Get Started for Free Contexxia identifies hard-to-find pieces of information in SEC filings. No more highlighters, no more redlining, no more poring over huge documents. ANIXTER INTERNATIONAL INC (52795) 10-K published on Feb 21, 2019 at 3:38 pm
Reporting Period: Dec 27, 2018
Disruptions to our logistics capability or supply chain may have an adverse impact on our operations.
Our global logistics services are operated through distribution centers around the world. We also depend on transportation service providers for the delivery of products to our customers. Any significant interruption or disruption in service at one or more of our distribution centers due to severe weather, natural disasters, information technology upgrades, operating issues, disruptions to our transportation network, or other unanticipated events, could impair our ability to obtain or deliver inventory in a timely manner, cause cancellations or delays in shipments to customers or otherwise disrupt our normal business operations.
We are subject to a broad range of laws and regulations in the jurisdictions where we operate globally, including, among others, those relating to data privacy and protection, cybersecurity, import and export requirements, anti-bribery and corruption, product compliance, supplier regulations regarding the sources of supplies or products, environmental protection, health and safety requirements, intellectual property, foreign exchange controls and cash repatriation restrictions, labor and employment, e-commerce, advertising and marketing, anti-competition and tax. Compliance with these domestic and foreign laws, regulations and requirements may be burdensome, increasing our cost of compliance and doing business. In addition, as a supplier to federal, state, and local government agencies, we must comply with certain laws and regulations relating specifically to our governmental contracts. Although we have implemented policies and procedures designed to facilitate compliance with these laws, we cannot assure you that our employees, contractors, or agents will not violate such laws and regulations, or our policies and procedures. Any such violations could result in the imposition of fines and penalties, damage to our reputation, and, in the case of laws and regulations relating to governmental contracts, the loss of those contracts.
As we enter 2019, we are focused on the significant opportunity to leverage our unique set of products and innovative solutions across our global network. Through our customer access strategy, comprehensive and unique global services offerings, and initiatives in high growth markets, we are positioned for top line growth and market share gains. We are beginning to benefit from actions we are taking to improve gross margin, which will fund investment in innovation and still deliver operating margin expansion. Long-term, we expect our investment in technology and innovation to deliver significant benefits, with the ultimate goal of improving profitability, generating significant cash flow from operations and creating value for all of our stakeholders.
The income tax provision from continuing operations for 2018 was $66.9 million compared to $128.6 million in 2017 and $76.4 million in 2016. Our effective tax rate from continuing operations was 30.0%, 54.1% and 38.7% in 2018, 2017 and 2016, respectively. Our effective tax rate for 2018 included $2.1 million of tax benefit related to the impact of tax legislation and a $1.4 million tax benefit related to the reversal of deferred income tax valuation allowances, partially offset by $0.7 million of tax expense related to domestic permanent tax differences and $0.1 million of tax expense related to prior year tax positions. Our effective tax rate for 2017 included $35.6 million of tax expense related to the impact of tax legislation and $1.3 million of tax expense related to prior year tax positions. During 2016, we recorded a $3.2 million net tax benefit related to prior year tax positions, partially offset by the establishment of deferred income tax valuation allowances of $1.1 million. Excluding the impact of these items as well as the other items impacting the comparability of results discussed above, the adjusted effective tax rate in 2018 was 29.2% compared to 37.8% in 2017 and 37.0% in 2016. The decrease in our adjusted effective tax rate in 2018 was primarily due to a favorable tax impact from the December 22, 2017 Tax Cuts and Jobs Act (the "Act"). Under the Act, the statutory U.S. federal tax rate was reduced from 35% to 21% effective January 1, 2018. The benefit from this rate reduction was partially offset by other newly enacted tax provisions.
Recently issued accounting pronouncements not yet adopted: In February 2016, the FASB issued ASU 2016-02, Leases, which requires lessees to recognize assets and liabilities on the balance sheet for the rights and obligations created by all leases with terms of more than 12 months. The standard is effective for Anixter's financial statements issued for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. In July 2018, the FASB issued additional authoritative guidance providing companies with an optional transition method to use the effective date of ASU 2016-02 as the date of initial application of transition and not restate comparative periods. The Company will adopt the standard in the first quarter of 2019 using this optional transition method. The Company’s cross-functional implementation team is currently migrating lease data to a new lease accounting information system and implementing new processes. Upon adoption the Company plans to elect (1) the package of practical expedients, which allows it to carry forward historical lease classification, (2) the practical expedient to not separate non-lease components from lease components, and (3) the short-term lease accounting policy election as defined in ASU 2016-02. While the Company has not completed its evaluation of the effects of adoption of this ASU yet, the adoption is expected to result in a material increase in the assets and liabilities recorded on the Consolidated Balance Sheets and additional qualitative and quantitative disclosures as of the effective date and thereafter. The Company does not expect the adoption to have a material impact on its Consolidated Statements of Income. Note 5. "Commitments and Contingencies" includes the undiscounted minimum lease commitments under operating leases at December 28, 2018.