ANIXTER INTERNATIONAL INC, 10-K filed on 2/22/2018
Annual Report
Document and Entity Information (USD $)
12 Months Ended
Dec. 29, 2017
Feb. 14, 2018
Jun. 30, 2017
Entity Information [Line Items]
 
 
 
Document Type
10-K 
 
 
Amendment Flag
false 
 
 
Document Period End Date
Dec. 29, 2017 
 
 
Document Fiscal Year Focus
2017 
 
 
Document Fiscal Period Focus
FY 
 
 
Trading Symbol
AXE 
 
 
Entity Registrant Name
ANIXTER INTERNATIONAL INC 
 
 
Entity Central Index Key
0000052795 
 
 
Current Fiscal Year End Date
--12-29 
 
 
Entity Well-known Seasoned Issuer
Yes 
 
 
Entity Current Reporting Status
Yes 
 
 
Entity Voluntary Filers
No 
 
 
Entity Filer Category
Large Accelerated Filer 
 
 
Entity Common Stock, Shares Outstanding
 
33,293,079 
 
Entity Public Float
 
 
$ 2,250,535,942 
CONSOLIDATED STATEMENTS OF INCOME (USD $)
In Millions, except Per Share data, unless otherwise specified
12 Months Ended
Dec. 29, 2017
Dec. 30, 2016
Jan. 1, 2016
Net sales
$ 7,927.4 
$ 7,622.8 
$ 6,190.5 
Cost of goods sold
6,356.4 
6,074.8 
4,850.0 
Gross profit
1,571.0 
1,548.0 
1,340.5 
Operating expenses
1,257.9 
1,262.7 
1,072.7 
Operating income
313.1 
285.3 
267.8 
Other expense:
 
 
 
Interest expense
(74.7)
(78.7)
(63.8)
Other, net
(0.8)
(9.1)
(21.1)
Income from continuing operations before income taxes
237.6 
197.5 
182.9 
Income tax expense from continuing operations
128.6 
76.4 
86.0 
Net income from continuing operations
109.0 
121.1 
96.9 
(Loss) income from discontinued operations before income taxes
(0.1)
11.9 
(Loss) gain on sale of business
(0.7)
41.0 
Income tax (benefit) expense from discontinued operations
(0.2)
22.2 
Net (loss) income from discontinued operations
(0.6)
30.7 
Net income
$ 109.0 
$ 120.5 
$ 127.6 
Basic:
 
 
 
Continuing operations
$ 3.24 
$ 3.63 
$ 2.92 
Discontinued operations
$ 0.00 
$ (0.02)
$ 0.92 
Net income
$ 3.24 
$ 3.61 
$ 3.84 
Diluted:
 
 
 
Continuing operations
$ 3.21 
$ 3.61 
$ 2.90 
Discontinued operations
$ 0.00 
$ (0.02)
$ 0.91 
Net income
$ 3.21 
$ 3.59 
$ 3.81 
Basic weighted-average common shares outstanding
33.6 
33.4 
33.2 
Effect of dilutive securities:
 
 
 
Stock options and units
0.4 
0.2 
0.2 
Diluted weighted-average common shares outstanding
34.0 
33.6 
33.4 
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (USD $)
In Millions, unless otherwise specified
12 Months Ended
Dec. 29, 2017
Dec. 30, 2016
Jan. 1, 2016
Net income
$ 109.0 
$ 120.5 
$ 127.6 
Other comprehensive income (loss):
 
 
 
Foreign currency translation
30.7 
(11.9)
(82.9)
Changes in unrealized pension cost, net of tax
9.9 
(8.5)
(9.5)
Changes in fair market value of derivatives, net of tax
(0.1)
Other comprehensive income (loss)
40.6 
(20.4)
(92.5)
Comprehensive income
$ 149.6 
$ 100.1 
$ 35.1 
CONSOLIDATED BALANCE SHEETS (USD $)
In Millions, unless otherwise specified
Dec. 29, 2017
Dec. 30, 2016
Current assets:
 
 
Cash and cash equivalents
$ 116.0 
$ 115.1 
Accounts receivable, net
1,434.2 
1,353.2 
Inventories
1,238.7 
1,178.3 
Other current assets
44.9 
41.9 
Total current assets
2,833.8 
2,688.5 
Property and equipment, at cost
376.9 
343.4 
Accumulated depreciation
(222.6)
(203.1)
Property and equipment, net
154.3 
140.3 
Goodwill
778.1 
764.6 
Intangible assets, net
378.8 
415.4 
Other assets
107.2 
84.8 
Total assets
4,252.2 
4,093.6 
Current liabilities:
 
 
Accounts payable
1,081.6 
1,006.0 
Accrued expenses
269.2 
257.9 
Total current liabilities
1,350.8 
1,263.9 
Long-term debt
1,247.9 
1,378.8 
Other liabilities
194.5 
158.7 
Total liabilities
2,793.2 
2,801.4 
Stockholders’ equity:
 
 
Common stock - $1.00 par value, 100,000,000 shares authorized, 33,657,466 and 33,437,882 shares issued and outstanding at December 29, 2017 and December 30, 2016, respectively
33.7 
33.4 
Capital surplus
278.7 
261.8 
Retained earnings
1,356.9 
1,247.9 
Accumulated other comprehensive loss:
 
 
Foreign currency translation
(123.2)
(153.9)
Unrecognized pension liability, net
(87.1)
(97.0)
Total accumulated other comprehensive loss
(210.3)
(250.9)
Total stockholders’ equity
1,459.0 
1,292.2 
Total liabilities and stockholders’ equity
$ 4,252.2 
$ 4,093.6 
CONSOLIDATED BALANCE SHEETS (Parenthetical) (USD $)
Dec. 29, 2017
Dec. 30, 2016
Common stock, par value
$ 1.00 
$ 1.00 
Common stock, shares authorized
100,000,000 
100,000,000.00 
Common stock, shares issued
33,657,466 
33,437,882 
Common stock, shares outstanding
33,657,466 
33,437,882 
CONSOLIDATED STATEMENTS OF CASH FLOWS (USD $)
In Millions, unless otherwise specified
12 Months Ended
Dec. 29, 2017
Dec. 30, 2016
Jan. 1, 2016
Operating activities:
 
 
 
Net income
$ 109.0 
$ 120.5 
$ 127.6 
Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Gain on sale of business, net of tax expense of $17.3 in 2015
(40.0)
Depreciation
28.2 
27.9 
23.8 
Amortization of intangible assets
36.1 
37.6 
25.4 
Stock-based compensation
18.1 
16.5 
14.5 
Deferred income taxes
13.6 
0.7 
5.9 
Accretion of debt discount
2.3 
2.2 
1.8 
Amortization of deferred financing costs
2.2 
2.4 
2.0 
Pension plan contributions
(27.4)
(29.0)
(37.7)
Pension plan expenses
10.5 
20.8 
11.4 
Impairment of intangible assets
5.7 
Impact of tax legislation
35.6 
Loss on extinguishments of debt
0.9 
Changes in current assets and liabilities, net
 
 
 
Accounts receivable
(54.2)
(32.6)
(5.9)
Inventories
(39.8)
(5.8)
(54.0)
Accounts payable
58.5 
102.4 
(15.3)
Other current assets and liabilities, net
(10.0)
21.8 
31.1 
Other, net
(4.6)
(6.3)
1.0 
Net cash provided by operating activities
183.8 
279.1 
92.5 
Investing activities:
 
 
 
Acquisitions of businesses, net of cash acquired
(4.7)
(822.5)
Proceeds from sale of business
371.8 
Capital expenditures, net
(41.1)
(32.6)
(28.6)
Net cash used in investing activities
(41.1)
(37.3)
(479.3)
Financing activities:
 
 
 
Proceeds from borrowings
1,843.3 
1,136.5 
1,442.6 
Repayments of borrowings
(1,884.0)
(1,327.9)
(1,116.5)
Proceeds from issuance of Notes due 2023
345.6 
Proceeds from Issuance of Canadian Term Loan
229.1 
Repayments of Canadian term loan
(100.2)
(83.7)
(45.1)
Retirement of Notes due 2015
(200.0)
Repayment of term loan
(198.8)
Deferred financing costs
(6.7)
Proceeds from stock options exercised
5.0 
2.4 
Other, net
(0.2)
(0.6)
(1.0)
Net cash (used in) provided by financing activities
(136.1)
(273.3)
449.2 
Increase (decrease) in cash and cash equivalents
6.6 
(31.5)
62.4 
Effect of exchange rate changes on cash balances
(5.7)
(4.7)
(3.1)
Cash and cash equivalents at beginning of period
115.1 
151.3 
92.0 
Cash and cash equivalents at end of period
116.0 
115.1 
151.3 
Cash paid for interest
70.6 
75.7 
56.1 
Cash paid for taxes
$ 76.4 
$ 63.4 
$ 103.5 
CONSOLIDATED STATEMENTS OF CASH FLOWS CONSOLIDATED STATEMENTS OF CASH FLOWS (Parenthetical) (USD $)
In Millions, unless otherwise specified
12 Months Ended
Jan. 1, 2016
Statement of Cash Flows [Abstract]
 
Tax expense from gain on sale of business
$ 17.3 
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (USD $)
In Millions, except Share data, unless otherwise specified
Total
Common Stock [Member]
Capital Surplus [Member]
Retained Earnings [Member]
Accumulated Other Comprehensive Loss [Member]
Stockholders' equity at Jan. 02, 2015
$ 1,133.0 
$ 33.1 
$ 238.2 
$ 999.7 
$ (138.0)
Common stock, shares issued at Jan. 02, 2015
 
33,100,000 
 
 
 
Net income
127.6 
 
 
127.6 
 
Other comprehensive income (loss):
 
 
 
 
 
Foreign currency translation
(82.9)
 
 
 
(82.9)
Changes in unrealized pension cost, net of tax
(9.5)
 
 
 
(9.5)
Changes in fair market value of derivatives
(0.1)
 
 
 
(0.1)
Dividend forfeited on common stock
0.1 
 
 
0.1 
 
Stock-based compensation
14.8 
 
14.8 
 
 
Issuance of common stock and related tax benefits, shares
 
200,000 
 
 
 
Issuance Of common stock and related tax benefits
(3.6)
0.2 
(3.8)
 
 
Stockholders' equity at Jan. 01, 2016
1,179.4 
33.3 
249.2 
1,127.4 
(230.5)
Common stock, shares issued at Jan. 01, 2016
 
33,300,000 
 
 
 
Net income
120.5 
 
 
120.5 
 
Other comprehensive income (loss):
 
 
 
 
 
Foreign currency translation
(11.9)
 
 
 
(11.9)
Changes in unrealized pension cost, net of tax
(8.5)
 
 
 
(8.5)
Changes in fair market value of derivatives
 
 
 
 
Stock-based compensation
16.5 
 
16.5 
 
 
Issuance of common stock and related tax benefits, shares
 
100,000 
 
 
 
Issuance Of common stock and related tax benefits
(3.8)
0.1 
(3.9)
 
 
Stockholders' equity at Dec. 30, 2016
1,292.2 
33.4 
261.8 
1,247.9 
(250.9)
Common stock, shares issued at Dec. 30, 2016
33,437,882 
33,400,000 
 
 
 
Net income
109.0 
 
 
109.0 
 
Other comprehensive income (loss):
 
 
 
 
 
Foreign currency translation
30.7 
 
 
 
30.7 
Changes in unrealized pension cost, net of tax
9.9 
 
 
 
9.9 
Changes in fair market value of derivatives
 
 
 
 
Stock-based compensation
18.1 
 
18.1 
 
 
Issuance of common stock and related tax benefits, shares
 
300,000 
 
 
 
Issuance Of common stock and related tax benefits
(0.9)
0.3 
(1.2)
 
 
Stockholders' equity at Dec. 29, 2017
$ 1,459.0 
$ 33.7 
$ 278.7 
$ 1,356.9 
$ (210.3)
Common stock, shares issued at Dec. 29, 2017
33,657,466 
33,700,000 
 
 
 
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (Parenthetical) (USD $)
In Millions, unless otherwise specified
12 Months Ended
Dec. 29, 2017
Dec. 30, 2016
Jan. 1, 2016
Tax related to unrealized pension cost
$ (10.4)
$ 2.1 
$ 2.3 
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization: Anixter International Inc. and its subsidiaries (collectively referred to as "Anixter" or the "Company"), formerly known as Itel Corporation, which was incorporated in Delaware in 1967, is a leading distributor of enterprise cabling and security solutions, electrical and electronic wire and cable solutions and utility power solutions through Anixter Inc. and its subsidiaries.
Basis of presentation: The Consolidated Financial Statements include the accounts of Anixter International Inc. and its subsidiaries. The Company's fiscal year ends on the Friday nearest December 31 and includes 52 weeks in 2017, 2016 and 2015. Certain prior period amounts have been reclassified to conform to the current year presentation.
In 2015, Anixter sold the OEM Supply - Fasteners ("Fasteners") business, as described in Note 2. "Discontinued Operations". The assets and liabilities and operating results of the Fasteners business are presented as "discontinued operations" in the Company's Consolidated Financial Statements, and all prior periods have been revised to reflect this classification.
In the fourth quarter of 2015, in connection with the acquisition of the Power Solutions business from HD Supply, Inc., Anixter renamed its legacy Enterprise Cabling and Security Solutions segment to Network & Security Solutions ("NSS"). The low voltage business of Power Solutions was combined into the historical Electrical and Electronic Wire and Cable ("W&C") segment to form the Electrical & Electronic Solutions ("EES") segment. The high voltage business of Power Solutions formed the Utility Power Solutions ("UPS") segment.
Use of estimates: The preparation of financial statements in conformity with generally accepted accounting principles ("U.S. GAAP") requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Anixter's significant estimates include allowance for doubtful accounts, inventory obsolescence, pension obligations, goodwill and indefinite-lived intangible assets, deferred tax assets and uncertain tax positions.
Cash and cash equivalents: Cash equivalents consist of short-term, highly liquid investments that mature within three months or less. Such investments are stated at cost, which approximates fair value.
Receivables and allowance for doubtful accounts: The Company carries its accounts receivable at their face amounts less an allowance for doubtful accounts, which was $43.8 million and $43.6 million at the end of 2017 and 2016, respectively. On a regular basis, Anixter evaluates its accounts receivable and establishes the allowance for doubtful accounts based on a combination of specific customer circumstances, as well as credit conditions and history of write-offs and collections. The provision for doubtful accounts was $10.0 million, $20.1 million and $25.8 million in 2017, 2016 and 2015, respectively. A receivable is considered past due if payments have not been received within the agreed upon invoice terms. Receivables are written off and deducted from the allowance account when the receivables are deemed uncollectible.
Inventories: Inventories, consisting primarily of purchased finished goods, are stated at the lower of cost or market. Cost is determined using the average-cost method. The Company has agreements with some vendors that provide a right to return products. This right is typically limited to a small percentage of total purchases from that vendor. Such rights provide that Anixter can return slow-moving product and the vendor will replace it with faster-moving product chosen by the Company. Some vendor agreements contain price protection provisions that require the manufacturer to issue a credit in an amount sufficient to reduce Anixter's current inventory carrying cost down to the manufacturer’s current price. The Company considers these agreements in determining the reserve for obsolescence.
At December 29, 2017 and December 30, 2016, the Company reported inventory of $1,238.7 million and $1,178.3 million, respectively (net of inventory reserves of $49.5 million and $48.3 million, respectively). Each quarter the Company reviews for excess inventories and makes an assessment of the net realizable value. There are many factors that management considers in determining whether or not the amount by which a reserve should be established. These factors include the following:
 
Return or rotation privileges with vendors 
Price protection from vendors
Expected future usage
Whether or not a customer is obligated by contract to purchase the inventory
Current market pricing
Historical consumption experience
Risk of obsolescence
If circumstances related to the above factors change, there could be a material impact on the net realizable value of the inventories.
Property and equipment: At December 29, 2017, net property and equipment consisted of $115.5 million of equipment and computer software, $36.6 million of buildings and leasehold improvements and $2.2 million of land. At December 30, 2016, net property and equipment consisted of $101.9 million of equipment and computer software, $36.0 million of buildings and leasehold improvements and $2.4 million of land. Equipment and computer software are recorded at cost and depreciated by applying the straight-line method over their estimated useful lives, which range from 3 to 20 years. Buildings are recorded at cost and depreciated by applying the straight-line method over their estimated useful lives, which range from 7 to 40 years. Leasehold improvements are depreciated over their useful life or over the term of the related lease, whichever is shorter. Upon sale or retirement, the cost and related depreciation are removed from the respective accounts and any gain or loss is included in income. Maintenance and repair costs are expensed as incurred. Depreciation expense charged to continuing operations, including an immaterial amount of capital lease depreciation, was $28.2 million, $27.9 million and $22.2 million in 2017, 2016 and 2015, respectively.
The Company evaluates the recoverability of the carrying amount of our property and equipment whenever events or circumstances indicate that the carrying amount of an asset may not be fully recoverable. In order to measure an impairment loss of property and equipment, the Company estimates the fair value by using an orderly liquidation valuation. An orderly liquidation value is the amount that could be realized from a liquidation sale, given a reasonable period of time to find a purchaser (or purchasers), with the seller being compelled to sell the asset in the existing condition where it is located, as of a specific date, assuming the highest and best use of the asset by market participants. The valuation method also considers that it is physically possible, legally permissible and financially feasible to use the asset at the measurement date. The inputs used for the valuation include significant unobservable inputs, or Level 3 inputs, as described in the accounting fair value hierarchy, based on assumptions that market participants would use. A second step of the analysis is performed by comparing the orderly liquidation value to the carrying amount of that asset. The orderly liquidation values are applied against the original cost of the assets and the impairment loss measured as the difference between the liquidation value of the assets and the net book value of the assets.
Costs for software developed for internal use are capitalized when the preliminary project stage is complete and Anixter has committed funding for projects that are likely to be completed. Costs that are incurred during the preliminary project stage are expensed as incurred. Once the capitalization criteria has been met, external direct costs of materials and services consumed in developing internal-use computer software, payroll and payroll-related costs for employees who are directly associated with and who devote time to the internal-use computer software project (to the extent of their time spent directly on the project) and interest costs incurred when developing computer software for internal use are capitalized. At December 29, 2017 and December 30, 2016, capitalized costs, net of accumulated amortization, for software developed for internal use were approximately $61.6 million and $57.7 million, respectively. Amortization expense charged to continuing operations for capitalized costs was $5.5 million, $3.7 million and $2.8 million in 2017, 2016 and 2015, respectively. Interest expense incurred in connection with the development of internal use software is capitalized based on the amounts of accumulated expenditures and the weighted-average cost of borrowings for the period. Interest costs capitalized for fiscal 2017, 2016 and 2015 were $0.3 million, $0.7 million and $1.2 million, respectively.
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 these assets 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 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.
As a result of the reclassification of net sales of various product categories between segments during the first half of 2016, Anixter reassigned the carrying amount of goodwill based on the relative fair value of its reporting units. The Company then performed the quantitative two-step impairment test of goodwill for all reporting units before and after the change in composition of its segments utilizing a combination of the income and market approaches, both of which are broadly defined below. The Company concluded that no impairment of goodwill existed and the carrying amount of goodwill to be fully recoverable.
In connection with the annual assessment of goodwill at the beginning of the third quarter of 2017, 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, both of which are broadly defined below. As a result of this assessment, the Company concluded that no impairment existed and the carrying amount of goodwill to be fully recoverable.
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 (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.
Although all of the Company's reporting units had fair values that exceeded the underlying carrying values at July 1, 2017, the date of the annual assessment, the margin of fair value over carrying value of the NSS and UPS reporting units were greater than 10%, while the fair value of the EES reporting unit was less than 10% over its carrying value due to the effects of the recovering industrial economy. While the EES reporting unit's margin of fair value over carrying value continues to be less than 10%, the margin improved approximately 225 basis points from prior year. The EES reporting unit is more susceptible to impairment risk from adverse macroeconomic conditions. Any such adverse changes in the future could reduce the underlying cash flows used to estimate fair values and could result in a decline in fair value that could trigger future impairment charges relating to the EES reporting unit.
Intangible assets: As of December 29, 2017 and December 30, 2016, the Company's intangible asset balances are as follows:
 
 
 
 
December 29, 2017
 
December 30, 2016
(In millions)
 
Average useful life (in years)
 
Gross carrying amount
 
Accumulated amortization
 
Gross carrying amount
 
Accumulated amortization
Customer relationships
 
6-20
 
$
464.5

 
$
(113.2
)
 
$
458.5

 
$
(80.1
)
Exclusive supplier agreement
 
21
 
22.5

 
(3.5
)
 
22.1

 
(2.4
)
Trade names
 
3-10
 
12.8

 
(10.2
)
 
12.6

 
(7.5
)
Trade names
 
Indefinite
 
4.9

 

 
10.6

 

Non-compete agreements
 
1-5
 
6.3

 
(5.3
)
 
6.2

 
(4.6
)
Total
 
 
 
$
511.0

 
$
(132.2
)
 
$
510.0

 
$
(94.6
)

Anixter continually evaluates whether events or circumstances have occurred that would indicate the remaining estimated useful lives of intangible assets warrant revision or that the remaining balance of such assets may not be recoverable. For definite-lived intangible assets, the Company uses an estimate of the related undiscounted cash flows over the remaining life of the asset in measuring whether the asset is recoverable. Trade names that have been identified to have indefinite lives are not being amortized based on the expectation that the trade name products will generate future cash flows for the foreseeable future. In 2017, the Company recorded an impairment charge of $5.7 million related to certain indefinite-lived trade names in its NSS reporting unit. This impairment charge is included in "Operating expenses" in the Consolidated Statement of Income. The impairment charge was recorded as Anixter no longer plans to use certain trade names on certain products. All remaining indefinite-lived trade names are expected to be used on existing products for the foreseeable future.
The Company's definite-lived intangible assets are primarily related to customer relationships. In order to measure an impairment loss of customer relationships, Anixter estimates the fair value by using an excess earnings model, a form of the income approach. The analysis requires making various judgmental assumptions, including assumptions about future cash flows based on projected growth rates of revenue and expense, expectations of rates of customer attrition and working capital needs. The assumptions about future cash flows and growth rates are based on management’s forecast of the asset group. The key inputs utilized in determining the fair value of customer relationships include significant unobservable inputs, or Level 3 inputs, as described in the accounting fair value hierarchy. Inputs included discount rates derived from an estimated weighted-average cost of capital, which reflected the overall level of inherent risk of the asset group and the rate of return a market participant would expect to earn, as well as customer attrition rates.
Intangible amortization expense is expected to average $30.9 million per year for the next five years, of which $16.4 million relates to intangible assets recorded for the Power Solutions acquisition. See Note 3. "Business Combinations" for further details. The Company's definite lived intangible assets are amortized over a straight line basis as it approximates the customer attrition patterns and best estimates the use pattern of the assets.
Other, net: The following represents the components of "Other, net" as reflected in the Consolidated Statements of Income:
 
 
Twelve Months Ended
(In millions)
 
December 29,
2017
 
December 30,
2016
 
January 1,
2016
Other, net:
 
 
 
 
 
 
Foreign exchange
 
$
(3.4
)
 
$
(10.8
)
 
$
(14.9
)
Foreign exchange devaluations
 

 

 
(3.6
)
Cash surrender value of life insurance policies
 
2.4

 
1.2

 
(0.8
)
Other
 
0.2

 
0.5

 
(1.8
)
Total other, net
 
$
(0.8
)
 
$
(9.1
)
 
$
(21.1
)

In the fourth quarter of 2015, the Argentine peso was devalued by approximately 40% against the U.S. dollar ("USD") due to the loosening of currency controls. In the first quarter of 2015, the Venezuelan government changed its policy regarding the bolivar, which required us to use the Sistema Marginal de Divisas or Marginal Exchange System ("SIMADI") a "completely free floating" rate. As a result, the Venezuelan bolivar was devalued from approximately 52.0 bolivars to one USD to approximately 200.0 bolivars to one USD in the year ended January 1, 2016. Due to these devaluations, the Company recorded a foreign exchange loss of $3.6 million for the year ended January 1, 2016. During 2016, the Venezuelan bolivar was devalued from approximately 200.0 bolivars to one USD to approximately 673.0 bolivars to one USD. During 2017, the Venezuelan bolivar was devalued from approximately 673.0 bolivars to one USD to approximately 3,345.0 bolivars to one USD, which is expected to be the rate available in the event Anixter repatriates cash from Venezuela. The 2016 and 2017 devaluations did not have a material impact on the Consolidated Financial Statements as Anixter had minimal exposure remaining in Venezuela.
Due to fluctuations in the USD against certain foreign currencies, primarily in Europe, Canada and Latin America, the Company recorded additional foreign exchange losses of $3.4 million, $10.8 million and $14.9 million in 2017, 2016 and 2015, respectively.
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 Consolidated Statements of 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 perfectly 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 December 29, 2017 and December 30, 2016, foreign currency forward contracts were revalued at then-current foreign exchange rates with the changes in valuation reflected directly in "Other, net" in the Consolidated Statements of Income offsetting the transaction gain/loss recorded on the foreign currency-denominated accounts. At December 29, 2017 and December 30, 2016, the gross notional amount of the foreign currency forward contracts outstanding was approximately $246.3 million and $114.8 million, respectively. At December 29, 2017 and December 30, 2016, the net notional amount of the foreign currency forward contracts outstanding was approximately $125.7 million and $90.9 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 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.
Fair value measurement: Assets and liabilities measured at fair value on a recurring basis consist of foreign currency forward contracts and the assets of Anixter's defined benefit plans. The fair value of the foreign currency forward contracts is discussed above in the section titled "Other, net." The fair value of the assets of Anixter's defined benefit plans is discussed in Note 9. "Pension Plans, Post-Retirement Benefits and Other Benefits". Fair value disclosures of debt are discussed in Note 6. "Debt".
The Company measure the fair values of goodwill, intangible assets and property and equipment on a nonrecurring basis if required by impairment tests applicable to these assets. The fair value measurements of goodwill, intangible assets and property and equipment are discussed above.
The inputs used in the determination of fair values are categorized according to the fair value hierarchy as being Level 1, Level 2 or Level 3. In general, fair values determined by Level 1 inputs use quoted prices in active markets for identical assets or liabilities. Fair values determined by Level 2 inputs use other inputs that are observable, either directly or indirectly. These Level 2 inputs include quoted prices for similar assets or liabilities in active markets, and other inputs such as interest rates and yield curves that are observable at commonly quoted intervals. Level 3 inputs are unobservable inputs, including inputs that are available in situations where there is little, if any, market activity for the related asset or liability. In instances where inputs used to measure fair value fall into different levels in the above fair value hierarchy, fair value measurements in their entirety are categorized based on the lowest level input that is significant to the valuation. The assessment of the significance of particular inputs to these fair value measurements requires judgment and considers factors specific to each asset or liability.
Revenue recognition: Sales to customers and related cost of sales are recognized upon transfer of title and risk of loss when there is persuasive evidence of an arrangement, when the price is fixed and determinable and when collectability is reasonably assured, which generally occurs on shipment of the products, upon delivery at the customer's designated location, or when services have been rendered.
Revenue is recorded net of customer discounts, rebates and similar charges. The Company also establishes a reserve for expected returns and credits that will be provided to customers based on an analysis of historical experience, which was $35.9 million and $34.9 million at December 29, 2017 and December 30, 2016, respectively.
In instances where goods are not in stock and delivery times are critical, product is purchased from the manufacturer and drop-shipped to the customer. Anixter generally takes title to the goods when shipped by the manufacturer and then bills the customer for the product upon transfer of the title and risk of loss to the customer.
Sales taxes: Sales tax amounts collected from customers for remittance to governmental authorities are presented on a net basis in the Consolidated Statements of Income.
 
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 $10.6 million, $12.4 million and $13.2 million in 2017, 2016 and 2015, 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 $119.1 million, $113.9 million and $102.7 million in 2017, 2016 and 2015, 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.
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, foreign currency translation and certain immaterial derivative transactions that have been designated as cash flow hedges. See Note 9. "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 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.
Income taxes: Deferred taxes are recognized for the future tax effects of temporary differences between financial and income tax reporting based upon enacted tax laws and rates. The Company maintains valuation allowances to reduce deferred tax assets if it is more likely than not that some portion or all of the deferred tax asset will not be realized based on available evidence. Anixter recognizes the benefit of tax positions when a benefit is more likely than not (i.e., greater than 50% likely) to be sustained on its technical merits. Recognized tax benefits are measured at the largest amount that is more likely than not to be sustained, based on cumulative probability, in final settlement of the position.

Net income per share: Diluted net income per share reflects the potential dilution that would occur if securities or other contracts to issue common stock were exercised or converted into common stock.
The Company had 0.4 million in 2017 and 0.2 million in 2016 and 2015, of additional shares related to stock options and stock units included in the computation of diluted earnings per share because the effect of those common stock equivalents were dilutive during these periods. Antidilutive stock options and units are excluded from the calculation of weighted-average shares for diluted earnings per share. For 2017, 2016 and 2015, the antidilutive stock options and units were immaterial.
Recently issued and adopted accounting pronouncements: In March 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2016-09, Compensation - Stock Compensation: Improvements to Employee Share-Based Payment Accounting, which changes how companies account for certain aspects of share-based payments to employees. The new guidance requires all income tax effects of awards to be recognized in the income statement when the awards vest or are settled, allows an employer to repurchase more of an employee’s shares than previously allowed for tax withholding purposes without triggering liability accounting, allows a company to make a policy election to account for forfeitures as they occur, and eliminates the requirement that excess tax benefits be realized before companies can recognize them. The new guidance also requires excess tax benefits and tax shortfalls to be presented on the cash flow statement as an operating activity rather than as a financing activity, and clarifies that cash paid to a tax authority when shares are withheld to satisfy its statutory income tax withholding obligation are to be presented as a financing activity. The standard is effective for the Company's financial statements issued for fiscal years beginning after December 15, 2016, and interim periods within those fiscal years. The Company adopted this guidance in the first quarter of fiscal year 2017. On a prospective basis, excess tax benefits recognized on stock-based compensation expense were reflected as a component of the provision for income taxes. As allowed by the new guidance, the Company has elected to account for forfeitures as they occur. Anixter has also elected to present the cash flow statement on a retrospective transition method and prior periods have been adjusted to present the excess tax benefits as part of cash flows from operating activities. The result of this adoption did not have a material impact on the Consolidated Financial Statements.
Recently issued accounting pronouncements not yet adopted: In May 2014, the FASB issued 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, and in doing so, it is possible more judgment and estimates may be required within the revenue recognition process than are required under current guidance, including identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each separate performance obligation, among others. 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 will adopt the new revenue recognition guidance in the first quarter of fiscal year 2018 utilizing the modified retrospective method of adoption. The Company has developed a multi-phase plan to assess the impact of adoption on its material revenue streams, evaluate the new disclosure requirements, and identify and implement appropriate changes to its business processes, systems and controls to support recognition and disclosure under the new guidance. The Company has updated its existing accounting policies, implemented new controls and is evaluating the expanded disclosure requirements. The Company does not expect the cumulative effect adjustment, if any, to be material to the Consolidated Financial Statements.
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 anticipates adopting the new lease guidance in the first quarter of our fiscal year 2019. The Company has established an implementation team and is currently evaluating the impact of adoption of this ASU on its Consolidated Financial Statements.
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 on its Consolidated Financial Statements.
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 is effective for Anixter's financial statements issued for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. The Company has adopted this standard as of the first quarter of fiscal year 2018 and will consider this guidance if a transaction should occur after this adoption date.
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 evaluating the impact of adoption of this ASU on its methodology for evaluating goodwill for impairment subsequent to adoption of this standard.
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 is effective for Anixter's financial statements issued for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted as of the beginning of an annual period for which financial statements have not been issued or made available for issuance. Upon adoption, ASU 2017-07 requires 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 will be recognized within "Operating expenses" in the Income Statement. All other components of net benefit costs will be recorded in "Other, net" in the Company's Income Statement.
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 will be applied prospectively to awards modified on or after the adoption date. The standard is effective for Anixter’s financial statements issued for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted. The Company is currently evaluating the impact of adoption of this ASU, but it is not expected to have a material effect on its 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 Consolidated Financial Statements or disclosures.
DISCONTINUED OPERATIONS
DISCONTINUED OPERATIONS
DISCONTINUED OPERATIONS
    
On February 9, 2015, Anixter's Board of Directors approved the disposition of the OEM Supply - Fasteners ("Fasteners") business. On February 11, 2015, through its wholly-owned subsidiary Anixter Inc., Anixter entered into a definitive asset purchase agreement with American Industrial Partners ("AIP") to sell the Fasteners business for $380.0 million in cash, subject to certain post-closing adjustments. The Company closed the sale of the Fasteners business to AIP, excluding certain foreign locations which were subsequently sold, on June 1, 2015 and settled all net working capital adjustments relating to these entities in the fourth quarter of 2015. Anixter received cash of $371.8 million on the sale of the Fasteners business. Including transaction related costs of $16.4 million, the sale resulted in a pre-tax gain of $40.3 million ($23.3 million, net of tax).

The assets and liabilities and operating results of the Fasteners business are presented as "Discontinued operations" in Anixter's Consolidated Financial Statements. Current assets of discontinued operations are presented within "Other current assets" in the Consolidated Balance Sheets. Current and long-term liabilities of discontinued operations are presented within "Accrued expenses" and "Other liabilities," respectively, in the Consolidated Balance Sheets. The components of the results from discontinued operations reflected in Anixter's Consolidated Statements of Cash Flows were immaterial.

Interest costs were allocated to discontinued operations as a result of the sale of the Fasteners business. There were no allocated interest costs in the years ended December 29, 2017 and December 30, 2016. The allocated interest costs were $1.1 million in the twelve months ended January 1, 2016. This represents the amount of interest costs not directly attributable to Anixter's other operations that would not have been incurred if the Company had the proceeds from the sale of the Fasteners business at the beginning of the period.

In connection with the disposition of the Fasteners business, the Company recognized a pension curtailment gain of $5.1 million and special termination benefit costs of $0.3 million in 2015.

The following represents the components of the results from discontinued operations as reflected in the Company's Consolidated Statements of Income:
 
 
Twelve Months Ended
(In millions)
 
December 30,
2016
 
January 1,
2016
Net sales
 
$
1.7

 
$
405.9

Operating (loss) income
 
$
(0.2
)
 
$
14.2

(Loss) income from discontinued operations before income taxes
 
$
(0.1
)
 
$
11.9

(Loss) gain on sale of discontinued operations
 
$
(0.7
)
 
$
41.0

Income tax (benefit) expense from discontinued operations
 
$
(0.2
)
 
$
22.2

Net (loss) income from discontinued operations
 
$
(0.6
)
 
$
30.7



As reflected on the Company's Consolidated Balance Sheets as of December 30, 2016, the components of assets and liabilities of the Fasteners businesses classified as "discontinued operations" are as follows:
(In millions)
December 30,
2016
Assets of discontinued operations:
 
Accounts receivable
$
0.1

Other current assets
0.1

Total assets of discontinued operations
$
0.2

 
 
Liabilities of discontinued operations:
 
Accounts payable
$
0.2

Accrued expenses
2.2

Total liabilities of discontinued operations
$
2.4

BUSINESS COMBINATION
BUSINESS COMBINATION
BUSINESS COMBINATIONS
Power Solutions Acquisition
On October 5, 2015, the Company completed the acquisition of the Power Solutions business ("Power Solutions") from HD Supply, Inc. in exchange for $829.4 million (net of cash and outstanding checks of $11.7 million). The acquisition was financed using borrowings under new financing arrangements and cash on hand.
Power Solutions was a compelling strategic acquisition that significantly enhances Anixter's competitive position in the electrical wire and cable business and further strengthens its customer and supplier value proposition. In addition to transforming the Company's existing utility business into a leading North American distributor to the utility sector, this acquisition enables the Company to provide a full line electrical solution to its existing customers and provides broader access to the mid-size electrical construction market. The high voltage business of Power Solutions forms the Utility Power Solutions ("UPS") segment within the Company's realigned reportable segments. The low voltage business of Power Solutions was combined into the historical Electrical and Electronic Wire and Cable ("W&C") segment to form the Electrical & Electronic Solutions ("EES") segment.
The following table sets forth the final purchase price allocation, as of the acquisition date, for Power Solutions. The purchase price allocation, including the valuation of the acquired leases, intangible assets and related deferred tax liabilities was completed in the third quarter of 2016.
(In millions)
 
 
 
Cash
 
 
$
11.7

Current assets, net
 
 
560.1

Property and equipment, net
 
 
30.6

Goodwill
 
 
194.8

Intangible assets
 
 
280.9

Non-current assets
 
 
5.6

Current liabilities
 
 
(234.1
)
Non-current liabilities
 
 
(8.5
)
Total purchase price
 
 
$
841.1


Power Solutions goodwill of $35.4 million and $159.4 million was recorded in the EES and UPS reportable segments, respectively. The goodwill resulting from the acquisition largely consists of the Company's expected future product sales and synergies from combining Power Solutions products with its existing product offerings. Other than $81.0 million, the remaining goodwill is not deductible for tax purposes. The following table sets forth the components of identifiable intangible assets acquired and their estimated useful lives as of the date of the acquisition:
(In millions)
Average useful life (in years)
 
Fair value
Customer relationships
14-18
 
$
278.5

Non-compete agreements
1
 
2.4

Total intangible assets
 
 
$
280.9



Pro Forma Information

The following unaudited pro forma information shows the Company's results of operations as if the acquisition of Power Solutions had been completed as of the beginning of fiscal 2015. Adjustments have been made for the pro forma effects of interest expense and deferred financing costs related to the financing for the acquisition, depreciation and amortization of tangible and intangible assets recognized as part of the business combination, related income taxes and various other costs which would not have been incurred had Anixter and Power Solutions operated as a combined entity.
 
 
Twelve Months Ended
(In millions, except per share amounts)
 
January 1, 2016
Net sales
 
$
7,733.4

Net income from continuing operations
 
$
107.1

Income per share from continuing operations:
 
 
Basic
 
$
3.22

Diluted
 
$
3.20

ACCRUED EXPENSES
Accrued Liabilities Disclosure [Text Block]
ACCRUED EXPENSES
Accrued expenses consisted of the following:
 
 
 
December 29,
2017
 
December 30,
2016
(In millions)
 
 
 
 
Salaries and fringe benefits
 
$
110.6

 
$
105.2

Other accrued expenses
 
158.6

 
150.3

Total accrued expenses
 
$
269.2

 
$
255.5

RESTRUCTURING CHARGES
RESTRUCTURING AND OTHER CHARGES
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 2016
Plan
 
Q4 2015
Plan
 
Q2 2015
Plan
 
Q4 2012
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)
 
Facility Exit and Other Costs (b)
 
Employee-Related Costs (a)
 
Facility Exit and Other Costs (b)
Balance at January 1, 2016
$

 
$

 
$
3.0

 
$
0.2

 
$
1.0

 
$
0.4

 
$
4.0

 
$
0.6

Charges
4.3

 
1.5

 
(0.4
)
 

 

 

 
3.9

 
1.5

Payments and other
(2.4
)
 
(0.3
)
 
(1.3
)
 
(0.2
)
 
(0.7
)
 
(0.2
)
 
(4.4
)
 
(0.7
)
Balance at December 30, 2016
$
1.9

 
$
1.2

 
$
1.3

 
$

 
$
0.3

 
$
0.2

 
$
3.5

 
$
1.4

Payments and other
(1.4
)
 
(0.7
)
 
(0.7
)
 

 
(0.2
)
 

 
(2.3
)
 
(0.7
)
Balance at December 29, 2017
$
0.5

 
$
0.5

 
$
0.6

 
$

 
$
0.1

 
$
0.2

 
$
1.2

 
$
0.7


(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 2016 Restructuring Plan
In the second quarter of 2016, the Company recorded a pre-tax charge of $2.1 million, $1.4 million, and $2.2 million in its NSS, EES, and UPS segments, respectively, and an additional $0.1 million at its corporate headquarters, primarily for severance-related expenses associated with a reduction of approximately 150 positions. The $5.8 million charge primarily reflects actions being taken to improve efficiencies in Canada and Latin America as well with the acquisition of Power Solutions. This charge was included in "Operating expenses" in the Company's Consolidated Statement of Comprehensive Income in the second quarter of 2016. The majority of the remaining charge included in accrued expenses of $1.0 million as of December 29, 2017 is expected to be paid by the second quarter of 2018.
Q4 2015 Restructuring Plan
In the fourth quarter of 2015, the Company recorded a pre-tax charge of $1.0 million, $2.3 million and $0.1 million in its NSS, EES, and UPS segments, respectively, primarily for severance-related expenses associated with a reduction of approximately 80 positions. The $3.4 million charge primarily reflects actions being taken to improve efficiencies in conjunction with the acquisition of Power Solutions. This charge was included in "Operating expenses" in the Company's Consolidated Statement of Comprehensive Income for fiscal year 2015. The majority of the remaining charge included in accrued expenses of $0.6 million as of December 29, 2017 is expected to be paid by the second quarter of 2018.
Q2 2015 Restructuring Plan
In the second quarter of 2015, the Company recorded a pre-tax charge of $3.0 million and $2.2 million in its NSS and EES segments, respectively, and an additional $0.1 million at its corporate headquarters for severance-related expenses associated with a reduction of approximately 100 positions. The $5.3 million charge reflects actions taken to improve efficiencies and eliminate the stranded costs in conjunction with the sale of the Fasteners business. In the fourth quarter of 2015, the Company reduced the charge by $0.5 million, primarily in its EES segment, due to a reduction in estimated future obligations under the plan. This charge was included in "Operating expenses" in the Company's Consolidated Statement of Comprehensive Income for fiscal year 2015. The majority of the remaining charge included in accrued expenses of $0.1 million as of December 29, 2017 is expected to be paid by the second quarter of 2018.
DEBT
DEBT
DEBT
Debt is summarized below:
(In millions)
 
December 29,
2017
 
December 30,
2016
Long-term debt:
 
 
 
 
5.50% Senior notes due 2023
 
$
346.8

 
$
346.3

5.125% Senior notes due 2021
 
396.5

 
395.7

5.625% Senior notes due 2019
 
348.6

 
347.7

Canadian term loan
 

 
95.4

Revolving lines of credit
 
159.0

 
197.1

Other
 
1.7

 
3.5

Unamortized deferred financing costs
 
(4.7
)
 
(6.9
)
Total long-term debt
 
$
1,247.9

 
$
1,378.8


 
Certain debt agreements entered into by Anixter's operating subsidiaries contain various restrictions, including restrictions on payments to the Company. These restrictions have not had, nor are expected to have, an adverse impact on the Company's ability to meet cash obligations. Anixter International Inc. has guaranteed substantially all of the debt of its subsidiaries.
Aggregate annual maturities of debt before accretion of debt discount as reflected on the Consolidated Balance Sheet at December 29, 2017 are as follows: 2018 - $1.7 million, 2019 - $348.6 million, 2020 - $159.0 million, 2021 - $396.5 million, 2022 - $0.0 million and $346.8 million thereafter.
The Company's average borrowings outstanding was $1,404.9 million and $1,649.0 million for the fiscal years ending December 29, 2017 and December 30, 2016, respectively. The Company's weighted-average cost of borrowings was 5.3% for the year ended December 29, 2017, and 4.8% for the years ended December 30, 2016 and January 1, 2016. Interest paid in 2017, 2016 and 2015 was $70.6 million, $75.7 million and $56.0 million, respectively.
At the end of fiscal 2017, Anixter had approximately $419.8 million and $134.0 million in available, committed, unused borrowings under the $600.0 million U.S. accounts receivable asset based five-year revolving credit facility and $150.0 million U.S. inventory asset based five-year revolving credit facility, respectively. All credit lines are with financial institutions with investment grade credit ratings. Borrowings under these facilities are limited based on the borrowing base criteria as described below.
The Company is in compliance with all of its covenant ratios and believes that there is adequate margin between the covenant ratios and the actual ratios given the current trends of the business.

Revolving Lines of Credit and Canadian Term Loan

On October 5, 2015, Anixter, through its wholly-owned subsidiaries, Anixter Inc., Anixter Receivables Corporation ("ARC") and Anixter Canada Inc., entered into certain financing transactions in connection with the consummation of the acquisition of Power Solutions, including a U.S. accounts receivable asset based five-year revolving credit facility in an aggregate committed amount of $600.0 million ("Receivables Facility"), a U.S. inventory asset based five-year revolving credit facility in an aggregate committed amount of $150.0 million ("Inventory Facility") for a U.S. combined commitment of $750.0 million ("Combined Commitment"). Additionally, the Company entered into a Canadian term loan facility in Canada in an aggregate principal amount of $300.0 million Canadian dollars, the equivalent to approximately $225.0 million USD, with a five-year maturity ("Canadian Term Loan"). In connection with these financing transactions, the Company incurred approximately $6.7 million in financing transaction costs, of which approximately $5.4 million was capitalized as deferred financing costs and will be amortized through maturity using the straight-line method, and approximately $1.3 million was expensed as incurred. These financing arrangements are described in greater detail below.

Receivables Facility

On October 5, 2015, Anixter, through its wholly-owned subsidiary, ARC, entered into a Receivables Facility, which is a receivables based five-year revolving credit facility in an aggregate committed amount of $600.0 million. Borrowings under the Receivables Facility are secured by a first lien on all assets of ARC and supported by an unsecured guarantee by Anixter International, Inc.

The Receivables Facility has a borrowing base of 85% of eligible receivables, subject to certain reserves.

In connection with the entry into the Receivables Facility, Anixter Inc. and ARC terminated its existing Second Amended and Restated Receivables Purchase Agreement (the "RPA").

In connection with the entry into the Receivables Facility, on October 5, 2015, Anixter Inc. and ARC entered into a Third Amended and Restated Receivables Sale Agreement (the "Amended and Restated RSA"), which amended and restated the existing Second Amended and Restated Sales Agreement. The purpose of the Amended and Restated RSA is (i) to reflect the entry into the Receivables Facility and the termination of the RPA, and (ii) to include in the receivables sold by Anixter Inc. to ARC receivables originated by Tri-Northern Holdings, Inc. and its subsidiaries (collectively, the "Tri-Ed Subsidiaries") and subsidiaries acquired in the Power Solutions acquisition (the "Power Solutions Subsidiaries").

Inventory Facility

On October 5, 2015, Anixter and certain of its wholly-owned subsidiaries, including the Tri-Ed Subsidiaries and Power Solutions Subsidiaries, entered into the Inventory Facility, an asset based lending five-year revolving credit facility, in an aggregate committed amount of $150.0 million. Borrowings under the Inventory Facility are secured by a first lien on Anixter Inc.'s and certain of its subsidiaries' personal property and supported by a guarantee by Anixter International Inc.

The Inventory Facility has a borrowing base, (a) with respect to appraised eligible domestic inventory, of the lesser of (i) 85% of the net orderly liquidation value of such inventory; and (ii) 75% of book value of such inventory, plus, (b) with respect to eligible domestic inventory not appraised, 40% of the net orderly liquidation value of such inventory, less (c) certain reserves.

The Receivables Facility and the Inventory Facility (collectively, the "Combined Facilities")

The Combined Facilities drawn pricing will range from LIBOR plus 125 basis points when the combined unused availability (the "Combined Availability") under the Combined Facilities is greater than $500.0 million to LIBOR plus 175 basis points when Combined Availability is less than $250.0 million. Undrawn fees will be 25 basis points if greater than/equal to 50% of the Combined Commitment is drawn and 37.5 basis points if less than 50% of the Combined Commitment is drawn.

Acquisitions and restricted payments will be permitted, subject to, among other things, (i) Combined Availability of at least $150.0 million after giving pro forma effect to any acquisition or restricted payment or (ii) (a) Combined Availability of at least $112.5 million and (b) maintenance of a minimum fixed charge coverage ratio of at least 1.1x, after giving pro forma effect to the acquisition or restricted payment.

The Combined Facilities provides for customary representations and warranties and customary events of default, generally with corresponding grace periods, including, without limitation, payment defaults with respect to the facility, covenant defaults, cross-defaults to other agreements evidencing material indebtedness, certain judgments and events of bankruptcy.
In connection with the new financing arrangements described above, on October 5, 2015, the Company terminated its $400.0 million (or the equivalent in euro) 5-year senior unsecured revolving credit agreement and repaid its borrowings under the $200.0 million term loan in connection with the new financing arrangements.

Canadian Term Loan

On October 5, 2015, Anixter, through its wholly-owned subsidiaries, Anixter Canada Inc. and Tri-Ed ULC, entered into a $300.0 million Canadian dollars (equivalent to approximately $225.0 million USD) Canadian Term Loan. During 2017 and 2016, the Company repaid $100.2 million and $83.7 million, respectively, of the outstanding balance. The Company incurred $0.2 million and $0.5 million of additional interest expense in 2017 and 2016, respectively, due to the write-off of deferred financing costs on the early payment of debt. The Canadian Term Loan was guaranteed by all present and future material Canadian subsidiaries of Anixter Canada Inc. and Tri-Ed ULC as well as Anixter Mid Holdings BV. The Canadian Term Loan was secured by a first priority security interest in all of the assets of Anixter Canada Inc. and each of its Canadian subsidiaries, which comprised the borrowing group.

In the fourth quarter of 2017, the Company paid off the Canadian Term Loan in full.

The Canadian Term Loan had a five-year maturity. The drawn pricing ranged from 0.375% to 1.250% over prime and 1.375% to 2.250% over the banker’s acceptance rate, depending on consolidated leverage ranging from less than or equal to 1.25x to equal to or greater than 3.00x. The Canadian Term Loan amortized 5% in each of years 1 and 2, 10% in each of years 3 and 4 and 70% in year 5.

The borrowing group for the Canadian Term Loan initially was subject to a maximum leverage ratio of 4.25x and a minimum fixed charge coverage ratio of 3.0x.

The Canadian Term Loan provided for customary representations and warranties and customary events of default, generally with corresponding grace periods, including, without limitation, payment defaults with respect to the facility, covenant defaults, cross-defaults to other agreements evidencing material indebtedness, certain judgments and events of bankruptcy.

The Company is in compliance with all of the covenant ratios and believes there is adequate margin between the covenant ratios and the actual ratios given the current trends of the business.
5.50% Senior Notes Due 2023
On August 18, 2015, the Company's primary operating subsidiary, Anixter Inc., completed the issuance of $350.0 million principal amount of Senior notes due 2023 ("Notes due 2023"). The Notes due 2023 were issued at a price that was 98.75% of par, which resulted in a discount related to underwriting fees of $4.4 million. The discount is reported on the Consolidated Balance Sheet as a reduction to the face amount of the Notes due 2023 and is being amortized to interest expense over the term of the related debt, using the effective interest method. In addition, $1.7 million of deferred financing costs were paid, which are being amortized through maturity using the straight-line method. The Notes due 2023 pay interest semi-annually at a rate of 5.5% per annum and will mature on March 1, 2023. In addition, Anixter Inc. may at any time redeem some or all of the Notes due 2023 at a price equal to 100% of the principal amount plus a "make whole" premium. If the Company experiences certain kinds of changes of control, Anixter Inc. must offer to repurchase all of the Notes due 2023 outstanding at 101% of the aggregate principal amount repurchased, plus accrued and unpaid interest. The proceeds were used to partially finance the Power Solutions acquisition. Anixter International Inc. fully and unconditionally guarantees the Notes due 2023, which are unsecured obligations of Anixter Inc.
5.125% Senior Notes Due 2021
On September 23, 2014, the Company's primary operating subsidiary, Anixter Inc., completed the issuance of $400.0 million principal amount of Senior notes due 2021 ("Notes due 2021"). The Notes due 2021 were issued at a price that was 98.50% of par, which resulted in a discount related to underwriting fees of $6.0 million. Net proceeds from this offering were approximately $393.1 million after also deducting for approximately $0.9 million of deferred financing costs paid that are being amortized through maturity using the straight-line method. The discount is reported on the Consolidated Balance Sheet as a reduction to the face amount of the Notes due 2021 and is being amortized to interest expense over the term of the related debt, using the effective interest method. The Notes due 2021 pay interest semi-annually at a rate of 5.125% per annum and will mature on October 1, 2021. In addition, Anixter Inc. may at any time redeem some or all of the Notes due 2021 at a price equal to 100% of the principal amount plus a "make whole" premium. If Anixter Inc. and/or the Company experience certain kinds of changes of control, it must offer to repurchase all of the Notes due 2021 outstanding at 101% of the aggregate principal amount repurchased, plus accrued and unpaid interest. The proceeds were used by Anixter Inc. to repay amounts outstanding under the accounts receivable credit facility, to repay certain additional borrowings under the 5-year senior unsecured revolving credit agreement that had been incurred for the specific purpose of funding the Tri-Ed acquisition, to provide additional liquidity for maturing indebtedness and for general corporate purposes. Anixter International Inc. fully and unconditionally guarantees the Notes due 2021, which are unsecured obligations of Anixter Inc.
5.625% Senior Notes Due 2019
On April 30, 2012, the Company's primary operating subsidiary, Anixter Inc., completed the issuance of $350.0 million principal amount of Senior notes due 2019 ("Notes due 2019"). The Notes due 2019 were issued at a price that was 98.25% of par, which resulted in a discount related to underwriting fees of $6.1 million. Net proceeds from this offering were approximately $342.9 million after also deducting for approximately $1.0 million of deferred financing costs paid that are being amortized through maturity using the straight-line method. The discounts are reported on the Consolidated Balance Sheet as a reduction to the face amount of the Notes due 2019 and are being amortized to interest expense over the term of the related debt, using the effective interest method. The Notes due 2019 pay interest semi-annually at a rate of 5.625% per annum and will mature on May 1, 2019. In addition, Anixter Inc. may at any time redeem some or all of the Notes due 2019 at a price equal to 100% of the principal amount plus a "make whole" premium. If Anixter Inc. and/or the Company experience certain kinds of changes of control, it must offer to repurchase all of the Notes due 2019 outstanding at 101% of the aggregate principal amount repurchased, plus accrued and unpaid interest. The proceeds were used by Anixter Inc. to repay amounts outstanding under the accounts receivable securitization facility, to repay certain borrowings under the 5-year senior unsecured revolving credit agreement, to provide additional liquidity for the Company's maturing indebtedness and for general corporate purposes. Anixter International Inc. fully and unconditionally guarantees the Notes due 2019, which are unsecured obligations of Anixter Inc.
Accounts Receivable Securitization Program
Under the Company's prior accounts receivable securitization program, it sold, on an ongoing basis without recourse, a portion of its accounts receivables originating in the U.S. to ARC, which was considered a wholly-owned, bankruptcy-remote variable interest entity ("VIE"). Anixter had the authority to direct the activities of the VIE and, as a result, concluded that it maintained control of the VIE, was the primary beneficiary (as defined by accounting guidance) and, therefore, consolidated the account balances of ARC. In connection with the new financing arrangements described above, on October 5, 2015 the Company terminated this accounts receivable securitization facility.

Short-term borrowings
Anixter has borrowings under other bank revolving lines of credit totaling $1.7 million and $3.5 million at the end of fiscal 2017 and 2016, respectively. The Company's short-term borrowings have maturity dates within the next fiscal year. However, all of the borrowings at the end of fiscal 2017 have been classified as long-term at December 29, 2017, as the Company has the intent and ability to refinance the debt under existing long-term financing agreements.
Retirement of Debt

In the fourth quarter of 2017, the Company paid off the Canadian Term Loan in full.
In connection with the new financing arrangements described above, on October 5, 2015, Anixter terminated its $300.0 million accounts receivable securitization facility and $400.0 million (or the equivalent in euro) 5-year senior unsecured revolving credit agreement and repaid its borrowings under the $200.0 million term loan. Upon the termination of these facilities and repayment of the $200.0 million term loan, the Company incurred a $0.9 million loss on the extinguishment of debt in the fourth quarter of 2015, representing a write-off of a portion of unamortized deferred financing costs. The remaining unamortized deferred financing costs are being amortized through maturity of the new financing arrangements using the straight-line method.
In the first quarter of 2015, Anixter retired its 5.95% Senior notes due 2015 upon maturity for $200.0 million. Available borrowings under existing long-term financing agreements were used to settle the maturity value.
The retirement of debt did not have a significant impact on the Company's Consolidated Statements of Income.
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 December 29, 2017, the Company's total carrying value and estimated fair value of debt outstanding was $1,247.9 million and $1,317.8 million, respectively. This compares to a carrying value and estimated fair value of debt outstanding at December 30, 2016 of $1,378.8 million and $1,435.6 million, respectively. The decrease in the carrying value and estimated fair value is primarily due to lower outstanding borrowings under Anixter's revolving lines of credit and repayment of the Canadian Term Loan in full.
COMMITMENTS AND CONTINGENCIES
COMMITMENTS AND CONTINGENCIES
COMMITMENTS AND CONTINGENCIES
Substantially all of Anixter's office and warehouse facilities are leased under operating leases. A certain number of these leases are long-term operating leases containing rent escalation clauses and expire at various dates through 2038. Most operating leases entered into contain renewal options. The gross amount of assets recorded under capital leases was immaterial as of December 29, 2017 and December 30, 2016.
Minimum lease commitments under operating leases at December 29, 2017 are as follows:
(In millions)
 
2018
$
67.2

2019
51.6

2020
40.8

2021
33.4

2022
24.6

2023 and thereafter
62.4

Total
$
280.0


Total rental expense was $100.9 million, $97.8 million and $78.0 million in 2017, 2016 and 2015, respectively. Aggregate future minimum rentals to be received under non-cancelable subleases at December 29, 2017 were $5.6 million.
As of December 29, 2017, the Company had $42.0 million in outstanding letters of credit and guarantees.
From time to time, Anixter is party to legal proceedings and matters that arise in the ordinary course of business. As of December 29, 2017, 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.
INCOME TAXES
INCOME TAXES
 INCOME TAXES
Income Before Tax Expense: Domestic income before income taxes was $178.1 million, $162.4 million and $167.3 million for 2017, 2016 and 2015, respectively. Foreign income before income taxes was $59.5 million, $35.1 million and $15.6 million for fiscal years 2017, 2016 and 2015, respectively.
Tax Provisions and Reconciliation to the Statutory Rate: The components of Anixter's tax expense from continuing operations and the reconciliation to the statutory federal rate are identified below. Income tax expense was comprised of:
(In millions)
 
Years Ended
 
 
December 29,
2017
 
December 30,
2016
 
January 1,
2016
Current:
 
 
 
 
 
 
Foreign
 
$
21.7

 
$
18.5

 
$
14.1

State
 
8.3

 
7.0

 
7.2

Federal
 
99.4

 
50.2

 
58.8

 
 
129.4

 
75.7

 
80.1

Deferred:
 
 
 
 
 
 
Foreign
 
0.2

 
(2.8
)
 
7.1

State
 
2.0

 
0.2

 
(0.7
)
Federal
 
(3.0
)
 
3.3

 
(0.5
)
 
 
(0.8
)
 
0.7

 
5.9

Income tax expense
 
$
128.6

 
$
76.4

 
$
86.0


Reconciliations of income tax expense to the statutory corporate federal tax rate of 35% were as follows:
(In millions)
 
Years Ended
 
 
December 29,
2017
 
December 30,
2016
 
January 1,
2016
Statutory tax expense
 
$
83.2

 
$
69.1

 
$
64.0

Increase (reduction) in taxes resulting from:
 
 
 
 
 
 
State income taxes, net
 
4.4

 
4.5

 
4.7

Foreign tax effects
 
2.0

 
1.8

 
6.3

Change in valuation allowance
 
(0.3
)
 
1.6

 
9.3

Impact of tax legislation
 
35.6

 

 

Other, net
 
3.7

 
(0.6
)
 
1.7

Income tax expense
 
$
128.6

 
$
76.4

 
$
86.0



Impact of Tax Legislation: On December 22, 2017, the Tax Cuts and Jobs Act (the “Act”) was signed into law. The Act made significant changes to the U.S. tax code. The changes impacting the Company beginning in the fourth quarter of 2017, the period of enactment, include:
The reduction of the U.S. corporate tax rate to 21% results in an adjustment to the Company's U.S. deferred tax assets and liabilities to the lower rate. The impact of the deferred tax adjustment was measured and recorded as an increase in earnings for the quarter ending December 29, 2017, of $14.4 million; and
The tax reform legislation will subject the earnings of the Company's cumulative foreign earnings and profits to U.S. income taxes as a deemed repatriation. The estimated provisional impact of the deemed repatriation decreased earnings for the quarter ending December 29, 2017 by $50.0 million. This estimate will be revised during 2018.
The expected one-time impact and effect on Anixter's future earnings may differ from this initial assessment due to, among other things, changes in interpretations and assumptions made, guidance that has yet to be issued by applicable regulatory authorities, possible technical corrections, and actions the Company may take as a result of the Act or otherwise.
Tax Payments: The Company made net payments for income taxes in 2017, 2016 and 2015 of $76.4 million, $63.4 million and $103.5 million, respectively.
Net Operating Losses: Anixter International Inc. and its U.S. subsidiaries file a U.S. federal corporate income tax return on a consolidated basis. At December 29, 2017, various of Anixter's foreign subsidiaries had aggregate cumulative net operating losses ("NOL") carryforwards for foreign income tax purposes of approximately $99.7 million which are subject to various provisions of each respective country. Approximately $79.4 million of the NOL carryforwards may be carried forward indefinitely. The remaining NOL carryforwards expire at various times between 2018 and 2029.
Foreign Tax Credit Carryforwards: At December 29, 2017, the Company estimated and accrued provisional transition taxes. As a result of the transition tax, the Company estimates that it will also have foreign tax credit carryforwards of $52.7 million. A full valuation allowance was recorded against the resulting deferred tax asset as there is not sufficient foreign-source income projected to utilize these credits.
Undistributed Earnings: As a result of Anixter's Board of Directors’ approval of the disposition of the Fasteners business during February 2015, Anixter was no longer permanently reinvested with respect to the non-U.S. earnings of the Fasteners business, because, following the disposition, the Company intended to repatriate to the U.S. most of the net proceeds attributable to the sale of the non-U.S. Fasteners business via intercompany debt repayment, dividend or other means. Therefore, the Company's 2015 results included, as a component of discontinued operations, $10.0 million of expense for U.S. federal and state, and foreign income taxes and withholding taxes related to this change in its reinvestment assertion.
The remaining undistributed earnings of Anixter's foreign subsidiaries amounted to approximately $618.6 million at December 29, 2017. The Act converted the U.S. system of taxing foreign earnings from a worldwide system to a territorial system. Future distributions of foreign earnings by Anixter affiliates abroad will no longer result in U.S. taxation. In converting to a territorial system the Act levied a one-time transition tax on deferred foreign earnings as of 2017. Anixter has estimated the net combined U.S. tax impact on this deemed repatriation to be approximately $50.0 million and plans to elect to pay the federal portion of this tax liability in installments over eight years. Despite the conversion to a territorial system, Anixter considers the undistributed earnings of its foreign subsidiaries to be indefinitely reinvested, and accordingly, no provision for any withholding taxes has been recorded. 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. With respect to the countries that have undistributed earnings as of December 29, 2017, according to the foreign laws and treaties in place at that time, estimated foreign jurisdiction withholding taxes of approximately $36.1 million would be payable upon the remittance of all earnings at December 29, 2017.
Deferred Income Taxes: Significant components of the Company's deferred tax assets (liabilities) included in "Other assets" and "Other liabilities" on the Consolidated Balance Sheets were as follows:
(In millions)
 
December 29,
2017
 
December 30,
2016
Deferred compensation and other postretirement benefits
 
31.1

 
46.9

Foreign NOL carryforwards and other
 
29.4

 
27.7

Accrued expenses and other
 
8.3

 
15.2

Inventory reserves
 
9.9

 
13.4

Allowance for doubtful accounts
 
8.7

 
11.1

Federal and state credits
 
52.9

 

Gross deferred tax assets
 
140.3

 
114.3

Property, equipment, intangibles and other
 
(75.1
)
 
(107.1
)
Gross deferred tax liabilities
 
(75.1
)
 
(107.1
)
Deferred tax assets, net of deferred tax liabilities
 
65.2

 
7.2

Valuation allowance
 
(79.9
)
 
(20.7
)
Net deferred tax liabilities
 
$
(14.7
)
 
$
(13.5
)

 
Uncertain Tax Positions and Jurisdictions Subject to Examinations: A reconciliation of the beginning and ending amount of unrecognized tax benefits for fiscal 2015, 2016 and 2017 is as follows:
(In millions)
 
Balance at January 2, 2015
$
3.0

Additions for tax positions of prior years
0.4

Addition for Power Solutions acquisition
2.2

Reductions for tax positions of prior years
(0.3
)
Balance at January 1, 2016
$
5.3

Additions for tax positions of prior years
0.4

Reductions for tax positions of prior years
(0.7
)
Balance at December 30, 2016
$
5.0

Reductions for tax positions of prior years
(0.3
)
Balance at December 29, 2017
$
4.7


Interest and penalties accrued for unrecognized tax benefits were $0.2 million in 2017, 2016 and 2015. In the fourth quarter of 2015, Anixter acquired Power Solutions and brought forward the existing uncertain tax positions in the amount of $3.2 million of which $0.7 million is related to interest and penalties. The liability of the uncertain tax positions is fully indemnified and offset by a corresponding indemnification asset recorded on the balance sheet.
Excluding the fully indemnified unrecognized tax benefit balance mentioned above, the Company estimates that of the unrecognized tax benefit balance of $2.2 million, all of which would affect the effective tax rate, $0.3 million may be resolved in a manner that would impact the effective rate within the next twelve months. The reserves for uncertain tax positions, including interest and penalties, of $2.9 million cover a range of issues, including intercompany charges and withholding taxes, and involve various taxing jurisdictions.
Only the returns for fiscal tax years 2012 and later remain open to examination by the Internal Revenue Service ("IRS") in the U.S., which is Anixter's most significant tax jurisdiction. For most states, fiscal tax years 2013 and later remain subject to examination. In Canada, the fiscal tax years 2013 and later are still subject to examination, while in the United Kingdom, the fiscal tax years 2016 and later remain subject to examination.
PENSION PLANS
PENSION PLANS
PENSION PLANS, POST-RETIREMENT BENEFITS AND OTHER BENEFITS
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 and fixed income investments.

Accounting rules related to pensions and the policies used generally reduce the recognition of actuarial gains and losses in the net benefit cost, as any significant actuarial gains/losses are amortized over the remaining service lives of the plan participants. These actuarial gains and losses are mainly attributable to the return on plan assets that differ from that assumed and differences in the obligation due to changes in the discount rate, plan demographic changes and other assumptions.

The measurement date for all plans is December 31st. Accordingly, at the end of each fiscal year, the Company determines the discount rate to be used to discount the plan liabilities to their present value. The discount rate reflects the current rate at which the pension liabilities could be effectively settled at the end of the year. In estimating this rate at the end of 2017, 2016 and 2015, the Company reviewed rates of return on relevant market indices (i.e., the Citigroup pension liability index and the Ryan ALM Above Median yield curves). At the end of 2017, 2016 and 2015, the Company concluded the Ryan ALM Above Median yield curves are more consistent with observable market conditions and industry standards for developing spot rate curves. These rates are adjusted to match the duration of the liabilities associated with the pension plans.

At December 29, 2017 and December 30, 2016, the Company determined the consolidated weighted-average discount rate of all plans to be 3.26% and 3.73%, respectively, and used these rates to measure the projected benefit obligation ("PBO") at the end of each respective fiscal year end. Due primarily to actuarial losses and foreign currency exchange rate changes, the PBO increased to $533.4 million at the end of fiscal 2017 from $481.8 million at the end of fiscal 2016. The consolidated net unfunded status was $43.5 million at the end of fiscal 2017 compared to $69.1 million at the end of 2016.

A significant element in determining net periodic benefit cost in accordance with U.S. GAAP is the expected return on plan assets. For 2017, the Company had assumed that the weighted-average expected long-term rate of return on plan assets would be 5.59%. This expected return on plan assets is included in the net periodic benefit cost for the fiscal year ended 2017. As a result of the combined effect of valuation changes in both the equity and bond markets, the plan assets produced actual gains of approximately 13.3% and 11.9% in 2017 and 2016, respectively. The fair value of plan assets is $489.9 million at the end of fiscal 2017, compared to $412.7 million at the end of fiscal 2016. The difference between the expected return and the actual return on plan assets is amortized into expense over the service lives of the plan participants. These amounts are reflected on the balance sheet through charges to "Accumulated other comprehensive loss," a component of "Stockholders’ Equity" in the Consolidated Balance Sheets.
In the fourth quarter of 2017, the Company transferred the benefits of certain retirees or beneficiaries to a third-party annuity provider. The Company paid $11.3 million of additional contributions into the plan using excess cash from operations to fund the contributions. The plan purchased an $11.3 million annuity contract with a third-party insurance carrier and transferred the related pension obligations to the carrier. The funding of the premiums did not result in a settlement charge as the amount did not exceed the service and interest costs of the plan in 2017.
In the fourth quarter of 2016, the Anixter Inc. Pension Plan was amended to allow for the benefits of certain retirees or beneficiaries to be transferred to a third-party annuity provider. The Company paid $10.5 million of additional contributions into the plan using excess cash from operations to fund the contributions. The plan purchased a $10.5 million annuity contract with a third-party insurance carrier and transferred the related pension obligations to the carrier. The funding of the premiums did not result in a settlement charge as the amount did not exceed the service and interest costs of the plan in 2016.
In the fourth quarter of 2015, the Company commenced settlement of the liabilities of one of its Europe pension plans. At that time, Anixter entered into a buy-in policy with an insurance carrier for that plan. In the second quarter of 2016, the Company terminated the buy-in policy, and entered into an agreement for issuance of a buy-out policy with the insurance carrier for the pension obligation. Accumulated other comprehensive losses of approximately $9.6 million6.9 million) were realized as a result of the buy-out policy, and are reflected in the Company's Consolidated Statements of Comprehensive Income.

In the third quarter of 2015, the Company took two actions related to the Anixter Inc. Pension Plan in the U.S.. First, the plan was frozen to entrants first hired or rehired on or after July 1, 2015. Anixter Inc. will make an annual contribution to the Employee Savings Plan on behalf of each active participant who is first hired or rehired on or after July 1, 2015, or is not participating in the Anixter Inc. Pension Plan. The amount of the employer annual contribution to each active participant's account will be an amount determined by multiplying the participant's salary for the Plan year by either: (1) 2% if such participant's years of service as of August 1 of the Plan year is fewer than five, or (2) 2.5% if such participant's years of service as of August 1 of the Plan year is five or greater. This contribution is in lieu of being eligible for the Anixter Inc. Pension Plan. The total expense related to the amendment was $0.8 million. Second, the Company amended the Anixter Inc. Pension Plan in the U.S. to allow for terminated Fasteners employees to become immediately vested, if they were hired before February 12, 2015 and are not already fully vested. Furthermore, the amendment allows for employees who were terminated in connection with the sale of the Fastener business, the one-time option to receive a cash payout of their vested benefits. This resulted in $10.2 million of additional contributions paid by Anixter using excess cash from operations to fund $10.2 million of payments. The funding of the cash payments did not result in a settlement charge as the amount did not exceed the service and interest costs of the plan in 2015.

All non-union domestic employees hired or rehired before July 1, 2015, earn a benefit under a personal retirement account (hypothetical account balance). Each year, a participant’s account receives a credit equal to 2% of the participant’s salary (2.5% if the participant’s years of service at August 1 of the plan year are 5 years or more). Active participants become fully vested in their hypothetical personal retirement account after 3 years of service. Interest earned on the credited amount is not credited to the personal retirement account but is contributed to the participant’s account in the Anixter Inc. Employee Savings Plan. The interest contribution equals the interest earned on the personal retirement account balance as of January 1st in the Domestic Plan and is based on the 10-year Treasury note rate as of the last business day of December.
In 2016 and 2017, the Society of Actuaries released new mortality improvement projection scales. As a result, the Company updated U.S. mortality improvement assumptions in 2016 and 2017 for purposes of determining its mortality assumption used in the U.S. defined benefit plans' liability calculation. The updated U.S. mortality assumptions resulted in a decrease of $1.6 million and $0.8 million to the benefit obligation as of the end of 2017 and 2016, respectively, prior to reflecting the discount rate change. In 2017, the U.S. assumptions were also updated to reflect the results of an experience study performed during 2017. The net impact of updating these assumptions was a decrease in the obligation of $0.1 million prior to reflecting the discount and mortality change.

The assets of the various defined benefit plans are held in separate independent trusts and managed by independent third party advisors. The investment objective of both the Domestic and Foreign Plans is to ensure, over the long-term life of the plans, an adequate level of assets to fund the benefits to employees and their beneficiaries at the time they are payable. In meeting this objective, the Company seeks to achieve a level of absolute investment return consistent with a prudent level of portfolio risk. Anixter's risk preference is to refrain from exposing the plans to higher volatility in pursuit of potential higher returns.
The Domestic Plans’ and Foreign Plans’ asset mixes as of December 29, 2017 and December 30, 2016 and the asset allocation guidelines for such plans are summarized as follows.
 
 
Domestic Plans
 
 
December 29,
2017
 
December 30, 2016
 
Allocation Guidelines
 
 
 
 
Min
 
Target
 
Max
Large capitalization U.S. stocks
 
23.6
%
 
22.7
%
 
17
%
 
22
%
 
27
%
Small to mid capitalization U.S. stocks
 
28.3

 
29.1

 
20

 
30

 
40

Emerging market equity
 
11.8

 
10.0

 
5

 
10

 
15

Total equity securities
 
63.7

 
61.8

 
 
 
62

 
 
Fixed income investments
 
33.4

 
35.0

 
31

 
38

 
45

Cash equivalents
 
2.9

 
3.2

 

 

 
10

 
 
100.0
%
 
100.0
%
 
 
 
100
%
 
 
 
 
Foreign Plans
 
 
December 29,
2017
 
Allocation        
 
 
Guidelines
 
 
Target
Equity securities
 
62
%
 
60
%
Fixed income investments
 
29

 
30

Other investments
 
9

 
10

 
 
100
%
 
100
%
 
 
Foreign Plans
 
 
December 30,
2016
 
Allocation        
 
 
 
Guidelines
 
 
 
Target
Equity securities
 
61
%
 
60
%
Fixed income investments
 
29

 
30

Other investments
 
10

 
10

 
 
100
%
 
100
%

The pension committees meet regularly to assess investment performance and reallocate assets that fall outside of its allocation guidelines. The variations between the allocation guidelines and actual asset allocations reflect relative performance differences in asset classes. From time to time, the Company periodically rebalances its asset portfolios to be in line with its allocation guidelines.
For 2017 and 2016, the U.S. investment policy guidelines were as follows:
 
Each asset class is actively managed by one investment manager
Each asset class may be invested in a commingled fund, mutual fund, or separately managed account
Investment in Exchange Traded Funds (ETFs) is permissible
Each manager is expected to be "fully invested" with minimal cash holdings
The use of options and futures is limited to covered hedges only
Each equity asset manager has a minimum number of individual company stocks that need to be held and there are restrictions on the total market value that can be invested in any one industry and the percentage that any one company can be of the portfolio total
The fixed income funds are diversified by issuer and industry, with maximum limits on investment in U.S. Treasuries and U.S. Government Agencies


The investment policies for the Foreign plans are the responsibility of the various trustees. Generally, the investment policy guidelines are as follows:
 
Make sure that the obligations to the beneficiaries of the Plan can be met
Maintain funds at a level to meet the minimum funding requirements
The investment managers are expected to provide a return, within certain tracking tolerances, close to that of the relevant market’s indices
The expected long-term rate of return on both the Domestic and Foreign Plans’ assets reflects the average rate of earnings expected on the invested assets and future assets to be invested to provide for the benefits included in the projected benefit obligation. The Company uses historic plan asset returns combined with current market conditions to estimate the rate of return. The expected rate of return on plan assets is a long-term assumption based on an analysis of historical and forward looking returns considering the respective plan’s actual and target asset mix. The weighted-average expected rate of return on plan assets used in the determination of net periodic pension cost for 2017 is 5.59%.
The following table sets forth the changes and the end of year components of "Accumulated other comprehensive loss" for the defined benefit plans:
(In millions)
 
December 29,
2017
 
December 30,
2016
Changes to Balance:
 
 
 
 
Beginning balance
 
$
119.2

 
$
112.5

Recognized prior service cost
 
4.0

 
4.0

Recognized transition obligation
 

 
(0.9
)
Recognized net actuarial gain
 
(9.6
)
 
(14.8
)
Prior service credit arising in current year
 
4.2

 
(2.2
)
Net actuarial (gain) loss arising in current year
 
(5.6
)
 
20.6

Ending balance
 
$
112.2

 
$
119.2


Components of Balance:
 
 
 
 
Prior service credit
 
$
(17.3
)
 
$
(21.1
)
Net actuarial loss
 
129.5

 
140.3

 
 
$
112.2

 
$
119.2


Amounts in "Accumulated other comprehensive loss" expected to be recognized as components of net period pension cost in 2018 are as follows:
(In millions)
 
Amortization of prior service credit
$
(4.0
)
Amortization of actuarial loss
7.5

Total amortization expected
$
3.5



The following represents a reconciliation of the funded status of the Company's pension plans for fiscal years 2017 and 2016:
 
 
Pension Benefits
 
 
Domestic Plans
 
Foreign Plans
 
Total
(In millions)
 
2017
 
2016
 
2017
 
2016
 
2017
 
2016
Change in projected benefit obligation:
 
 
 
 
 
 
 
 
 
 
 
 
Beginning balance
 
$
258.8

 
$
250.1

 
$
223.0

 
$
266.0

 
$
481.8

 
$
516.1

Service cost
 
3.3

 
3.2

 
5.9

 
5.8

 
9.2

 
9.0

Interest cost
 
11.1

 
11.5

 
6.9

 
7.8

 
18.0

 
19.3

Actuarial loss
 
22.4

 
13.0

 
8.6

 
43.0

 
31.0

 
56.0

Benefits paid from plan assets
 
(7.5
)
 
(7.6
)
 
(6.7
)
 
(16.1
)
 
(14.2
)
 
(23.7
)
Benefits paid from Company assets
 
(1.0
)
 
(0.9
)
 

 

 
(1.0
)
 
(0.9
)
Plan participants contributions
 

 

 
0.1

 
0.2

 
0.1

 
0.2

Foreign currency exchange rate changes
 

 

 
21.2

 
(26.5
)
 
21.2

 
(26.5
)
Impact due to annuity purchase
 
(11.3
)
 
(10.5
)
 
(1.4
)
 
(57.2
)
 
(12.7
)
 
(67.7
)
Ending balance
 
$
275.8

 
$
258.8

 
$
257.6

 
$
223.0

 
$
533.4

 
$
481.8

Change in plan assets at fair value:
 
 
 
 
 
 
 
 
 
 
 
 
Beginning balance
 
$
238.3

 
$
218.1

 
$
174.4

 
$
228.1

 
$
412.7

 
$
446.2

Actual return on plan assets
 
41.0

 
18.8

 
18.9

 
32.1

 
59.9

 
50.9

Company contributions to plan assets
 
20.3

 
19.5

 
7.1

 
9.5

 
27.4

 
29.0

Benefits paid from plan assets
 
(7.5
)
 
(7.6
)
 
(6.7
)
 
(16.1
)
 
(14.2
)
 
(23.7
)
Plan participants contributions
 

 

 
0.1

 
0.2

 
0.1

 
0.2

Purchase of annuity
 
(11.3
)
 
(10.5
)
 
(1.4
)
 
(57.2
)
 
(12.7
)
 
(67.7
)
Foreign currency exchange rate changes
 

 

 
16.7

 
(22.2
)
 
16.7

 
(22.2
)
Ending balance
 
$
280.8

 
$
238.3

 
$
209.1

 
$
174.4

 
$
489.9

 
$
412.7

Reconciliation of funded status:
 
 
 
 
 
 
 
 
 
 
 
 
Projected benefit obligation
 
$
(275.8
)
 
$
(258.8
)
 
$
(257.6
)
 
$
(223.0
)
 
$
(533.4
)
 
$
(481.8
)
Plan assets at fair value
 
280.8

 
238.3

 
209.1

 
174.4

 
489.9

 
412.7

Funded status
 
$
5.0

 
$
(20.5
)
 
$
(48.5
)
 
$
(48.6
)
 
$
(43.5
)
 
$
(69.1
)
Included in the 2017 and 2016 funded status is accrued benefit cost of approximately $17.7 million and $16.8 million, respectively, related to two non-qualified plans, which cannot be funded pursuant to tax regulations.
Noncurrent asset
 
$
22.6

 
$

 
$
0.2

 
$
0.3

 
$
22.8

 
$
0.3

Current liability
 
(0.8
)
 
(0.9
)
 

 

 
(0.8
)
 
(0.9
)
Noncurrent liability
 
(16.8
)
 
(19.6
)
 
(48.7
)
 
(48.9
)
 
(65.5
)
 
(68.5
)
Funded status
 
$
5.0

 
$
(20.5
)
 
$
(48.5
)
 
$
(48.6
)
 
$
(43.5
)
 
$
(69.1
)
Weighted-average assumptions used for measurement of the projected benefit obligation:
 
 
 
 
Discount rate
 
3.78
%
 
4.36
%
 
2.70
%
 
2.99
%
 
3.26
%
 
3.73
%
Salary growth rate
 
3.76
%
 
4.63
%
 
3.04
%
 
3.01
%
 
3.36
%
 
3.73
%


The following represents the funded components of net periodic pension cost as reflected in the Company's Consolidated Statements of Income and the weighted-average assumptions used to measure net periodic pension cost for the years ended December 29, 2017, December 30, 2016 and January 1, 2016:
 
 
Pension Benefits
 
 
Domestic Plans
 
Foreign Plans
 
Total
(In millions)
 
2017
 
2016
 
2015
 
2017
 
2016
 
2015
 
2017
 
2016
 
2015
Components of net periodic pension cost:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Service cost
 
$
4.7

 
$
4.7

 
$
5.2

 
$
5.9

 
$
5.9

 
$
6.6

 
$
10.6

 
$
10.6

 
$
11.8

Interest cost
 
11.1

 
11.5

 
11.6

 
6.9

 
7.8

 
9.1

 
18.0

 
19.3

 
20.7

Expected return on plan assets
 
(14.9
)
 
(14.2
)
 
(15.1
)
 
(8.8
)
 
(9.4
)
 
(10.5
)
 
(23.7
)
 
(23.6
)
 
(25.6
)
Net amortization
 
2.5

 
2.4

 
1.3

 
3.0

 
2.5

 
2.9

 
5.5

 
4.9

 
4.2

Settlement charge
 

 

 

 

 
9.6

 

 

 
9.6

 

Net periodic pension cost
 
$
3.4

 
$
4.4

 
$
3.0

 
$
7.0

 
$
16.4

 
$
8.1

 
$
10.4

 
$
20.8

 
$
11.1


Weighted-average assumption used to measure net periodic pension cost:
 
 
 
 
 
 
 
 
Discount rate
 
4.36
%
 
4.65
%
 
4.14
%
 
2.99
%
 
3.35
%
 
3.44
%
 
3.73
%
 
3.98
%
 
3.79
%
Expected return on plan assets
 
6.25
%
 
6.50
%
 
6.50
%
 
4.79
%
 
4.54
%
 
4.77
%
 
5.59
%
 
5.50
%
 
5.63
%
Salary growth rate
 
4.63
%
 
4.60
%
 
4.60
%
 
3.01
%
 
3.08
%
 
3.12
%
 
3.73
%
 
3.75
%
 
3.79
%

In connection with the disposition of the Fasteners business, the Company recognized a pension curtailment gain of $5.1 million related to the Anixter pension plan in the U.S. and special termination benefit costs of $0.3 million in 2015 in discontinued operations.
Fair Value Measurements
The following presents information about the Plan’s assets measured at fair value on a recurring basis at the end of fiscal 2017, and the valuation techniques used by the Plan to determine those fair values. The inputs used in the determination of these fair values are categorized according to the fair value hierarchy as being Level 1, Level 2 or Level 3.
In general, fair values determined by Level 1 inputs use quoted prices in active markets for identical assets that the Plan has the ability to access. The majority of pension assets valued by Level 1 inputs are primarily comprised of Domestic equity which are traded actively on public exchanges and valued at quoted prices at the end of the fiscal year.
Fair values determined by Level 2 inputs use other inputs that are observable, either directly or indirectly. These Level 2 inputs include quoted prices for similar assets in active markets, and other inputs such as interest rates and yield curves that are observable at commonly quoted intervals. The majority of pension assets valued by Level 2 inputs are comprised of common/collective/pool funds (i.e., mutual funds). These assets are valued at their net asset values and considered observable inputs, or Level 2.
Level 3 inputs are unobservable inputs, including inputs that are available in situations where there is little, if any, market activity for the related asset. The only pension assets valued by Level 3 inputs relate to the buy-in policy in connection with the Fasteners disposition.
In instances where inputs used to measure fair value fall into different levels in the above fair value hierarchy, fair value measurements in their entirety are categorized based on the lowest level input that is significant to the valuation. The Plan’s assessment of the significance of particular inputs to these fair value measurements requires judgment and considers factors specific to each asset.
Disclosures concerning assets measured at fair value on a recurring basis at December 29, 2017 and December 30, 2016, which have been categorized under the fair value hierarchy for the Domestic and Foreign Plans by the Company are as follows:
 
As of December 29, 2017
 
Domestic Plans
 
Foreign Plans
 
Total
(In millions)
Level 1
 
Level 2