL carryforwards and other |
33.7 | 21.8 | ||||||
Allowance for doubtful accounts |
5.8 | 8.3 | ||||||
Other |
16.6 | 10.8 | ||||||
|
|
|
|
|||||
Gross deferred tax assets |
143.9 | 130.1 | ||||||
|
|
|
|
|||||
Deferred tax assets, net of deferred tax liabilities |
122.4 | 102.5 | ||||||
Valuation allowance |
(20.3 | ) | (18.8 | ) | ||||
|
|
|
|
|||||
Net deferred tax assets |
$ | 102.1 | $ | 83.7 | ||||
|
|
|
|
|||||
Net current deferred tax assets |
$ | 37.7 | $ | 50.3 | ||||
Net non-current deferred tax assets |
64.4 | 33.4 | ||||||
|
|
|
|
|||||
Net deferred tax assets |
$ | 102.1 | $ | 83.7 | ||||
|
|
|
|
(in millions) | ||||
Balance at January 2, 2009 |
$ | 5.8 | ||
Additions for tax positions of prior years |
4.0 | |||
Reductions for tax positions of prior years |
(5.2 | ) | ||
|
|
|||
Balance at January 1, 2010 |
$ | 4.6 | ||
Additions for tax positions of prior years |
1.9 | |||
Reductions for tax positions of prior years |
(2.5 | ) | ||
|
|
|||
Balance at December 31, 2010 |
$ | 4.0 | ||
Additions for tax positions of prior years |
20.2 | |||
Reductions for tax positions of prior years |
(1.3 | ) | ||
|
|
|||
Balance at December 30, 2011 |
$ | 22.9 | ||
|
|
|
Domestic Plans | ||||||||||||||||||||
December 30, 2011 |
December 31, 2010 |
Allocation Guidelines | ||||||||||||||||||
Min | Target | Max | ||||||||||||||||||
Large capitalization U.S. stocks |
32.8 | % | 33.2 | % | 20 | % | 30 | % | 40 | % | ||||||||||
Small capitalization U.S. stocks |
16.8 | 17.3 | 15 | 20 | 25 | |||||||||||||||
International stocks |
16.3 | 16.6 | 15 | 20 | 25 | |||||||||||||||
|
|
|
|
|
|
|||||||||||||||
Total equity securities |
65.9 | 67.1 | 70 | |||||||||||||||||
Fixed income investments |
29.9 | 30.3 | 25 | 30 | 35 | |||||||||||||||
Other investments |
4.2 | 2.6 | — | — | — | |||||||||||||||
|
|
|
|
|
|
|||||||||||||||
100.0 | % | 100.0 | % | 100 | % | |||||||||||||||
|
|
|
|
|
|
Foreign Plans | ||||||||||||
December 30, 2011 |
December 31, 2010 |
Allocation Guidelines | ||||||||||
Target | ||||||||||||
Equity securities |
43.3 | % | 46.2 | % | 49 | % | ||||||
Fixed income investments |
48.7 | 44.9 | 43 | |||||||||
Other investments |
8.0 | 8.9 | 8 | |||||||||
|
|
|
|
|
|
|||||||
100.0 | % | 100.0 | % | 100.0 | % | |||||||
|
|
|
|
|
|
Pension Benefits | ||||||||||||||||||||||||
Domestic | Foreign | Total | ||||||||||||||||||||||
2011 | 2010 | 2011 | 2010 | 2011 | 2010 | |||||||||||||||||||
(In millions) | ||||||||||||||||||||||||
Change in projected benefit obligation: |
||||||||||||||||||||||||
Beginning balance |
$ | 225.4 | $ | 197.9 | $ | 174.6 | $ | 175.9 | $ | 400.0 | $ | 373.8 | ||||||||||||
Service cost |
7.0 | 6.1 | 5.3 | 4.7 | 12.3 | 10.8 | ||||||||||||||||||
Interest cost |
12.0 | 11.6 | 9.7 | 9.9 | 21.7 | 21.5 | ||||||||||||||||||
Plan participants contributions |
— | — | 0.4 | 0.3 | 0.4 | 0.3 | ||||||||||||||||||
Actuarial loss (gain) |
49.7 | 15.3 | 11.1 | (6.1 | ) | 60.8 | 9.2 | |||||||||||||||||
Benefits paid |
(6.1 | ) | (6.1 | ) | (6.3 | ) | (5.6 | ) | (12.4 | ) | (11.7 | ) | ||||||||||||
Foreign currency exchange rate changes |
— | — | (2.0 | ) | (4.5 | ) | (2.0 | ) | (4.5 | ) | ||||||||||||||
Other |
(0.3 | ) | 0.6 | — | — | (0.3 | ) | 0.6 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Ending balance |
$ | 287.7 | $ | 225.4 | $ | 192.8 | $ | 174.6 | $ | 480.5 | $ | 400.0 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Change in plan assets at fair value: |
||||||||||||||||||||||||
Beginning balance |
$ | 148.0 | $ | 127.3 | $ | 165.8 | $ | 149.5 | $ | 313.8 | $ | 276.8 | ||||||||||||
Actual (loss) return on plan assets |
5.7 | 19.9 | 9.1 | 15.0 | 14.8 | 34.9 | ||||||||||||||||||
Company contributions |
10.4 | 6.9 | 9.8 | 10.0 | 20.2 | 16.9 | ||||||||||||||||||
Plan participants contributions |
— | — | 0.4 | 0.3 | 0.4 | 0.3 | ||||||||||||||||||
Benefits paid |
(6.1 | ) | (6.1 | ) | (6.3 | ) | (5.6 | ) | (12.4 | ) | (11.7 | ) | ||||||||||||
Foreign currency exchange rate changes |
— | — | (1.7 | ) | (3.4 | ) | (1.7 | ) | (3.4 | ) | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Ending balance |
$ | 158.0 | $ | 148.0 | $ | 177.1 | $ | 165.8 | $ | 335.1 | $ | 313.8 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Reconciliation of funded status: |
||||||||||||||||||||||||
Projected benefit obligation |
$ | (287.7 | ) | $ | (225.4 | ) | $ | (192.8 | ) | $ | (174.6 | ) | $ | (480.5 | ) | $ | (400.0 | ) | ||||||
Plan assets at fair value |
158.0 | 148.0 | 177.1 | 165.8 | 335.1 | 313.8 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Funded status |
$ | (129.7 | ) | $ | (77.4 | ) | $ | (15.7 | ) | $ | (8.8 | ) | $ | (145.4 | ) | $ | (86.2 | ) | ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Included in the 2011 and 2010 funded status is accrued benefit cost of approximately $17.9 million and $13.0 million, respectively, related to two non-qualified plans, which cannot be funded pursuant to tax regulations. | ||||||||||||||||||||||||
Noncurrent asset |
$ | — | $ | — | $ | 5.3 | $ | 2.0 | $ | 5.3 | $ | 2.0 | ||||||||||||
Current liability |
(0.8 | ) | (0.6 | ) | — | — | (0.8 | ) | (0.6 | ) | ||||||||||||||
Noncurrent liability |
(128.9 | ) | (76.8 | ) | (21.0 | ) | (10.8 | ) | (149.9 | ) | (87.6 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Funded status |
$ | (129.7 | ) | $ | (77.4 | ) | $ | (15.7 | ) | $ | (8.8 | ) | $ | (145.4 | ) | $ | (86.2 | ) | ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Weighted-average assumptions used for measurement of the projected benefit obligation: |
| |||||||||||||||||||||||
Discount rate |
4.37 | % | 5.53 | % | 4.84 | % | 5.43 | % | 4.56 | % | 5.49 | % | ||||||||||||
Salary growth rate |
3.90 | % | 3.91 | % | 3.13 | % | 3.57 | % | 3.57 | % | 3.76 | % |
Pension Benefits | ||||||||||||||||||||||||||||||||||||
Domestic | Foreign | Total | ||||||||||||||||||||||||||||||||||
2011 | 2010 | 2009 | 2011 | 2010 | 2009 | 2011 | 2010 | 2009 | ||||||||||||||||||||||||||||
(In millions) | ||||||||||||||||||||||||||||||||||||
Components of net periodic cost: |
||||||||||||||||||||||||||||||||||||
Service cost |
$ | 7.0 | $ | 6.1 | $ | 6.6 | $ | 5.3 | $ | 4.7 | $ | 4.0 | $ | 12.3 | $ | 10.8 | $ | 10.6 | ||||||||||||||||||
Interest cost |
12.0 | 11.6 | 11.0 | 9.7 | 9.9 | 8.6 | 21.7 | 21.5 | 19.6 | |||||||||||||||||||||||||||
Expected return on plan assets |
(11.8 | ) | (10.8 | ) | (9.9 | ) | (10.1 | ) | (8.9 | ) | (7.9 | ) | (21.9 | ) | (19.7 | ) | (17.8 | ) | ||||||||||||||||||
Net amortization |
3.4 | 3.5 | 3.7 | 0.3 | 0.6 | (0.1 | ) | 3.7 | 4.1 | 3.6 | ||||||||||||||||||||||||||
Curtailment loss |
0.6 | — | — | — | — | — | 0.6 | — | — | |||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Net periodic cost |
$ | 11.2 | $ | 10.4 | $ | 11.4 | $ | 5.2 | $ | 6.3 | $ | 4.6 | $ | 16.4 | $ | 16.7 | $ | 16.0 |
Weighted-average assumption used to measure net periodic cost: |
| |||||||||||||||||||||||||||||||||||
Discount rate |
5.53 | % | 5.99 | % | 5.90 | % | 5.43 | % | 5.77 | % | 6.45 | % | 5.49 | % | 5.88 | % | 6.12 | % | ||||||||||||||||||
Expected return on plan assets |
8.00 | % | 8.50 | % | 8.50 | % | 5.93 | % | 6.02 | % | 6.02 | % | 6.91 | % | 7.16 | % | 7.26 | % | ||||||||||||||||||
Salary growth rate |
3.91 | % | 3.91 | % | 4.43 | % | 3.57 | % | 3.59 | % | 3.66 | % | 3.76 | % | 3.79 | % | 4.05 | % |
Pension Assets | ||||||||||||||||||||||||||||||||||||
Domestic | Foreign | Total | ||||||||||||||||||||||||||||||||||
Level 1 | Level 2 | Total | Level 1 | Level 2 | Total | Level 1 | Level 2 | Total | ||||||||||||||||||||||||||||
(In millions) | ||||||||||||||||||||||||||||||||||||
Asset Categories: |
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Cash and short-term investments |
$ | 6.6 | $ | — | $ | 6.6 | $ | 1.4 | $ | — | $ | 1.4 | $ | 8.0 | $ | — | $ | 8.0 | ||||||||||||||||||
Equity securities: |
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Domestic |
78.4 | — | 78.4 | 0.1 | 30.7 | 30.8 | 78.5 | 30.7 | 109.2 | |||||||||||||||||||||||||||
International |
— | 25.7 | 25.7 | — | 45.8 | 45.8 | — | 71.5 | 71.5 | |||||||||||||||||||||||||||
Fixed income securities: |
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Domestic |
31.7 | 1.0 | 32.7 | 0.5 | 65.6 | 66.1 | 32.2 | 66.6 | 98.8 | |||||||||||||||||||||||||||
Corporate bonds |
— | 14.6 | 14.6 | 0.4 | 19.9 | 20.3 | 0.4 | 34.5 | 34.9 | |||||||||||||||||||||||||||
Insurance funds |
— | — | — | — | 12.2 | 12.2 | — | 12.2 | 12.2 | |||||||||||||||||||||||||||
Other |
— | — | — | 0.1 | 0.4 | 0.5 | 0.1 | 0.4 | 0.5 | |||||||||||||||||||||||||||
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Total |
$ | 116.7 | $ | 41.3 | $ | 158.0 | $ | 2.5 | $ | 174.6 | $ | 177.1 | $ | 119.2 | $ | 215.9 | $ | 335.1 | ||||||||||||||||||
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Estimated Future Benefit Payments |
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Domestic | Foreign | Total | ||||||||||
(In millions) | ||||||||||||
2012 |
$ | 8.8 | $ | 5.7 | $ | 14.5 | ||||||
2013 |
8.1 | 5.7 | 13.8 | |||||||||
2014 |
8.8 | 6.3 | 15.1 | |||||||||
2015 |
9.4 | 6.2 | 15.6 | |||||||||
2016 |
10.1 | 6.5 | 16.6 | |||||||||
2017-2021 |
63.9 | 37.4 | 101.3 | |||||||||
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Total |
$ | 109.1 | $ | 67.8 | $ | 176.9 | ||||||
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Director Stock Units (1) |
Weighted Average Grant Date Value (2) |
Employee Stock Units |
Weighted Average Grant Date Value (2) |
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(Units in thousands) | ||||||||||||||||
Outstanding balance at January 2, 2009 |
193.9 | $ | 40.14 | 582.6 | $ | 54.74 | ||||||||||
Granted |
48.9 | 38.39 | 371.1 | 29.41 | ||||||||||||
Converted |
(2.7 | ) | 46.91 | (177.4 | ) | 46.02 | ||||||||||
Cancelled |
— | — | (17.2 | ) | 47.79 | |||||||||||
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Outstanding balance at January 1, 2010 |
240.1 | 39.71 | 759.1 | 44.55 | ||||||||||||
Granted |
26.8 | 47.32 | 268.7 | 42.72 | ||||||||||||
Converted |
(37.2 | ) | 38.14 | (197.4 | ) | 51.09 | ||||||||||
Cancelled |
— | — | (6.7 | ) | 45.32 | |||||||||||
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Outstanding balance at December 31, 2010 |
229.7 | 40.85 | 823.7 | 42.38 | ||||||||||||
Granted |
27.7 | 59.14 | 157.8 | 69.91 | ||||||||||||
Converted |
(7.2 | ) | 45.74 | (281.9 | ) | 44.67 | ||||||||||
Cancelled |
— | — | (82.5 | ) | 43.99 | |||||||||||
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Outstanding balance at December 30, 2011 |
250.2 | $ | 42.74 | 617.1 | $ | 48.16 | ||||||||||
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(1) |
Generally, stock units are included in the Company's common stock outstanding on the date of vesting as the conditions for conversion have been met. However, director units are considered convertible units if vested and the individual has elected to defer for conversion until a pre-arranged time selected by each individual. All of the director stock units outstanding are convertible. |
(2) |
Director and employee stock units are granted at no cost to the participants. |
Expected Stock Price Volatility |
Risk-Free Interest Rate |
Expected Dividend Yield |
Average Expected Life |
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2011 Grants |
37.9 | % | 2.4 | % | — | 6.13 years | ||||||||||
2010 Grants |
36.2 | % | 2.7 | % | — | 6.13 years | ||||||||||
2009 Grants |
35.4 | % | 2.7 | % | — | 7 years |
Employee Options |
Weighted- average Exercise Price |
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Balance at January 2, 2009 |
1,729.8 | $ | 33.78 | |||||
Granted |
97.2 | 29.41 | ||||||
Exercised |
(264.8 | ) | 18.21 | |||||
Cancelled |
— | — | ||||||
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Balance at January 1, 2010 |
1,562.2 | 36.15 | ||||||
Adjusted (a) |
87.2 | 37.87 | ||||||
Granted |
96.5 | 42.71 | ||||||
Exercised |
(510.9 | ) | 21.25 | |||||
Cancelled |
(0.1 | ) | 22.39 | |||||
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Balance at December 31, 2010 |
1,234.9 | 40.27 | ||||||
Granted |
75.9 | 69.54 | ||||||
Exercised |
(502.5 | ) | 29.92 | |||||
Cancelled |
(52.0 | ) | 52.33 | |||||
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Balance at December 31, 2011 |
756.3 | $ | 49.26 | |||||
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Options exercisable at year-end: |
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2009 |
956.8 | $ | 20.43 | |||||
2010 (a) |
661.2 | $ | 26.12 | |||||
2011 |
405.5 | $ | 28.20 |
(a) | In accordance with the provisions of the stock option plan, the exercise price and number of options outstanding and exercisable were adjusted to reflect the special dividend in 2010. |
Non-vested Shares |
Weighted-average Grant Date Fair Value |
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(shares in thousands) | ||||||||
Non-vested shares at December 31, 2010 |
1,391.3 | $ | 32.82 | |||||
Granted |
233.7 | 56.46 | ||||||
Vested |
(522.6 | ) | 33.51 | |||||
Cancelled |
(134.5 | ) | 34.71 | |||||
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Non-vested shares at December 30, 2011 |
967.9 | $ | 37.89 | |||||
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North America |
Europe | Emerging Markets |
Total | |||||||||||||
2011 |
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Net sales |
$ | 4,302.5 | $ | 1,150.0 | $ | 694.4 | $ | 6,146.9 | ||||||||
Operating income |
307.7 | 15.7 | 39.4 | 362.8 | ||||||||||||
Depreciation |
14.5 | 5.6 | 2.0 | 22.1 | ||||||||||||
Amortization of intangibles |
5.2 | 6.1 | 0.1 | 11.4 | ||||||||||||
Tangible long-lived assets |
99.6 | 28.3 | 6.3 | 134.2 | ||||||||||||
Total assets |
2,015.9 | 622.3 | 395.8 | 3,034.0 | ||||||||||||
Capital expenditures |
18.3 | 5.2 | 2.9 | 26.4 | ||||||||||||
2010 |
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Net sales |
$ | 3,701.2 | $ | 1,008.4 | $ | 564.9 | $ | 5,274.5 | ||||||||
Operating income (loss) |
235.1 | (0.9 | ) | 33.0 | 267.2 | |||||||||||
Depreciation |
14.7 | 5.6 | 2.2 | 22.5 | ||||||||||||
Amortization of intangibles |
5.0 | 6.2 | 0.1 | 11.3 | ||||||||||||
Tangible long-lived assets |
95.9 | 24.5 | 5.5 | 125.9 | ||||||||||||
Total assets |
2,043.9 | 586.7 | 302.7 | 2,933.3 | ||||||||||||
Capital expenditures |
16.6 | 1.9 | 1.1 | 19.6 | ||||||||||||
2009 |
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Net sales |
$ | 3,397.8 | $ | 887.9 | $ | 493.9 | $ | 4,779.6 | ||||||||
Operating income (loss) |
175.1 | (120.0 | ) | 29.7 | 84.8 | |||||||||||
Depreciation |
15.0 | 7.0 | 2.1 | 24.1 | ||||||||||||
Amortization of intangibles |
6.3 | 6.6 | 0.1 | 13.0 | ||||||||||||
Tangible long-lived assets |
92.2 | 32.5 | 5.5 | 130.2 | ||||||||||||
Total assets |
1,869.5 | 545.6 | 256.6 | 2,671.7 | ||||||||||||
Capital expenditures |
17.0 | 2.9 | 2.0 | 21.9 |
Years Ended | ||||||||||||||||||||||||
December 30, 2011 | December 31, 2010 | January 1, 2010 | ||||||||||||||||||||||
Net Sales | % of Total Net Sales |
Net Sales | % of Total Net Sales |
Net Sales | % of Total Net Sales |
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Enterprise Cabling and Security |
$ | 3,245.9 | 52.8 | % | $ | 2,912.6 | 55.2 | % | $ | 2,744.1 | 57.4 | % | ||||||||||||
Electrical Wire and Cable |
1,949.5 | 31.7 | % | 1,602.5 | 30.4 | % | 1,385.7 | 29.0 | % | |||||||||||||||
OEM Supply |
951.5 | 15.5 | % | 759.4 | 14.4 | % | 649.8 | 13.6 | % | |||||||||||||||
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Net Sales |
$ | 6,146.9 | 100.0 | % | $ | 5,274.5 | 100.0 | % | $ | 4,779.6 | 100.0 | % | ||||||||||||
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North America |
Europe (a) | Emerging Markets |
Total | |||||||||||||
Balance as of January 1, 2010(b) |
$ | 316.3 | $ | 11.7 | $ | 10.7 | $ | 338.7 | ||||||||
Acquisition related (c) |
15.3 | — | — | 15.3 | ||||||||||||
Foreign currency translation |
0.8 | (0.7 | ) | 1.2 | 1.3 | |||||||||||
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Balance as of December 31, 2010 |
$ | 332.4 | $ | 11.0 | $ | 11.9 | $ | 355.3 | ||||||||
Acquisition related(c) |
(2.8 | ) | — | — | (2.8 | ) | ||||||||||
Foreign currency translation |
(0.4 | ) | (0.1 | ) | (0.3 | ) | (0.8 | ) | ||||||||
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Balance as of December 30, 2011 |
$ | 329.2 | $ | 10.9 | $ | 11.6 | $ | 351.7 | ||||||||
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(a) |
Europe's goodwill balance includes $100.0 million of accumulated impairment losses for all periods presented. |
(b) |
As a result of the disposition of the Company's Aerospace business in the third quarter of 2011, goodwill of $19.0 million allocated to the North America and Europe reportable segments was written off and prior period amounts were reclassified to "Assets of discontinued operations" on the Company's Consolidated Balance Sheet as of January 1, 2010. |
(c) |
In the year ended December 30, 2011, the Company adjusted goodwill recognized in 2010 by $2.8 million, related to the acquisition of Clark Security Products, Inc and General Lock, LLC (collectively "Clark") for which the Company paid $36.4 million in 2010 (offset in 2011 by $1.6 million which was returned to the Company as a result of net working capital adjustments). The purchase price, as well as the allocation thereof, was finalized in 2011. |
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December 30, 2011 |
December 31, 2010 |
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Assets: |
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Current assets(a) |
$ | 2,404.0 | $ | 2,309.1 | ||||
Property, equipment and capital leases, net |
102.3 | 98.3 | ||||||
Goodwill |
351.7 | 355.3 | ||||||
Other assets |
190.2 | 187.0 | ||||||
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$ | 3,048.2 | $ | 2,949.7 | |||||
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Liabilities and Stockholder's Equity: |
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Current liabilities(a) |
$ | 1,023.3 | $ | 1,069.0 | ||||
Subordinated notes payable to parent |
6.0 | 8.5 | ||||||
Long-term debt |
543.9 | 394.3 | ||||||
Other liabilities |
198.2 | 159.1 | ||||||
Stockholder's equity |
1,276.8 | 1,318.8 | ||||||
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$ | 3,048.2 | $ | 2,949.7 | |||||
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(a) |
Includes assets and liabilities related to discontinued operations of $186.8 and $14.6, respectively, at December 31, 2010 (see Note 4. "Discontinued Operations.") |
Years Ended | ||||||||||||
December 30, 2011 |
December 31, 2010 |
January 1, 2010 |
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Net sales |
$ | 6,146.9 | $ | 5,274.5 | $ | 4,779.6 | ||||||
Operating income |
$ | 368.3 | $ | 273.0 | $ | 90.5 | ||||||
Income from continuing operations before income taxes |
$ | 328.0 | $ | 204.2 | $ | 21.1 | ||||||
Net (loss) income from discontinued operations |
$ | (12.5 | ) | $ | (1.0 | ) | $ | 12.1 | ||||
Net income (loss) |
$ | 203.3 | $ | 123.2 | $ | (15.4 | ) |
|
(In millions, except per share amounts) | First Quarter (1) |
Second Quarter |
Third Quarter (2) |
Fourth Quarter (3) |
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Year ended December 30, 2011 |
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Net sales |
$ | 1,470.8 | $ | 1,565.3 | $ | 1,611.8 | $ | 1,499.0 | ||||||||
Cost of goods sold |
1,132.1 | 1,207.3 | 1,249.8 | 1,150.3 | ||||||||||||
Operating income |
77.5 | 92.0 | 101.7 | 91.6 | ||||||||||||
Income from continuing operations before income taxes |
65.4 | 77.6 | 83.3 | 77.2 | ||||||||||||
Net income from continuing operations |
40.9 | 48.4 | 61.6 | 49.8 | ||||||||||||
Income (loss) from discontinued operations, net |
3.4 | 3.7 | (18.1 | ) | (1.5 | ) | ||||||||||
Net income |
$ | 44.3 | $ | 52.1 | $ | 43.5 | $ | 48.3 | ||||||||
Income (loss) per share |
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Basic: |
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Continuing operations |
$ | 1.19 | $ | 1.39 | $ | 1.80 | $ | 1.50 | ||||||||
Discontinued operations |
$ | 0.10 | $ | 0.11 | $ | (0.53 | ) | $ | (0.05 | ) | ||||||
Net income |
$ | 1.29 | $ | 1.50 | $ | 1.27 | $ | 1.45 | ||||||||
Diluted: |
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Continuing operations |
$ | 1.13 | $ | 1.33 | $ | 1.78 | $ | 1.49 | ||||||||
Discontinued operations |
$ | 0.10 | $ | 0.10 | $ | (0.52 | ) | $ | (0.05 | ) | ||||||
Net income |
$ | 1.23 | $ | 1.43 | $ | 1.26 | $ | 1.44 | ||||||||
Stock price range: |
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High |
$ | 73.56 | $ | 76.16 | $ | 68.15 | $ | 62.99 | ||||||||
Low |
$ | 59.52 | $ | 60.54 | $ | 47.38 | $ | 44.52 | ||||||||
Close |
$ | 68.30 | $ | 66.10 | $ | 47.44 | $ | 59.64 |
(1) |
In the first quarter of 2011, the Company recorded a pre-tax charge of $5.3 million related to facility consolidations and headcount reductions in Europe. See Note 3. "Restructuring Charge." |
(2) |
In the third quarter of 2011, the Company recorded a tax benefit of $8.8 million which was primarily related to the reversal of deferred income tax valuation allowances in certain foreign jurisdictions. See Note 7. "Income Taxes." |
(3) |
During the fourth quarter of 2011, the Company recorded a tax benefit of $2.0 million primarily related to the reversal of deferred income tax valuation allowances in certain foreign jurisdictions. |
(In millions, except per share amounts) | First Quarter (1) |
Second Quarter (2) |
Third Quarter (3) |
Fourth Quarter (4) |
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Year ended December 31, 2010 |
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Net sales |
$ | 1,221.8 | $ | 1,321.3 | $ | 1,344.9 | $ | 1,386.5 | ||||||||
Cost of goods sold |
945.8 | 1,020.7 | 1,035.8 | 1,064.6 | ||||||||||||
Operating income |
51.4 | 66.5 | 70.8 | 78.5 | ||||||||||||
Income from continuing operations before income taxes |
4.3 | 53.6 | 57.3 | 65.0 | ||||||||||||
Net income from continuing operations |
2.6 | 32.2 | 32.6 | 42.1 | ||||||||||||
Income (loss) from discontinued operations, net |
3.3 | 2.4 | 3.9 | (10.6 | ) | |||||||||||
Net income |
$ | 5.9 | $ | 34.6 | $ | 36.5 | $ | 31.5 | ||||||||
Income (loss) per share |
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Basic: |
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Continuing operations |
$ | 0.08 | $ | 0.95 | $ | 0.96 | $ | 1.23 | ||||||||
Discontinued operations |
$ | 0.09 | $ | 0.07 | $ | 0.11 | $ | (0.31 | ) | |||||||
Net income |
$ | 0.17 | $ | 1.02 | $ | 1.07 | $ | 0.92 | ||||||||
Diluted: |
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Continuing operations |
$ | 0.07 | $ | 0.91 | $ | 0.92 | $ | 1.18 | ||||||||
Discontinued operations |
$ | 0.09 | $ | 0.07 | $ | 0.11 | $ | (0.30 | ) | |||||||
Net income |
$ | 0.16 | $ | 0.98 | $ | 1.03 | $ | 0.88 | ||||||||
Stock price range: |
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High |
$ | 48.85 | $ | 54.16 | $ | 54.99 | $ | 61.17 | ||||||||
Low |
$ | 38.42 | $ | 41.31 | $ | 41.27 | $ | 52.10 | ||||||||
Close |
$ | 47.16 | $ | 41.90 | $ | 54.28 | $ | 59.73 |
(1) |
During the first quarter of 2010, the Company repurchased a portion of its Notes due 2014 which resulted in the recognition of a pre-tax loss of $30.5 million ($18.9 million, net of tax). |
(2) |
Net income in the second quarter includes a foreign exchange gain of $2.1 million ($0.8 million, net of tax) due to the remeasurement of Venezuela's bolivar-denominated balance sheet at the new government rate. During the second quarter of 2010, the Company repurchased a portion of its Notes due 2033 which resulted in the recognition of a pre-tax gain of $0.8 million ($0.5 million, net of tax). |
(3) |
During third quarter of 2010, the Company repurchased a portion of its Notes due 2014 and 2033 which resulted in the recognition of a pre-tax loss of $2.7 million ($1.7 million, net of tax). |
(4) |
During the fourth quarter of 2010, the Company repurchased a portion of its Notes due 2033 which resulted in the recognition of a pre-tax gain of $0.5 million ($0.3 million, net of tax). Also during the fourth quarter of 2010, the Company recorded a tax benefit of $1.3 million for the reversal of prior year foreign taxes. |
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The Company has various defined benefit and defined contribution pension plans. The defined benefit plans of the Company are the Anixter Inc. Pension Plan, Executive Benefit Plan and Supplemental Executive Retirement Plan (SERP) (together the "Domestic Plans") and various pension plans covering employees of foreign subsidiaries ("Foreign Plans"). The majority of the Company's pension plans are non-contributory and cover substantially all full-time domestic employees and certain employees in other countries. Retirement benefits are provided based on compensation as defined in both the Domestic and Foreign Plans. The Company's policy is to fund all Domestic Plans as required by the Employee Retirement Income Security Act of 1974 ("ERISA") and the IRS and all Foreign Plans as required by applicable foreign laws. The Executive Benefit Plan and SERP are the only two plans that are unfunded. Assets in the various plans consist primarily of equity securities and fixed income investments.
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