ANIXTER INTERNATIONAL INC, 10-Q filed on 10/23/2018
Quarterly Report
v3.10.0.1
Document and Entity Information - shares
9 Months Ended
Sep. 28, 2018
Oct. 17, 2018
Entity Information [Line Items]    
Document Type 10-Q  
Amendment Flag false  
Document Period End Date Sep. 28, 2018  
Document Fiscal Year Focus 2018  
Document Fiscal Period Focus Q3  
Trading Symbol AXE  
Entity Registrant Name ANIXTER INTERNATIONAL INC  
Entity Central Index Key 0000052795  
Current Fiscal Year End Date --12-28  
Entity Filer Category Large Accelerated Filer  
Entity Common Stock, Shares Outstanding   33,481,846
v3.10.0.1
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME - USD ($)
shares in Millions, $ in Millions
3 Months Ended 9 Months Ended
Sep. 28, 2018
Sep. 29, 2017
Sep. 28, 2018
Sep. 29, 2017
Net sales $ 2,179.0 $ 2,016.4 $ 6,281.1 $ 5,913.6
Cost of goods sold 1,754.9 1,619.2 5,053.1 4,741.0
Gross profit 424.1 397.2 1,228.0 1,172.6
Operating expenses 334.6 316.4 1,005.6 940.3
Operating income 89.5 80.8 222.4 232.3
Other expense:        
Interest expense (19.3) (18.9) (56.5) (55.7)
Other, net (1.6) 0.5 (2.6) (0.5)
Income before income taxes 68.6 62.4 163.3 176.1
Income tax expense 21.0 24.8 48.8 67.5
Net income $ 47.6 $ 37.6 $ 114.5 $ 108.6
Income per share:        
Basic $ 1.41 $ 1.12 $ 3.39 $ 3.24
Diluted $ 1.40 $ 1.11 $ 3.36 $ 3.20
Basic weighted-average common shares outstanding 33.8 33.6 33.8 33.6
Effect of dilutive securities:        
Stock options and units 0.3 0.4 0.3 0.4
Diluted weighted-average common shares outstanding 34.1 34.0 34.1 34.0
Net income $ 47.6 $ 37.6 $ 114.5 $ 108.6
Other comprehensive income (loss):        
Foreign currency translation 6.5 17.5 (22.8) 40.5
Changes in unrealized pension cost, net of tax 0.7 1.1 1.9 3.0
Other comprehensive income (loss) 7.2 18.6 (20.9) 43.5
Comprehensive income $ 54.8 $ 56.2 $ 93.6 $ 152.1
v3.10.0.1
CONDENSED CONSOLIDATED BALANCE SHEETS - USD ($)
$ in Millions
Sep. 28, 2018
Dec. 29, 2017
Current assets:    
Cash and cash equivalents $ 69.9 $ 116.0
Accounts receivable, net 1,637.5 1,434.2
Inventories 1,363.6 1,238.7
Other current assets 45.6 44.9
Total current assets 3,116.6 2,833.8
Property and equipment, at cost 404.2 376.9
Accumulated depreciation (242.1) (222.6)
Property and equipment, net 162.1 154.3
Goodwill 833.4 778.1
Intangible assets, net 405.0 378.8
Other assets 108.5 107.2
Total assets 4,625.6 4,252.2
Current liabilities:    
Accounts payable 1,298.7 1,081.6
Accrued expenses 303.6 269.2
Current portion of long-term debt 349.3 0.0
Total current liabilities 1,951.6 1,350.8
Long-term debt 914.4 1,247.9
Other liabilities 195.5 194.5
Total liabilities 3,061.5 2,793.2
Stockholders’ equity:    
Common stock - $1.00 par value, 100,000,000 shares authorized, 33,853,031 and 33,657,466 shares issued and outstanding at September 28, 2018 and December 29, 2017, respectively 33.9 33.7
Capital surplus 290.0 278.7
Retained earnings 1,471.4 1,356.9
Accumulated other comprehensive loss:    
Foreign currency translation (146.0) (123.2)
Unrecognized pension liability, net (85.2) (87.1)
Total accumulated other comprehensive loss (231.2) (210.3)
Total stockholders’ equity 1,564.1 1,459.0
Total liabilities and stockholders’ equity $ 4,625.6 $ 4,252.2
v3.10.0.1
CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical) - $ / shares
Sep. 28, 2018
Dec. 29, 2017
Common stock, par value $ 1.00 $ 1.00
Common stock, shares authorized 100,000,000.00 100,000,000.00
Common stock, shares issued 33,853,031 33,657,466
Common stock, shares outstanding 33,853,031 33,657,466
v3.10.0.1
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($)
$ in Millions
9 Months Ended
Sep. 28, 2018
Sep. 29, 2017
Operating activities:    
Net income $ 114.5 $ 108.6
Adjustments to reconcile net income to net cash provided by operating activities:    
Depreciation 23.3 21.5
Amortization of intangible assets 28.6 27.1
Stock-based compensation 15.0 13.3
Deferred income taxes 0.1 1.3
Accretion of debt discount 1.8 1.7
Amortization of deferred financing costs 1.2 1.6
Pension plan contributions (5.8) (14.8)
Pension plan expenses 3.2 7.9
Changes in current assets and liabilities, net (74.8) (53.9)
Other, net (4.3) (4.2)
Net cash provided by operating activities 102.8 110.1
Investing activities:    
Acquisitions of businesses, net of cash acquired (149.9) 0.0
Capital expenditures, net (32.0) (30.9)
Other 9.1 0.0
Net cash used in investing activities (172.8) (30.9)
Financing activities:    
Proceeds from borrowings 2,036.8 1,324.2
Repayments of borrowings (2,020.5) (1,370.9)
Repayments of Canadian term loan 0.0 (70.9)
Proceeds from stock options exercised 1.5 3.5
Other, net 0.0 (0.2)
Net cash provided by (used in) financing activities 17.8 (114.3)
Decrease in cash and cash equivalents (52.2) (35.1)
Effect of exchange rate changes on cash balances 6.1 (3.1)
Cash and cash equivalents at beginning of period 116.0 115.1
Cash and cash equivalents at end of period $ 69.9 $ 76.9
v3.10.0.1
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
9 Months Ended
Sep. 28, 2018
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation: The unaudited interim Condensed Consolidated Financial Statements of Anixter International Inc. and its subsidiaries (collectively referred to as "Anixter" or the "Company"), sometimes referred to in this Quarterly Report on Form 10-Q as "we", "our", "us", or "ourselves" have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC"). Therefore, certain information and disclosures normally included in financial statements and related notes prepared in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP") have been condensed or omitted. Certain prior period amounts have been reclassified to conform to the current year presentation.
These financial statements should be read in conjunction with, and have been prepared in conformity with, the accounting principles reflected in the consolidated financial statements and related notes included in Anixter's Annual Report on Form 10-K for the year ended December 29, 2017 ("2017 Form 10-K"). The condensed consolidated financial information furnished herein reflects all adjustments (consisting of normal recurring accruals), which are, in the opinion of management, necessary for a fair presentation of the Condensed Consolidated Financial Statements for the periods shown.
The Company maintains its financial records on the basis of a fiscal year ending on the Friday nearest December 31, with the fiscal quarters spanning thirteen weeks, with the first quarter ending on the Friday of the first thirteen-week period. The third quarter of fiscal year 2018 ended on September 28, 2018, and the third quarter of fiscal year 2017 ended on September 29, 2017.
Recently issued and adopted accounting pronouncements: In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2014-09, Revenue from Contracts with Customers, and issued subsequent amendments to the initial guidance in August 2015, March 2016, April 2016, May 2016 and December 2016 within ASU 2015-14, ASU 2016-08, ASU 2016-10, ASU 2016-12 and ASU 2016-20, respectively. The core principle of this new revenue recognition guidance is that a company will recognize revenue when promised goods or services are transferred to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. The new guidance defines a five-step process to achieve this core principle. The new guidance also requires more detailed disclosures to enable users of financial statements to understand the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. The new guidance provides for two transition methods, a full retrospective approach and a modified retrospective approach. Anixter adopted the new revenue recognition guidance on December 30, 2017 utilizing the modified retrospective method of adoption for contracts not completed at the adoption date, and determined there were no changes required to its reported revenues as a result of the adoption. The Company has enhanced its disclosures of revenue to comply with the new guidance.
In January 2017, the FASB issued ASU 2017-01, Business Combinations: Clarifying the Definition of a Business, which adds guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The standard was effective for Anixter's financial statements issued for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. The Company adopted this standard effective the first quarter of fiscal year 2018. The result of this adoption did not have a material impact on the Condensed Consolidated Financial Statements.
In March 2017, the FASB issued ASU 2017-07, Compensation - Retirement Benefits: Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost, which changes how employers that sponsor defined benefit pension or other postretirement benefit plans present the net periodic benefit cost in the income statement. The new guidance requires entities to report the service cost component in the same line item as other compensation costs. The other components of net benefit cost are required to be presented in the income statement separately from the service cost component outside of income from operations. The standard was effective for Anixter's financial statements issued for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Upon adoption, ASU 2017-07 required changes to the presentation of the income statement to be applied retrospectively. The Company adopted this standard effective the first quarter of fiscal year 2018. Service costs are recognized within "Operating expenses" in the Condensed Consolidated Statement of Comprehensive Income. All other components of net benefit costs are recorded in "Other, net" in the Company's Condensed Consolidated Statements of Comprehensive Income. The result of this adoption did not have a material impact on the Condensed Consolidated Financial Statements.
In May 2017, the FASB issued ASU 2017-09, Compensation - Stock Compensation: Scope of Modification Accounting, which clarifies when changes to the terms or conditions of a share-based payment award must be accounted for as modifications. Under the new guidance, modification accounting is required only if the fair value, the vesting conditions, or the classification of the award changes as a result of the change in terms or conditions. ASU 2017-09 was applied prospectively to awards modified on or after the adoption date. The standard was effective for Anixter’s financial statements issued for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. The Company adopted this standard effective the first quarter of fiscal year 2018. The result of this adoption did not have a material impact on the Condensed Consolidated Financial Statements.
Recently issued accounting pronouncements not yet adopted: In February 2016, the FASB issued ASU 2016-02, Leases, which requires lessees to recognize assets and liabilities on the balance sheet for the rights and obligations created by all leases with terms of more than 12 months. The standard is effective for Anixter's financial statements issued for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. The Company has established an implementation team and is implementing a new lease accounting information system. In July 2018, the FASB issued additional authoritative guidance providing companies with an optional prospective transition method to apply the provisions of this guidance. The Company will adopt the standard in the first quarter of 2019 and elect this transition method to apply the standard prospectively. While the Company is currently evaluating the impact of adoption of this ASU, the adoption is expected to result in a material increase in the assets and liabilities recorded on the Condensed Consolidated Balance Sheets.
In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses, which requires the measurement of expected credit losses for financial instruments held at the reporting date based on historical experience, current conditions and reasonable forecasts. The main objective of this ASU is to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date. The standard is effective for Anixter's financial statements issued for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. Early adoption is permitted for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. The Company is currently evaluating the impact of adoption of this ASU, but it is not expected to have a material effect on the Company's Condensed Consolidated Financial Statements.
In January 2017, the FASB issued ASU 2017-04, Intangibles - Goodwill and Other: Simplifying the Test for Goodwill Impairment, which removes step two from the goodwill impairment test. Step two measures a goodwill impairment loss by comparing the implied fair value of a reporting unit's goodwill with the carrying amount of that goodwill. The new guidance requires an entity to perform its goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount, including goodwill. The standard is effective for Anixter's financial statements issued for fiscal years beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The Company is currently assessing the impact the adoption of this ASU will have on its methodology for evaluating goodwill for impairment subsequent to adoption of this standard.
In February 2018, the FASB issued ASU 2018-02, Income Statement - Reporting Comprehensive Income: Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income, which will allow a reclassification from accumulated other comprehensive income to retained earnings for the tax effects resulting from the December 22, 2017 enactment of the Tax Cuts and Jobs Act (the "Act") that are stranded in accumulated other comprehensive income. The standard is effective for Anixter's financial statements issued for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption is permitted. The Company is currently evaluating the impact of adoption of this ASU on its Condensed Consolidated Financial Statements.
In June 2018, the FASB issued ASU 2018-07, Compensation - Stock Compensation: Improvements to Nonemployee Share-Based Payment Accounting, which will expand the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees. The standard is effective for Anixter's financial statements issued for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption is permitted. The Company is currently evaluating the impact of adoption of this ASU on its Condensed Consolidated Financial Statements.
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement: Changes to the Disclosure Requirements for Fair Value Measurement, which changes the disclosure requirements for fair value measurements by removing, adding and modifying certain disclosures. The standard is effective for Anixter's financial statements issued for fiscal years beginning after December 15, 2019. Early adoption is permitted. The Company is currently evaluating the impact of adoption of this ASU on its related disclosures.
In August 2018, the FASB issued ASU 2018-14, Compensation - Retirement Benefits - Defined Benefit Plans - General: Changes to the Disclosure Requirements for Defined Benefit Plans, which modifies the disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans by removing and adding certain disclosures for these plans. The standard is effective for Anixter's financial statements issued for fiscal years ending after December 15, 2020. Early adoption is permitted. The Company is currently evaluating the impact of adoption of this ASU on its related disclosures.
In August 2018, the FASB issued ASU 2018-15, Intangibles—Goodwill and Other—Internal-Use Software: Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract, which will align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The standard is effective for Anixter's financial statements issued for fiscal years beginning after December 15, 2019. Early adoption is permitted and the Company intends to early adopt in the fourth quarter of 2018. The Company is currently evaluating the impact of adoption of this ASU on its Condensed Consolidated Financial Statements.
The Company does not believe that any other recently issued, but not yet effective, accounting pronouncements, if adopted, would have a material impact on its Condensed Consolidated Financial Statements or disclosures.
Revenue recognition: Anixter is a leading global distributor of network and security solutions, electrical and electronic solutions and utility power solutions. Through a global distribution network along with supply chain and technical expertise, Anixter helps customers reduce the risk, cost and complexity of their supply chains. Anixter is a leader in providing advanced inventory management services including procurement, just-in-time delivery, material management programs, turn-key yard layout and management, quality assurance testing, component kit production, storm/event kitting, small component assembly and e-commerce and electronic data interchange to a broad spectrum of customers with over 600,000 products. Revenue arrangements primarily consist of a single performance obligation to transfer promised goods or services. See Note 8. "Business Segments" for revenue disaggregated by geography.
Sales to customers and related cost of sales are primarily recognized at the point in time when control of goods transfers to the customer. For product sales, this generally occurs upon shipment of the products, however, this may occur at a later date depending on the agreed upon sales terms, such as delivery at the customer's designated location, or based on consignment terms. In instances where goods are not stocked by Anixter and delivery times are critical, product is purchased from the manufacturer and drop-shipped to the customer. Anixter generally takes control of the goods when shipped by the manufacturer and then recognizes revenue when control of the product transfers to the customer. When providing services, sales are recognized over time as control transfers to the customer, which occurs as services are rendered.
Revenue is measured as the amount of consideration the Company expects to receive in exchange for transferring goods or providing services. The Company estimates different forms of variable consideration at the time of sale based on historical experience, current conditions and contractual obligations. Revenue is recorded net of customer discounts, rebates and similar charges. When Anixter offers the right to return product, historical experience is utilized to establish a liability for the estimate of expected returns. Sales and other tax amounts collected from customers for remittance to governmental authorities are excluded from revenue. The Company has elected to treat shipping and handling as a fulfillment activity. The practical expedient not to disclose information about remaining performance obligations has also been elected as these contacts have an original duration of one year or less or are contracts where the Company has applied the practical expedient to recognize service revenue in proportion to the amount Anixter has the right to invoice. The Company typically receives payment 30 to 60 days from the point it has satisfied the related performance obligation.
At December 29, 2017$9.5 million of deferred revenue related to outstanding contracts was reported in "Accrued expenses" in the Company's Consolidated Balance Sheet. This balance primarily represents prepayments from customers. During the three and nine months ended September 28, 2018, $1.6 million and $7.0 million, respectively, of this deferred revenue was recognized. At September 28, 2018, deferred revenue was $14.4 million. The Company expects to recognize this balance as revenue within the next twelve months.
Other, net: The following represents the components of "Other, net" as reflected in the Condensed Consolidated Statements of Comprehensive Income:
 
 
Three Months Ended
 
Nine Months Ended
(In millions)
 
September 28,
2018
 
September 29,
2017
 
September 28,
2018
 
September 29,
2017
Other, net:
 
 
 
 
 
 
 
 
Foreign exchange
 
$
(2.5
)
 
$
(1.1
)
 
$
(6.2
)
 
$
(3.1
)
Cash surrender value of life insurance policies
 
0.3

 
0.9

 
0.1

 
2.0

Net periodic pension benefit
 
1.3

 
0.2

 
3.9

 
0.4

Other
 
(0.7
)
 
0.5

 
(0.4
)
 
0.2

Total other, net
 
$
(1.6
)
 
$
0.5

 
$
(2.6
)
 
$
(0.5
)
Several of Anixter's subsidiaries conduct business in a currency other than the legal entity’s functional currency. Transactions may produce receivables or payables that are fixed in terms of the amount of foreign currency that will be received or paid. A change in exchange rates between the functional currency and the currency in which a transaction is denominated increases or decreases the expected amount of functional currency cash flows upon settlement of the transaction. The increase or decrease in expected functional currency cash flows is a foreign currency transaction gain or loss that is included in "Other, net" in the Condensed Consolidated Statements of Comprehensive Income.
The Company purchases foreign currency forward contracts to minimize the effect of fluctuating foreign currency-denominated accounts on its reported income. The foreign currency forward contracts are not designated as hedges for accounting purposes. The Company's strategy is to negotiate terms for its derivatives and other financial instruments to be highly effective, such that the change in the value of the derivative offsets the impact of the underlying hedged item (e.g., various foreign currency-denominated accounts). Its counterparties to foreign currency forward contracts have investment-grade credit ratings. Anixter expects the creditworthiness of its counterparties to remain intact through the term of the transactions. The Company regularly monitors the creditworthiness of its counterparties to ensure no issues exist which could affect the value of the derivatives.
The Company does not hedge 100% of its foreign currency-denominated accounts. In addition, the results of hedging can vary significantly based on various factors, such as the timing of executing the foreign currency forward contracts versus the movement of the currencies as well as the fluctuations in the account balances throughout each reporting period. The fair value of the foreign currency forward contracts is based on the difference between the contract rate and the current exchange rate. The fair value of the foreign currency forward contracts is measured using observable market information. These inputs would be considered Level 2 in the fair value hierarchy. At September 28, 2018 and December 29, 2017, foreign currency forward contracts were revalued at then-current foreign exchange rates with the changes in valuation reflected directly in "Other, net" in the Condensed Consolidated Statements of Comprehensive Income offsetting the transaction gain/loss recorded on the foreign currency-denominated accounts. At September 28, 2018 and December 29, 2017, the gross notional amount of the foreign currency forward contracts outstanding was approximately $116.9 million and $246.3 million, respectively. At September 28, 2018 and December 29, 2017, the net notional amount of the foreign currency forward contracts outstanding was approximately $78.1 million and $125.7 million, respectively. While all of the Company's foreign currency forward contracts are subject to master netting arrangements with its counterparties, assets and liabilities related to derivative instruments are presented on a gross basis within the Condensed Consolidated Balance Sheets. The gross fair value of derivative assets and liabilities are immaterial.
The combined effect of changes in both the equity and bond markets resulted in changes in the cash surrender value of the Company's company owned life insurance policies associated with the sponsored deferred compensation program.
Accumulated other comprehensive loss: Unrealized gains and losses are accumulated in "Accumulated other comprehensive loss" ("AOCI"). These changes are also reported in "Other comprehensive income (loss)" on the Condensed Consolidated Statements of Comprehensive Income. These include unrealized gains and losses related to the Company's defined benefit obligations and foreign currency translation. See Note 6. "Pension Plans" for pension related amounts reclassified into net income.
Investments in several subsidiaries are recorded in currencies other than the U.S. dollar ("USD"). As these foreign currency denominated investments are translated at the end of each period during consolidation using period-end exchange rates, fluctuations of exchange rates between the foreign currency and the USD increase or decrease the value of those investments. These fluctuations and the results of operations for foreign subsidiaries, where the functional currency is not the USD, are translated into USD using the average exchange rates during the periods reported, while the assets and liabilities are translated using period-end exchange rates. The assets and liabilities-related translation adjustments are recorded as a separate component of AOCI, "Foreign currency translation." In addition, as Anixter's subsidiaries maintain investments denominated in currencies other than local currencies, exchange rate fluctuations will occur. Borrowings are raised in certain foreign currencies to minimize the exchange rate translation adjustment risk.
Goodwill: The Company evaluates goodwill for impairment annually at the beginning of the third quarter and when events or changes in circumstances indicate the carrying value of reporting units might exceed their current fair values. The Company assesses goodwill for impairment by first performing a qualitative assessment, which considers specific factors, based on the weight of evidence, and the significance of all identified events and circumstances in the context of determining whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If it is determined that it is more likely than not that the fair value of a reporting unit is less than its carrying amount using the qualitative assessment, Anixter performs the two-step impairment test. From time to time, the Company may also bypass the qualitative assessment and proceed directly to the two-step impairment test. The first step of the impairment test is to identify a potential impairment by comparing the fair value of a reporting unit with its carrying amount. The estimates of fair value of a reporting unit are determined using the income approach and/or the market approach as described below. If step one of the test indicates a carrying value above the estimated fair value, the second step of the goodwill impairment test is performed by comparing the implied fair value of the reporting unit’s goodwill with the carrying amount of that goodwill. The implied residual value of goodwill is determined in the same manner as the amount of goodwill recognized in a business combination.
The income approach is a quantitative evaluation to determine the fair value of the reporting unit. Under the income approach fair value is determined based on estimated future cash flows discounted by an estimated weighted-average cost of capital plus a forecast risk, which reflects the overall level of inherent risk of the reporting unit and the rate of return a market participant would expect to earn. The inputs used for the income approach were significant unobservable inputs, or Level 3 inputs, as described in the accounting fair value hierarchy. Estimated future cash flows were based on internal projection models, industry projections and other assumptions deemed reasonable by management.
The market approach measures the fair value of a reporting unit through the analysis of recent sales, offerings, and financial multiples (sales or earnings before interest, tax, depreciation and amortization ("EBITDA")) of comparable businesses. Consideration is given to the financial conditions and operating performance of the reporting unit being valued relative to those publicly-traded companies operating in the same or similar lines of business.
In connection with the annual assessment of goodwill at the beginning of the third quarter of 2018, the Company bypassed the qualitative assessment and performed a quantitative test for all reporting units and utilized a combination of the income and market approaches. As a result of this assessment, the Company concluded that no impairment existed and the carrying amount of goodwill to be fully recoverable. All of the Company's reporting units had fair values that exceeded their respective carrying values by greater than 30%.
v3.10.0.1
RESTRUCTURING CHARGES
9 Months Ended
Sep. 28, 2018
Restructuring and Related Activities [Abstract]  
Restructuring and Related Activities Disclosure [Text Block]
RESTRUCTURING CHARGES
The Company considers restructuring activities to be programs whereby Anixter fundamentally changes its operations, such as closing and consolidating facilities, reducing headcount and realigning operations in response to changing market conditions. The following table summarizes activity related to liabilities associated with restructuring activities:
 
Restructuring Activity
 
Q2 2018
Plan
 
Q2 2016
Plan
 
Q4 2015
Plan
 
Total
 
Employee-Related Costs (a)
 
Facility Exit and Other Costs (b)
 
Employee-Related Costs (a)
 
Facility Exit and Other Costs (b)
 
Employee-Related Costs (a)
 
Employee-Related Costs (a)
 
Facility Exit and Other Costs (b)
Balance at December 29, 2017
$

 
$

 
$
0.5

 
$
0.5

 
$
0.6

 
$
1.1

 
$
0.5

Charges
9.6

 
0.5

 

 
(0.4
)
 
(0.3
)
 
9.3

 
0.1

Payments and other
(1.0
)
 
(0.3
)
 
(0.5
)
 
(0.1
)
 
(0.1
)
 
(1.6
)
 
(0.4
)
Balance at September 28, 2018
$
8.6

 
$
0.2

 
$

 
$

 
$
0.2

 
$
8.8

 
$
0.2

(a)
Employee-related costs primarily consist of severance benefits provided to employees who have been involuntarily terminated.
(b)
Facility exit and other costs primarily consist of lease termination costs.
Q2 2018 Restructuring Plan
In the second quarter of 2018, the Company recorded a pre-tax charge of $2.1 million, $1.3 million and $1.1 million in its NSS, EES and UPS segments, respectively, and an additional $5.4 million at its corporate headquarters, primarily for severance-related expenses associated with a reduction of approximately 260 positions. In the third quarter of 2018, the Company recorded an additional $0.2 million charge at its corporate headquarters. The $10.1 million charge related to the Q2 2018 plan primarily reflects actions related to facilities consolidation, systems integration and back office functions. This charge was included in "Operating expenses" in the Company's Condensed Consolidated Statements of Comprehensive Income for fiscal year 2018. The majority of the remaining charge included in accrued expenses of $8.8 million as of September 28, 2018 is expected to be paid by the fourth quarter of 2019.
v3.10.0.1
DEBT
9 Months Ended
Sep. 28, 2018
Text Block [Abstract]  
DEBT
Debt is summarized below:
(In millions)
 
September 28,
2018
 
December 29,
2017
Current portion of long-term debt:
 
 
 
 
5.625% Senior notes due 2019
 
$
349.3

 
$

 
 
 
 
 
Long-term debt:
 
 
 
 
5.50% Senior notes due 2023
 
347.2

 
346.8

5.125% Senior notes due 2021
 
397.2

 
396.5

5.625% Senior notes due 2019
 

 
348.6

Revolving lines of credit
 
168.6

 
159.0

Other
 
4.9

 
1.7

Unamortized deferred financing costs
 
(3.5
)
 
(4.7
)
 
 
 
 
 
Total debt
 
$
1,263.7

 
$
1,247.9

 

The Senior notes due 2019 will mature on May 1, 2019, and have been classified as current on the Condensed Consolidated Balance Sheet at September 28, 2018.
Fair Value of Debt
The fair value of Anixter's debt instruments is measured using observable market information which would be considered Level 2 in the fair value hierarchy described in accounting guidance on fair value measurements. The Company's fixed-rate debt consists of Senior notes due 2023, Senior notes due 2021 and Senior notes due 2019.
 
At September 28, 2018, the Company's total carrying value and estimated fair value of debt outstanding was $1,263.7 million and $1,299.9 million, respectively. This compares to a carrying value and estimated fair value of debt outstanding at December 29, 2017 of $1,247.9 million and $1,317.8 million, respectively. The increase in the carrying value is primarily due to higher outstanding borrowings under Anixter's revolving lines of credit.
v3.10.0.1
LEGAL CONTINGENCIES
9 Months Ended
Sep. 28, 2018
Text Block [Abstract]  
LEGAL CONTINGENCIES
From time to time, Anixter is party to legal proceedings and matters that arise in the ordinary course of business. As of September 28, 2018, the Company does not believe there is a reasonable possibility that any material loss exceeding the amounts already recognized for these proceedings and matters has been incurred. However, the ultimate resolutions of these proceedings and matters are inherently unpredictable. As such, the Company's financial condition and results of operations could be adversely affected in any particular period by the unfavorable resolution of one or more of these proceedings or matters.
v3.10.0.1
INCOME TAXES
9 Months Ended
Sep. 28, 2018
INCOME TAXES
 INCOME TAXES
The Company's effective tax rate for the third quarter of 2018 was 30.6% compared to 39.7% in the prior year period. The Company's effective tax rate for the nine months ended September 28, 2018 was 29.9% compared to 38.3% in the prior year period. Income tax expense for the nine months ended September 28, 2018 included a $1.8 million tax benefit related to the reversal of deferred income tax valuation allowances, partially offset by $0.5 million of tax expense related to domestic permanent tax differences. The decrease in the effective tax rate was primarily due to a favorable tax impact from the December 22, 2017 Tax Cuts and Jobs Act (the "Act"). Under the Act, the statutory U.S. federal tax rate was reduced from 35% to 21% effective January 1, 2018. The benefit from this rate reduction was partially offset by other newly enacted tax provisions.
In the fourth quarter of 2017, the Company recorded a provisional $50.0 million one-time transition tax. At September 28, 2018, the Company has not completed its accounting for the tax effects of the Act and has not made adjustments to the provisional amount recorded.
The Act subjects U.S. shareholders to tax on Global Intangible Low-Taxed Income (“GILTI”) earned by certain foreign subsidiaries. The Company is electing to recognize the tax on GILTI as a period expense in the period the tax is incurred. Under this policy, the Company has not provided deferred taxes related to temporary differences that upon their reversal will affect the amount of income subject to GILTI in the period.
Anixter considers the undistributed earnings of its foreign subsidiaries to be indefinitely reinvested. Upon distribution of those earnings in the form of dividends or otherwise, Anixter may be subject to withholding taxes payable to the various foreign countries.
v3.10.0.1
PENSION PLANS
9 Months Ended
Sep. 28, 2018
Text Block [Abstract]  
PENSION PLANS
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., 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.

Components of net periodic pension (benefit) cost are as follows:
 
 
Three Months Ended
 
 
Domestic Plans
 
Foreign Plans
 
Total
(In millions)
 
September 28, 2018
 
September 29, 2017
 
September 28, 2018
 
September 29, 2017
 
September 28, 2018
 
September 29, 2017
Recorded in operating expenses:
 
 
 
 
 
 
 
 
 
 
 
 
Service cost
 
$
0.8

 
$
1.4

 
$
1.5

 
$
1.6

 
$
2.3

 
$
3.0

 
 
 
 
 
 
 
 
 
 
 
 
 
Recorded in other, net:
 
 
 
 
 
 
 
 
 
 
 
 
Interest cost
 
$
2.6

 
$
3.2

 
$
1.6

 
$
1.7

 
$
4.2

 
$
4.9

Expected return on plan assets
 
(4.0
)
 
(4.2
)
 
(2.4
)
 
(2.3
)
 
(6.4
)
 
(6.5
)
Net amortization (a)
 
0.2

 
0.5

 
0.7

 
0.9

 
0.9

 
1.4

Total recorded in other, net
 
$
(1.2
)
 
$
(0.5
)
 
$
(0.1
)
 
$
0.3

 
$
(1.3
)
 
$
(0.2
)
 
 
 
 
 
 
 
 
 
 
 
 
 
Total net periodic pension (benefit) cost
 
$
(0.4
)
 
$
0.9

 
$
1.4

 
$
1.9

 
$
1.0

 
$
2.8


(a) Reclassified from AOCI.

 
 
Nine Months Ended
 
 
Domestic Plans
 
Foreign Plans
 
Total
(In millions)
 
September 28, 2018
 
September 29, 2017
 
September 28, 2018
 
September 29, 2017
 
September 28, 2018
 
September 29, 2017
Recorded in operating expenses:
 
 
 
 
 
 
 
 
 
 
 
 
Service cost
 
$
2.6

 
$
3.8

 
$
4.5

 
$
4.5

 
$
7.1

 
$
8.3

 
 
 
 
 
 
 
 
 
 
 
 
 
Recorded in other, net:
 
 
 
 
 
 
 
 
 
 
 
 
Interest cost
 
$
7.7

 
$
8.7

 
$
5.1

 
$
5.1

 
$
12.8

 
$
13.8

Expected return on plan assets
 
(12.0
)
 
(11.7
)
 
(7.4
)
 
(6.6
)
 
(19.4
)
 
(18.3
)
Net amortization (a)
 
0.5

 
1.7

 
2.2

 
2.4

 
2.7

 
4.1

Total recorded in other, net
 
$
(3.8
)
 
$
(1.3
)
 
$
(0.1
)
 
$
0.9

 
$
(3.9
)
 
$
(0.4
)
 
 
 
 
 
 
 
 
 
 
 
 
 
Total net periodic pension (benefit) cost
 
$
(1.2
)
 
$
2.5

 
$
4.4

 
$
5.4

 
$
3.2

 
$
7.9

(a) Reclassified from AOCI.
v3.10.0.1
STOCKHOLDERS' EQUITY
9 Months Ended
Sep. 28, 2018
STOCKHOLDERS' EQUITY
At the end of the third quarter of 2018, there were 1.7 million shares reserved for issuance under the 2017 Stock Incentive Plan. Under such plan, the Company pays non-employee directors annual retainer fees and, at their election, meeting fees in the form of stock units. Employee and director stock units are included in common stock outstanding on the date of vesting, and stock options are included in common stock outstanding upon exercise by the participant. The fair value of employee stock units is amortized over the respective vesting period representing the requisite service period, generally three, four or six years. Director stock units are expensed in the period in which they are granted, as these vest immediately. The employee performance-based restricted stock units ("performance units") are issued on the third anniversary of the grant date based on the Company's total shareholder return ("TSR") relative to the TSR of the S&P Mid Cap 400 index. The fair value of each performance unit tranche is estimated using the Monte Carlo Simulation pricing model at the date of grant.
During the three and nine months ended September 28, 2018, the Company granted 11,375 and 194,113 stock units to employees, respectively, with a weighted-average grant-date fair value of $0.7 million and $14.4 million, respectively. During the three and nine months ended September 28, 2018, the Company granted 7,899 and 43,767 performance units to employees, respectively, with a weighted-average grant-date fair value of $0.4 million and $3.4 million, respectively. During the nine months ended September 28, 2018, the Company included additional stock compensation expense of $2.6 million related to a retirement agreement with the recently retired Chief Executive Officer ("CEO"), which extended the terms of his non-competition and non-solicitation restrictions in exchange for extended vesting and termination provisions of previously granted equity awards.
During the three and nine months ended September 28, 2018, the Company granted directors 9,733 and 25,771 stock units, respectively, with a weighted-average grant-date fair value of $0.6 million and $1.8 million, respectively.
Antidilutive stock options and units are excluded from the calculation of weighted-average shares for diluted earnings per share. For the third quarter of 2018 and 2017, the antidilutive stock options and units were immaterial.
v3.10.0.1
BUSINESS SEGMENTS
9 Months Ended
Sep. 28, 2018
BUSINESS SEGMENTS
Anixter is a leading distributor of enterprise cabling and security solutions, electrical and electronic wire and cable solutions and utility power solutions. The Company has identified Network & Security Solutions ("NSS"), Electrical & Electronic Solutions ("EES") and Utility Power Solutions ("UPS") as reportable segments.
Corporate expenses are incurred to obtain and coordinate financing, tax, information technology, legal and other related services, certain of which were rebilled to subsidiaries. The Company also has various corporate assets which are reported in corporate. Segment assets may or may not include jointly used assets, but segment results include depreciation expense or other allocations related to those assets as such allocation is made for internal reporting. Interest expense and other non-operating items are not allocated to the segments or reviewed on a segment basis.
The categorization of net sales by end market is determined using a variety of data points including the technical characteristic of the product, the "sold to" customer information, the "ship to" customer information and the end customer product or application into which product will be incorporated. Anixter also has largely specialized its sales organization by segment. As data systems for capturing and tracking this data evolve and improve, the categorization of products by end market can vary over time. When this occurs, the Company reclassifies net sales by end market for prior periods. Such reclassifications typically do not materially change the sizing of, or the underlying trends of results within, each end market.
Segment Financial Information
Segment information for the three and nine months ended September 28, 2018 and September 29, 2017 are as follows:
(In millions)
 
 
 
 
 
 
 
 
 
 
Third Quarter of 2018
 
NSS
 
EES
 
UPS
 
Corporate
 
Total
Net Sales
 
$
1,138.0

 
$
597.4

 
$
443.6

 
$

 
$
2,179.0

Operating income
 
75.0

 
34.1

 
19.9

 
(39.5
)
 
89.5

Third Quarter of 2017
 
NSS
 
EES
 
UPS
 
Corporate
 
Total
Net Sales
 
$
1,049.2

 
$
555.0

 
$
412.2

 
$

 
$
2,016.4

Operating income
 
67.5

 
26.8

 
19.8

 
(33.3
)
 
80.8


Nine Months of 2018
 
NSS
 
EES
 
UPS
 
Corporate
 
Total
Net Sales
 
$
3,229.1

 
$
1,771.4

 
$
1,280.6

 
$

 
$
6,281.1

Operating income
 
194.6

 
101.1

 
54.2

 
(127.5
)
 
222.4

Nine Months of 2017
 
NSS
 
EES
 
UPS
 
Corporate
 
Total
Net Sales
 
$
3,063.5

 
$
1,643.9

 
$
1,206.2

 
$

 
$
5,913.6

Operating income
 
194.2

 
84.3

 
57.3

 
(103.5
)
 
232.3



Geographic Information

The following tables summarize net sales by geographic areas for the three and nine months ended September 28, 2018 and September 29, 2017:
 
 
Three Months Ended
 
Nine Months Ended
(In millions)
 
September 28, 2018
 
September 29, 2017
 
September 28, 2018
 
September 29, 2017
Net sales
 
 
 
 
 
 
 
 
North America
 
$
1,774.0

 
$
1,664.5

 
$
5,148.9

 
$
4,901.4

EMEA
 
160.6

 
156.0

 
502.2

 
461.7

Emerging Markets
 
244.4

 
195.9

 
630.0

 
550.5

Total net sales
 
$
2,179.0

 
$
2,016.4

 
$
6,281.1

 
$
5,913.6


Goodwill Assigned to Segments
The following table presents the changes in goodwill allocated to the Company's reporting units during the nine months ended September 28, 2018:
(In millions)
 
NSS
 
EES
 
UPS
 
Total
Balance as of December 29, 2017
 
$
408.8

 
$
181.7

 
$
187.6

 
$
778.1

Acquisition related (a)
 
65.4

 

 

 
65.4

Foreign currency translation
 
(5.4
)
 
(0.4
)
 
(4.3
)
 
(10.1
)
Balance as of September 28, 2018
 
$
468.8

 
$
181.3

 
$
183.3

 
$
833.4


(a) In the second quarter of 2018, the Company completed the acquisition of security businesses in Australia and New Zealand for $149.9 million, including a preliminary net working capital adjustment of $4.6 million. The transaction was financed primarily from borrowings under the revolving lines of credit. The purchase price was preliminarily allocated to $36.5 million of working capital and $60.4 million of intangible assets. Acquisition costs were $2.5 million. Third quarter year-to-date results include approximately $40.3 million of sales from the acquired entities. The purchase price allocation is pending finalization, and is expected to be completed in early 2019.
[1]
[1] In the second quarter of 2018, the Company completed the acquisition of security businesses in Australia and New Zealand for $149.9 million, including a preliminary net working capital adjustment of $4.6 million. The transaction was financed primarily from borrowings under the revolving lines of credit. The purchase price was preliminarily allocated to $36.5 million of working capital and $60.4 million of intangible assets. Acquisition costs were $2.5 million. Third quarter year-to-date results include approximately $40.3 million of sales from the acquired entities. The purchase price allocation is pending finalization, and is expected to be completed in early 2019.
v3.10.0.1
SUMMARIZED FINANCIAL INFORMATION OF ANIXTER INC.
9 Months Ended
Sep. 28, 2018
Text Block [Abstract]  
SUMMARIZED FINANCIAL INFORMATION OF ANIXTER INC.
Anixter International Inc. guarantees, fully and unconditionally, substantially all of the debt of its subsidiaries, which include Anixter Inc., its 100% owned primary operating subsidiary. Anixter International Inc. has no independent assets or operations and all subsidiaries other than Anixter Inc. are minor. The following summarizes the financial information for Anixter Inc.:
ANIXTER INC.
CONDENSED CONSOLIDATED BALANCE SHEETS

(In millions)
 
September 28,
2018
 
December 29,
2017
Assets:
 
 
 
 
Current assets
 
$
3,115.7

 
$
2,833.5

Property, equipment and capital leases, net
 
168.2

 
161.3

Goodwill
 
833.4

 
778.1

Intangible assets, net
 
405.0

 
378.8

Other assets
 
108.5

 
107.2

 
 
$
4,630.8

 
$
4,258.9

Liabilities and Stockholders' Equity:
 
 
 
 
Current liabilities
 
$
1,952.9

 
$
1,351.9

Long-term debt
 
923.4

 
1,257.7

Other liabilities
 
193.5

 
192.9

Stockholder’s equity
 
1,561.0

 
1,456.4

 
 
$
4,630.8

 
$
4,258.9


ANIXTER INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
 
 
 
Three Months Ended
 
Nine Months Ended
 (In millions)
 
September 28,
2018
 
September 29,
2017
 
September 28,
2018
 
September 29,
2017
Net sales
 
$
2,179.0

 
$
2,016.4

 
$
6,281.1

 
$
5,913.6

Operating income
 
$
91.1

 
$
82.4

 
$
227.5

 
$
237.4

Income before income taxes
 
$
70.1

 
$
63.9

 
$
167.8

 
$
180.6

Net income
 
$
49.1

 
$
38.5

 
$
119.0

 
$
111.4

Comprehensive income
 
$
56.3

 
$
57.2

 
$
98.1

 
$
154.9

v3.10.0.1
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies)
9 Months Ended
Sep. 28, 2018
Basis of presentation
Basis of presentation: The unaudited interim Condensed Consolidated Financial Statements of Anixter International Inc. and its subsidiaries (collectively referred to as "Anixter" or the "Company"), sometimes referred to in this Quarterly Report on Form 10-Q as "we", "our", "us", or "ourselves" have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC"). Therefore, certain information and disclosures normally included in financial statements and related notes prepared in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP") have been condensed or omitted. Certain prior period amounts have been reclassified to conform to the current year presentation.
These financial statements should be read in conjunction with, and have been prepared in conformity with, the accounting principles reflected in the consolidated financial statements and related notes included in Anixter's Annual Report on Form 10-K for the year ended December 29, 2017 ("2017 Form 10-K"). The condensed consolidated financial information furnished herein reflects all adjustments (consisting of normal recurring accruals), which are, in the opinion of management, necessary for a fair presentation of the Condensed Consolidated Financial Statements for the periods shown.
The Company maintains its financial records on the basis of a fiscal year ending on the Friday nearest December 31, with the fiscal quarters spanning thirteen weeks, with the first quarter ending on the Friday of the first thirteen-week period. The third quarter of fiscal year 2018 ended on September 28, 2018, and the third quarter of fiscal year 2017 ended on September 29, 2017.
Recently issued and adopted accounting pronouncements
Recently issued and adopted accounting pronouncements: In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2014-09, Revenue from Contracts with Customers, and issued subsequent amendments to the initial guidance in August 2015, March 2016, April 2016, May 2016 and December 2016 within ASU 2015-14, ASU 2016-08, ASU 2016-10, ASU 2016-12 and ASU 2016-20, respectively. The core principle of this new revenue recognition guidance is that a company will recognize revenue when promised goods or services are transferred to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. The new guidance defines a five-step process to achieve this core principle. The new guidance also requires more detailed disclosures to enable users of financial statements to understand the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. The new guidance provides for two transition methods, a full retrospective approach and a modified retrospective approach. Anixter adopted the new revenue recognition guidance on December 30, 2017 utilizing the modified retrospective method of adoption for contracts not completed at the adoption date, and determined there were no changes required to its reported revenues as a result of the adoption. The Company has enhanced its disclosures of revenue to comply with the new guidance.
In January 2017, the FASB issued ASU 2017-01, Business Combinations: Clarifying the Definition of a Business, which adds guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The standard was effective for Anixter's financial statements issued for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. The Company adopted this standard effective the first quarter of fiscal year 2018. The result of this adoption did not have a material impact on the Condensed Consolidated Financial Statements.
In March 2017, the FASB issued ASU 2017-07, Compensation - Retirement Benefits: Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost, which changes how employers that sponsor defined benefit pension or other postretirement benefit plans present the net periodic benefit cost in the income statement. The new guidance requires entities to report the service cost component in the same line item as other compensation costs. The other components of net benefit cost are required to be presented in the income statement separately from the service cost component outside of income from operations. The standard was effective for Anixter's financial statements issued for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Upon adoption, ASU 2017-07 required changes to the presentation of the income statement to be applied retrospectively. The Company adopted this standard effective the first quarter of fiscal year 2018. Service costs are recognized within "Operating expenses" in the Condensed Consolidated Statement of Comprehensive Income. All other components of net benefit costs are recorded in "Other, net" in the Company's Condensed Consolidated Statements of Comprehensive Income. The result of this adoption did not have a material impact on the Condensed Consolidated Financial Statements.
In May 2017, the FASB issued ASU 2017-09, Compensation - Stock Compensation: Scope of Modification Accounting, which clarifies when changes to the terms or conditions of a share-based payment award must be accounted for as modifications. Under the new guidance, modification accounting is required only if the fair value, the vesting conditions, or the classification of the award changes as a result of the change in terms or conditions. ASU 2017-09 was applied prospectively to awards modified on or after the adoption date. The standard was effective for Anixter’s financial statements issued for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. The Company adopted this standard effective the first quarter of fiscal year 2018. The result of this adoption did not have a material impact on the Condensed Consolidated Financial Statements.
Recently issued accounting pronouncements not yet adopted
Recently issued accounting pronouncements not yet adopted: In February 2016, the FASB issued ASU 2016-02, Leases, which requires lessees to recognize assets and liabilities on the balance sheet for the rights and obligations created by all leases with terms of more than 12 months. The standard is effective for Anixter's financial statements issued for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. The Company has established an implementation team and is implementing a new lease accounting information system. In July 2018, the FASB issued additional authoritative guidance providing companies with an optional prospective transition method to apply the provisions of this guidance. The Company will adopt the standard in the first quarter of 2019 and elect this transition method to apply the standard prospectively. While the Company is currently evaluating the impact of adoption of this ASU, the adoption is expected to result in a material increase in the assets and liabilities recorded on the Condensed Consolidated Balance Sheets.
In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses, which requires the measurement of expected credit losses for financial instruments held at the reporting date based on historical experience, current conditions and reasonable forecasts. The main objective of this ASU is to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date. The standard is effective for Anixter's financial statements issued for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. Early adoption is permitted for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. The Company is currently evaluating the impact of adoption of this ASU, but it is not expected to have a material effect on the Company's Condensed Consolidated Financial Statements.
In January 2017, the FASB issued ASU 2017-04, Intangibles - Goodwill and Other: Simplifying the Test for Goodwill Impairment, which removes step two from the goodwill impairment test. Step two measures a goodwill impairment loss by comparing the implied fair value of a reporting unit's goodwill with the carrying amount of that goodwill. The new guidance requires an entity to perform its goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount, including goodwill. The standard is effective for Anixter's financial statements issued for fiscal years beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The Company is currently assessing the impact the adoption of this ASU will have on its methodology for evaluating goodwill for impairment subsequent to adoption of this standard.
In February 2018, the FASB issued ASU 2018-02, Income Statement - Reporting Comprehensive Income: Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income, which will allow a reclassification from accumulated other comprehensive income to retained earnings for the tax effects resulting from the December 22, 2017 enactment of the Tax Cuts and Jobs Act (the "Act") that are stranded in accumulated other comprehensive income. The standard is effective for Anixter's financial statements issued for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption is permitted. The Company is currently evaluating the impact of adoption of this ASU on its Condensed Consolidated Financial Statements.
In June 2018, the FASB issued ASU 2018-07, Compensation - Stock Compensation: Improvements to Nonemployee Share-Based Payment Accounting, which will expand the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees. The standard is effective for Anixter's financial statements issued for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption is permitted. The Company is currently evaluating the impact of adoption of this ASU on its Condensed Consolidated Financial Statements.
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement: Changes to the Disclosure Requirements for Fair Value Measurement, which changes the disclosure requirements for fair value measurements by removing, adding and modifying certain disclosures. The standard is effective for Anixter's financial statements issued for fiscal years beginning after December 15, 2019. Early adoption is permitted. The Company is currently evaluating the impact of adoption of this ASU on its related disclosures.
In August 2018, the FASB issued ASU 2018-14, Compensation - Retirement Benefits - Defined Benefit Plans - General: Changes to the Disclosure Requirements for Defined Benefit Plans, which modifies the disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans by removing and adding certain disclosures for these plans. The standard is effective for Anixter's financial statements issued for fiscal years ending after December 15, 2020. Early adoption is permitted. The Company is currently evaluating the impact of adoption of this ASU on its related disclosures.
In August 2018, the FASB issued ASU 2018-15, Intangibles—Goodwill and Other—Internal-Use Software: Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract, which will align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The standard is effective for Anixter's financial statements issued for fiscal years beginning after December 15, 2019. Early adoption is permitted and the Company intends to early adopt in the fourth quarter of 2018. The Company is currently evaluating the impact of adoption of this ASU on its Condensed Consolidated Financial Statements.
The Company does not believe that any other recently issued, but not yet effective, accounting pronouncements, if adopted, would have a material impact on its Condensed Consolidated Financial Statements or disclosures.
Revenue recognition
Revenue recognition: Anixter is a leading global distributor of network and security solutions, electrical and electronic solutions and utility power solutions. Through a global distribution network along with supply chain and technical expertise, Anixter helps customers reduce the risk, cost and complexity of their supply chains. Anixter is a leader in providing advanced inventory management services including procurement, just-in-time delivery, material management programs, turn-key yard layout and management, quality assurance testing, component kit production, storm/event kitting, small component assembly and e-commerce and electronic data interchange to a broad spectrum of customers with over 600,000 products. Revenue arrangements primarily consist of a single performance obligation to transfer promised goods or services. See Note 8. "Business Segments" for revenue disaggregated by geography.
Sales to customers and related cost of sales are primarily recognized at the point in time when control of goods transfers to the customer. For product sales, this generally occurs upon shipment of the products, however, this may occur at a later date depending on the agreed upon sales terms, such as delivery at the customer's designated location, or based on consignment terms. In instances where goods are not stocked by Anixter and delivery times are critical, product is purchased from the manufacturer and drop-shipped to the customer. Anixter generally takes control of the goods when shipped by the manufacturer and then recognizes revenue when control of the product transfers to the customer. When providing services, sales are recognized over time as control transfers to the customer, which occurs as services are rendered.
Revenue is measured as the amount of consideration the Company expects to receive in exchange for transferring goods or providing services. The Company estimates different forms of variable consideration at the time of sale based on historical experience, current conditions and contractual obligations. Revenue is recorded net of customer discounts, rebates and similar charges. When Anixter offers the right to return product, historical experience is utilized to establish a liability for the estimate of expected returns. Sales and other tax amounts collected from customers for remittance to governmental authorities are excluded from revenue. The Company has elected to treat shipping and handling as a fulfillment activity. The practical expedient not to disclose information about remaining performance obligations has also been elected as these contacts have an original duration of one year or less or are contracts where the Company has applied the practical expedient to recognize service revenue in proportion to the amount Anixter has the right to invoice. The Company typically receives payment 30 to 60 days from the point it has satisfied the related performance obligation.
At December 29, 2017$9.5 million of deferred revenue related to outstanding contracts was reported in "Accrued expenses" in the Company's Consolidated Balance Sheet. This balance primarily represents prepayments from customers. During the three and nine months ended September 28, 2018, $1.6 million and $7.0 million, respectively, of this deferred revenue was recognized. At September 28, 2018, deferred revenue was $14.4 million. The Company expects to recognize this balance as revenue within the next twelve months.
Other, net
Other, net: The following represents the components of "Other, net" as reflected in the Condensed Consolidated Statements of Comprehensive Income:
 
 
Three Months Ended
 
Nine Months Ended
(In millions)
 
September 28,
2018
 
September 29,
2017
 
September 28,
2018
 
September 29,
2017
Other, net:
 
 
 
 
 
 
 
 
Foreign exchange
 
$
(2.5
)
 
$
(1.1
)
 
$
(6.2
)
 
$
(3.1
)
Cash surrender value of life insurance policies
 
0.3

 
0.9

 
0.1

 
2.0

Net periodic pension benefit
 
1.3

 
0.2

 
3.9

 
0.4

Other
 
(0.7
)
 
0.5

 
(0.4
)
 
0.2

Total other, net
 
$
(1.6
)
 
$
0.5

 
$
(2.6
)
 
$
(0.5
)
Several of Anixter's subsidiaries conduct business in a currency other than the legal entity’s functional currency. Transactions may produce receivables or payables that are fixed in terms of the amount of foreign currency that will be received or paid. A change in exchange rates between the functional currency and the currency in which a transaction is denominated increases or decreases the expected amount of functional currency cash flows upon settlement of the transaction. The increase or decrease in expected functional currency cash flows is a foreign currency transaction gain or loss that is included in "Other, net" in the Condensed Consolidated Statements of Comprehensive Income.
The Company purchases foreign currency forward contracts to minimize the effect of fluctuating foreign currency-denominated accounts on its reported income. The foreign currency forward contracts are not designated as hedges for accounting purposes. The Company's strategy is to negotiate terms for its derivatives and other financial instruments to be highly effective, such that the change in the value of the derivative offsets the impact of the underlying hedged item (e.g., various foreign currency-denominated accounts). Its counterparties to foreign currency forward contracts have investment-grade credit ratings. Anixter expects the creditworthiness of its counterparties to remain intact through the term of the transactions. The Company regularly monitors the creditworthiness of its counterparties to ensure no issues exist which could affect the value of the derivatives.
The Company does not hedge 100% of its foreign currency-denominated accounts. In addition, the results of hedging can vary significantly based on various factors, such as the timing of executing the foreign currency forward contracts versus the movement of the currencies as well as the fluctuations in the account balances throughout each reporting period. The fair value of the foreign currency forward contracts is based on the difference between the contract rate and the current exchange rate. The fair value of the foreign currency forward contracts is measured using observable market information. These inputs would be considered Level 2 in the fair value hierarchy. At September 28, 2018 and December 29, 2017, foreign currency forward contracts were revalued at then-current foreign exchange rates with the changes in valuation reflected directly in "Other, net" in the Condensed Consolidated Statements of Comprehensive Income offsetting the transaction gain/loss recorded on the foreign currency-denominated accounts. At September 28, 2018 and December 29, 2017, the gross notional amount of the foreign currency forward contracts outstanding was approximately $116.9 million and $246.3 million, respectively. At September 28, 2018 and December 29, 2017, the net notional amount of the foreign currency forward contracts outstanding was approximately $78.1 million and $125.7 million, respectively. While all of the Company's foreign currency forward contracts are subject to master netting arrangements with its counterparties, assets and liabilities related to derivative instruments are presented on a gross basis within the Condensed Consolidated Balance Sheets. The gross fair value of derivative assets and liabilities are immaterial.
The combined effect of changes in both the equity and bond markets resulted in changes in the cash surrender value of the Company's company owned life insurance policies associated with the sponsored deferred compensation program.
Accumulated other comprehensive loss
Accumulated other comprehensive loss: Unrealized gains and losses are accumulated in "Accumulated other comprehensive loss" ("AOCI"). These changes are also reported in "Other comprehensive income (loss)" on the Condensed Consolidated Statements of Comprehensive Income. These include unrealized gains and losses related to the Company's defined benefit obligations and foreign currency translation. See Note 6. "Pension Plans" for pension related amounts reclassified into net income.
Investments in several subsidiaries are recorded in currencies other than the U.S. dollar ("USD"). As these foreign currency denominated investments are translated at the end of each period during consolidation using period-end exchange rates, fluctuations of exchange rates between the foreign currency and the USD increase or decrease the value of those investments. These fluctuations and the results of operations for foreign subsidiaries, where the functional currency is not the USD, are translated into USD using the average exchange rates during the periods reported, while the assets and liabilities are translated using period-end exchange rates. The assets and liabilities-related translation adjustments are recorded as a separate component of AOCI, "Foreign currency translation." In addition, as Anixter's subsidiaries maintain investments denominated in currencies other than local currencies, exchange rate fluctuations will occur. Borrowings are raised in certain foreign currencies to minimize the exchange rate translation adjustment risk.
Goodwill
Goodwill: The Company evaluates goodwill for impairment annually at the beginning of the third quarter and when events or changes in circumstances indicate the carrying value of reporting units might exceed their current fair values. The Company assesses goodwill for impairment by first performing a qualitative assessment, which considers specific factors, based on the weight of evidence, and the significance of all identified events and circumstances in the context of determining whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If it is determined that it is more likely than not that the fair value of a reporting unit is less than its carrying amount using the qualitative assessment, Anixter performs the two-step impairment test. From time to time, the Company may also bypass the qualitative assessment and proceed directly to the two-step impairment test. The first step of the impairment test is to identify a potential impairment by comparing the fair value of a reporting unit with its carrying amount. The estimates of fair value of a reporting unit are determined using the income approach and/or the market approach as described below. If step one of the test indicates a carrying value above the estimated fair value, the second step of the goodwill impairment test is performed by comparing the implied fair value of the reporting unit’s goodwill with the carrying amount of that goodwill. The implied residual value of goodwill is determined in the same manner as the amount of goodwill recognized in a business combination.
The income approach is a quantitative evaluation to determine the fair value of the reporting unit. Under the income approach fair value is determined based on estimated future cash flows discounted by an estimated weighted-average cost of capital plus a forecast risk, which reflects the overall level of inherent risk of the reporting unit and the rate of return a market participant would expect to earn. The inputs used for the income approach were significant unobservable inputs, or Level 3 inputs, as described in the accounting fair value hierarchy. Estimated future cash flows were based on internal projection models, industry projections and other assumptions deemed reasonable by management.
The market approach measures the fair value of a reporting unit through the analysis of recent sales, offerings, and financial multiples (sales or earnings before interest, tax, depreciation and amortization ("EBITDA")) of comparable businesses. Consideration is given to the financial conditions and operating performance of the reporting unit being valued relative to those publicly-traded companies operating in the same or similar lines of business.
In connection with the annual assessment of goodwill at the beginning of the third quarter of 2018, the Company bypassed the qualitative assessment and performed a quantitative test for all reporting units and utilized a combination of the income and market approaches. As a result of this assessment, the Company concluded that no impairment existed and the carrying amount of goodwill to be fully recoverable. All of the Company's reporting units had fair values that exceeded their respective carrying values by greater than 30%.
v3.10.0.1
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Tables)
9 Months Ended
Sep. 28, 2018
Summary of Components of Other Net Reflected in Consolidated Statements of Operations
Other, net: The following represents the components of "Other, net" as reflected in the Condensed Consolidated Statements of Comprehensive Income:
 
 
Three Months Ended
 
Nine Months Ended
(In millions)
 
September 28,
2018
 
September 29,
2017
 
September 28,
2018
 
September 29,
2017
Other, net:
 
 
 
 
 
 
 
 
Foreign exchange
 
$
(2.5
)
 
$
(1.1
)
 
$
(6.2
)
 
$
(3.1
)
Cash surrender value of life insurance policies
 
0.3

 
0.9

 
0.1

 
2.0

Net periodic pension benefit
 
1.3

 
0.2

 
3.9

 
0.4

Other
 
(0.7
)
 
0.5

 
(0.4
)
 
0.2

Total other, net
 
$
(1.6
)
 
$
0.5

 
$
(2.6
)
 
$
(0.5
)
v3.10.0.1
RESTRUCTURING CHARGES (Tables)
9 Months Ended
Sep. 28, 2018
Restructuring and Related Activities [Abstract]  
Restructuring and Related Costs [Table Text Block]
 
Restructuring Activity
 
Q2 2018
Plan
 
Q2 2016
Plan
 
Q4 2015
Plan
 
Total
 
Employee-Related Costs (a)
 
Facility Exit and Other Costs (b)
 
Employee-Related Costs (a)
 
Facility Exit and Other Costs (b)
 
Employee-Related Costs (a)
 
Employee-Related Costs (a)
 
Facility Exit and Other Costs (b)
Balance at December 29, 2017
$

 
$

 
$
0.5

 
$
0.5

 
$
0.6

 
$
1.1

 
$
0.5

Charges
9.6

 
0.5

 

 
(0.4
)
 
(0.3
)
 
9.3

 
0.1

Payments and other
(1.0
)
 
(0.3
)
 
(0.5
)
 
(0.1
)
 
(0.1
)
 
(1.6
)
 
(0.4
)
Balance at September 28, 2018
$
8.6

 
$
0.2

 
$

 
$

 
$
0.2

 
$
8.8

 
$
0.2

(a)
Employee-related costs primarily consist of severance benefits provided to employees who have been involuntarily terminated.
(b)
Facility exit and other costs primarily consist of lease termination costs.
v3.10.0.1
DEBT (Tables)
9 Months Ended
Sep. 28, 2018
Text Block [Abstract]  
Debt
Debt is summarized below:
(In millions)
 
September 28,
2018
 
December 29,
2017
Current portion of long-term debt:
 
 
 
 
5.625% Senior notes due 2019
 
$
349.3

 
$

 
 
 
 
 
Long-term debt:
 
 
 
 
5.50% Senior notes due 2023
 
347.2

 
346.8

5.125% Senior notes due 2021
 
397.2

 
396.5

5.625% Senior notes due 2019
 

 
348.6

Revolving lines of credit
 
168.6

 
159.0

Other
 
4.9

 
1.7

Unamortized deferred financing costs
 
(3.5
)
 
(4.7
)
 
 
 
 
 
Total debt
 
$
1,263.7

 
$
1,247.9

v3.10.0.1
PENSION PLANS (Tables)
9 Months Ended
Sep. 28, 2018
Text Block [Abstract]  
Components of Net Periodic Benefit Costs
:
 
 
Three Months Ended
 
 
Domestic Plans
 
Foreign Plans
 
Total
(In millions)
 
September 28, 2018
 
September 29, 2017
 
September 28, 2018
 
September 29, 2017
 
September 28, 2018
 
September 29, 2017
Recorded in operating expenses:
 
 
 
 
 
 
 
 
 
 
 
 
Service cost
 
$
0.8

 
$
1.4

 
$
1.5

 
$
1.6

 
$
2.3

 
$
3.0

 
 
 
 
 
 
 
 
 
 
 
 
 
Recorded in other, net:
 
 
 
 
 
 
 
 
 
 
 
 
Interest cost
 
$
2.6

 
$
3.2

 
$
1.6

 
$
1.7

 
$
4.2

 
$
4.9

Expected return on plan assets
 
(4.0
)
 
(4.2
)
 
(2.4
)
 
(2.3
)
 
(6.4
)
 
(6.5
)
Net amortization (a)
 
0.2

 
0.5

 
0.7

 
0.9

 
0.9

 
1.4

Total recorded in other, net
 
$
(1.2
)
 
$
(0.5
)
 
$
(0.1
)
 
$
0.3

 
$
(1.3
)
 
$
(0.2
)
 
 
 
 
 
 
 
 
 
 
 
 
 
Total net periodic pension (benefit) cost
 
$
(0.4
)
 
$
0.9

 
$
1.4

 
$
1.9

 
$
1.0

 
$
2.8


(a) Reclassified from AOCI.

 
 
Nine Months Ended
 
 
Domestic Plans
 
Foreign Plans
 
Total
(In millions)
 
September 28, 2018
 
September 29, 2017
 
September 28, 2018
 
September 29, 2017
 
September 28, 2018
 
September 29, 2017
Recorded in operating expenses:
 
 
 
 
 
 
 
 
 
 
 
 
Service cost
 
$
2.6

 
$
3.8

 
$
4.5

 
$
4.5

 
$
7.1

 
$
8.3

 
 
 
 
 
 
 
 
 
 
 
 
 
Recorded in other, net:
 
 
 
 
 
 
 
 
 
 
 
 
Interest cost
 
$
7.7

 
$
8.7

 
$
5.1

 
$
5.1

 
$
12.8

 
$
13.8

Expected return on plan assets
 
(12.0
)
 
(11.7
)
 
(7.4
)
 
(6.6
)
 
(19.4
)
 
(18.3
)
Net amortization (a)
 
0.5

 
1.7

 
2.2

 
2.4

 
2.7

 
4.1

Total recorded in other, net
 
$
(3.8
)
 
$
(1.3
)
 
$
(0.1
)
 
$
0.9

 
$
(3.9
)
 
$
(0.4
)
 
 
 
 
 
 
 
 
 
 
 
 
 
Total net periodic pension (benefit) cost
 
$
(1.2
)
 
$
2.5

 
$
4.4

 
$
5.4

 
$
3.2

 
$
7.9

(a) Reclassified from AOCI.

v3.10.0.1
BUSINESS SEGMENTS (Tables)
9 Months Ended
Sep. 28, 2018
Segment Information
Segment information for the three and nine months ended September 28, 2018 and September 29, 2017 are as follows:
(In millions)
 
 
 
 
 
 
 
 
 
 
Third Quarter of 2018
 
NSS
 
EES
 
UPS
 
Corporate
 
Total
Net Sales
 
$
1,138.0

 
$
597.4

 
$
443.6

 
$

 
$
2,179.0

Operating income
 
75.0

 
34.1

 
19.9

 
(39.5
)
 
89.5

Third Quarter of 2017
 
NSS
 
EES
 
UPS
 
Corporate
 
Total
Net Sales
 
$
1,049.2

 
$
555.0

 
$
412.2

 
$

 
$
2,016.4

Operating income
 
67.5

 
26.8

 
19.8

 
(33.3
)
 
80.8


Nine Months of 2018
 
NSS
 
EES
 
UPS
 
Corporate
 
Total
Net Sales
 
$
3,229.1

 
$
1,771.4

 
$
1,280.6

 
$

 
$
6,281.1

Operating income
 
194.6

 
101.1

 
54.2

 
(127.5
)
 
222.4

Nine Months of 2017
 
NSS
 
EES
 
UPS
 
Corporate
 
Total
Net Sales
 
$
3,063.5

 
$
1,643.9

 
$
1,206.2

 
$

 
$
5,913.6

Operating income
 
194.2

 
84.3

 
57.3

 
(103.5
)
 
232.3

Revenue from External Customers by Geographic Areas
Geographic Information

The following tables summarize net sales by geographic areas for the three and nine months ended September 28, 2018 and September 29, 2017:
 
 
Three Months Ended
 
Nine Months Ended
(In millions)
 
September 28, 2018
 
September 29, 2017
 
September 28, 2018
 
September 29, 2017
Net sales
 
 
 
 
 
 
 
 
North America
 
$
1,774.0

 
$
1,664.5

 
$
5,148.9

 
$
4,901.4

EMEA
 
160.6

 
156.0

 
502.2

 
461.7

Emerging Markets
 
244.4

 
195.9

 
630.0