Anixter International Inc. Financial Statement Analysis
ANIXTER INTERNATIONAL INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Only the returns for fiscal tax years 2014 and later remain open to examination by the Internal Revenue Service ("IRS")
in the U.S., which is Anixter's most significant tax jurisdiction. For most states, fiscal tax years 2015 and later remain subject to
examination. In Canada, the fiscal tax years 2015 and later are still subject to examination, while in the United Kingdom, the
fiscal tax years 2018 and later remain subject to examination.
NOTE 8. PENSION PLANS, POST-RETIREMENT BENEFITS AND OTHER BENEFITS
The Company's defined benefit pension plans are the plans in the U.S., 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 these defined benefit pension plans are non-contributory and, with the exception of the U.S. and Canada, 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. The Company's policy is to fund all Domestic
Plans as required by the Employee Retirement Income Security Act of 1974 ("ERISA") and the IRS and all Foreign Plans as
required by applicable foreign laws. The Executive Benefit Plan and SERP are the only two plans that are unfunded. Assets in
the various plans consist primarily of equity securities and debt securities.
Accounting rules related to pensions generally reduce the recognition of actuarial gains and losses in the net benefit cost,
as any significant actuarial gains/losses are amortized over the remaining service lives of the plan participants. These actuarial
gains and losses are mainly attributable to the return on plan assets that differ from that assumed and differences in the
obligation due to changes in the discount rate, plan demographic changes and other assumptions.
The measurement date for all plans is December 31st. Accordingly, at the end of each fiscal year, the Company
determines the discount rate to be used to discount the plan liabilities to their present value. The discount rate reflects the
current rate at which the pension liabilities could be effectively settled at the end of the year. In estimating this rate at the end of
2019 and 2018, the Company reviewed rates of return on relevant market indices and concluded the Willis Towers Watson
Global Rate Link Model was consistent with observable market conditions and industry standards for developing spot rate
curves. These rates are adjusted to match the duration of the liabilities associated with the pension plans.
At January 3, 2020 and December 28, 2018, the Company determined the consolidated weighted-average discount rate of
all plans to be 2.75% and 3.59%, respectively, and used these rates to measure the projected benefit obligation ("PBO") at the
end of each respective fiscal year end. Due primarily to actuarial losses, the PBO increased to $586.5 million at the end of fiscal
2019 from $504.1 million at the end of fiscal 2018. The consolidated net unfunded status was $71.0 million at the end of fiscal
2019 compared to $55.2 million at the end of 2018.
A significant element in determining net periodic benefit cost in accordance with U.S. GAAP is the expected return on
plan assets. For 2019, the Company had assumed that the weighted-average expected long-term rate of return on plan assets
would be 6.01%. This expected return on plan assets is included in the net periodic benefit cost for the fiscal year ended 2019.
As a result of the combined effect of valuation changes in both the equity and bond markets, the plan assets produced an actual
gain of approximately 16.8% in 2019 and an actual loss of approximately 4.2% in 2018. The fair value of plan assets is $515.5
million at the end of fiscal 2019, compared to $448.9 million at the end of fiscal 2018. The difference between the expected
return and the actual return on plan assets is amortized into expense over the service lives of the plan participants. These
amounts are reflected on the balance sheet through charges to "Accumulated other comprehensive loss," a component of
"Stockholders' Equity" in the Consolidated Balance Sheets.
In the fourth quarter of 2019, the Company amended the Anixter Inc. Pension Plan in the U.S. to allow for terminated
employees a one-time option to receive a cash payout of their vested benefits if the present value of the benefit was under
$125,000. This resulted in an additional $10.9 million of lump sum payments. The cash payout did not result in a settlement
charge as the amount did not exceed the service and interest costs of the plan in 2019.
In the fourth quarter of 2017, the Company transferred the benefits of certain retirees or beneficiaries to a third-party
annuity provider. The Company paid $11.3 million of additional contributions into the plan using excess cash from operations
to fund the contributions. The plan purchased an $11.3 million annuity contract with a third-party insurance carrier and
transferred the related pension obligations to the carrier. The funding of the premiums did not result in a settlement charge as
the amount did not exceed the service and interest costs of the plan in 2017.
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