Anixter International Inc. Financial Statement Analysis
We have substantial debt which could adversely affect our profitability, limit our ability to obtain financing in the
future and pursue certain business opportunities.
As of January 3, 2020, we had an aggregate principal amount of $1.06 billion of outstanding debt. As a result, a
substantial portion of our cash flow from operations must be dedicated to the payment of principal and interest on our
indebtedness, thereby reducing the funds available to us for other purposes. This may also limit our ability to obtain additional
financing for working capital, capital expenditures, acquisitions, debt service requirements, and general corporate purposes in
the future. Our indebtedness also reduces our flexibility to adjust to changing market conditions or may prevent us from making
capital investments that are necessary or important to our operations and strategic growth.
If our cash flow and capital resources are not sufficient to fund our debt service obligations, we could face liquidity
problems and may be required to reduce or delay capital expenditures, sell assets, seek to obtain additional equity capital or
refinance our debt. We cannot make assurances that we will be able to refinance our debt on terms acceptable to us, or at all.
Our debt agreements and the indentures governing our outstanding notes restrict our ability to dispose of assets and how we use
the proceeds from any such dispositions. We cannot make assurances that we will be able to consummate those dispositions, or
if we do, what the timing of the dispositions will be or whether the proceeds that we realize will be adequate to meet our debt
service obligations when due.
We have risks associated with accounts receivable.
A significant portion of our working capital consists of accounts receivable. Although no single customer accounts for
more than 3% of our sales, a payment default by one of our larger customers could have a negative short-term impact on
earnings or liquidity. A financial or industry downturn could have an adverse effect on the collectability of our accounts
receivable, which could result in longer payment cycles, increased collection costs and defaults.
A decline in project volume could adversely affect our sales and earnings.
While much of our sales and earnings are generated by comparatively smaller and more frequent orders, the fulfillment of
large orders for capital projects generates significant sales and earnings. Slow macro-economic growth rates, difficult credit
market conditions for our customers, weak demand for our customers' products or other customer spending constraints can
result in project delays or cancellations, potentially having a material adverse effect on our financial results.
The level of returns on pension plan assets and the actuarial assumptions used for valuation purposes could affect our
earnings and cash flows in future periods. Changes in government regulations could also affect our pension plan expenses
and funding requirements.
The funding obligations for our pension plans are impacted by the performance of the financial markets, particularly the
equity markets, and interest rates. Funding obligations are determined under government regulations and are measured each
year based on the value of assets and liabilities on a specific date. If the financial markets do not provide the long-term returns
that are expected under the governmental funding calculations, we could be required to make larger contributions. The equity
markets can be very volatile, and therefore our estimate of future contribution requirements can change dramatically in
relatively short periods of time. Similarly, changes in interest rates and legislation enacted by governmental authorities can
impact the timing and amounts of contribution requirements. An adverse change in the funded status of the plans could
significantly increase our required contributions in the future and adversely impact our liquidity. At January 3, 2020, our
projected benefit obligations exceeded the fair value of plan assets by $71.0 million.
Assumptions used in determining projected benefit obligations and the fair value of plan assets for our pension plans are
determined by us in consultation with outside actuaries. In the event that we determine that changes are warranted in the
assumptions used, such as the discount rate, expected long-term rate of return on assets, or mortality rates, our future pension
benefit expenses could increase or decrease. Due to changing market conditions, the assumptions that we use may differ from
actual results, which could have a significant impact on our pension liabilities and related costs and funding requirements.
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