Anixter International Inc. Financial Statement Analysis
ANIXTER INTERNATIONAL INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
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, which was $36.7 million and $35.0 million at January 3, 2020 and December 28, 2018, respectively. 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 28, 2018, $17.2 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 year ended January 3, 2020, $14.9 million of this deferred revenue was recognized. At January 3, 2020, deferred
revenue was $11.6 million. The Company expects to recognize this balance as revenue within the next twelve months.
Advertising and sales promotion: Advertising and sales promotion costs are expensed as incurred. Advertising and
promotion costs included in operating expenses on the Consolidated Statements of Income were $15.6 million, $15.8 million
and $10.6 million in 2019, 2018 and 2017, respectively. The majority of the advertising and sales promotion costs are recouped
through various cooperative advertising programs with vendors.
Shipping and handling fees and costs: Shipping and handling fees billed to customers are included in net sales. Shipping
and handling costs associated with outbound freight are included in "Operating expenses" on the Consolidated Statements of
Income, which were $133.1 million, $139.7 million and $119.1 million in 2019, 2018 and 2017, respectively.
Stock-based compensation: The Company measures the cost of all share-based payments to employees, including grants
of employee stock options, using a fair-value-based method. Compensation costs are determined based on the fair value at the
grant date and amortized over the respective vesting period representing the requisite service period. The Company accounts for
forfeitures of share-based payments as they occur.
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 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 8. "Pension Plans, Post-Retirement Benefits and Other Benefits" 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. 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.
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