Anixter International Inc. Financial Statement Analysis
Transactions like the merger are frequently the subject of litigation or other legal proceedings, including actions alleging
that either our board of directors breached their respective fiduciary duties to their stockholders by entering into the merger
agreement, by failing to obtain a greater value in the transaction for their stockholders or otherwise. We believe that any such
litigation or proceedings would be without merit, but there can be no assurance that they will not be brought. Indeed, between
December 9, 2019 and December 19, 2019, four lawsuits were filed by purported stockholders of Anixter in connection with
the now-terminated merger agreement with Clayton, Dubilier & Rice, LLC. If litigation or other legal proceedings are brought
against us or against our board in connection with the merger agreement, we will defend against it, but we might not be
successful in doing so. An adverse outcome in such matters, as well as the costs and efforts of a defense even if successful,
could have a material adverse effect on our business, results of operation or financial position, including through the possible
diversion of either company's resources or distraction of key personnel.
All of the matters described above, alone or in combination, could materially and adversely affect our business, financial
condition, results of operations and stock price. The foregoing description of our pending acquisition by WESCO is not
complete, and is qualified in its entirety by reference to the registration statement on Form S-4, which contains a preliminary
proxy statement/prospectus with respect to the merger, filed by WESCO with the SEC on February 7, 2020. We urge you to
read the registration statement on Form S-4 because it contains important information about the merger, including relevant risk
factors.
A change in sales strategy or financial viability of our suppliers could adversely affect our sales or earnings.
Most of our agreements with suppliers are terminable by either party on short notice for any reason. We currently source
products from thousands of suppliers. However, approximately one-quarter of our annual dollar volume purchases are sourced
from our five largest suppliers. If any of these suppliers changes its sales strategy to reduce its reliance on distribution channels,
or decides to terminate its business relationship with us, our sales and earnings could be adversely affected until we are able to
establish relationships with suppliers of comparable products. Although we believe our relationships with these key suppliers
are good, they could change their strategies as a result of a change in control, expansion of their direct sales force, changes in
the marketplace or other factors beyond our control, including a key supplier becoming financially distressed.
We have risks associated with the sale of nonconforming products and services.
Historically, we have experienced a small number of cases in which our vendors supplied us with products that did not
conform to the agreed upon specifications without our knowledge. Additionally, we may inadvertently sell a product not
suitable for a customer's application. We address this risk through our quality control processes, by seeking to limit liability and
our warranty in our customer contracts, by obtaining indemnification rights from vendors and by maintaining insurance
responsive to these risks. However, there can be no assurance that we will be able to include protective provisions in all of our
contracts, that vendors will have the financial capability to fulfill their indemnification obligations to us, or that insurance can
be obtained with sufficiently broad coverage or in amounts sufficient to fully protect us.
Our foreign operations are subject to political, economic, currency and other risks.
We derive approximately one quarter of our revenues from sales outside of the U.S. Economic and political conditions in
some of these foreign markets may adversely affect our results of operations, cash flows and financial condition in these foreign
markets. Our results of operations and the value of our foreign assets are affected by fluctuations in foreign currency exchange
rates (as further discussed in "Item 7A. Quantitative and Qualitative Disclosures About Market Risk") and different legal, tax,
accounting and regulatory requirements. In addition, some of the products that we distribute are produced in foreign countries,
which involve longer and more complex supply chains that are vulnerable to numerous risks that could cause significant
interruptions or delays in delivery of such products. Many of these factors are beyond our control and include risks, such as
political instability, financial instability of suppliers, suppliers' noncompliance with applicable laws, trade restrictions, labor
disputes, currency fluctuations, changes in tariff or import policies, severe weather, public health crises, terrorist attacks and
transport capacity and cost. For example, the recent outbreak of a novel strain of coronavirus, a respiratory illness, in China,
could adversely affect our supply chains involving China and other affected regions. The extent to which the coronavirus will
impact our business, results of operation or financial condition is difficult to assess at this stage as much depends on future
developments, which are uncertain, including information concerning the severity of the coronavirus and the methods to contain
and treat the virus. A significant interruption in our supply chains caused by any of the above factors could result in increased
costs or delivery delays and result in a decrease in our net sales and profitability.
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