ANIXTER INTERNATIONAL INC, 10-K filed on 2/20/2014
Annual Report
Document and Entity Information (USD $)
12 Months Ended
Jan. 3, 2014
Feb. 12, 2014
Jun. 28, 2013
Entity Information [Line Items]
 
 
 
Document Type
10-K 
 
 
Amendment Flag
false 
 
 
Document Period End Date
Jan. 03, 2014 
 
 
Document Fiscal Year Focus
2013 
 
 
Document Fiscal Period Focus
FY 
 
 
Trading Symbol
AXE 
 
 
Entity Registrant Name
ANIXTER INTERNATIONAL INC 
 
 
Entity Central Index Key
0000052795 
 
 
Current Fiscal Year End Date
--01-03 
 
 
Entity Well-known Seasoned Issuer
Yes 
 
 
Entity Current Reporting Status
Yes 
 
 
Entity Voluntary Filers
No 
 
 
Entity Filer Category
Large Accelerated Filer 
 
 
Entity Public Float
 
 
$ 2,049,827,879 
Entity Common Stock, Shares Outstanding
 
32,555,841 
 
CONSOLIDATED STATEMENTS OF INCOME (USD $)
In Millions, except Per Share data, unless otherwise specified
12 Months Ended
Jan. 3, 2014
Dec. 28, 2012
Dec. 30, 2011
Net sales
$ 6,226.5 
$ 6,253.1 
$ 6,146.9 
Cost of goods sold
4,803.8 
4,844.4 
4,739.5 
Gross profit
1,422.7 
1,408.7 
1,407.4 
Operating expenses
1,066.2 
1,077.7 
1,044.6 
Impairment of goodwill and long-lived assets
1.7 
48.5 
Operating income
354.8 
282.5 
362.8 
Other expense:
 
 
 
Interest expense
(47.4)
(59.7)
(50.1)
Other, net
(11.4)
(13.6)
(9.2)
Income from continuing operations before income taxes
296.0 
209.2 
303.5 
Income tax expense
95.6 
84.6 
102.8 
Net income from continuing operations
200.4 
124.6 
200.7 
Income (loss) from discontinued operations, net of tax
0.1 
0.2 
(12.5)
Net income
$ 200.5 
$ 124.8 
$ 188.2 
Basic:
 
 
 
Continuing operations (in dollars per share)
$ 6.11 
$ 3.76 
$ 5.87 
Discontinued operations (in dollars per share)
$ 0.01 
$ 0.01 
$ (0.37)
Net income (in dollars per share)
$ 6.12 
$ 3.77 
$ 5.50 
Diluted:
 
 
 
Continuing operations (in dollars per share)
$ 6.04 
$ 3.69 
$ 5.71 
Discontinued operations (in dollars per share)
$ 0.00 
$ 0.00 
$ (0.35)
Net income (in dollars per share)
$ 6.04 
$ 3.69 
$ 5.36 
Basic weighted-average common shares outstanding
32.8 
33.1 
34.2 
Effect of dilutive securities:
 
 
 
Stock options and units (in shares)
0.3 
0.3 
0.4 
Diluted weighted-average common shares outstanding (in shares)
33.2 
33.8 
35.1 
Dividend declared per common share (in dollars per share)
$ 5.00 
$ 4.50 
$ 0 
Convertible notes due 2013 [Member]
 
 
 
Effect of dilutive securities:
 
 
 
Convertible notes due (in shares)
0.1 
0.4 
0.3 
Convertible notes due 2033 [Member]
 
 
 
Effect of dilutive securities:
 
 
 
Convertible notes due (in shares)
0.2 
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (USD $)
In Millions, unless otherwise specified
12 Months Ended
Jan. 3, 2014
Dec. 28, 2012
Dec. 30, 2011
Net income
$ 200.5 
$ 124.8 
$ 188.2 
Other comprehensive income (loss):
 
 
 
Changes in unrealized pension cost, net of tax
40.2 
17.9 
(41.4)
Foreign currency translation
(15.0)
15.9 
(18.3)
Changes in fair market value of derivatives, net of tax
(0.1)
1.0 
Foreign currency translation recognized in net income
1.0 
Other comprehensive income (loss)
25.2 
33.7 
(57.7)
Comprehensive income
$ 225.7 
$ 158.5 
$ 130.5 
CONSOLIDATED BALANCE SHEETS (USD $)
In Millions, unless otherwise specified
Jan. 3, 2014
Dec. 28, 2012
Current assets:
 
 
Cash and cash equivalents
$ 57.3 
$ 89.4 
Accounts receivable (Includes $524.2 and $527.2 at January 3, 2014 and December 28, 2012, respectively, associated with securitization facility)
1,182.8 
1,225.5 
Inventories
959.8 
1,060.9 
Deferred income taxes
32.8 
40.7 
Other current assets
43.0 
33.6 
Total current assets
2,275.7 
2,450.1 
Property and equipment, at cost
328.0 
314.4 
Accumulated depreciation
(224.0)
(218.5)
Net property and equipment
104.0 
95.9 
Goodwill
342.1 
342.0 
Other assets
139.0 
201.6 
Total assets
2,860.8 
3,089.6 
Current liabilities:
 
 
Accounts payable
691.9 
716.9 
Accrued expenses
210.5 
249.5 
Short-term debt
0.9 
Total current liabilities
902.4 
967.3 
Long-term debt (Includes $145.0 and $82.0 at January 3, 2014 and December 28, 2012 respectively, associated with securitization facility)
836.0 
982.2 
Other liabilities
95.0 
170.2 
Total liabilities
1,833.4 
2,119.7 
Stockholders’ equity:
 
 
Common stock - $1.00 par value, 100,000,000 shares authorized, 32,853,702 and 32,537,986 shares issued and outstanding at January 3, 2014 and December 28, 2012, respectively
32.9 
32.5 
Capital surplus
216.3 
218.6 
Retained earnings
804.8 
770.6 
Accumulated other comprehensive loss:
 
 
Foreign currency translation
0.4 
15.4 
Unrecognized pension liability, net
(27.2)
(67.4)
Unrealized gain on derivatives, net
0.2 
0.2 
Total accumulated other comprehensive loss
(26.6)
(51.8)
Total stockholders’ equity
1,027.4 
969.9 
Total liabilities and stockholders’ equity
$ 2,860.8 
$ 3,089.6 
CONSOLIDATED BALANCE SHEETS (Parenthetical) (USD $)
In Millions, except Share data, unless otherwise specified
Jan. 3, 2014
Dec. 28, 2012
Accounts receivable
$ 524.2 
$ 527.2 
Common stock, par value
$ 1.00 
$ 1.00 
Common stock, shares authorized
100,000,000 
100,000,000 
Common stock, shares issued
32,853,702 
32,537,986 
Common stock, shares outstanding
32,853,702 
32,537,986 
Long-term Debt
836.0 
982.2 
Accounts receivable securitization facility [Member]
 
 
Long-term Debt
$ 145.0 
$ 82.0 
CONSOLIDATED STATEMENTS OF CASH FLOWS (USD $)
In Millions, unless otherwise specified
12 Months Ended
Jan. 3, 2014
Dec. 28, 2012
Dec. 30, 2011
Operating activities:
 
 
 
Net income
$ 200.5 
$ 124.8 
$ 188.2 
Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation
22.1 
22.5 
22.1 
Deferred income taxes
22.3 
(9.4)
7.2 
Stock-based compensation
13.6 
14.6 
11.1 
Amortization of intangible assets
8.0 
10.0 
11.4 
Accretion of debt discount
2.8 
17.9 
17.1 
Amortization of deferred financing costs
2.6 
3.1 
2.5 
Pension plan contributions (including settlements)
(15.3)
(57.4)
(20.2)
Pension plan expenses
16.7 
41.0 
16.4 
Excess income tax benefit from employee stock plans
(1.6)
(3.1)
(6.9)
Impairment of goodwill and long-lived assets
1.7 
48.5 
Loss on sale of business
22.6 
Changes in current assets and liabilities:
 
 
 
Accounts receivable
36.9 
(23.4)
(97.2)
Inventories
96.9 
42.9 
(199.2)
Accounts payable
(19.9)
(4.5)
75.1 
Other current assets and liabilities, net
(53.5)
(86.3)
95.6 
Other, net
0.7 
1.7 
Net cash provided by operating activities
334.5 
142.9 
145.8 
Investing activities:
 
 
 
Capital expenditures, net
(32.2)
(34.2)
(26.4)
Acquisition of businesses, net of cash acquired
(55.3)
1.6 
Net proceeds from sale of business
143.6 
Net cash (used in) provided by investing activities
(32.2)
(89.5)
118.8 
Financing activities:
 
 
 
Proceeds from borrowings
593.7 
615.5 
1,023.7 
Repayment of borrowings
(441.4)
(824.8)
(1,073.1)
Retirement of Notes due 2013
(300.0)
Payment of special cash dividend
(165.7)
(151.4)
(0.9)
Payments for repurchase of warrants
(19.2)
Proceeds from stock options exercised
8.1 
3.4 
13.4 
Excess income tax benefit from employee stock plans
1.6 
3.1 
6.9 
Deferred financing costs
(1.2)
(7.6)
(4.2)
Proceeds from issuance of Notes due 2019
350.0 
Purchases of common stock for treasury
(59.2)
(107.5)
Retirement of Convertible Notes due 2033 - debt component
(48.9)
Retirement of Convertible Notes due 2033 - equity component
(44.9)
Other, net
2.2 
Net cash used in financing activities
(324.1)
(68.8)
(235.5)
(Decrease) increase in cash and cash equivalents
(21.8)
(15.4)
29.1 
Effect of exchange rate changes on cash balances
(10.3)
(1.3)
(1.4)
Cash and cash equivalents at beginning of period
89.4 
106.1 
78.4 
Cash and cash equivalents at end of period
$ 57.3 
$ 89.4 
$ 106.1 
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (USD $)
In Millions, except Share data, unless otherwise specified
Total
Common Stock
Capital Surplus
Retained Earnings
Accumulated Other Comprehensive Loss
Beginning Balance at Dec. 31, 2010
$ 1,010.8 
$ 34.3 
$ 230.1 
$ 774.2 
$ (27.8)
Beginning Balance, Shares at Dec. 31, 2010
 
34,300,000 
 
 
 
Net income
188.2 
 
 
188.2 
 
Other comprehensive income (loss):
 
 
 
 
 
Changes in unrealized pension cost, net of tax
(41.4)
 
 
 
(41.4)
Foreign currency translation
(18.3)
 
 
 
(18.3)
Foreign currency translation related to sale of business recognized in net income
1.0 
 
 
 
1.0 
Changes in fair market value of derivatives
1.0 
 
 
 
1.0 
Dividend forfeited on common stock
0.1 
 
 
0.1 
 
Payments for repurchase of warrants
 
 
 
 
Purchase and retirement of treasury stock
(107.5)
(2.0)
 
(105.5)
 
Purchase and retirement of treasury stock, shares
(2,000,000)
(2,000,000)
 
 
 
Equity component of repurchased convertible debt, net of tax
(38.7)
 
(38.7)
 
 
Reversal of tax benefit on equity component of convertible debt repurchases
(18.7)
 
(18.7)
 
 
Stock-based compensation
11.1 
 
11.1 
 
 
Issuance of common stock and related tax benefits
13.6 
0.9 
12.7 
 
 
Issuance of common stock and related tax benefits, shares
 
900,000 
 
 
 
Ending Balance at Dec. 30, 2011
1,001.2 
33.2 
196.5 
857.0 
(85.5)
Ending Balance, Shares at Dec. 30, 2011
 
33,200,000 
 
 
 
Net income
124.8 
 
 
124.8 
 
Other comprehensive income (loss):
 
 
 
 
 
Changes in unrealized pension cost, net of tax
17.9 
 
 
 
17.9 
Foreign currency translation
15.9 
 
 
 
15.9 
Changes in fair market value of derivatives
(0.1)
 
 
 
(0.1)
Special dividend declared on common stock
(153.1)
 
 
(153.1)
 
Dividend forfeited on common stock
0.1 
 
 
0.1 
 
Payments for repurchase of warrants
 
 
 
 
Purchase and retirement of treasury stock
(59.2)
(1.0)
 
(58.2)
 
Purchase and retirement of treasury stock, shares
(1,000,000)
(1,000,000)
 
 
 
Stock-based compensation
14.6 
 
14.6 
 
 
Issuance of common stock and related tax benefits
7.8 
0.3 
7.5 
 
 
Issuance of common stock and related tax benefits, shares
 
300,000 
 
 
 
Ending Balance at Dec. 28, 2012
969.9 
32.5 
218.6 
770.6 
(51.8)
Ending Balance, Shares at Dec. 28, 2012
32,537,986 
32,500,000 
 
 
 
Net income
200.5 
 
 
200.5 
 
Other comprehensive income (loss):
 
 
 
 
 
Changes in unrealized pension cost, net of tax
40.2 
 
 
 
40.2 
Foreign currency translation
(15.0)
 
 
 
(15.0)
Changes in fair market value of derivatives
 
 
 
 
Special dividend declared on common stock
(166.5)
 
 
(166.5)
 
Dividend forfeited on common stock
0.2 
 
 
0.2 
 
Payments for repurchase of warrants
(19.2)
 
(19.2)
 
 
Stock-based compensation
13.6 
 
13.6 
 
 
Issuance of common stock and related tax benefits
3.7 
0.4 
3.3 
 
 
Issuance of common stock and related tax benefits, shares
 
400,000 
 
 
 
Ending Balance at Jan. 03, 2014
$ 1,027.4 
$ 32.9 
$ 216.3 
$ 804.8 
$ (26.6)
Ending Balance, Shares at Jan. 03, 2014
32,853,702 
32,900,000 
 
 
 
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (Parenthetical) (USD $)
In Millions, except Per Share data, unless otherwise specified
12 Months Ended
Jan. 3, 2014
Dec. 28, 2012
Dec. 30, 2011
Unrealized pension cost, net of tax
$ 24.1 
$ 15.7 
$ 21.4 
Fair market value of derivatives, net of tax
 
 
0.4 
Special dividend declared on common stock per share
$ 5.00 
$ 4.50 
$ 0 
Equity component of repurchased convertible debt, net of tax
 
 
$ 6.2 
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization: Anixter International Inc. and its subsidiaries (collectively referred to as "Anixter" or the "Company”) and sometimes referred to in this Annual Report on Form 10-K as "we", "our", "us", or "ourselves", formerly known as Itel Corporation, which was incorporated in Delaware in 1967, is a leading distributor of enterprise cabling and security solutions, electrical and electronic wire and cable products, OEM supply fasteners and other small parts through Anixter Inc. and its subsidiaries.
Basis of presentation: The consolidated financial statements include the accounts of Anixter International Inc. and its subsidiaries. Our fiscal year ends on the Friday nearest December 31 and includes 53 weeks in 2013 and 52 weeks in 2012 and 2011. Certain amounts have been reclassified to conform to the current year presentation. In addition, we have presented the effect of exchange rate changes on cash balances in our Consolidated Statements of Cash Flows which were immaterial in years prior to 2013.
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: We carry our accounts receivable at their face amounts less an allowance for doubtful accounts, which was $16.8 million and $21.4 million at the end of 2013 and 2012, respectively. On a regular basis, we evaluate our accounts receivable and establish 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. The provision for doubtful accounts was $10.4 million, $7.5 million and $8.0 million in 2013, 2012 and 2011, 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 purchased finished goods, are stated at the lower of cost or market. Cost is determined using the average-cost method. We have agreements with some of our vendors that provide a right to return products. This right is typically limited to a small percentage of our total purchases from that vendor. Such rights provide that we can return slow-moving product and the vendor will replace it with faster-moving product chosen by us. Some vendor agreements contain price protection provisions that require the manufacturer to issue a credit in an amount sufficient to reduce our current inventory carrying cost down to the manufacturer’s current price. We consider these agreements in determining our reserve for obsolescence.
At January 3, 2014 and December 28, 2012, we reported inventory of $959.8 million and $1,060.9 million, respectively (net of inventory reserves of $57.0 million and $61.5 million, respectively). Each quarter we review for excess inventories and make 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
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.
Property and equipment: At January 3, 2014, net property and equipment consisted of $76.8 million of equipment and computer software and approximately $27.2 million of buildings and leasehold improvements. At December 28, 2012, net property and equipment consisted of $76.3 million of equipment and computer software and approximately $19.6 million of buildings and leasehold improvements. Equipment and computer software are recorded at cost and depreciated by applying the straight-line method over their estimated useful lives, which range from 3 to 15 years. Leasehold improvements are depreciated over the useful life or over the term of the related lease, whichever is shorter. We continually evaluate whether events or circumstances have occurred that would indicate the remaining useful lives of our property and equipment warrant revision or that the remaining balance of such assets may not be recoverable. In 2013 and 2012, we recorded non-cash impairment charges related to the write-down of property and equipment and these charges are reflected in our operating results. For further information, see Note 4. "Impairment of Goodwill and Long-lived Assets". Upon sale or retirement, the cost and related depreciation are removed from the respective accounts and any gain or loss is included in income. Maintenance and repair costs are expensed as incurred. Depreciation expense charged to operations, including an immaterial amount of capital lease depreciation, was $22.1 million, $22.5 million and $22.1 million in 2013, 2012 and 2011, respectively.
Costs for software developed for internal use are capitalized when the preliminary project stage is complete and we have 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 has 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 January 3, 2014 and December 28, 2012, capitalized costs, net of accumulated amortization, for software developed for internal use were approximately $39.1 million and $35.1 million, respectively. Amortization expense charged to operations for capitalized costs was $3.2 million, $1.9 million and $1.5 million in 2013, 2012 and 2011, 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 2013, 2012 and 2011 were insignificant.
Goodwill: In September 2011, the FASB issued new guidance related to testing goodwill for impairment, giving 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 qualitative assessment considers specific factors, based on the weight of evidence, and the significance of all identified events and circumstances in the context of determining whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount.
Beginning in 2012, we utilized the qualitative assessment approach to test goodwill for impairment during the annual assessment performed in the third quarter for 3 of our 4 reporting units. In addition to the qualitative approach, we also performed a combination of the quantitative evaluation of the income and market approach to determine the fair value of our former European reporting unit during the third quarter of 2012.

As a result of the change in segments in the fourth quarter of 2012 and in accordance with ASC 350 related to Goodwill and Intangibles, we reassigned the carrying amount of goodwill to our new reporting units based on the relative fair value assigned as of the effective date of our change in segment reporting. We performed an interim assessment of the recoverability of goodwill assigned to the reporting units as a result of this change. In connection with our fourth quarter interim assessment to test for goodwill impairment, we performed a quantitative test for all reporting units and utilized a combination of the income and market approach, both of which are broadly defined below. For further information, see Note 4. "Impairment of Goodwill and Long-lived Assets".
The income approach is a quantitative evaluation to determine the fair value of the reporting unit. Under the income approach we determine 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 a market participant would expect to earn. The inputs used for the income approach were significant unobservable inputs, or Level 3 inputs, as described in the accounting fair value hierarchy. Estimated future cash flows were based on our internal projection models, industry projections and other assumptions deemed reasonable by management.
The market approach measures the fair value of a reporting unit through the analysis of recent sales, offerings, and financial multiples (sales or EBITDA) of comparable businesses. Consideration is given to the financial conditions and operating performance of the reporting unit being valued relative to those publicly-traded companies operating in the same or similar lines of business.
If it is determined that it is more likely than not that the fair value of a reporting unit is less than its carrying amount using the qualitative assessment, we perform the two-step impairment test. The first step of the impairment test is to identify a potential impairment by comparing the fair value of a reporting unit with its carrying amount. The estimates of fair value of a reporting unit are determined using the income approach and/or the market approach as described above. If step one of the test 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 residual value of goodwill is determined in the same manner as the amount of goodwill recognized in a business combination.
Intangible assets: Intangible assets other than goodwill, included in other assets on the consolidated balance sheets, primarily consist of customer relationships that are being amortized over periods ranging from 3 to 15 years. We continually evaluate whether events or circumstances have occurred that would indicate the remaining estimated useful lives of our intangible assets warrant revision or that the remaining balance of such assets may not be recoverable. For definite-lived intangible assets, we use an estimate of the related undiscounted cash flows over the remaining life of the asset in measuring whether the asset is recoverable. In 2012, we recorded a non-cash impairment charge related to definite-lived intangible assets and these charges are reflected in the operating results. For further information, see Note 4. "Impairment of Goodwill and Long-lived Assets". At January 3, 2014 and December 28, 2012, the gross carrying amount of intangibles subject to amortization was $104.1 million and $103.2 million, respectively. Accumulated amortization was $48.8 million and $40.8 million at January 3, 2014 and December 28, 2012, respectively. At January 3, 2014, we did not have any indefinite-lived intangible assets not subject to amortization.
Intangible amortization expense is expected to average $7.0 million per year for the next five years.
 
Convertible Debt: We separately account 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 our 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 our Consolidated Statements of Income. These provisions impact the accounting associated with our $300 million convertible notes due 2013 (“Notes due 2013”) which were outstanding at the end of 2012, and subsequently retired in February 2013. The following table provides additional information about these notes:
 
 
 
December 28, 2012
 
December 30, 2011
($ and shares in millions, except conversion prices)
 
 
 
 
Carrying amount of the equity component
 
$
53.3

 
$
53.3

Principal amount of the liability component
 
$
300.0

 
$
300.0

Unamortized discount of liability component (a)
 
$
(2.2
)
 
$
(19.7
)
Net carrying amount of liability component
 
$
297.8

 
$
280.3

Remaining amortization period of discount (a)
 
2 months

 
(c)

Conversion price
 
$
55.81

 
(c)

Number of shares to be issued upon conversion
 
5.4

 
(c)

If-converted value exceeds principal amount (b)
 
$
36.7

 
(c)

(a)
The Notes due 2013 were issued in February of 2007. For convertible debt accounting purposes, the expected life was determined to be six years from the issuance date. As such, we amortized the unamortized discount through interest expense through February of 2013.
(b)
If-converted value amounts are for disclosure purposes only. The Notes due 2013 were convertible when the closing price of our 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 $72.55. Based on our stock prices during the year, the Notes due 2013 were not convertible during 2012 or 2011.
(c)
Data not required for comparative purposes.
The fair value of the liability component was calculated based on a discount rate of 7.1%, representing our 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 the 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 was $2.8 million, $17.9 million and $17.1 million for fiscal years 2013, 2012 and 2011, respectively. Cash interest cost recognized was $0.3 million, $3.0 million, and $3.0 million in fiscal years 2013, 2012 and 2011.
Other, net: The following represents the components of “Other, net” as reflected in the Consolidated Statements of Income for the fiscal years 2013, 2012 and 2011:
 
 
Years Ended
(In millions)
 
January 3,
2014
 
December 28,
2012
 
December 30,
2011
Other, net loss:
 
 
 
 
 
 
Foreign exchange
 
$
(10.9
)
 
$
(11.7
)
 
$
(7.1
)
Cash surrender value of life insurance policies
 
0.2

 
0.5

 
(0.9
)
Other
 
(0.7
)
 
(2.4
)
 
(1.2
)
 
 
$
(11.4
)
 
$
(13.6
)
 
$
(9.2
)

Due to the strengthening of the U.S. dollar against certain foreign currencies, primarily in our Europe and Latin America regions, we recorded a foreign exchange loss of $10.9 million, $11.7 million and $7.1 million in 2013, 2012 and 2011, respectively. In 2013, we had a $1.1 million foreign exchange loss due to the devaluation of the Venezuela bolivar from the rate of 4.30 bolivars to one U.S. dollar to 6.30 bolivars to one U.S. dollar. As a result of the devaluation, through the end of fiscal 2013, we believed that the official rate of 6.30 bolivars to one U.S. dollar would be the rate available to us in the event we repatriate cash from Venezuela. Subsequent the end of fiscal 2013, Venezuela changed its policy regarding the bolivar, which we believe will now require us to use a rate of 11.36 bolivars to one USD to repatriate cash from Venezuela. For further information, see Note. 13 "Subsequent Events."
The combined effect of changes in both the equity and bond markets in each of the last three fiscal years resulted in changes in the cash surrender value of our owned life insurance policies associated with our sponsored deferred compensation program. In 2013, we recorded interest income of $0.7 million related to closing prior tax years. In 2012, we recorded a charge for interest and penalties associated with prior year tax liabilities of $1.7 million ($1.1 million net of tax).
Fair value measurement: Our assets and liabilities measured at fair value on a recurring basis consist of foreign currency forward contracts and the assets of our defined benefit plans. The fair value of the foreign currency forward contracts is discussed below in the section titled “Foreign currency translation.” The fair value of the assets of our defined benefit plans is discussed in Note 8. "Pension Plans, Post-Retirement Benefits and Other Benefits". The nonrecurring fair value measurements include our evaluation of the recoverability of goodwill and related evaluation of long-lived assets. The fair value measurements of goodwill and long-lived assets is discussed in Note 4. "Impairment of Goodwill and Long-lived Assets". Fair value disclosures of debt are discussed in Note 5. "Debt".
The inputs used in the determination of 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 or liabilities. 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 or liabilities in active markets, and other inputs such as interest rates and yield curves that are observable at commonly quoted intervals. 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 or liability. 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 assessment of the significance of particular inputs to these fair value measurements requires judgment and considers factors specific to each asset or liability.
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. We also establish 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 $27.6 million and $31.4 million at January 3, 2014 and December 28, 2012, respectively.
In connection with the sales of our products, we often provide certain supply chain services. These services are provided exclusively in connection with the sales of products, and as such, the price of such services is included in the price of the products delivered to the customer. We do 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 we do not have goods in stock and delivery times are critical, product is purchased from the manufacturer and drop-shipped to the customer. We generally take title to the goods when shipped by the manufacturer and then we bill 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 Consolidated Statements of Income.
 
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 Income were $12.8 million, $13.1 million and $12.1 million in 2013, 2012 and 2011, respectively. The majority of the advertising and sales promotion costs are recouped through various cooperative advertising programs with vendors.
Shipping and handling fees and costs: We include 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 Income, which were $110.5 million, $106.4 million and $108.4 million for the years ended 2013, 2012 and 2011, respectively.
Stock-based compensation: In accordance with U.S. accounting rules, we measure the cost of all employee share-based payments to employees, including grants of employee stock options, using a fair-value-based method. Compensation costs are determined based on the fair value at the grant date and amortized over the respective vesting period representing the requisite service period.
Foreign currency translation: In February 2013, the Financial Accounting Standards Board ("FASB") issued Accounting Standard Update ("ASU") 2013-2, Comprehensive Income (Topic 220): Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income, to require preparers to report, in one place, information about reclassifications out of accumulated other comprehensive income (loss) (“AOCI”). The ASU also requires companies to report changes in AOCI balances. For significant items reclassified out of AOCI to net income in their entirety in the same reporting period, reporting about the effect of the reclassification is required on the respective line items in the statement where net income is presented. For items that are not reclassified to net income in their entirety in the same reporting period, a cross reference to other disclosures currently required under U.S. Generally Accepted Accounting Principles (“GAAP”) is required in the notes. The guidance was effective for fiscal years, and interim periods within those years, beginning after December 15, 2012. Adoption of this guidance at the beginning of fiscal 2013 resulted in the additional disclosures but did not have any other impact on our financial statement disclosures.
Our 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 AOCI. In addition, as our 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.
We also accumulate items in AOCI for prior service costs and actuarial gains/losses related to our defined benefit obligations, an immaterial interest rate lock, which was designated as a cash flow hedge in connection with a debt offering completed in 2005 and derivatives on firm commitments in 2013, which were designated as cash flow hedges. See Note 8. "Pension Plans, Post-Retirement Benefits and Other Benefits" for pension related amounts reclassified into net income. The amounts reclassified into net income related to the interest rate lock and the derivatives on firm commitments were insignificant.
Foreign currency transactions: Several of our 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 Income. See above "Other, net" discussion.
We purchase foreign currency forward contracts to minimize the effect of fluctuating foreign currency-denominated accounts on our reported income. The foreign currency forward contracts are not designated as hedges for accounting purposes. Our strategy is to negotiate terms for our derivatives and other financial instruments to be highly 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). Our counterparties to foreign currency forward contracts have investment-grade credit ratings. We expect the creditworthiness of our counterparties to remain intact through the term of the transactions. We regularly monitor the creditworthiness of our counterparties to ensure no issues exist which could affect the value of the derivatives.
We do not hedge 100% of our foreign currency-denominated accounts. In addition, the results of 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 January 3, 2014 and December 28, 2012, 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 Income offsetting the transaction gain/loss recorded on the foreign currency-denominated accounts. At January 3, 2014 and December 28, 2012, the notional amount of the foreign currency forward contracts outstanding was approximately $152.0 million and $346.9 million, respectively. The fair value of our foreign currency forward contracts was not significant at January 3, 2014 or December 28, 2012.
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. We maintain 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. We recognize 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 per share: Diluted net income 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 2013, 2012 and 2011, 0.3 million, 0.3 million and 0.4 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. We exclude antidilutive stock options and units from the calculation of weighted-average shares for diluted earnings per share. For 2013, we had no antidilutive stock options and units. We excluded 0.2 million, and 0.4 million antidilutive stock options and units for 2012 and 2011, respectively.
As discussed in Note 5. "Debt", the Notes due 2013 and Notes due 2033 have been retired; however, they were dilutive during various periods in 2013, 2012 and 2011. Specifically, as a result of our average stock price exceeding the average accreted value during 2013, 2012 and 2011, we included 0.1 million, 0.4 million and 0.3 million additional shares, respectively, related to the Notes due 2013 in the diluted weighted-average common shares outstanding. As a result of the conversion value exceeding the conversion price during 2011, we included 0.2 million additional shares related to the Notes due 2033 in the diluted weighted-average common shares outstanding.
Recently issued and adopted accounting pronouncements: We do not believe that any recently issued, but not yet effective, accounting pronouncements, if adopted, would have a material impact on our consolidated financial statements or disclosures.
ACCRUED EXPENSES
ACCRUED EXPENSES
ACCRUED EXPENSES
Accrued expenses consisted of the following:
 
 
 
January 3,
2014
 
December 28,
2012
 
 
(In millions)
Salaries and fringe benefits
 
$
89.9

 
$
81.6

Other accrued expenses
 
120.6

 
167.9

Total accrued expenses
 
$
210.5

 
$
249.5

RESTRUCTURING CHARGE
RESTRUCTURING CHARGE
RESTRUCTURING CHARGE
We consider restructuring activities to be programs whereby we fundamentally change our operations, such as closing and consolidating facilities, reducing headcount and realigning operations in response to changing market conditions. In the fourth quarter of 2012, recognizing the ongoing challenging global economic conditions, we took aggressive actions to restructure our costs across all segments and geographies, resulting in a $10.1 million pre-tax charge, which is included in “Operating expenses” in our Consolidated Statements of Income for fiscal year 2012. The restructuring charge primarily consisted of severance-related expenses associated with a reduction of over 200 positions. At January 3, 2014, the majority of the remaining accrual related to this charge of $2.7 million is expected to be paid by the end of 2014. The following table summarizes activity related to liabilities associated with restructuring and employee severance (in millions):
 
Restructuring Charge
 
Employee-Related Costs (a)
 
Facility Exit and Other Costs (b)
 
Total
Balance at December 30, 2011
$
0.7

 
$
1.2

 
$
1.9

Charges
8.0

 
2.1

 
10.1

Payments and other
(2.0
)
 
(0.9
)
 
(2.9
)
Balance at December 28, 2012
6.7

 
2.4

 
9.1

Payments and other
(4.4
)
 
(2.0
)
 
(6.4
)
Balance at January 3, 2014
$
2.3

 
$
0.4

 
$
2.7

(a)
Employee-related costs primarily consist of termination benefits provided to employees who have been involuntarily terminated.
(b)
Facility exit and other costs primarily consist of lease termination costs.
IMPAIRMENT OF GOODWILL AND LONG-LIVED ASSETS
IMPAIRMENT OF GOODWILL AND LONG-LIVED ASSETS
IMPAIRMENT OF GOODWILL AND LONG-LIVED ASSETS
We perform our annual goodwill impairment analysis during the third quarter of each fiscal year. For a number of years and through the end of the third quarter of 2012, our reporting units were consistent with our operating segments of North America, Europe, Latin America and Asia Pacific. In the fourth quarter of 2012, we reorganized our business segments from geography to end market to reflect our realigned segment reporting structure. In connection with this change and in accordance with the provisions of ASC 350 regarding Goodwill and Intangible Assets, we were required to reassign the carrying amount of goodwill, based on the relative fair value of our new reporting units (which are the same as the realigned reportable segments of Enterprise Cabling and Security Solutions ("ECS"), Electrical and Electronic Wire and Cable ("W&C") and OEM Supply). See Note 10. "Business Segments" for further information regarding this change and the amounts allocated to each new segment. We performed an interim assessment of the recoverability of goodwill assigned to the reporting units and an assessment of the recoverability of our long-lived assets as a result of this change. The following describes the approach for evaluating the recoverability of goodwill and long-lived assets.
Goodwill
During the third quarter of 2012, we performed our annual goodwill impairment utilizing the qualitative assessment approach and concluded that it was more likely than not (i.e., a likelihood of greater than 50%) that the fair values of each of the North America, Latin America and Asia Pacific reporting units were greater than their carrying amounts and therefore the two-step quantitative impairment test was not necessary. However, as a result of the continued downturn in global economic conditions, the sovereign debt crisis in Europe, as well as consumer confidence at recessionary levels in this geography, our Europe reporting unit had experienced a decline in sales, margin and profitability as compared to both the prior year and future projections. Due to market and economic conditions as well as our revised forecasts, we concluded that there were qualitative factors for the Europe reporting unit that indicated it was more likely than not that the fair value of this reporting unit was less than its carrying amount and therefore required the two-step quantitative impairment test in the third quarter of 2012.
For the Europe reporting unit, we performed a quantitative evaluation utilizing the income and market approaches to determine the fair value of the reporting unit. Estimated future cash flows were based on our internal projection models, industry projections, and other assumptions deemed reasonable by management. The financial multiples of comparable companies were also considered in the determination of fair value. The discount rate of 12.9% was used to discount future cash flows and a terminal growth rate of 3.0% was used in the projections. Based on the results of our assessment in step one, it was determined that the carrying value of the Europe reporting unit exceeded its estimated fair value.
Therefore, we performed the second step of the impairment test to estimate the implied residual value of goodwill in Europe. In the second step of the impairment analysis, we determined the implied residual 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 no longer be an implied value attributable to goodwill and, accordingly, in the third quarter of 2012, we recorded a non-cash impairment charge related to the write-off of the remaining goodwill of $10.8 million associated with this reporting unit.
As a result of the change in segments in the fourth quarter of 2012, we were required to reassign the carrying amount of goodwill, based on the relative fair value of our new reporting units, to our new reporting units. We determined the fair value of each reporting unit utilizing a combination of the income and market approach discussed previously. A discount rate was determined for each reporting segment based on the geographical source of their respective sales, size of the segment and other factors. Following are the discount rates used in the determination of the fair value of the reporting units: ECS 10.0%, W&C 9.9% and OEM Supply 12.3%. The OEM Supply discount rate was higher than the other two segments primarily due to a higher risk premium due to its smaller size. A terminal growth rate of 3.0% was used for all segments. Our goodwill balances were then allocated to each segment based on the relative enterprise values of the segments.

From the enterprise values calculated above, we determined the shareholder value (equity value) for each segment by subtracting debt from the enterprise value and making other adjustments. We then summed the shareholder values and compared the sum to the shareholder value of Anixter International Inc., on the date of the segment change. The comparison indicated a control premium of 26%. We concluded that the control premium was reasonable. The resulting fair values of the ECS and W&C segments were significantly above their respective carrying values while the fair value of the OEM Supply segment was significantly below its carrying value.
Based on the results above, we concluded that the OEM Supply segment failed step one of the impairment test. Since the shareholder value of the OEM supply segment was significantly below its carrying value, we determined there was no implied residual value for goodwill. As a result of this evaluation, we recorded a non-cash impairment charge of $15.3 million related to the write-off of all the goodwill allocated to the OEM Supply segment.
As a result of our annual assessment of the recoverability of goodwill (performed qualitatively) during the third quarter of 2013, we expect the carrying amount of goodwill, allocated to each of the reporting units, to be fully recoverable at January 3, 2014.
Long-Lived Assets
Other than goodwill, we do not have any material indefinite-lived intangible assets. Our long-lived assets consist of definite-lived intangible assets which are primarily related to customer relationships, as well as property and equipment which consists of office furniture and equipment, computer software and hardware, warehouse equipment and leasehold improvements. We continually evaluate whether events or circumstances have occurred that would indicate the remaining estimated useful lives of our long-lived assets warrant revision or that the remaining balance of such assets may not be recoverable. If impairment indicators are present, we assess whether the future estimated undiscounted cash flows attributable to the assets in question are greater than their carrying amounts. If these future estimated cash flows are less than carrying value, we then measure an impairment loss for the amount that carrying value exceeds fair value of the assets.
Due to the impairment of goodwill recorded during the third and fourth quarters of 2012, we also evaluated the realizability of long-lived assets in those respective reporting units. The following describes the approach for evaluating our long-lived assets in the third and fourth quarters of 2012:
Intangible Assets
In order to measure the impairment loss of customer relationships, we estimate the fair value by using an excess earnings model, a form of the income approach. The analysis requires us to make various judgmental assumptions, including assumptions about future cash flows based on projected growth rates of revenue and expense, expectations of rates of customer attrition and working capital needs. The assumptions about future cash flows and growth rates are based on management’s forecast of the asset group. The key inputs utilized in determining the fair value of customer relationships in 2012 were significant unobservable inputs, or Level 3 inputs, as described in the accounting fair value hierarchy. Inputs included discount rates derived from an estimated weighted-average cost of capital, which reflected the overall level of inherent risk of the asset group and the rate of return a market participant would expect to earn, as well as customer attrition rates. The results of this analysis in the third and fourth quarters indicated that the fair values of the intangible assets within these asset groups were less than carrying value. Accordingly, in the third and fourth quarters of 2012, we recorded a non-cash impairment charge related to the write-down of intangible assets of $11.0 million in our former Europe segment and $5.6 million in OEM Supply and the charges are reflected in our operating results. The reductions in the carrying values of these assets were factored into the carrying value of net assets in connection with the goodwill impairment tests described above. The following key inputs were used in the OEM Supply intangible asset evaluations in the third and fourth quarters of 2012:
 
Discount Rates
 
 
Q3 Evaluation
 
Q4 Evaluation
 
 
14.5% to 16.0%
 
14.0%
 

Property, Plant and Equipment
In order to measure the impairment loss of property and equipment in 2012, we estimated the fair value by using an orderly liquidation valuation. An orderly liquidation value is the amount that could be realized from a liquidation sale, given a reasonable period of time to find a purchaser (or purchasers), with the seller being compelled to sell the asset in the existing condition where it is located, as of a specific date, assuming the highest and best use of the asset by market participants. The valuation method also considers that it is physically possible, legally permissible and financially feasible to use the asset at the measurement date. The inputs used for the valuation were significant unobservable inputs, or Level 3 inputs, as described in the accounting fair value hierarchy, based on our assumptions about the assumptions market participants would use. A second step of the analysis is performed by comparing the orderly liquidation value to the carrying amount of that asset. The orderly liquidation values were applied against the original cost of the assets and the impairment loss measured as the difference between the liquidation value of the assets and the net book value of the assets. Accordingly, in the third and fourth quarters of 2012, we recorded a non-cash impairment charge related to the write-down of property and equipment of $5.4 million in our former Europe segment and $0.4 million in our OEM Supply segment and these charges are reflected in our operating results. The reductions in the carrying values of these assets were factored into the carrying values of net assets in connection with the goodwill impairment tests described above.
We do not have any material assets which require recurring fair value measurements. We measure the fair values of goodwill, intangible assets and property and equipment on a nonrecurring basis if required by impairment tests applicable to these assets.
During the fourth quarter of 2013, we assessed the recoverability of certain property and equipment and recorded a non-cash impairment charge of $1.7 million to reduce the carrying values of these assets.
DEBT
DEBT
DEBT
Debt is summarized below:
 
 
 
January 3,
2014
 
December 28,
2012
 
 
(In millions)
Long-term debt:
 
 
 
 
Senior notes due 2019
 
$
350.0

 
$
350.0

Senior notes due 2015
 
200.0

 
200.0

Accounts receivable securitization facility
 
145.0

 
82.0

Revolving lines of credit
 
101.5

 
14.0

Senior notes due 2014
 
32.1

 
31.6

Convertible senior notes due 2013
 

 
297.8

Other
 
7.4

 
6.8

Total long-term debt
 
836.0

 
982.2

Short-term debt
 

 
0.9

Total debt
 
$
836.0

 
$
983.1


 
Certain debt agreements entered into by our operating subsidiaries contain various restrictions, including restrictions on payments to us. These restrictions have not had, nor are expected to have, an adverse impact on our ability to meet cash obligations. We have guaranteed substantially all of the debt of our subsidiaries.
Aggregate annual maturities of debt as reflected on the Consolidated Balance Sheet at January 3, 2014 are as follows: 2015$345.0 million; 2018 - $141.0 million and $350.0 million thereafter. We funded the retirement of the Convertible Notes due in February of 2013 with other long term credit facilities available at the end of 2012 and, therefore, included the balance outstanding in long term debt at December 28, 2012.
Our average borrowings outstanding were $896.5 million and $981.4 million for the fiscal years ending January 3, 2014 and December 28, 2012, respectively. Our weighted-average cost of borrowings was 5.3%, 6.1% and 5.1% for the years ended January 3, 2014, December 28, 2012 and December 30, 2011, respectively. Interest paid in 2013, 2012 and 2011 was $43.5 million, $35.4 million and $31.6 million, respectively.
Revolving Lines of Credit
At the end of fiscal 2013, we had approximately $323.9 million in available, committed, unused credit lines with financial institutions that have investment-grade credit ratings. As such, we expect to have access to this availability based on our assessment of the viability of the associated financial institutions which are party to these agreements. Long-term borrowings under the committed credit facilities totaled $101.5 million and $14.0 million at January 3, 2014 and December 28, 2012, respectively.
At January 3, 2014, our primary liquidity source was the $400 million (or the equivalent in Euro) 5-year senior unsecured revolving credit agreement at Anixter Inc. maturing November 2018. At January 3, 2014, long-term borrowings under this agreement, which is guaranteed by us, were $101.5 million as compared to $14.0 million at the end of fiscal 2012. On November 7, 2013, Anixter Inc. completed an amendment to its 5-year senior unsecured revolving credit agreement.







The following are the key terms to the revolving credit agreement:
 
Based on Anixter Inc.'s current leverage ratio, the applicable margin will be LIBOR plus 175 basis points.
As of the end of 2013, the consolidated fixed charge coverage ratio (as defined in the revolving credit agreement) requires a minimum coverage of 3.00 times. As of January 3, 2014, the consolidated fixed charge coverage ratio was 3.90.
The consolidated leverage ratio (as defined in the revolving credit agreement) limits the maximum leverage allowed to 3.25. As of January 3, 2014, the consolidated leverage ratio was 2.10.
Under the reset restricted payment basket, Anixter Inc. will be permitted to direct funds to us for payment of dividends and share repurchases to a sum of $175 million plus 50% of Anixter Inc.’s cumulative consolidated net income from operations for all fiscal quarters ending on and after September 27, 2013. As of January 3, 2014, Anixter Inc. has the ability to distribute $65.8 million of funds to us.
Anixter Inc. will be allowed to prepay, purchase or redeem indebtedness of us, 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.
Anixter Inc. will be able to provide for the issuance of commercial letters of credit.
Certain other restricted payment baskets are set at $7.5 million.
We are in compliance with all of the covenant ratios and we believe there is adequate margin between the covenant ratios and the actual ratios given the current trends of the business. As of January 3, 2014, the total availability of all revolving lines of credit at Anixter Inc. would be permitted to be borrowed.
Senior Notes Due 2019
On April 30, 2012, our primary operating subsidiary, Anixter Inc., completed the issuance of $350.0 million principal amount of Senior Notes due 2019 (“Notes due 2019”). The Notes due 2019 pay interest semi-annually at a rate of 5.625% per annum and will mature on May 1, 2019. In addition, Anixter Inc. may at any time redeem some or all of the Notes due 2019 at a price equal to 100% of the principal amount plus a “make whole” premium. If Anixter Inc. and/or we experience certain kinds of changes of control, it must offer to repurchase all of the Notes due 2019 outstanding at 101% of the aggregate principal amount repurchased, plus accrued and unpaid interest. Net proceeds from this offering were approximately $342.9 million after deducting fees and expenses. The proceeds were used by Anixter Inc. to repay amounts outstanding under the accounts receivable credit facility, to repay certain borrowings under the revolving credit facility, to provide additional liquidity for our maturing indebtedness and for general corporate purposes. Issuance costs of approximately $7.1 million are being amortized through maturity using the straight-line method. We fully and unconditionally guarantee the Notes due 2019, which are unsecured obligations of Anixter Inc.
Senior Notes Due 2014
In March 2009, our primary operating subsidiary, Anixter Inc., issued $200 million in principal of 10% Senior Notes due 2014 (“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. The Notes due 2014 were classified as long-term as we had the intent and ability to refinance the accreted value under existing long-term financing agreements. At January 3, 2014 and December 28, 2012, the Notes due 2014 outstanding were $32.1 million and $31.6 million, respectively. We fully and unconditionally guarantee the Notes due 2014, which are unsecured obligations of Anixter Inc.
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 us. Interest of 5.95% on the Notes due 2015 is payable semi-annually on March 1 and September 1 of each year and will mature on March 1, 2015.
Accounts Receivable Securitization Program
Under our accounts receivable securitization program, we sell, on an ongoing basis without recourse, a portion of our accounts receivables originating in the United States to the Anixter Receivables Corporation (“ARC”), which is considered a wholly-owned, bankruptcy-remote variable interest entity (“VIE”). We have the authority to direct the activities of the VIE and, as a result, we have concluded that we maintain control of the VIE, are the primary beneficiary (as defined by accounting guidance) and, therefore, consolidate the account balances of ARC. As of January 3, 2014 and December 28, 2012, $524.2 million and $527.2 million of our receivables were sold to ARC, respectively. ARC in turn assigns a collateral interest in these receivables to a financial institution for proceeds up to $300.0 million. The assets of ARC are not available to us until all obligations of ARC are satisfied in the event of bankruptcy or insolvency proceedings. The following are the key terms to the accounts receivable securitization program:

The size of the program is $300 million.
The liquidity termination date of the program is May 2015.
The renewal program carries an all-in drawn funding cost of LIBOR plus 95 basis points.
Unused capacity fees are 47.5 to 57.5 basis points depending on utilization.

Short term borrowings
We had short-term borrowings at the end of fiscal 2013 and 2012 under other bank revolving lines of credit totaling $7.4 million and $0.9 million, respectively, with maturity dates within the next fiscal year. With the exception of the $0.9 million of borrowings outstanding and included in short term debt at the end of 2012, all of these borrowings, along with the Notes due 2014, have been classified as long-term at January 3, 2014 as we have the intent and ability to refinance the debt under existing long-term financing agreements. At the end of 2012, the Notes due 2013 had a maturity date within the next fiscal year but were classified as long-term as we had the intent and ability to finance the debt under the existing long-term financing agreement at that time.
Retirement of Debt
In the first quarter of 2013, our Notes due 2013 matured and, pursuant to the terms of the indenture, we settled our conversion obligations up to the $300 million principal amount of the notes in cash. At the time of issuance of the Notes due 2013, we entered into a bond hedge that reimbursed us for any above par value amounts due to holders of the Notes due 2013 at maturity. Available borrowings under our accounts receivable securitization facility and long-term credit facility were used to retire the Notes due 2013.
At issuance of the Notes due 2013, we also sold to the counterparty a warrant to purchase shares of our common stock at a current exercise price of $72.81 which could not be exercised prior to the maturity of the notes. Although the bond hedge matured with the notes on February 15, 2013, the warrant "exercise period" began on May 16, 2013 and expired daily over 40 full trading days ending July 15, 2013. Any excess amount above the warrant exercise price of $72.81 was settled in cash at our option. Because our stock price exceeded the exercise price during the exercise period, 5.4 million warrants were exercised, and on July 18, 2013, we paid $19.2 million in cash to settle all warrants exercised through July 15, 2013. The cash payment was recorded as a reduction to stockholders' equity.
During 2011, we retired our Notes due 2033 as a result of repurchases and bondholder conversions. We paid approximately $93.8 million in cash and $14.9 million was settled in stock. Available borrowings under our long-term revolving credit facility were used to retire these notes. In connection with the retirement of debt, we reduced the accreted value of debt by $48.9 million and recorded a gross reduction to stockholders’ equity of $44.9 million.
The retirement of debt in 2013 and 2011 did not have a significant impact on our Consolidated Statements of Income.
Fair Value of Debt
The fair value of our 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. Our fixed-rate debt primarily consists of non-convertible and also, at the end of 2012, convertible debt, as follows:
 
Nonconvertible fixed-rate debt consisting of the Notes due 2014, Notes due 2015 and Notes due 2019
Convertible fixed-rate debt (2012 year end only)
 
At January 3, 2014, our total carrying value and estimated fair value of debt outstanding, was $836.0 million and $867.9 million, respectively. This compares to a carrying value and estimated fair value of debt outstanding including convertible debt, at December 28, 2012 of $983.1 million and $1,065.0 million, respectively. The decrease in the carrying value and estimated fair market value is primarily due to the retirement of the Notes due 2013 offset by the increase in borrowings under the revolving line of credit and accounts receivable securitization facilities during 2013.
COMMITMENTS AND CONTINGENCIES
COMMITMENTS AND CONTINGENCIES
COMMITMENTS AND CONTINGENCIES
Substantially all of our office and warehouse facilities 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 contain renewal options. The gross amount of assets recorded under capital leases was immaterial as of January 3, 2014 and December 28, 2012.
Minimum lease commitments under operating leases at January 3, 2014 are as follows (in millions):
2014
$
57.8

2015
45.5

2016
34.1

2017
23.1

2018
18.3

2019 and thereafter
43.2

Total
$
222.0


Total rental expense was $83.7 million, $83.5 million and $82.1 million in 2013, 2012 and 2011, respectively. Aggregate future minimum rentals to be received under non-cancelable subleases at January 3, 2014 were $1.1 million.
As of January 3, 2014, we had $40.4 million in outstanding letters of credit and guarantees.
In May 2009, Raytheon Co. filed for arbitration against one of our 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. In December 2010, the arbitration panel entered an “interim award” against us 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 amounts of its attorneys’ fees and costs in the arbitration proceeding. In the fourth quarter of 2010, we recorded a pre-tax charge of $20.0 million which approximated 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 our sale of our Aerospace business in the third quarter of 2011, the charge related to this matter was reclassified to discontinued operations in our Consolidated Statements of Income for the year ended December 31, 2010. Assets and liabilities related to the Raytheon matter were retained by us and were not reclassified to assets and liabilities of discontinued operations. In June 2011, we filed a motion to vacate the arbitration award in the Superior Court of Maricopa County, Arizona. In November 2011, the court denied our motion and confirmed the arbitration award in full. During the fourth quarter of 2011, we recorded an additional $2.5 million in discontinued operations to cover expected interest associated with further appeal proceedings. In February 2012, we appealed to the Arizona Court of Appeals the Maricopa County Superior Court judgment confirming the arbitration award. As part of the appellate process, in February 2012, we posted collateral for the judgment by tendering $10.0 million to Raytheon in cash and posted a bond in favor of Raytheon in the amount of $12.4 million. In September 2012, we tendered to Raytheon an additional $10.8 million in cash collateral pursuant to a stipulation that provides that Raytheon will cooperate in having the outstanding $12.4 million bond reduced by the same amount. As a result of this agreement, we reduced the accrued interest by $1.1 million in the third quarter of 2012 which was recorded within income (loss) from discontinued operations. In February 2013, the court approved a reduction in the amount of the bond to $1.5 million as stipulated by the parties. On April 18, 2013, the Arizona Court of Appeals upheld the Maricopa County Superior Court judgment confirming the arbitration award to Raytheon, but lowered the post-judgment interest on the award from 10% to 4.25% per annum to reflect the proper statutory rate in effect at the time of the trial court's judgment. The court further awarded Raytheon its attorneys' fees and expenses incurred in connection with the appeal. The final resolution of this matter did not have a material impact on our Consolidated Financial Statements in 2013 and all judgment amounts and related interest and expenses have been paid.
In 2009, it came to our attention that certain employees in our U.S. Federal sales group engaged in entertainment of employees and contractors working on the procurement team for a government agency in excess of permissible limits set by applicable law and regulation. In October 2009, we voluntarily disclosed the matter to the government agency, and have fully cooperated with the government’s review of the matter over the last three years. In January 2012, we became aware of a qui tam lawsuit filed by a third-party “relator” against us in the U.S. District Court for the Eastern District of Virginia. The qui tam suit was filed by William Jones, as relator on behalf of the United States, against Anixter, American Systems Corporation (“ASC”), Corning Cabling Systems (“Corning”) and other defendants, and sought money damages, injunctive relief, civil penalties, attorneys’ fees and costs under the False Claims Act. In February 2013, Anixter, ASC and Corning reached a resolution in principle with the Department of Justice, Civil Division, to settle the qui tam complaint with no admission of liability. In March 2013, Anixter, ASC and Corning entered into a final settlement agreement, under which, collectively, the three companies are required to pay $3 million, plus interest at the annual rate of 2% from October 5, 2012, of which one-third, or $1.0 million, was paid by us. We were not suspended or debarred as a result of this investigation and continue to actively conduct business with the U.S. federal, state and local governments.
From time to time, in the ordinary course of business, we 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 our opinion, based on the advice of our counsel, that the ultimate disposition of those proceedings will not be material. As of January 3, 2014, we do 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, our 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.
INCOME TAXES
INCOME TAXES
 INCOME TAXES
Income Before Tax Expense: Domestic income from continuing operations before income taxes was $186.6 million, $160.9 million and $204.5 million for 2013, 2012 and 2011, respectively. Foreign income from continuing operations before income taxes was $109.4 million, $48.3 million and $99.0 million for fiscal years 2013, 2012 and 2011, respectively.
Tax Provisions and Reconciliation to the Statutory Rate: The components of our 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
 
 
January 3,
2014
 
December 28,
2012
 
December 30,
2011
Current:
 
 
 
 
 
 
Foreign
 
$
30.9

 
$
28.5

 
$
28.3

State
 
5.5

 
8.5

 
8.1

Federal
 
36.9

 
57.0

 
59.2

 
 
73.3

 
94.0

 
95.6

Deferred:
 
 
 
 
 
 
Foreign
 
1.6

 
(14.6
)
 
(14.9
)
State
 
2.5

 
0.3

 
1.7

Federal
 
18.2

 
4.9

 
20.4

 
 
22.3

 
(9.4
)
 
7.2

Income tax expense
 
$
95.6

 
$
84.6

 
$
102.8


Reconciliations of income tax expense to the statutory corporate federal tax rate of 35% were as follows (in millions):
 
 
Years Ended
 
 
January 3,
2014
 
December 28,
2012
 
December 30,
2011
Statutory tax expense
 
$
103.6

 
$
73.2

 
$
106.2

Increase (reduction) in taxes resulting from:
 
 
 
 
 
 
Nondeductible goodwill impairment loss
 

 
9.1

 

State income taxes, net
 
5.4

 
5.5

 
6.5

Foreign tax effects
 
(8.7
)
 
(4.6
)
 
(13.6
)
Change in valuation allowance (a)
 
0.3

 
0.5

 
0.9

Other, net (b)
 
(5.0
)
 
0.9

 
2.8

Income tax expense
 
$
95.6

 
$
84.6

 
$
102.8

(a)
In the first quarter of 2012, we recorded a tax benefit of $9.7 million primarily related to the reversal of deferred income tax valuation allowances in certain foreign jurisdictions. In 2011, we recorded a net tax benefit of $10.8 million which includes changes in the tax valuation allowances of $11.3 million, partially offset by additional prior year taxes of $0.5 million. Of that $11.3 million, 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. We have 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.
(b)
During the third quarter of 2013, we recorded net benefits of $4.7 million primarily related to closing prior tax years. This net benefit includes related interest income of $0.7 million ($0.5 million, net of tax) which is included in "Other, net".

Tax Payments: We made net payments for income taxes in 2013, 2012 and 2011 of $82.0 million , $127.0 million and $41.9 million, respectively.
Net Operating Losses: Anixter International Inc. and its U.S. subsidiaries file a U.S. federal corporate income tax return on a consolidated basis. There are no tax credit carryforwards for U.S. federal income tax purposes as of the balance sheet date.
At January 3, 2014, various of our foreign subsidiaries had aggregate cumulative net operating losses (“NOL”) carryforwards for foreign income tax purposes of approximately $115.0 million which are subject to various provisions of each respective country. Approximately $93.4 million of the NOL carryforwards may be carried forward indefinitely. The remaining NOL carryforwards expire at various times between 2014 and 2023.
Undistributed Earnings: The undistributed earnings of our foreign subsidiaries amounted to approximately $542.8 million at January 3, 2014. We consider 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, we 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 January 3, 2014, according to the foreign laws and treaties in place at that time, estimated U.S. federal income tax of approximately $45.0 million and various foreign jurisdiction withholding taxes of approximately $33.1 million would be payable upon the remittance of all earnings at January 3, 2014.
Deferred Income Taxes: Significant components of our deferred tax assets and (liabilities) were as follows (in millions):
 
 
January 3,
2014
 
December 28,
2012
Property, equipment, intangibles and other
 
$
(30.8
)
 
$
(26.3
)
Gross deferred tax liabilities
 
(30.8
)
 
(26.3
)
Deferred compensation and other postretirement benefits
 
38.7

 
62.0

Foreign NOL carryforwards and other
 
34.5

 
39.3

Accrued expenses and other
 
10.3

 
21.9

Inventory reserves
 
12.0

 
13.5

Allowance for doubtful accounts
 
6.2

 
6.4

Gross deferred tax assets
 
101.7

 
143.1

Deferred tax assets, net of deferred tax liabilities
 
70.9

 
116.8

Valuation allowance
 
(21.9
)
 
(22.2
)
Net deferred tax assets
 
$
49.0

 
$
94.6

Net current deferred tax assets
 
32.8

 
40.7

Net non-current deferred tax assets
 
16.2

 
53.9

Net deferred tax assets
 
$
49.0

 
$
94.6


 
Uncertain Tax Positions and Jurisdictions Subject to Examinations: A reconciliation of the beginning and ending amount of unrecognized tax benefits for fiscal 2011, 2012 and 2013 is as follows:
 
(in millions)
Balance at December 31, 2010
$
4.0

Additions for tax positions of prior years
1.5

Reductions for tax positions of prior years
(1.3
)
Balance at December 30, 2011
$
4.2

Additions for tax positions of prior years
2.2

Reductions for tax positions of prior years
(3.0
)
Balance at December 28, 2012
$
3.4

Additions for tax positions of prior years
0.2

Reductions for tax positions of prior years
(0.2
)
Balance at January 3, 2014
$
3.4


Interest and penalties related to taxes were $0.2 million in 2013 and $3.0 million in 2012. In the first quarter of 2012, we recorded a charge for interest and penalties associated with tax liabilities of $1.7 million which is included in “Other, net” ($1.1 million net of tax). We have accrued $2.0 million (includes $1.0 million for uncertain tax positions) and $2.4 million (includes $0.9 million for uncertain tax positions) at January 3, 2014 and December 28, 2012, respectively, for the payment of interest and penalties.
We estimate that of the unrecognized tax benefit balance of $3.4 million, all of which would affect the effective tax rate, $0.9 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 $4.4 million cover a range of issues, including intercompany charges and withholding taxes, and involve numerous different taxing jurisdictions.
Only the returns for fiscal tax year 2012 and 2013 have not been examined by the Internal Revenue Service (“IRS”) in the United States, which is our most significant tax jurisdiction. An examination of years 2010 and 2011 by the IRS was completed in September 2013. For most states, fiscal tax years 2010 and later remain subject to examination. In Canada, the fiscal tax years 2009 and later are still subject to examination, while in the United Kingdom, the fiscal tax years 2012 and later remain subject to examination.
PENSION PLANS, POST-RETIREMENT BENEFITS AND OTHER BENEFITS
PENSION PLANS, POST-RETIREMENT BENEFITS AND OTHER BENEFITS
PENSION PLANS, POST-RETIREMENT BENEFITS AND OTHER BENEFITS
Defined Benefit Plans
Our defined benefit pension plans are the plans in the United States, which consist of the Anixter Inc. Pension Plan, the Executive Benefit Plan and the Supplemental Executive Retirement Plan (“SERP”) (together the “Domestic Plans”) and various defined benefit pension plans covering employees of foreign subsidiaries in Canada and Europe (together the “Foreign Plans”). The majority of our defined benefit 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 Plans and the Foreign Plans. Our policy is to fund all Domestic Plans as required by the Employee Retirement Income Security Act of 1974 (“ERISA”) and the Internal Revenue Service (“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.
In the fourth quarter of 2012, we took two actions related to the Anixter Inc. Pension Plan in the United States that will reduce future expenses and contributions. First, we offered a one-time lump sum payment option to terminated vested participants that resulted in $34.0 million of additional contributions by us to fund $36.2 million of payments. This resulted in a settlement charge of $15.3 million related to the immediate recognition of actuarial losses accumulated in other comprehensive income, a component of stockholders’ equity. The additional contributions of $34.0 million were made using excess cash from operations, positively influencing the funded status of the plan. Second, we made changes to our existing U.S. defined benefit plan which are effective as of December 31, 2013 that freeze benefits provided to employees hired on or before June 1, 2004. This change resulted in a remeasurement of the projected benefit obligation, resulting in a reduction of the balance by $44.6 million in the fourth quarter of 2012. These employees will be covered under the personal retirement account pension formula similar to the one described below for non-union domestic employees hired on or after June 1, 2004.
As part of the transition to the new pension plan, we provided a one-time transition credit equal to five percent of pay for employees at least 50 years old as of December 31, 2013 and whose combined age and years of service equals 70 or more. The amount of the transition credit for employees eligible was funded in the first quarter of 2014 to the employee’s individual 401(K) account. Accordingly, in the fourth quarter of 2013, we recorded a $2.5 million defined contribution charge related to this funding.
As a result of the pension change in the U.S., all non-union domestic employees now 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 5 years or more). Active participants become fully vested in their hypothetical personal retirement account after 3 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 balance as of January 1st in the Domestic Plan and is based on the 10 year Treasury note rate as of the last business day of December.
The assets of the various defined benefit plans 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, we seek to achieve a high level of total investment return consistent with a prudent level of portfolio risk. Our risk tolerance 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 our plans is December 31 of each year.
The Domestic Plans’ and Foreign Plans’ asset mixes as of January 3, 2014 and December 28, 2012 and our asset allocation guidelines for such plans are summarized as follows:
 
 
Domestic Plans
 
 
January 3,
2014
 
December 28,
2012
 
Allocation Guidelines
 
 
 
Min
 
Target
 
Max
Large capitalization U.S. stocks
 
35.2
%
 
34.2
%
 
20
%
 
30
%
 
40
%
Small capitalization U.S. stocks
 
21.5

 
17.3

 
15

 
20

 
25

International stocks
 
17.6

 
16.4

 
15

 
20

 
25

Total equity securities
 
74.3

 
67.9

 
 
 
70

 
 
Fixed income investments
 
21.9

 
27.8

 
25

 
30

 
35

Other investments
 
3.8

 
4.3

 

 

 

 
 
100.0
%
 
100.0
%
 
 
 
100
%
 
 
 
 
 
Foreign Plans
 
 
January 3,
2014
 
December 28,
2012
 
Allocation        
 
 
 
Guidelines
 
 
 
Target
Equity securities
 
46.0
%
 
45.3
%
 
48
%
Fixed income investments
 
45.0

 
46.6

 
44

Other investments
 
9.0

 
8.1

 
8

 
 
100.0
%
 
100.0
%
 
100
%

The pension committees meet regularly to assess investment performance and reallocate 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, including during fiscal 2013, we periodically rebalance our asset portfolios to be in line with our allocation guidelines.
For 2013, the North American investment policy guidelines were as follows:
 
Each asset class is actively managed by one investment manager
Each asset class may be invested in a commingled fund, mutual fund, or separately managed account
Each manager is expected to be “fully invested” with minimal cash holdings
The use of options and futures is limited to covered hedges only
Each equity asset manager has a minimum number of individual company stocks that need to be held and there are restrictions on the total market value that can be invested in any one industry and the percentage that any one company can be of the portfolio total. The domestic equity funds are limited as to the percentage that can be invested in international securities
The international stock fund is limited to readily marketable securities
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:
 
Make sure that the obligations to the beneficiaries of the Plan can be met
Maintain funds at a level to meet the minimum funding requirements
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. We use 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 based on an analysis of historical and forward looking returns considering the respective plan’s actual and target asset mix. The weighted-average expected rate of return on plan assets used in the determination of net periodic pension cost for 2013 is 5.86%.
The following table sets forth the changes and the end of year components of "Accumulated other comprehensive loss" for the defined benefit plans (in millions):
 
 
January 3,
2014
 
December 28,
2012
Changes to Balance:
 
 
 
 
Beginning balance
 
$
98.8

 
$
132.4

Recognized prior service cost (credit)
 
4.5

 
(41.0
)
Recognized net actuarial gain
 
(9.3
)
 
(14.2
)
Prior service credit arising in current year
 
(2.7
)
 
(3.0
)
Net actuarial (gain) loss arising in current year
 
(59.0
)
 
24.6

Ending balance
 
$
32.3

 
$
98.8


Components of Balance:
 
 
 
 
Prior service credit
 
$
(38.8
)
 
$
(43.1
)
Net actuarial loss
 
71.0

 
141.8

Transitional obligation
 
0.1

 
0.1

 
 
$
32.3

 
$
98.8


Amounts in "Accumulated other comprehensive loss" expected to be recognized as components of net period pension cost in 2014 are as follows (in millions):
Amortization of prior service credit
$
(4.6
)
Amortization of actuarial loss
3.2

Total amortization expected
$
(1.4
)


The following represents a reconciliation of the funded status of our pension plans from the beginning of fiscal 2012 to the end of fiscal 2013:
 
 
Pension Benefits
 
 
Domestic
 
Foreign
 
Total
 
 
2013
 
2012
 
2013
 
2012
 
2013
 
2012
 
 
(In millions)
Change in projected benefit obligation:
 
 
 
 
 
 
 
 
 
 
 
 
Beginning balance
 
$
248.9

 
$
287.7

 
$
232.2

 
$
192.8

 
$
481.1

 
$
480.5

Service cost
 
7.0

 
8.6

 
6.7

 
5.6

 
13.7

 
14.2

Interest cost
 
9.6

 
12.4

 
9.4

 
9.5

 
19.0

 
21.9

Actuarial (gain) loss
 
(33.2
)
 
26.5

 
0.8

 
22.4

 
(32.4
)
 
48.9

Plan amendment
 
(0.2
)
 
(44.6
)
 

 

 
(0.2
)
 
(44.6
)
Lump sum settlement
 

 
(36.2
)
 

 

 

 
(36.2
)
Benefits paid from plan assets
 
(6.4
)
 
(4.6
)
 
(6.3
)
 
(6.0
)
 
(12.7
)
 
(10.6
)
Benefits paid from Company assets
 
(0.8
)
 
(0.9
)
 

 

 
(0.8
)
 
(0.9
)
Plan participants contributions
 

 

 
0.2

 
0.3

 
0.2

 
0.3

Foreign currency exchange rate changes
 

 

 
(0.1
)
 
7.6

 
(0.1
)
 
7.6

Ending balance
 
$
224.9

 
$
248.9

 
$
242.9

 
$
232.2

 
$
467.8

 
$
481.1

Change in plan assets at fair value:
 
 
 
 
 
 
 
 
 
 
 
 
Beginning balance
 
$
183.7

 
$
158.0

 
$
202.0

 
$
177.1

 
$
385.7

 
$
335.1

Actual return on plan assets
 
31.9

 
19.4

 
17.0

 
14.3

 
48.9

 
33.7

Company contributions to plan assets
 
4.6

 
47.1

 
9.9

 
9.4

 
14.5

 
56.5

Lump sum settlement
 

 
(36.2
)
 

 

 

 
(36.2
)
Benefits paid from plan assets
 
(6.4
)
 
(4.6
)
 
(6.3
)
 
(6.0
)
 
(12.7
)
 
(10.6
)
Plan participants contributions
 

 

 
0.2

 
0.3

 
0.2

 
0.3

Foreign currency exchange rate changes
 

 

 
0.1

 
6.9

 
0.1

 
6.9

Ending balance
 
$
213.8

 
$
183.7

 
$
222.9

 
$
202.0

 
$
436.7

 
$
385.7

Reconciliation of funded status:
 
 
 
 
 
 
 
 
 
 
 
 
Projected benefit obligation
 
$
(224.9
)
 
$
(248.9
)
 
$
(242.9
)
 
$
(232.2
)
 
$
(467.8
)
 
$
(481.1
)
Plan assets at fair value
 
213.8

 
183.7

 
222.9

 
202.0

 
436.7

 
385.7

Funded status
 
$
(11.1
)
 
$
(65.2
)
 
$
(20.0
)
 
$
(30.2
)
 
$
(31.1
)
 
$
(95.4
)
Included in the 2013 and 2012 funded status is accrued benefit cost of approximately $14.8 million and $17.8 million, respectively, related to two non-qualified plans, which cannot be funded pursuant to tax regulations.
Noncurrent asset
 
$
3.7

 
$

 
$
2.2

 
$
1.8

 
$
5.9

 
$
1.8

Current liability
 
(0.8
)
 
(0.8
)
 

 

 
(0.8
)
 
(0.8
)
Noncurrent liability
 
(14.0
)
 
(64.4
)
 
(22.2
)
 
(32.0
)
 
(36.2
)
 
(96.4
)
Funded status
 
$
(11.1
)
 
$
(65.2
)
 
$
(20.0
)
 
$
(30.2
)
 
$
(31.1
)
 
$
(95.4
)
Weighted-average assumptions used for measurement of the projected benefit obligation:
 
 
 
 
Discount rate
 
4.81
%
 
3.93
%
 
4.49
%
 
4.23
%
 
4.64
%
 
4.08
%
Salary growth rate
 
4.63
%
 
3.90
%
 
3.27
%
 
3.13
%
 
4.04
%
 
3.62
%


The following represents the funded components of net periodic pension cost as reflected in our Consolidated Statements of Income and the weighted-average assumptions used to measure net periodic cost for the years ended January 3, 2014December 28, 2012 and December 30, 2011:
 
 
Pension Benefits
 
 
Domestic
 
Foreign
 
Total
  
 
2013
 
2012
 
2011
 
2013
 
2012
 
2011
 
2013
 
2012
 
2011
 
 
(In millions)
Components of net periodic cost:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Service cost
 
$
8.5

 
$
10.1

 
$
7.0

 
$
6.7

 
$
5.6

 
$
5.3

 
$
15.2

 
$
15.7

 
$
12.3

Interest cost
 
9.6

 
12.4

 
12.0

 
9.4

 
9.5

 
9.7

 
19.0

 
21.9

 
21.7

Expected return on plan assets
 
(11.8
)
 
(11.3
)
 
(11.8
)
 
(10.5
)
 
(9.9
)
 
(10.1
)
 
(22.3
)
 
(21.2
)
 
(21.9
)
Net amortization
 
3.1

 
8.3

 
3.4

 
1.7

 
1.0

 
0.3

 
4.8

 
9.3

 
3.7

Settlement loss
 

 
15.3

 

 

 

 

 

 
15.3

 

Curtailment loss
 

 

 
0.6

 

 

 

 

 

 
0.6

Net periodic cost
 
$
9.4

 
$
34.8

 
$
11.2

 
$
7.3

 
$
6.2

 
$
5.2

 
$
16.7

 
$
41.0

 
$
16.4



Weighted-average assumption used to measure net periodic cost:
 
 
 
 
 
 
 
 
 
 
Discount rate
 
3.93
%
 
4.37
%
 
5.53
%
 
4.23
%
 
4.84
%
 
5.43
%
 
4.08
%
 
4.56
%
 
5.49
%
Expected return on plan assets
 
6.50
%
 
7.00
%
 
8.00
%
 
5.27
%
 
5.29
%
 
5.93
%
 
5.86
%
 
6.10
%
 
6.91
%
Salary growth rate
 
3.90
%
 
3.90
%
 
3.91
%
 
3.13
%
 
3.13
%
 
3.57
%
 
3.62
%
 
3.57
%
 
3.76
%

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 2013, 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 our 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 our 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. We do 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 January 3, 2014 and December 28, 2012, which have been categorized under the fair value hierarchy for the Domestic and Foreign Plans by us are as follows:
 
 
As of January 3, 2014
 
 
Domestic
 
Foreign
 
Total
 
 
Level 1
 
Level 2
 
Total
 
Level 1
 
Level 2
 
Total
 
Level 1
 
Level 2
 
Total
 
 
(In millions)
Asset Categories:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments
 
$
8.1

 
$

 
$
8.1

 
$
2.6

 
$

 
$
2.6

 
$
10.7

 
$

 
$
10.7

Equity securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Domestic
 
121.2

 

 
121.2

 
0.2

 
58.7

 
58.9

 
121.4

 
58.7

 
180.1

International (a)
 

 
37.6

 
37.6

 

 
44.0

 
44.0

 

 
81.6

 
81.6

Fixed income securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Domestic
 

 
32.9

 
32.9

 
0.7

 
68.9

 
69.6

 
0.7

 
101.8

 
102.5

Corporate bonds
 

 
14.0

 
14.0

 
0.7

 
30.9

 
31.6

 
0.7

 
44.9

 
45.6

Insurance funds