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.