ITEM 1. BUSINESS
Rexel, Inc. (the "Company") is a New York corporation that was incorporated in 1866. Rexel, S. A., a French company listed on the Paris Stock Exchange, owns approximately 50.3% of the stock of the Company. In 1995, the Company changed its name from Willcox & Gibbs, Inc. to Rexel, Inc. Management believes that the Company is the fifth largest distributor of electrical parts and supplies in the United States and that Rexel, S. A., operating through its affiliated companies including that Company, is the largest electrical supplies distributor in the world, based on 1996 sales.
During the last several years, the Company has undertaken a major restructuring. On April 22, 1992, the Company, Rexel, S.A., International Technical Distributors, Inc. ("ITD"), a subsidiary of Rexel, S. A. and Southern Electric Supply Company, Inc. ("SES"), a subsidiary of ITD engaged in the distribution of electrical materials, entered into a Purchase Agreement (the "Purchase Agreement"). Pursuant to the Purchase Agreement, the Company issued to Rexel, S. A. and ITD 6,284,301 shares of Company Common Stock in exchange for all of the stock of SES and approximately $10 million in cash. In addition, pursuant to the Purchase Agreement, the Company declared a dividend consisting of one share of common stock of the Company's subsidiary Worldtex, Inc. ("Worldtex") for each share of Company Common Stock outstanding on November 23, 1992 (the "Distribution"). In August 1992, the Company transferred to Worldtex all of the stock of the Company's subsidiaries engaged in the manufacture of covered elastic yarn.
Also during 1992, the Company disposed of its data communications equipment distribution business, conducted by Data Net, Inc. and Dataspan Systems, Inc., and its Montrose Supply and Equipment Division, which distributed equipment to the knitting trade. In July 1994, the Company sold its apparel parts and supplies distribution businesses. As a result of these transactions and the Distribution, the Company became engaged solely in the distribution of electrical goods and supplies.
In April 1993, the Company acquired Sacks Electrical Supply Co. ("Sacks"), a distributor of electrical supplies and components with three locations in Ohio, for $13,635,000. On December 17, 1993, the Company acquired Summers Group Inc., ("Summers"), a distributor of electrical parts and supplies with locations principally in Texas, Oklahoma, Louisiana, California and Arkansas. The consideration for the Summers acquisition was $60,000,000 in cash and a $25,000,000 three year note issued to the seller, plus contingent consideration to be determined based on Summers' profits before interest and taxes for 1993 and 1994, subject to a maximum purchase price of $120,000,000. In December 1994, the Company agreed to prepay such note and cancel the contingent consideration in exchange for cash payments that brought the total cash purchase price for Summers to $90,950,000 (including $0.7 million of acquisition costs).
In March, 1994, the Company sold 3,491,280 newly-issued shares of Company Common Stock to Rexel, S. A. for $31,421,520 in cash. In connection with that sale, the size of the Company's Board of Directors was reduced from twelve to nine and two additional nominees of Rexel, S. A. became directors of the Company.
During the last half of 1994, the Company also realigned the management of its electrical distribution operations. The operations of the Company's principal subsidiaries, Summers, Sacks, SES and the Consolidated Electric Supply group ("CES"), were reorganized along geographic lines into two regions: the Eastern Region and the Western Region. In addition, substantially all of the Company's operating subsidiaries were merged into either SES, which operates the Eastern Region, or Summers, which operates the Western Region.
On August 7, 1996, the Company acquired Utility Products Supply of Denver, Colorado ("UPS"), a distributor of electrical products to the utility industries with locations in Colorado, Arizona, California and Kansas, for cash and deferred payments totaling $5.6 million (including acquisition costs of $0.1 million). UPS operates as part of the Western Region.
On November 12, 1996, the Company acquired Cable & Connector Warehouse, Inc. of Dallas, Texas ("CCW"), a distributor of electronic wire, cable, connectors and related apparatus to manufacturers of data and telecommunication products with locations in Louisiana, Texas, Colorado, California, Oregon and Kansas, for cash of $20.2 million (including $0.2 million of acquisition costs). CCW operates as an independent business unit and is not part of the Eastern or Western Regions.
In 1995 and 1996, the Company has focused on integrating its operations, reducing costs and developing new sourcing and marketing programs.
ELECTRICAL DISTRIBUTION OPERATIONS
The Company is engaged in the wholesale distribution of electrical parts and supplies, operating 190 electrical distribution locations in 20 states and the Bahamas. The Company manages its business through two principal regional organizations: the Eastern Region and the Western Region.
The Eastern Region operates 97 distribution centers in 11 states, of which 45 are in Florida, 14 in Ohio, 10 in Mississippi, 8 in Alabama, 4 in Louisiana, 5 in Georgia, 3 in Delaware, 2 in Maryland, 2 in Tennessee, 2 in Oklahoma, 1 in Virginia and 1 in Freeport, Grand Bahamas.
The Western Region operates 82 locations in 9 states, consisting of 37 in Texas, 13 in California, 9 in Louisiana, 8 in Arkansas, 6 in Oklahoma, 2 in Missouri, 3 in Arizona, 2 in Colorado and 1 in each of Kansas and New Mexico.
CCW operates 11 distribution centers in 6 states, of which 3 are in California, 3 in Texas, 2 in Louisiana and 1 in each of Colorado, Kansas and Oregon.
Each of the Company's electrical distribution locations serves an area with approximately a 50 mile radius and serves the needs of electrical contractors engaged in construction work on commercial and residential structures. The Company also provides materials to industrial customers for maintenance and repairs and for the manufacture of equipment. In addition, the Company has two divisions focused on specialty markets: the DataCom division, which distributes products used to interconnect voice, data and video systems, and the Cummins division, which distributes supplies to the utility industry. These two divisions generated approximately 11.6% of the Company's sales in 1996.
In 1996, the Company served over 82,000 customers, with no single customer accounting for more than 2% of total annual sales. The Company's ten largest customers in 1996 represented less than 7% of sales. Management believes that approximately 51% of the Company's sales are from the construction-based electrical contractor market. The remainder are sold to industrial, governmental, municipal and utility company customers.
Management believes that the Company is the fifth largest distributor of electrical parts and supplies in the United States, although there are other companies which account for significantly greater national volume. The Company competes with national chains (some of which are affiliated with manufacturing companies) and other independent distributors operating single or multiple outlets. Because the electrical supply business is fragmented and highly competitive, service and price are essential components of success. A typical Company electrical distribution location consists of a 20,000 sq. ft. warehouse and office facility, ten inside and outside sales representatives, one technical specialist, six warehouse and delivery personnel, and four management and support personnel. An average branch has approximately 400 customers, maintains an inventory of about 15,000 items, and makes deliveries within a 50-mile radius. Small branches are often grouped to constitute a profit center.
The Company's extensive product line includes electrical supplies, such as cable, cords, boxes, covers, wiring devices, conduit, raceway duct, safety switches, motor controls, breakers, panels, lamps, fuses and related supplies and accessories, residential, commercial and industrial electrical fixtures and other special use fixtures, as well as materials and special cables for computers and advanced communications systems.
The products sold by the Company are purchased from over 4,300 manufacturers and other suppliers, the two largest of which accounted in the aggregate for approximately 15% of the Company's total purchases during 1996, with none of the remainder accounting for more than 4%.
DISCONTINUED OPERATIONS
APPAREL PARTS AND SUPPLIES DISTRIBUTION
In July 1994, the Company sold its apparel parts and supplies distribution businesses, which are described below, for consideration valued at approximately $44 million.
The Company's former Sunbrand Division marketed to the apparel industry a wide range of sewing equipment parts, supplies and other equipment, including pressing and finishing equipment, fabric spreading machines and reconditioned equipment. Its product line included needles, tools, electric and electronic devices and warehouse equipment. Sunbrand's executive offices were located in Atlanta. Sunbrand had seven office/distribution centers located near major apparel manufacturing areas in Atlanta, El Paso, Fall River (Massachusetts), Miami, Mexico City, Nashville, and Santo Domingo (Dominican Republic).
The Company's former Unity Sewing Supply Division ("Unity"), an importer and distributor of non-trademarked ("generic") parts for industrial sewing machines, was headquartered in New York with branch offices in Los Angeles and Miami. It sold to dealers, not to manufacturers or end users. The majority of Unity's parts were manufactured in Japan, Germany and the United States.
The Company's former subsidiary, Willcox & Gibbs, Ltd., a wholly-owned United Kingdom subsidiary, marketed sewing equipment in certain Common Market countries and sold generic sewing equipment parts in the United Kingdom.
The Company's former subsidiary, Leadtec Systems, Inc. ("Leadtec"), distributed to the apparel industry a computer-based real-time production control system, marketed under the name "Satellite Plus", which utilized hardware manufactured by others and proprietary software designed by Leadtec.
COVERED ELASTIC YARN
Prior to 1993, the Company owned Worldtex and its subsidiaries, which engaged in the manufacture of covered elastic yarn. These operations were disposed of by the Company pursuant to the Distribution on November 12, 1992. While owned by the Company, Worldtex's principal product was nylon covered spandex used in the manufacture of women's pantyhose, which accounted for 58% of Worldtex's 1992 sales. Worldtex also sold covered spandex and covered latex rubber for use in the manufacture of men's, women's and children's socks.
EMPLOYEES
As of December 31, 1996, the Company had a total of approximately 2,850 employees. Approximately 38 employees are covered by collective bargaining agreements. The Company has experienced no significant labor problems during recent years and considers that its employee relations are good.
ITEM 2.
ITEM 2. PROPERTIES
The Company's executive offices are located in leased office space at 150 Alhambra Circle, Coral Gables, Florida. Of the Company's distribution centers, 43 are owned by subsidiaries of the Company and 147 are leased. These leases are classified as operating leases and expire in various years through 2005. The Company's distribution centers generally range from 4,000 to 105,000 square feet and include office and warehouse facilities.
Twelve of the Company's distribution centers are leased from Robert Merson, a Senior Vice President of the Company and/or members of his or his wife's family, for terms extending through 2002. The Company believes that these leases are on terms at least as favorable as could have been obtained from an unaffiliated third party.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS
There are no material pending legal proceedings as of the date of this Report to which the Company or any of its subsidiaries is a party or to which any of their property is subject.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the last quarter of the Company's fiscal year, no matters were submitted to a vote of the Company's security holders.
ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT
The officers of the Company are elected annually by the Board of Directors.
Mr. Viry also serves as a director of the Company. Effective April 12, 1997, Mr. Viry's resignation as an officer and director of the Company will become effective and Gilles Guinchard, 49, will become President, Chief Executive Officer and a director of the Company.
PART II
ITEM 5.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock is listed on the New York Stock Exchange and the Pacific Stock Exchange. The following table sets forth the high and low per share sales prices for the Common Stock on
the New York Stock Exchange as reported by the Dow Jones Historical Stock Quote Reporter Service for each quarter since December 31, 1994.
At March 7, 1997, there were approximately 1,181 holders of record of Common Stock.
No cash dividends have been paid on the Company's Common Stock since the last quarter of 1991. Future payment of cash dividends by the Company will be dependent on such factors as business conditions, earnings and the financial condition of the Company.
The terms of the Company's 9.78% Senior Notes, dated as of April 2, 1991, as amended, restrict dividends and certain other payments with respect to the Company's capital stock if the sum thereof for the period since August 8, 1995, exceeds the sum of (i) $26,000,000 plus (ii) 15% of net cash proceeds from the sale of stock for such period, plus (iii) 50% of consolidated net income (as defined) for such period. In addition, the Note Agreement and the Company's Amended and Restated Revolving Credit and Reimbursement Agreement, dated as of August 8, 1995, require that the Company meet certain financial tests that could have the effect of restricting the Company's ability to pay dividends.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA
REXEL, INC. AND SUBSIDIARIES
The following tables set forth certain consolidated financial data of the Company and its subsidiaries for the five fiscal years ended December 31, 1996, which has been derived from the Company's audited financial statements, and should be read in conjunction with the Consolidated Financial Statements and Notes thereto of the Company appearing elsewhere in this Report on Form 10-K.
The selected financial data of the Company for the years set forth below are not directly comparable due to acquisitions and dispositions during such periods, including the distribution of Worldtex on November 12, 1992, the sale of the Apparel Division on July 13, 1994, and the acquisitions of SES on November 12, 1992, Sacks on April 12, 1993, Summers on December 17, 1993, Utility Products Supply on August 7, 1996 and Cable & Connector Warehouse, Inc. on November 12, 1996.
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(a) Loss on early extinguishment of debt.
(b) Cumulative effect of accounting change for income taxes in connection with SFAS No. 109, "Accounting for Income Taxes."
(c) Fully diluted amounts are equivalent to primary in 1996 and anti-dilutive in all years prior to 1995.
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
SIGNIFICANT TRANSACTIONS
On November 12, 1992, pursuant to a purchase agreement dated April 22, 1992 among the Company and Rexel, S.A. and certain affiliates of Rexel, S.A. ("Rexel") the Company issued to Rexel 6,284,301 shares of the Company's common stock in exchange for all of the stock of an affiliated company and approximately $10 million in cash. In addition, pursuant to such purchase agreement, the Company declared a dividend consisting of one share of common stock of Worldtex, Inc., its subsidiary engaged in the manufacture of covered yarn, for each share of Company common stock outstanding on November 23, 1992.
On March 1, 1994, the Company sold 3,491,280 newly-issued shares of Company common stock to Rexel, S. A. for a total purchase price of $31.4 million.
On July 13, 1994, the Company sold its apparel parts and supplies distribution businesses (the "Apparel Division") for consideration of approximately $44 million, including cash, debt of the purchaser and warrants of the purchaser. On July 26, 1995, the Company sold such debt, warrants and certain other assets to the purchaser for $4.1 million in cash. The Apparel Division is shown as a discontinued operation in the Company's Consolidated Financial Statements.
In April 1993, the Company acquired Sacks Electrical Supply Co. ("Sacks"), a distributor of electrical supplies and components with three locations in Ohio, for $13.6 million. On December 17, 1993, the Company acquired Summers Group, Inc. ("Summers"), an electrical parts distributor with locations principally in Texas, Oklahoma, Louisiana, Arkansas, Arizona, Colorado and California, for $90.95 million (including $0.7 million of acquisition costs).
On August 7, 1996, the Company acquired Utility Products Supply of Denver, Colorado, a distributor of electrical products to the utility industries with locations in Colorado, Arizona, California and Kansas, for cash and deferred payments totaling $5.6 million (including acquisition costs of $0.1 million).
On January 17, 1997, the Company acquired the assets of Southland Electrical Supply, a distributor of electrical parts and supplies with eight locations in Kentucky for a cash purchase price of approximately $25.0 million.
On November 12, 1996, the Company acquired Cable & Connector Warehouse, Inc. of Dallas, Texas, a distributor of electronic wire, cable, connectors and related apparatus to manufacturers of data and telecommunication products with locations in Louisiana, Texas, Colorado, California, Oregon and Kansas, for cash of $20.2 million (including $0.2 million of acquisition costs) plus contingent consideration of up to $4.0 million based upon achieving certain operating results in 1997.
As a result of the aforementioned transactions and discontinuances, the Company became engaged in only one business segment: the distribution of electrical parts and supplies, principally in the southern United States.
RESULTS OF CONTINUING OPERATIONS
The following tables set forth the operating results from continuing operations before income taxes and the percentages which certain income and expense items bear to net sales:
OPERATING RESULTS 1996 VS. 1995
SALES
Sales in 1996 increased $38.8 million to $1,159.4 million, or 3.5% over 1995. Same branch sales increased 1.9% for the year. Sales by geographic region in 1996 were as follows:
The 1996 increase in sales was attributable to favorable construction markets, particularly in the second half of the year, improvements in certain industrial markets, and growth of sales in the utility and data communications markets. The acquisitions of Utility Products Supply and Cable & Connector Warehouse, Inc. contributed $18.6 million in sales in 1996 or 1.7% of the sales increase for the year. The decrease in sales in the Midwest region was the result of tighter credit policies implemented to improve the quality of trade receivables and a slowdown in industrial and construction projects relative to 1995. During 1996, 10 new branches were opened while 3 branches were closed. The branches closed during 1996 were marginally profitable or loss branches.
GROSS PROFIT
Gross profit in 1996 increased $11.5 million, or 5.0%, to $241.5 million. As a percentage of sales, gross profit improved to 20.8% from 20.5% in 1995. The improvement in gross profit percentage of 0.3 percentage points can be analyzed as follows:
In 1996, the Company gained the benefit of several gross margin improvement initiatives which were implemented in 1995. These initiatives centered around improved pricing capabilities through enhanced access to inventory information attributable to the new MIS system in two of our Eastern Region operating divisions, improved controls over price change authority within our branches and improved inventory purchasing through implementation of our sourcing and marketing program.
In 1995, margins were unfavorably impacted by a LIFO increment, resulting from product cost inflation of 1.3%, mainly in copper wire and conduit. As of December 31, 1996, product deflation was 1.4% driven by 5.8% deflation in copper wire. This resulted in a LIFO decrement of $2.1 million in 1996. LIFO had the impact of improving margins by 0.3% in 1996 compared to 1995.
Many utility companies have been consolidating purchasing by their operating units and reducing the number of their electrical product suppliers. This consolidation process, while increasing sales for surviving distributors such as the Company's utility division, has resulted in a lower gross profit percentage on the Company's utility sales. Accordingly, although sales for the Company's utility division were up 20.8% in 1996 over 1995, declining margins from these sales resulted in a decrease of 0.2% in the Company's gross profit percentage compared to 1995.
SELLING AND ADMINISTRATIVE EXPENSE
Selling and administrative expense increased $1.0 million or 0.5% in 1996. As a percentage of sales, selling and administrative expense improved to 16.0% in 1996 compared to 16.5% in 1995, reflecting the results of cost reduction initiatives implemented in the second half of 1995 and in 1996 and a favorable reduction in bad debts in 1996.
Depreciation and amortization costs decreased $0.5 million in 1996 compared to 1995. The reduction occurred in computer depreciation as a result of accelerated depreciation on old computer systems replaced in 1995.
The provisions for doubtful accounts decreased $1.1 million in 1996 compared to 1995 as a result of a continued improvement in the quality of trade accounts receivable.
In 1996, the Company paid to Rexel, S. A. $0.8 million pursuant to the Services Agreement entered into in November 1995 compared to $0.9 million paid in 1995.
INTEREST EXPENSE
Interest expense decreased $2.6 million or 33.5% in 1996 compared to 1995. The Company reduced its debt by $66.6 million during 1995 with existing cash balances, operating cash flow and the conversion of $14.5 million of 7% Convertible Subordinated Debentures Due 2014 into Common Stock of the Company (see Note 7 of the Notes to the Consolidated Financial Statements). In 1996, debt increased $9.8 million, related to the acquisitions of Utility Products Supply and Cable & Connector Warehouse, Inc. occurring late in the third and fourth quarters.
OTHER INCOME (EXPENSE)--NET
Other income (expense)--net increased from expense in 1995 of $0.03 million to income in 1996 of $0.4 million. In 1995, $0.4 million in costs were incurred for the early termination of The Sacks Group Pension Plan in association with the consolidation of the Company's various benefit plans into one plan.
INCOME FROM CONTINUING OPERATIONS
Income from continuing operations increased to $29.4 million in 1996 from $21.1 million in 1995 or 39.3%.
OPERATING RESULTS 1995 VS. 1994
SALES
Sales in 1995 increased $55.1 million to $1,120.7 million, or 5.2% over 1994. Same branch sales increased 7.1% for the year. Sales by geographic region in 1995 were as follows:
The 1995 increase in sales was attributable to favorable construction markets, particularly in the first half of the year, improvements in industrial markets, and growth of sales in the utility and data communications markets. The decrease in sales in the Pacific Coast region was the result of branch closures and tighter credit policies implemented to improve the quality of trade receivables. During 1995, 7 new branches were opened while 12 branches were closed. The effect on sales in 1995 of openings and closings of branches during the year was a reduction of sales of $18.4 million, or 1.7% of 1994 sales. The branches closed during 1995 were marginally profitable or loss branches.
GROSS PROFIT
Gross profit in 1995 increased $17.6 million, or 8.3%, to $230.1 million. As a percentage of sales, gross profit improved to 20.5% from 19.9% in 1994. The improvement in gross profit percentage of 0.6 percentage points can be analyzed as follows:
Compared to 1994, the percentage of total sales from inventory decreased by two percentage points. Inventory sales have historically had a gross margin percentage roughly twice the gross margin percentage attributable to direct sales. The impact of the change in the percentage of inventory sales to total sales on the total gross profit percentage was a reduction of 0.2% compared to 1994. The percentages of sales from inventory sales and direct sales to total sales can vary year to year and is influenced by the level and type of construction activity in our marketplaces.
During 1995, several gross margin improvement initiatives were implemented which improved the total gross profit percentage by 0.7%. These initiatives centered around improved pricing capabilities through enhanced access to inventory information attributable to the new MIS system in two of our Eastern Region operating divisions, improved controls over price change authority within our branches and improved inventory purchasing through implementation of our sourcing and marketing program.
In 1994, margins were unfavorably impacted by the LIFO increment resulting primarily from the 36% increase in the price of copper, an important component of certain products distributed by the Company. As of December 31, 1995, copper prices had decreased 4.8% compared to a year ago. Combined with a $7.4 million decrease in inventory (before LIFO reserves), the lower inflation in copper and other product prices had a favorable 0.3% impact on 1995 margins compared to 1994.
Many utility companies have been consolidating purchasing by their operating units and reducing the number of their electrical product suppliers. This consolidation process, while increasing sales for surviving distributors such as the Company's utility division, has resulted in a lower gross profit percentage on the Company's utility sales. Accordingly, although sales for the Company's utility division were up 14.6% in 1995 over 1994, declining margins from these sales resulted in a decrease of 0.2% in the Company's gross profit percentage compared to 1994.
SELLING AND ADMINISTRATIVE EXPENSE
Selling and administrative expense decreased $3.7 million or 2.0% in 1995. Included in selling and administrative expense for 1994 were nonrecurring charges totaling $4.9 million. Excluding these nonrecurring charges, selling and administrative expense increased $1.2 million or 0.7% in 1995 primarily as a result of certain expenses that increase with increased sales. As a percentage of sales, selling and administrative expense improved to 16.4% in 1995 compared to 17.6% in 1994 (17.1% excluding 1994 nonrecurring charges), reflecting the results of cost reduction initiatives implemented in the second half of 1995 and in 1996.
Depreciation and amortization costs decreased $0.8 million in 1995 compared to 1994. Included in depreciation expense for 1994 was $2.1 million related to the replacement of certain computer systems in the Company's Eastern Region. Excluding this nonrecurring charge, depreciation and amortization costs increased $1.3 million in 1995 primarily as a result of depreciation on the new computer systems installed in the Eastern Region.
The provisions for doubtful accounts decreased $2.8 million in 1995 compared to 1994 as a result of initiatives in 1995 to improve the quality of trade accounts receivable.
INTEREST EXPENSE
Interest expense decreased $1.9 million or 19.7% in 1995 compared to 1994. The Company reduced its debt by $66.6 million during 1995 with existing cash balances, operating cash flow and the conversion of $14.5 million of 7% Convertible Subordinated Debentures Due 2014 into Common Stock of the Company (see Note 6 of the Notes to the Consolidated Financial Statements). In 1994, interest expense of $2.0 million was allocated to the discontinued apparel operating results based upon net assets of the apparel operation.
OTHER INCOME (EXPENSE)--NET
Other income (expense)--net decreased from income in 1994 of $1.0 million to expense in 1995 of $1.0 million. Earnings from interest bearing investments decreased in 1995 by $0.3 million as a result of using cash funds to reduce debt. The Company paid to Rexel, S. A. $0.9 million in 1995 pursuant to the Services Agreement entered into in November 1995 (see Note 14 of the Notes to the Consolidated Financial Statements). Additionally, $0.4 million in costs were incurred for the early termination of The Sacks Group Pension Plan in association with the consolidation of the Company's various benefit plans into one plan in 1995.
INCOME FROM CONTINUING OPERATIONS
Income from continuing operations increased to $21.1 million in 1995 from $9.3 million in 1994 or 127.9%. Excluding the $4.9 million ($2.7 million after tax), in nonrecurring costs in 1994, income from continuing operations increased 76.0% in 1995 compared to 1994.
INCOME TAXES
The Company had effective income tax rates of 42.5% in 1996 and 44% in 1995 and 1994. The 1996 rate reflects the impact of state and local taxes, non-deductible goodwill amortization and a decrease in the deferred tax asset valuation allowance (related to estimates of state and local net operating loss utilization). The 1995 rate reflects the above except for the decrease in the deferred tax asset valuation allowance.
As of December 31, 1996 and 1995, the Company had recognized deferred tax assets of $7.6 million (see Note 10 of the Notes to Consolidated Financial Statements) arising primarily from basis differences between the recorded value for financial reporting purposes and tax basis of accounts receivable, inventory and various liabilities and reserves, including costs incurred in connection with the Rexel, S. A. acquisition of Rexel, Inc. Such deferred tax assets have been reduced by a valuation allowance of $0.8 million and $1.1 million in 1996 and 1995, respectively. In addition, the Company has recognized deferred tax liabilities totaling $6.8 million and $5.0 million in 1996 and 1995, respectively, arising principally from a higher recorded value over tax basis of property, plant and equipment and certain acquisitions.
FUTURE IMPACT OF RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board (the FASB) issued Statement of Financial Accounting Standards No. 128, "Earnings Per Share" (FAS 128). FAS 128 specifies new standards designed to improve the earnings per share ("EPS") information provided in financial statements by simplifying the existing computational guidelines, revising the disclosure requirements, and increasing the comparability of EPS data on an international basis. Some of the changes made to simplify the EPS computations include: (a) eliminating the presentation of primary EPS and replacing it with basic EPS, with the principal difference being that common stock equivalents (CSEs) are not considered in computing basic EPS, (b) eliminating the modified treasury stock method and the three percent materiality provision, and (c) revising the contingent share provisions and the supplemental EPS data requirements. FAS 128 also makes a number of changes to existing disclosure requirements. FAS 128 is effective for financial statements issued for periods ending after December 15, 1997, including interim periods. The Company has not yet determined the impact of the implementation of FAS 128.
FINANCIAL CONDITION
ASSETS
Total assets at year end 1996 increased $54.3 million or 14.5% of which $38.3 million or 10.2% was related to the acquisitions of Utility Product Supply and Cable & Connector Warehouse. Trade accounts and notes receivable increased $17.8 million or 12.9% of which $9.3 million or 6.7% was due to acquisitions. Trade accounts receivable days remained flat with last year at 46 days. The allowances for doubtful accounts to trade accounts and notes receivable was 1.9% as of December 31, 1996 and 1995. Inventory increased $15.4 million or 15.1% of which $11.6 million or 11.4% was due to acquisitions made in the year and $2.1 million or 2.0% was due to a decrement in LIFO in 1996. Inventory days improved to 74 days at December 31, 1996 from 78 days at December 31, 1995. The improvement in inventory days was partly related to a reduction in obsolete inventory.
LIABILITIES
Total liabilities at year end 1996 increased $24.5 million or 11.8% compared to year end 1995. Debt increased $9.8 million or 18.5% during 1996 mainly as a result of the acquisitions made during the year, net of the operating cash flow generated. The increase in other liabilities of $14.7 million was primarily due to liabilities assumed as a result of acquisitions made during the year.
FINANCIAL LEVERAGE
The Company's amended and restated Revolving Credit and Reimbursement Agreement with NationsBank of Florida, N.A., Credit Lyonnais New York Branch and Societe Generale provides for borrowings through August 1, 2000 of up to $100 million. Interest on borrowings under such facility is at NationsBank's prime rate, or at a rate based on rates in the certificate of deposit market or LIBOR plus a margin, which margin varies depending on the Company's financial performance. The credit agreement includes various covenants, including restrictions on liens, debt and lease obligations and requirements that certain financial ratios be maintained.
In June 1995, to offset the variable rate characteristic of its revolving line of credit, the Company entered into interest rate swap agreements with major banks resulting in fixed interest rates on $30 million. During 1996, the Company and the banks agreed to terminate these interest rate swap agreements resulting in a net gain to the Company. As of December 31, 1996, approximately 40.6% of the Company's debt was exposed to variable interest rates, up from 15.2% at December 31, 1995.
The Company's debt to equity ratio (defined as the ratio of debt including capital lease obligations to total stockholders' equity) was 0.3 to 1 at both December 31, 1996 and 1995.
STOCKHOLDERS' EQUITY
Stockholders' Equity at year end 1996 increased to $196.1 million or 17.9% from year end 1995. The increase is due primarily to a 58.1% increase in retained earnings resulting from net income of $29.4 million. Based on income from continuing operations, the Company's return on average stockholders' equity was 16.3% compared to 13.5% for 1995.
CASH FLOWS
NET CASH PROVIDED BY OPERATING ACTIVITIES
Net cash provided by operating activities in 1996 decreased $14.8 million or 35.3% compared to 1995 and in 1995 increased $8.6 million or 26.1% over 1994. The decrease in 1996 was primarily the result of an increase in inventory in the fourth quarter in response to a strong sales trend in the quarter and an increase in trade accounts receivable driven by increased sales volume.
The improvement in 1995 over 1994 was primarily the result of improved profitability, improvement in the quality of trade accounts receivable and reduction in inventory through better management which was offset to some degree by a reduction in trade accounts payable associated with the reduction in inventory and a change in payment terms of a significant vendor.
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES
Investing activities over the past three years reflect cash used to upgrade fixed assets and make acquisitions and cash provided through the sale of certain operating segments. In August 1996, the Company acquired all of the outstanding common stock of Utility Products Supply for $5.6 million, requiring a cash outlay at closing of $4.5 million. In November 1996, the Company acquired Cable & Connector Warehouse, Inc. for $20.0 million plus contingent consideration of up to $4.0 million based upon achievement of certain operating results in 1997, requiring a cash outlay at closing of $20 million (see
"Significant Transactions" for further details). In November 1995, the Company acquired the assets of Davies Electric, Little Rock, Arkansas for $2.4 million, requiring a cash outlay of $1.7 million at closing. In 1994, capital expenditures were up as a result of upgrading computer systems in the Eastern Region. Additionally, $37.2 million in cash was generated from the sale of the Apparel Division.
On January 17, 1997, the Company acquired Southland Electrical Supply, a distributor of electrical parts and supplies with eight locations in Kentucky, for a cash purchase price of approximately $25.0 million.
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES
In 1996, the Company incurred net borrowings of $15.2 million to finance the acquisitions of Utility Products Supply and Cable & Connector Warehouse, Inc. As of December 31, 1996, the Company had $25.5 million outstanding on its revolving line of credit.
In 1995, the Company used cash to redeem $35.5 million of 7% Convertible Subordinated Debentures and pay off the 4.375% Senior Note Due June 30, 1995 which was associated with the acquisition of Summers. As of December 31, 1995, the Company had $8.1 million outstanding on its revolving line of credit. In 1994, the Company received a capital infusion from the sale of common stock to Rexel, S. A. totaling $31.0 million. These funds, along with cash generated from operating activities and investing activities, were used to repay $61.5 million in revolving credit and $15.6 million in other financial debt.
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital requirements are generally met by internally generated funds and short-term borrowings under the Credit Agreement. Management believes sufficient cash resources will be available to support its long-term growth strategies through internally generated funds, credit arrangements and the ability of the Company to obtain additional financing. However, no assurance can be given that financing will continue to be available on attractive terms.
On September 19, 1995, the Company announced its intention to repurchase up to two million shares of its common stock on the open market. As of December 31, 1996, 1,600 shares have been purchased.
The Company regularly reviews possible acquisitions of businesses, and may from time to time, in the future, acquire other businesses. The Company expects to make $5.5 million of capital expenditures (excluding acquisitions) in 1997.
The Company continually reviews the impact of inflation. Pricing policies are reviewed regularly and, to the extent permitted by competition, the Company passes increased costs on by increasing the sales price. The Company will continue to monitor the impact of inflation and will consider these matters in setting its pricing policies.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following financial statements, supplementary financial information and schedules are filed as part of this Report:
Report of Independent Accountants
Financial Statements:
Consolidated Balance Sheets, December 31, 1996 and 1995
Consolidated Statements of Income, Years Ended December 31, 1996, 1995 and 1994
Consolidated Statement of Changes in Stockholders' Equity, Years Ended December 31, 1996, 1995 and 1994
Consolidated Statements of Cash Flows, Years Ended December 31, 1996, 1995 and 1994
Notes to Consolidated Financial Statements
Supplementary Financial Information
Financial Statement Schedule:
Schedule II-- Valuation and Qualifying Accounts, Years Ended December 31, 1996, 1995 and 1994
All schedules not mentioned above are omitted for the reason that they are not required or are not applicable, or the information is included in the Consolidated Financial Statements or the Notes thereto.
The foregoing financial statements are incorporated by reference in certain registration statements on Form S-8 of the Company and the prospectuses relating thereto in reliance upon the report of Coopers & Lybrand L. L. P. pertaining to such financial statements given upon the authority of such firm as experts in accounting and auditing.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of Rexel, Inc.:
We have audited the consolidated financial statements and the financial statement schedule of Rexel, Inc. and subsidiaries listed in Item 8 of this Form 10-K. These financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Rexel, Inc. and subsidiaries as of December 31, 1996 and 1995 and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1996 in conformity with generally accepted accounting principles. In addition, in our opinion, the financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information required to be included therein.
/s/ COOPERS & LYBRAND L. L. P. - -------------------------------------------------------------------------------- Coopers & Lybrand L. L. P.
Miami, Florida February 14, 1997
REXEL, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1995 (DOLLARS IN THOUSANDS)
See accompanying notes to consolidated financial statements.
REXEL, INC.
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
- ------------------------
(a) Fully diluted income (loss) per common share was consistent with primary earnings per share in 1996 and 1994.
See accompanying notes to consolidated financial statements.
REXEL, INC. CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(DOLLARS IN THOUSANDS)
See accompanying notes to consolidated financial statements.
REXEL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(DOLLARS IN THOUSANDS)
See accompanying notes to consolidated financial statements.
REXEL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) CONSOLIDATION
The consolidated financial statements include the accounts of the Company and all of its subsidiaries. All significant intercompany transactions and balances have been eliminated. The Company's continuing operations consist solely of the distribution of electrical parts and supplies, principally in the southern United States.
(B) 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 reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.
(C) CASH AND CASH EQUIVALENTS
Highly liquid investments with a maturity of three months or less when purchased are generally considered to be cash equivalents. The Company maintains its cash in bank deposit accounts which at times exceed federally insured limits. The Company has not experienced any losses in such accounts.
(D) INVENTORIES
Inventories are stated at the lower of LIFO cost or market. Had the FIFO method been used to value inventories, total inventories would have increased $12,464 and $14,514 at December 31, 1996 and 1995, respectively.
(E) INVESTMENTS AND NONCURRENT RECEIVABLES
Investments and noncurrent receivables are stated at the lower of cost or net realizable value.
(F) LONG-LIVED ASSETS
Long-lived assets and certain identifiable intangible assets held or used by the Company are reviewed for impairment of the carrying amount of such assets. An impairment loss is recognized in the event that facts and circumstances indicate that the carrying amount of an asset may not be recoverable, and an estimate of future undiscounted cash flows is less than the carrying amount of the assest. Impairments are recognized as losses in the current period.
(G) DEPRECIATION AND AMORTIZATION
Depreciation, computed by means of straight-line and accelerated methods, is based on the estimated useful lives of the related assets. Leasehold improvements are amortized over their respective lease terms or their estimated useful lives, if shorter.
Goodwill, representing the cost in excess of net assets of acquired businesses, is being amortized over 40 years. At each balance sheet date, the Company reviews the carrying value of goodwill in relation to current and expected operating results of the businesses which benefit therefrom in order to assess whether there has been a permanent impairment of goodwill.
(H) EARNINGS PER SHARE
Primary earnings per share are based on the weighted average number of common and common equivalent shares outstanding during the year. Fully diluted earnings per share in 1995 assume the
REXEL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) conversion of the convertible debentures at the beginning of the year and the resultant reduction in interest costs, net of tax.
(I) ACCOUNTING FOR STOCK BASED COMPENSATION
Statement of Financial Accounting Standards ("SFAS") No.123, "Accounting for Stock Based Compensation" encourages but does not require companies to record compensation cost for stock based compensation plans at fair value. The Company has choosen to continue to account for stock based compensation using the intrinsic value method prescribed in Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees," and related interpretations. Accordingly, compensation cost for stock options is measured based on the excess, if any, of the quoted market price of the Company's stock at the date of the grant over the exercise price of the option. Any income tax benefit from the exercise and early disposition of stock options is accounted for as a credit to capital surplus.
(J) FUTURE IMPACT OF RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board (the FASB) issued Statement of Financial Accounting Standard No. 128, "Earnings Per Share" (FAS 128). FAS 128 specifies new standards designed to improve the earnings per share (EPS) information provided in financial statements by simplifying the existing computational guidelines, revising the disclosure requirements, and increasing the comparability of EPS data on an international basis. Some of the changes made to simplify the EPS computations include: (a) eliminating the presentation of primary EPS and replacing it with basic EPS, with the principal difference being that common stock equivalents (CSEs) are not considered in computing basic EPS, (b) eliminating the modified treasury stock method and the three percent materiality provision, and (c) revising the contingent share provisions and the supplemental EPS data requirements. FAS 128 also makes a number of changes to existing disclosure requirements. FAS 128 is effective for financial statements issued for periods ending after December 15, 1997, including interim periods. The Company has not yet determined the impact of the implementation of FAS 128.
2. SIGNIFICANT TRANSACTIONS
On November 12, 1992, pursuant to a purchase agreement dated April 22, 1992 among the Company and Rexel, S.A. and certain affiliates of Rexel, S. A. ("Rexel"), the Company issued to Rexel 6,284,301 shares of the Company's common stock in exchange for all of the stock of an affiliated company and $9,885 in cash. As a result, Rexel obtained beneficial ownership of 30% of the outstanding common stock of the Company.
On March 1, 1994, the Company sold to Rexel 3,491,280 newly issued shares of Company common stock for a total cash purchase price of $31,422. As a result, Rexel increased its beneficial ownership to 40%. As of March 1, 1997, Rexel had further increased its beneficial ownership to approximately 50.2% through open market purchases.
3. ACQUISITIONS
On August 7, 1996, the Company acquired the common stock of Utility Products Supply of Denver, Colorado ("UPS"), a distributor of electrical products to the utility industries with locations in Colorado, Arizona, California and Kansas, for cash and deferred payments totaling $5.6 million (including acquisition costs of $0.1 million).
On November 12, 1996, the Company acquired the common stock of Cable & Connector Warehouse, Inc. of Dallas, Texas ("CCW"), a distributor of electronic wire, cable, connectors and related apparatus to
REXEL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
3. ACQUISITIONS (CONTINUED) manufacturers of data and telecommunication products with locations in Louisiana, Texas, Colorado, California, Oregon and Kansas, for cash consideration of $20.2 million (including $0.2 million of acquisition costs), plus contingent consideration of up to $4.0 million based upon achieving certain operating results in 1997. Any contingent payments will be recorded as additional purchase price
Each of these acquisitions has been recorded as a purchase, and the excess of the total purchase price over the fair value of the net assets acquired ($3.0 million for UPS and $13.7 million for CCW) is being amortized over 40 years. Results of operations of both companies are included in the Company's financial statements from the respective dates of acquisition.
The following table summarizes the effect on consolidated sales and income from continuing operations of the Company for 1996 and 1995, on an unaudited pro forma basis, assuming the acquisitions had been consummated as of January 1, 1995, the year preceding the year of acquisition:
The pro forma results are not necessarily indicative of what actually would have occurred if the acquisitions had been in effect at the beginning of the period or are they necessarily indicative of future consolidated results.
4. DISCONTINUED OPERATIONS
On July 13, 1994 the Company sold its apparel parts and supplies distribution business ("Apparel")for consideration valued at approximately $44.0 million, including a subordinated note from the buyer and warrants to purchase approximately 15% of the buyer. The net proceeds from the sale approximated book value of the net assets sold, but resulted in a loss on disposal of $0.7 million, net of taxes, due primarily to the recognition of previously established deferred foreign translation adjustments. On July 26, 1995, the Company sold the note, warrant and certain other assets with a total aggregate book value of approximately $3.1 million to the buyer for cash of approximately $4.1 million. The operating results of this business are included in the Consolidated Statements of Income as discontinued operations in 1994. Summarized results of the discontinued operations for 1994 (excluding the loss on disposal) are as follows:
Interest expense of $1,983 was allocated to Apparel operating results based upon net assets of the Apparel operation.
5. SHORT-TERM DEBT
The Company entered into a Revolving Credit and Reimbursement Agreement, dated as of December 17, 1993 (the "Credit Agreement"), with NationsBank of Florida, N.A., and Credit Lyonnais New York
REXEL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
5. SHORT-TERM DEBT (CONTINUED) Branch. The Credit Agreement was amended on August 8, 1995 to add Societe Generale as a participant in the facility and to provide for borrowings through August 1, 2000 of up to $100 million. Interest on borrowings under such facility is at a rate based on rates in the certificate of deposit market or LIBOR plus a margin, which margin varies depending on the Company's financial performance. The Credit Agreement includes various covenants, including restrictions on liens, debt and lease obligations and requirements that certain financial ratios be maintained.
In June 1995, to offset the variable rate characteristic of its revolving line of credit, the Company entered into interest rate swap agreements with major banks resulting in fixed interest rates on $30 million. During 1996, the Company and the banks agreed to terminate these interest rate swap agreements, resulting in an immaterial net gain to the Company.
6. LONG-TERM DEBT
Long-term debt, less current installments, consists of:
The 9.78% Senior Notes are payable ratably over a seven-year period commencing March 15, 1995 with interest payable semi-annually at a rate of 9.78% per annum. Under the terms of the Senior Notes (as amended), the Company may pay dividends and make other restricted payments (as defined) to the extent of $26,000 plus 50% of consolidated net income (as defined) plus certain other amounts and is subject to certain restrictions on the incurrence of additional debt and other transactions and to other covenants calling for minimum levels of working capital and certain financial ratios.
On August 11, 1995, the Company redeemed all of its outstanding 7% Convertible Subordinated Debentures Due 2014, which had an original principal amount of $50 million. Of such principal amount, $35.5 million was redeemed for cash at a redemption price of 102.8% of principal, plus accrued and unpaid interest to the redemption date, or a total redemption payment of $36.5 million. The balance of the Debentures was converted in accordance with the terms thereof into Common Stock of the Company at a conversion price of $9.57 per share, or a total of 1,517,000 shares. Results for 1995 include an extraordinary charge of approximately $2.2 million ($1.3 million after tax or $.05 per share) in connection with the redemption. These charges result primarily from the premium paid to redeem the Debentures and the acceleration of unamortized financing costs associated with the issuance of the Debentures in 1989.
REXEL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
6. LONG-TERM DEBT (CONTINUED) Assuming the conversions and redemption occurred as of January 1, 1995, primary income per share would have been as follows:
Long-term debt maturities during the next five years are as follows:
Based on borrowing rates currently available to the Company for long-term debt with similar terms and average maturities, the fair value of the Company's long-term indebtedness was approximately $39,744 and $50,197 as of December 31, 1996 and 1995.
7. STOCKHOLDERS' EQUITY
The authorized capital stock of the Company is 47,000,000 shares, consisting of 2,000,000 shares of Preferred Stock and 45,000,000 shares of Common Stock with a par value of $1 per share.
At December 31, 1996, 1,724,353 shares of common stock are reserved for issuance pursuant to the Company's Stock Incentive Plan.
On September 19, 1995, the Board of Directors authorized the purchase of up to 2,000,000 shares of its outstanding common stock from time to time, in open market transactions or otherwise. Such purchases, if commenced, may be suspended or discontinued at any time. As of December 31, 1996, 1,600 shares have been purchased under this program.
8. STOCK OPTION PLANS
Under the Company's 1988 and 1985 Stock Option Plans, options to purchase up to 2,266,667 shares and 829,630 shares of common stock, respectively, were available to be granted to key employees of the Company. The 1985 plan terminated on January 15, 1995. The 1988 Plan also provides that each director of the Company, other than one who is an officer or employee, be granted a non-qualified stock option to purchase 10,000 shares of Company common stock and provides for annual grants to directors if defined levels of income are achieved by the Company. For each plan, the option period is either ten or eleven years from the date of grant, and options may be exercised at various times depending on the provisions of the grant.
REXEL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
8. STOCK OPTION PLANS (CONTINUED) Information regarding the Company's stock option plans is summarized below:
All options were granted at market value on the date of grant.
As of December 31, 1996, options for the purchase of 721,953 shares were available for future grant under the 1988 plan.
Had compensation costs for the Company's 1988 stock option plan been determined based upon the fair value at the grant date for awards under the plan consistent with the methodology prescribed under SFAS 123 for options granted in 1996 and 1995, the Company's net income and earnings per share for those years would have been reduced by approximately $321 and $232, respectively, or $.01 per share for both years. The fair value of the options granted during 1996 and 1995 is estimated as $1,594 and $1,460, respectively, on the dates of grant using the Black-Scholes option-pricing model with the following assumptions: volatility of 40%, expected dividends of 0, risk-free interest rates of 5.6% to 7.6%, and terms of 10 years.
9. EMPLOYEE BENEFIT PLANS
The Rexel, Inc. Section 401(k) Savings Plan, whereby participants may contribute a percentage of compensation, but not in excess of the maximum allowed under the Internal Revenue Code, became effective January 1, 1995. The Company matches 50% of employee contributions to the plan up to 6% of an employee's base compensation ("Matching Contributions"). In addition, the Company may make additional contributions at the discretion of the Board of Directors. Employees who complete one year of service are eligible to participate and are always vested 100% in the Matching Contributions. Vesting in discretionary contributions is based on years of service with 100% vesting after seven years.
This plan replaced all other plans of the Company with the exception of a nonqualified defined benefit supplemental retirement plan.
The nonqualified defined benefit supplemental retirement plan covers certain key employees and is not funded. Benefits under this plan are based on years of service and defined levels of compensation. No new enrollments are permitted into the plan and salary levels under the plan have been frozen.
REXEL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
9. EMPLOYEE BENEFIT PLANS (CONTINUED) The Company had a qualified noncontributory defined benefit pension plan covering certain eligible domestic employees of a subsidiary. This plan was terminated on February 22, 1995 and all obligations were settled. The Company also had a qualified noncontributory defined benefit pension plan covering certain eligible domestic employees in the discontinued apparel operation. As part of the agreement to sell the apparel operation, the purchaser assumed all obligations under this plan. The Company's funding policy was to contribute annually the maximum amount that could be deducted for Federal income tax purposes.
The Company also had a defined benefit plan maintained for eligible employees of certain United Kingdom subsidiaries included in the discontinued apparel operation. The plan was funded annually for the maximum amount permitted by statute. The benefits were based on years of service and defined levels of compensation.
The following table sets forth the funded status of the nonqualified defined supplemental retirement plan at December 31, 1996 and 1995:
REXEL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
9. EMPLOYEE BENEFIT PLANS (CONTINUED) Net periodic pension cost for 1996, 1995 and 1994 (excluding the United Kingdom Plan assumed in the Apparel sale) includes the following components:
The actuarial assumptions used for each of the plans for 1996, 1995 and 1994 are as follows:
REXEL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
9. EMPLOYEE BENEFIT PLANS (CONTINUED) Prior to January 1, 1995, certain subsidiaries had noncontributory profit-sharing plans and defined contribution pension plans providing for minimum contributions based upon defined levels of subsidiary income or employee compensation.
Pension and profit-sharing expense for the years ended December 31, 1996, 1995 and 1994 amounted to approximately $3,761, $3,553 and $2,880, respectively.
A subsidiary of the Company, acquired in 1993, provides certain health care benefits for eligible retired employees. The status of the plan at December 31, 1996 and 1995 is as follows:
The postretirement benefit cost in 1996 and 1995 included the following components:
The plan is unfunded. The discount rate used in determining APBO was 6.50% at December 31, 1996 and 1995. The assumed health care trend rate assumed for 1997 was 9.5%. Increasing assumed health care trends one percentage point will increase the APBO by $167 as of December 31, 1996.
The Company's Employee Stock Ownership Plan provided eligible employees with an opportunity to purchase the Company's common stock through payroll deductions, which were matched by the Company, subject to certain limitations. Contributions to the plan were invested by an independent trustee in common stock of the Company. The Company's contributions to the plan, net of forfeitures, charged to income for 1994 was $592. Effective January 1, 1995, this plan was merged into the Rexel, Inc. Section 401(k) Savings Plan.
10. INCOME TAXES
The Company and its U.S. subsidiaries file Federal income tax returns on a consolidated basis. The provision (benefit) for income taxes has been classified as follows in the consolidated statements of income:
REXEL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
10. INCOME TAXES (CONTINUED) The provision (benefit) for income taxes is comprised of the following:
Deferred income taxes result from temporary differences in the recognition of revenue and expenses for financial statement and income tax reporting purposes. The tax effects of each as of December 31, 1996 and 1995 are as follows:
The change in the valuation allowance between 1996 and 1995 of $337 resulted from updating estimates of state and local net operating loss utilization.
REXEL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
10. INCOME TAXES (CONTINUED) Income before income taxes is comprised of the following:
A reconciliation for 1996, 1995 and 1994 between the amount computed using the Federal income tax rate and the effective rate of tax on income (loss), including discontinued operations, but excluding extraordinary charge, is as follows:
11. COMMITMENTS AND CONTINGENCIES
At December 31, 1996, annual minimum rental commitments under noncancelable operating leases, primarily for real property, are summarized as follows:
The minimum annual commitments include amounts payable to an officer of the Company and/or members of his and his wife's family for certain of the Company's distribution centers as follows: 1997-- $737; 1998--$727; 1999 - $717; 2000--$717; 2001--$694; thereafter--$172.
REXEL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
11. COMMITMENTS AND CONTINGENCIES (CONTINUED) Total rent expense charged to operations for the years ended December 31, 1996, 1995 and 1994 amounted to approximately $10,783, $9,498 and $6,589, respectively.
In the normal course of business, the Company is sometimes named as a defendant in litigation. In the opinion of management, based upon the advice of counsel, any uninsured liability which may result from the resolution of any present litigation or asserted claim will not have a material effect on the Company's financial position, results of operations or cash flows.
12. ACCOUNTS AND NOTES PAYABLE -- TRADE, AND OTHER LIABILITIES
Accounts and notes payable -- trade and other liabilities consist of the following:
13. RESULTS OF OPERATIONS
In connection with the resignation of an executive of the Company on March 18, 1994, the Company entered into an agreement with such executive that provided, among other things, certain payments and acceleration of certain other payments in connection with the executive's related employment agreement. Results for 1994 include charges of $1.7 million in connection with this agreement.
14. RELATED PARTY TRANSACTIONS
The Company and Rexel, S. A. have entered into a Services Agreement, dated as of November 1, 1995. The Service Agreement was negotiated and approved by a special committee of the Board of Directors consisting of persons who are neither officers nor directors of Rexel, S.A. or its affiliates nor have a material financial relationship with Rexel, S. A. and its affiliates. Under this Agreement, in consideration for the benefits to the Company arising from its association with the worldwide business of Rexel, S. A., including without limitation, in matters relating to customers, suppliers, employers, businessmethods and know-how and financial expertise, the Company has agreed to pay to Rexel, S. A. $600 per year (commencing with 1995). In addition, Rexel, S. A. has agreed to provide consulting services to the Company relating to specific projects at the request of the Company at a rate 10% higher than the costs to Rexel, S. A. of providing such services (including, in the case of employees of Rexel, S. A., costs based on the wages, social insurance payments and allocated overhead and general corporate expenses attributable to such employees). Any payment for consulting services must be approved by the Audit Committee of the Board of Directors (excluding any member thereof who is an officer or director of Rexel, S. A. or any of its affiliates or a person that has a material financial relationship with Rexel, S. A. or any of its affiliates). During 1996 and 1995, the Company requested from Rexel, S. A. services valued at $200 and $340, respectively, relating to the development of training programs, logistics, marketing and accounting
REXEL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
14. RELATED PARTY TRANSACTIONS (CONTINUED) consulting, enhancement of cash management and treasury systems and a global agreement on implementation of an inventory management system. In addition, pursuant to the agreement, Rexel, S. A. consented to the use by the Company of the name "Rexel". The Services Agreement is effective through December 31, 1996, subject to automatic renewal for successive one year terms unless terminated on 30 days notice given by either party prior to the commencement of a renewal term.
15. SUBSEQUENT EVENT
On January 17, 1997, the Company acquired the assets of Southland Electrical Supply, a distributor of electrical parts and supplies with eight locations in Kentucky for a cash purchase price of approximately $25.0 million.
REXEL, INC.
SUPPLEMENTARY FINANCIAL INFORMATION
YEARS ENDED DECEMBER 31, 1996 AND 1995 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
- ------------------------
(1) Primary and fully diluted earnings are equivalent in 1996.
See accompanying notes to consolidated financial statements.
SCHEDULE II
REXEL, INC.
VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 (DOLLARS IN THOUSANDS)
- ------------------------
(A) Accounts charged off, recoveries, and other adjustments, net.
(B) Additions resulting primarily from acquired companies.
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Reference is made to the information responsive to the Items comprising this Part III that is contained in the Company's definitive proxy statement for its 1997 Annual Meeting of Stockholders to be filed pursuant to Regulation 14A under the Securities Exchange Act of 1934, which is incorporated herein by reference.
PART IV
ITEM 14.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
FINANCIAL STATEMENTS AND SCHEDULES
The financial statements and financial statement schedules included in this Report are listed in the introductory portion of Item 8.
EXHIBITS
The following exhibits are filed as part of this Report (for convenience of reference, exhibits are listed according to numbers assigned in the exhibit tables of Item 601 of Regulation S-K under the Securities Exchange Act of 1934 and management contracts and compensatory plans are indicated by an asterisk):
8-K REPORTS
During the last quarter of the Company's 1996 fiscal year, the Company did not file a Current Report on Form 8-K.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Dated: March 31, 1997 REXEL, INC.
By: /s/ ALLAN M. GONOPOLSKY ----------------------------------------- Allan M. Gonopolsky VICE PRESIDENT AND CORPORATE CONTROLLER
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below on March 31, 1997 by the following persons on behalf of the registrant and in the capacities indicated.
NAME TITLE - ------------------------------ ---------------------------
ALAIN VIRY* President and Chief - ------------------------------ Executive Officer and Alain Viry Director
STEVEN M. HITT* - ------------------------------ Vice President and Chief Steven M. Hitt Financial Officer
Vice President and /s/ ALLAN M. GONOPOLSKY Corporate Controller and - ------------------------------ Attorney for persons Allan M. Gonopolsky indicated by asterisk
FREDERIC DE CASTRO* - ------------------------------ Director Frederic de Castro
JOHN B. FRASER* - ------------------------------ Director John B. Fraser
R. GARY GENTLES* - ------------------------------ Director R. Gary Gentles
AUSTIN LIST* - ------------------------------ Director Austin List
ERIC LOMAS* - ------------------------------ Director Eric Lomas
GERALD E. MORRIS* - ------------------------------ Director Gerald E. Morris
ALAIN REDHEUIL* - ------------------------------ Director Alain Redheuil
NICOLAS SOKOLOW* - ------------------------------ Director Nicolas Sokolow
SERGE WEINBERG* - ------------------------------ Director Serge Weinberg
INDEX TO EXHIBITS