Anixter International Inc. Financial Statement Analysis
We have risks associated with inventory.
We must identify the right product mix and maintain sufficient inventory on hand to meet customer orders. Failure to do
so could adversely affect our sales and earnings. However, if circumstances change (for example, an unexpected shift in market
demand, pricing or customer defaults) there could be a material impact on the net realizable value of our inventory. To guard
against inventory obsolescence, we have negotiated various return rights and price protection agreements with certain key
suppliers. We also maintain an inventory valuation reserve account against declines in the value or salability of our inventory.
However, there is no guaranty that these arrangements will be sufficient to avoid write-offs in excess of our reserves in all
circumstances.
Our operating results are affected by copper prices.
Our operating results have been affected by changes in prices of copper, which is a major component in a portion of the
electrical wire and cable products we sell. As our purchase costs with suppliers change to reflect the changing copper prices,
our percent mark-up to customers remains relatively constant, resulting in higher or lower sales revenue and gross profit
depending upon whether copper prices are increasing or decreasing.
We have risks associated with the integration of acquired businesses.
In connection with recent and future acquisitions, it is necessary for us to continue to create an integrated business from
the various acquired entities. This requires the establishment of a common management team to guide the acquired businesses,
the conversion of numerous information systems to a common operating system, the establishment of a brand identity for the
acquired businesses, the streamlining of the operating structure to optimize efficiency and customer service and a reassessment
of the inventory and supplier base to ensure the availability of products at competitive prices. No assurance can be given that
these various actions can be completed without disruption to the business, in a short period of time or that anticipated
improvements in operating performance can be achieved. Any inability on our part to successfully implement strategic
transactions could have an adverse impact on our reputation, business, financial condition, operating results and cash flows.
There can be no assurance that any businesses acquired will meet performance expectations or that business judgments
concerning the value, strengths and weaknesses of businesses acquired will prove to be correct. In addition, any acquisition that
we make may not deliver the synergies and other benefits that were anticipated when entering into such acquisition.
Our debt agreements could impose restrictions on our business.
Our debt agreements contain certain financial and operating covenants that limit our discretion with respect to certain
business matters. These covenants restrict our ability to, among other things:
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incur additional indebtedness;
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create liens on assets;
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make certain investments;
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transfer, lease or dispose of assets; and
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engage in certain mergers, acquisitions, consolidations or other fundamental changes.
These covenants also limit the amount of dividends or share repurchases we may make. As a result of these restrictions,
we are limited in how we may conduct business and may be unable to compete effectively or take advantage of new business
opportunities. Our ability to comply with the covenants and restrictions contained in our debt agreements may be affected by
economic, financial and industry conditions or regulatory changes beyond our control. The breach of any of these covenants or
restrictions could result in a default under our revolving lines of credit or the indentures governing our outstanding notes that
would permit the applicable lenders or noteholders, as the case may be, to declare all outstanding amounts to be due and
payable, together with accrued and unpaid interest. If we are unable to repay indebtedness, lenders having secured obligations,
such as the lenders under our revolving lines of credit, could proceed against the collateral securing these obligations. This
could have a significant negative impact on our financial condition and operating results.
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