ANIXTER INTERNATIONAL INC, 10-K filed on 2/28/2011
Annual Report
Document and Entity Information
Year Ended
Dec. 31, 2010
Feb. 18, 2011
Jul. 02, 2010
Document and Entity Information [Abstract]
 
 
 
Entity Registrant Name
ANIXTER INTERNATIONAL INC 
 
 
Entity Central Index Key
0000052795 
 
 
Document Type
10-K 
 
 
Document Period End Date
2010-12-31 
 
 
Amendment Flag
FALSE 
 
 
Document Fiscal Year Focus
2010 
 
 
Document Fiscal Period Focus
FY 
 
 
Current Fiscal Year End Date
12/31 
 
 
Entity Well-known Seasoned Issuer
Yes 
 
 
Entity Voluntary Filers
No 
 
 
Entity Current Reporting Status
Yes 
 
 
Entity Filer Category
Large Accelerated Filer 
 
 
Entity Public Float
 
 
1,183,867,572 
Entity Common Stock, Shares Outstanding (actual number)
 
34,168,610 
 
Consolidated Statements of Operations (USD $)
In Millions, except Per Share data
Year Ended
Dec. 31, 2010
Year Ended
Jan. 01, 2010
Year Ended
Jan. 02, 2009
Consolidated Statements of Operations [Abstract]
 
 
 
Net sales
$ 5,472 
$ 4,982 
$ 6,137 
Cost of goods sold
4,211 
3,852 
4,694 
Gross profit
1,261 
1,131 
1,443 
Cost of operations:
 
 
 
Operating expenses
995 
927 
1,051 
Goodwill impairment
 
100 
 
Total operating expenses
995 
1,027 
1,051 
Operating income
266 
104 
392 
Other expense:
 
 
 
Interest expense
(54)
(66)
(61)
Net loss on retirement of debt
(32)
(1)
 
Other, net
(1)
(19)
(26)
Income before income taxes
179 
17 
306 
Income tax expense
71 
47 
118 
Net income (loss)
109 
(29)
188 
Net income (loss) per share:
 
 
 
Basic
3.18 
(0.83)
5.30 
Diluted
$ 3.05 
$ (0.83)
$ 4.87 
Dividend declared per common share
3.25 
 
 
Consolidated Balance Sheets (USD $)
In Millions
Dec. 31, 2010
Jan. 01, 2010
Current assets:
 
 
Cash and cash equivalents
$ 78 
$ 112 
Accounts receivable (Includes $407.8 at December 31, 2010 associated with securitization facility)
1,099 
942 
Inventories
1,003 
919 
Deferred income taxes
50 
48 
Other current assets
51 
32 
Total current assets
2,281 
2,051 
Property and equipment, at cost
289 
280 
Accumulated depreciation
(204)
(192)
Net property and equipment
85 
88 
Goodwill
374 
358 
Other assets
193 
176 
Total assets
2,933 
2,672 
Current liabilities:
 
 
Accounts payable
649 
505 
Accrued expenses
219 
156 
Short-term debt (Includes $200.0 at December 31, 2010 associated with securitization facility)
204 
Total current liabilities
1,071 
670 
Long-term debt
689 
821 
Other liabilities
163 
156 
Total liabilities
1,923 
1,648 
Stockholders' equity:
 
 
Common stock - $1.00 par value, 100,000,000 shares authorized, 34,323,061 and 34,700,481 shares issued and outstanding in 2010 and 2009, respectively
34 
35 
Capital surplus
230 
225 
Retained earnings
774 
820 
Accumulated other comprehensive loss:
 
 
Foreign currency translation
17 
Unrecognized pension liability
(44)
(57)
Unrealized loss on derivatives, net
(1)
(2)
Total accumulated other comprehensive loss
(28)
(55)
Total stockholders' equity
1,011 
1,024 
Total liabilities and stockholders' equity
$ 2,933 
$ 2,672 
Consolidated Balance Sheets (Parenthetical) (USD $)
In Millions, except Share data
Dec. 31, 2010
Jan. 01, 2010
Current assets:
 
 
Carrying amount of assets, consolidated VIE
408 
 
Current liabilities:
 
 
Carrying amount of liabilities, consolidated VIE
200 
 
Stockholders' equity:
 
 
Common stock, par value
$ 1 
$ 1 
Common stock, shares authorized
100,000,000 
100,000,000 
Common stock, shares issued
34,323,061 
34,700,481 
Common stock, shares outstanding
34,323,061 
34,700,481 
Consolidated Statements of Cash Flows (USD $)
In Millions
Year Ended
Dec. 31, 2010
Year Ended
Jan. 01, 2010
Year Ended
Jan. 02, 2009
Operating activities:
 
 
 
Net income (loss)
$ 109 
$ (29)
$ 188 
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
 
 
 
Net loss on retirement of debt
32 
 
Goodwill impairment
 
100 
 
Depreciation
23 
24 
25 
Accretion of debt discount
19 
21 
19 
Stock-based compensation
17 
15 
18 
Deferred income taxes
22 
(2)
(8)
Amortization of intangible assets
11 
13 
10 
Amortization of deferred financing costs
Excess income tax benefit from employee stock plans
(5)
(1)
(10)
Changes in current assets and liabilities:
 
 
 
Accounts receivable
(136)
149 
88 
Inventories
(64)
265 
(142)
Accounts payable and other current assets and liabilities, net
166 
(107)
(69)
Other, net
(12)
Net cash provided by operating activities
195 
441 
125 
Investing activities:
 
 
 
Acquisition of businesses, net of cash acquired
(36)
(2)
(180)
Capital expenditures, net
(20)
(22)
(32)
Net cash used in investing activities
(56)
(24)
(213)
Financing activities:
 
 
 
Proceeds from borrowings
1,029 
317 
1,119 
Repayment of borrowings
(778)
(717)
(923)
Payment of cash dividend
(111)
(0)
(1)
Purchases of common stock for treasury
(41)
(35)
(105)
Retirement of Notes due 2014
(166)
(27)
 
Retirement of Convertible Notes due 2033 - debt component
(66)
(57)
 
Retirement of Convertible Notes due 2033 - equity component
(54)
(34)
 
Proceeds from stock options exercised
10 
Deferred financing costs
(0)
(7)
(1)
Excess income tax benefit from employee stock plans
10 
Proceeds from issuance of Notes due 2014
 
185 
 
Net cash (used in) provided by financing activities
(172)
(371)
111 
(Decrease) increase in cash and cash equivalents
(33)
46 
23 
Cash and cash equivalents at beginning of period
112 
65 
42 
Cash and cash equivalents at end of period
$ 78 
$ 112 
$ 65 
Consolidated Statements of Stockholders' Equity
In Millions
Common Stock
Capital Surplus
Retained Earnings
Accumulated Other Comprehensive Income (Loss)
Comprehensive Income
Total
Beginning Balance at Dec. 28, 2007
36 
208 
798 
51 
 
 
Beginning Balance, Shares at Dec. 28, 2007
36 
 
 
 
 
 
Net income (loss)
 
 
188 
 
188 
188 
Other comprehensive income:
 
 
 
 
 
 
Foreign currency translation
 
 
 
(107)
(107)
 
Changes in unrealized pension cost, net of tax of $19.0, $0.9 and $3.1 respectively for 2008, 2009 and 2010
 
 
 
(28)
(28)
 
Changes in fair market value of derivatives, net of tax of $1.7, $0.4 and $0.9 respectively for 2008, 2009 and 2010
 
 
 
(4)
(4)
 
Comprehensive income
 
 
 
 
48 
 
Purchase and retirement of treasury stock (see Note 11.)
(2)
 
(103)
 
 
 
Purchase and retirement of treasury stock, shares (see Note 11.)
(2)
 
 
 
 
 
Stock-based compensation
 
18 
 
 
 
18 
Issuance of common stock and related tax benefits
18 
 
 
 
 
Issuance of common stock and related tax benefits, shares
 
 
 
 
 
Ending Balance at Jan. 02, 2009
35 
244 
883 
(89)
 
 
Ending Balance, Shares at Jan. 02, 2009
35 
 
 
 
 
 
Net income (loss)
 
 
(29)
 
(29)
(29)
Other comprehensive income:
 
 
 
 
 
 
Foreign currency translation
 
 
 
53 
53 
 
Changes in unrealized pension cost, net of tax of $19.0, $0.9 and $3.1 respectively for 2008, 2009 and 2010
 
 
 
(20)
(20)
 
Changes in fair market value of derivatives, net of tax of $1.7, $0.4 and $0.9 respectively for 2008, 2009 and 2010
 
 
 
 
Comprehensive income
 
 
 
 
 
Purchase and retirement of treasury stock (see Note 11.)
(1)
 
(34)
 
 
 
Purchase and retirement of treasury stock, shares (see Note 11.)
(1)
 
 
 
 
 
Equity component of repurchased convertible debt (see Note 11.)
 
(34)
 
 
 
 
Stock-based compensation
 
15 
 
 
 
15 
Issuance of common stock and related tax benefits
 
 
 
 
Issuance of common stock and related tax benefits, shares
 
 
 
 
 
Ending Balance at Jan. 01, 2010
35 
225 
820 
(55)
 
1,024 
Ending Balance, Shares at Jan. 01, 2010
35 
 
 
 
 
 
Net income (loss)
 
 
109 
 
109 
109 
Other comprehensive income:
 
 
 
 
 
 
Foreign currency translation
 
 
 
13 
13 
 
Changes in unrealized pension cost, net of tax of $19.0, $0.9 and $3.1 respectively for 2008, 2009 and 2010
 
 
 
13 
13 
 
Changes in fair market value of derivatives, net of tax of $1.7, $0.4 and $0.9 respectively for 2008, 2009 and 2010
 
 
 
 
Comprehensive income
 
 
 
 
136 
 
Dividend declared on common stock ($3.25 per share)
 
 
(114)
 
 
 
Purchase and retirement of treasury stock (see Note 11.)
(1)
 
(40)
 
 
 
Purchase and retirement of treasury stock, shares (see Note 11.)
(1)
 
 
 
 
 
Equity component of repurchased convertible debt, net of tax of $33.6 (see Note 11.)
 
(20)
 
 
 
 
Stock-based compensation
 
17 
 
 
 
17 
Issuance of common stock and related tax benefits
 
 
 
 
Issuance of common stock and related tax benefits, shares
 
 
 
 
 
Ending Balance at Dec. 31, 2010
34 
230 
774 
(28)
 
1,011 
Ending Balance, Shares at Dec. 31, 2010
34 
 
 
 
 
 
Consolidated Statements of Stockholders' Equity (Parenthetical)
In Millions, except Per Share data
Year Ended
Dec. 31,
2010
2010
Year Ended
Jan. 01, 2010
Year Ended
Jan. 02, 2009
Year Ended
Dec. 31, 2010
Year Ended
Jan. 01, 2010
Year Ended
Jan. 02, 2009
Other comprehensive income:
 
 
 
 
 
 
 
Unrealized pension cost, tax effect
 
19 
19 
Fair market value of derivatives, tax effect
 
Equity component of repurchased convertable debt, tax effect
34 
 
 
 
 
 
 
Summary of Significant Accounting Policies
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
NOTE 1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
Organization: Anixter International Inc. (“the Company”), formerly known as Itel Corporation, which was incorporated in Delaware in 1967, is engaged in the distribution of communications and security products, electrical wire and cable products, fasteners and small parts through Anixter Inc. and its subsidiaries (collectively “Anixter”).
 
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 included 52 weeks in 2010 and 2009 and 53 weeks in 2008. Certain amounts have been reclassified to conform to the current year presentation.
 
Use of estimates: The preparation of financial statements in conformity with generally accepted accounting principles 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.
 
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 $24.1 million and $25.7 million at the end of 2010 and 2009, respectively. On a regular basis, the Company 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 $12.3 million, $12.4 million and $37.0 million in 2010, 2009 and 2008, respectively. A receivable is considered past due if payments have not been received within the agreed upon invoice terms. The higher provision in 2008 was due to the rapid deterioration of the credit markets and economic conditions that resulted in two large customer bankruptcies which resulted in bad debt losses of $24.1 million. Receivables are written off and deducted from the allowance account when the receivables are deemed uncollectible.
 
Inventories: Inventories, consisting primarily of 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 of its vendors that provide a right to return products. This right is typically limited to a small percentage of the Company’s total purchases from that vendor. Such rights provide that the Company 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 the Company’s current inventory carrying cost down to the manufacturer’s current price. The Company considers these agreements in determining its reserve for obsolescence.
 
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; and
  •  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 31, 2010, net property and equipment consisted of $58.6 million of equipment and computer software and approximately $26.0 million of buildings and leasehold improvements. At January 1, 2010, net property and equipment consisted of $61.6 million of equipment and computer software and approximately $25.9 million of buildings and leasehold improvements. 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 10 years. Leasehold improvements are depreciated over the 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 operations was $22.5 million, $24.1 million and $24.9 million in 2010, 2009 and 2008, respectively.
 
Costs for software developed for internal use are capitalized when the preliminary project stage is complete and the Company 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 have been met, external direct costs of materials and services consumed in developing or obtaining 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 31, 2010 and January 1, 2010, capitalized costs, net of accumulated amortization, for software developed for internal use was approximately $22.4 million and $17.0 million, 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 2010, 2009 or 2008 was insignificant.
 
Goodwill: On an annual basis, the Company tests for goodwill impairment using a two-step process, unless there is a triggering event, in which case a test would be performed at the time that such triggering event occurs. The first step is to identify a potential impairment by comparing the fair value of a reporting unit with its carrying amount. For all periods presented, the Company’s reporting units are consistent with its operating segments of North America, Europe, Latin America and Asia Pacific. The estimates of fair value of a reporting unit are determined using the income approach based on a discounted cash flow analysis. A discounted cash flow analysis requires the Company to make various judgmental assumptions, including assumptions about future cash flows, growth rates and discount rates. The assumptions about future cash flows and growth rates are based on management’s forecast of each reporting unit. Discount rate assumptions are based on an assessment of the risk inherent in the future cash flows of the respective reporting units from the perspective of market participants. The Company also reviews market multiple information to corroborate the fair value conclusions recorded through the aforementioned income approach. If step one 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 fair value of goodwill is determined in the same manner as the amount of goodwill recognized in a business combination.
 
The Company performed its 2010 annual impairment analysis during the third quarter of 2010 and concluded that no impairment existed. The Company expects the carrying amount of remaining goodwill to be fully recoverable.
 
In 2009, the Company experienced a flat daily sales trend through the first and second quarters. The resulting effect was that the Company did not experience the normal sequential growth pattern from the first to the second quarter. Because of those flat daily sales patterns, on a sequential basis, reported sales were actually down from the first quarter of 2009. When the second quarter of 2009 sequential drop in reported sales was evaluated against the second quarter of 2008, the result was the largest negative sales comparison experienced since the current economic downturn began. Due to these market and economic conditions, the Company concluded that there were impairment indicators for the North America, Europe and Asia Pacific reporting units that required an interim impairment analysis be performed under Generally Accepted Accounting Principles (“U.S. GAAP”) during the second fiscal quarter of 2009.
 
In the first step of the impairment analysis, the Company performed valuation analyses utilizing the income approach to determine the fair value of its reporting units. The Company also considered the market approach as described in U.S. GAAP. Under the income approach, the Company determined the fair value based on estimated future cash flows discounted by an estimated weighted-average cost of capital, which reflects the overall level of inherent risk of the reporting unit and the rate of return an outside investor would expect to earn. The inputs used for the income approach were significant unobservable inputs, or Level 3 inputs, in the fair value hierarchy described in recently issued accounting guidance on fair value measurements. Estimated future cash flows were based on the Company’s internal projection models, industry projections and other assumptions deemed reasonable by management as those that would be made by a market participant. Based on the results of the Company’s assessment in step one, it was determined that the carrying value of the Europe reporting unit exceeded its estimated fair value while North America and Asia Pacific’s fair value exceeded the carrying value.
 
Therefore, the Company performed a second step of the impairment test to estimate the implied fair value of goodwill in Europe. In the second step of the impairment analysis, the Company determined the implied fair value of goodwill for the Europe reporting unit by allocating the fair value of the reporting unit to all of Europe’s assets and liabilities, as if the reporting unit had been acquired in a business combination and the price paid to acquire it was the fair value. The analysis indicated that there would be an implied value attributable to goodwill of $12.1 million in the Europe reporting unit and accordingly, in the second quarter of 2009, the Company recorded a non-cash impairment charge related to the write-off of the remaining goodwill of $100.0 million associated with its Europe reporting unit.
 
Convertible Debt: The Company separately accounts for the liability and equity components of convertible debt instruments that may be settled in cash upon conversion (including partial cash settlement). The liability and equity components are accounted for in a manner that reflects an issuer’s nonconvertible debt borrowing rate. The bifurcation of the component of debt, classification of that component in equity and the accretion of the resulting discount on the debt is recognized as part of interest expense in the Company’s Consolidated Statements of Operations. These provisions impact the accounting associated with the Company’s $300 million convertible notes due 2013 (“Notes due 2013”) and the Company’s 3.25% zero coupon convertible notes due 2033 (“Notes due 2033”) which are described further in Note 5. “Debt”.
 
The following table provides additional information about the Company’s convertible debt instruments that are subject to these accounting requirements:
 
                                 
    December 31, 2010   January 1, 2010
($ and shares in millions, except conversion prices)   Notes due 2013   Notes due 2033   Notes due 2013   Notes due 2033
 
Carrying amount of the equity component
  $ 53.3     $ (45.7 )   $ 53.3     $ (25.3 )
Principal amount of the liability component
  $ 300.0     $ 100.2     $ 300.0     $ 240.3  
Unamortized discount of liability component(a)
  $ (35.8 )   $ (51.7 )   $ (50.9 )   $ (127.6 )
Net carrying amount of liability component
  $ 264.2     $ 48.5     $ 249.1     $ 112.7  
Remaining amortization period of discount (a)
    26 months       271 months       (c )     (c )
Conversion price
  $ 59.78     $ 30.22       (c )     (c )
Number of shares to be issued upon conversion
    5.0       1.6       (c )     (c )
If-converted value exceeds principal amount(b)
  $     $ 47.4       (c )     (c )
 
(a) The Notes due 2013 and Notes due 2033 were issued in February of 2007 and July of 2003, respectively. For convertible debt accounting purposes, the expected life of the Notes due 2013 and the Notes due 2033 have been determined to be six years and four years from the issuance date, respectively. As such, the Company is amortizing the unamortized discount through interest expense through February of 2013 for the Notes due 2013. As of the end of fiscal 2010, the remaining discount related to the Notes due 2033 represents the original discount and will be amortized through July of 2033 at the original rate of 3.25%. This is due to the Notes due 2033 being outstanding past the original four-year expected life used for accounting purposes at issuance.
 
(b) If-converted value amounts are for disclosure purposes only. The Notes due 2013 are convertible when the closing price of the Company’s common stock for at least 20 trading days in the 30 consecutive trading days ending on the last trading day of the immediately preceding fiscal quarter is more than $77.71. Based on the Company’s stock prices during the year, the Notes due 2013 have not been convertible during 2010. The Notes due 2033 are convertible when the sale price of the Company’s common stock for at least 20 trading days in a period of 30 consecutive trading days ending on the last trading day of the preceding fiscal quarter is more than 120% of the accreted conversion price per share of common stock on the last day of such preceding fiscal quarter. Based on the Company’s stock prices during the year as compared to the accreted conversion price at December 31, 2010, the Notes due 2033 are currently convertible.
 
(c) Data not required for comparative purposes.
 
The fair value of the liability component related to the Notes due 2013 was initially calculated based on a discount rate of 7.1%, representing the Company’s nonconvertible debt borrowing rate at issuance for debt instruments with similar terms and characteristics. For accounting purposes, the expected life for the similar instrument was six years which was used to develop this nonconvertible debt borrowing rate. Interest cost relates to both the contractual interest coupon and amortization of the discount on the liability component. Non-cash interest cost recognized for the Notes due 2013 was $15.1 million, $14.1 million and $13.1 million for fiscal years 2010, 2009 and 2008, respectively. Cash interest cost recognized for the Notes due 2013 was $3.0 million in 2010, 2009 and 2008.
 
The fair value of the liability component related to the Notes due 2033 was initially calculated based on a discount rate of 6.1%, representing the Company’s nonconvertible debt borrowing rate at issuance for debt instruments with similar terms and characteristics. For accounting purposes, the expected life for the similar instrument was four years which was used to develop this nonconvertible debt borrowing rate. Therefore, the amount of interest expense associated with the initial discount has been fully recognized over the expected life as of the end of 2007 (i.e., four years from issuance of these notes). Interest cost recognized for the Notes due 2033 was $2.9 million, $5.2 million and $5.3 million for fiscal years 2010, 2009 and 2008, respectively, based on the zero-coupon rate of 3.25% associated with the Notes due 2033.
 
Intangible assets: Intangible assets, included in other assets on the consolidated balance sheets, primarily consist of customer relationships that are being amortized over periods ranging from 8 to 15 years. The Company continually evaluates whether events or circumstances have occurred that would indicate the remaining estimated useful lives of its intangible assets warrant revision or that the remaining balance of such assets may not be recoverable. 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. At December 31, 2010 and January 1, 2010, the Company’s gross carrying amount of intangible assets subject to amortization was $137.4 million and $132.6 million, respectively. Accumulated amortization was $52.9 million and $42.4 million at December 31, 2010 and January 1, 2010, respectively. Intangible amortization expense related to all of the Company’s net intangible assets of $84.5 million at December 31, 2010 is expected to be approximately $11.9 million per year for the next five years.
 
Foreign currency translation: The Company’s investments in several subsidiaries are recorded in currencies other than the U.S. dollar. 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 U.S. dollar 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 U.S. dollar, are translated into U.S. dollars using the average exchange rates during the year, 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 Stockholders’ Equity, “Foreign currency translation,” which is a component of accumulated other comprehensive income (loss). In addition, as the Company’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.
 
Several of the Company’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. That 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 Operations. The Company recognized $2.3 million, $23.3 million and $18.0 million in net foreign exchange losses in 2010, 2009 and 2008, respectively. See “Other, net” discussion herein for further information regarding the losses recorded in 2009 and 2008.
 
Revenue recognition: Sales to customers, resellers and distributors and related cost of sales are recognized upon transfer of title, which generally occurs upon shipment of products, when the price is fixed and determinable and when collectability is reasonably assured. In connection with the sales of its products, the Company often provides certain supply chain services. These services are provided exclusively in connection with the sales of products, and as such, the price of such services are included in the price of the products delivered to the customer. The Company does not account for these services as a separate element, as the services do not have stand-alone value and cannot be separated from the product element of the arrangement. There are no significant post-delivery obligations associated with these services.
 
In those cases where the Company does not have goods in stock and delivery times are critical, product is purchased from the manufacturer and drop-shipped to the customer. The Company generally takes title to the goods when shipped by the manufacturer and then bills the customer for the product upon transfer of the title to the customer.
 
Advertising and sales promotion: Advertising and sales promotion costs are expensed as incurred. Advertising and promotion costs were $10.1 million, $10.0 million and $12.7 million in 2010, 2009 and 2008, respectively. The majority of the Company’s advertising and sales promotion costs are recouped through various cooperative advertising programs with vendors.
 
Shipping and handling fees and costs: The Company includes shipping and handling fees billed to customers in net sales. Shipping and handling costs associated with outbound freight are included in operating expenses in the Consolidated Statements of Operations, which were $97.0 million, $86.9 million and $105.3 million for the years ended 2010, 2009 and 2008, respectively.
 
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. The Company 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.
 
Stock-based compensation: In accordance with U.S. accounting rules, the Company measures the cost of all employee share-based payments to employees, including grants of employee stock options, using a fair-value-based method. Compensation costs for the plans have been determined based on the fair value at the grant date using the Black-Scholes option pricing model and amortized on a straight-line basis over the respective vesting period representing the requisite service period.
 
Other, net: The following represents the components of “Other, net” as reflected in the Company’s Consolidated Statements of Operations for the fiscal years 2010, 2009 and 2008:
 
                         
    Years Ended  
    December 31,
    January 1,
    January 2,
 
    2010     2010     2009  
    (In millions)  
 
Other, net (loss) gain:
                       
Foreign exchange
  $ (2.3 )   $ (23.3 )   $ (18.0 )
Cash surrender value of life insurance policies
    3.0       3.4       (6.5 )
Settlement of interest rate swaps
          (2.1 )      
Other
    (2.1 )     2.9       (1.3 )
                         
    $ (1.4 )   $ (19.1 )   $ (25.8 )
                         
 
In 2010, the Company recognized a foreign exchange gain of $2.1 million associated with the remeasurement of Venezuela’s bolivar-denominated monetary assets on the Venezuelan balance sheet at the parallel exchange rate. The Company also recorded a foreign exchange loss of $13.8 million in 2009 due to the repatriation of cash from Venezuela and the remeasurement of monetary items on the Venezuelan balance sheet at the parallel exchange rate. Due to the strengthening of the U.S. dollar primarily against currencies in the Emerging Markets, where there are few cost-effective means of hedging, the Company recorded other foreign exchange losses of $4.4 million and $9.5 million in 2010 and 2009, respectively. In 2008, the Company recorded foreign exchange losses of $18.0 million due to both a sharp change in the relationship between the U.S. dollar and all of the major currencies in which the Company conducts its business and, for several weeks, a period of highly volatile conditions in the foreign exchange markets. Due to the positive equity market performance, the value of Company-owned life insurance policies increased resulting in a gain of $3.0 million and $3.4 million in 2010 and 2009, respectively. However, due to the combined effect of sharp declines in both the equity and bond markets during 2008 the Company recorded a loss of $6.5 million in that year. In 2009, the Company recorded a loss of $2.1 million associated with the cancellation of interest rate hedging contracts resulting from the repayment of the related borrowings. In 2009, the Company also recorded other income of $3.4 million related to the expiration of liabilities associated with a prior asset sale.
 
Recently issued and adopted accounting pronouncements: In June 2009, the FASB issued a new accounting statement that is designed to address the potential impacts on the provisions and application of previously issued guidance on the consolidation of variable interest entities as a result of the elimination of the qualifying special purpose entity concept. The Company adopted the provisions of the new guidance at the beginning of fiscal 2010. The Company sells, on an ongoing basis without recourse, a majority of the accounts receivable originating in the United States to Anixter Receivables Corporation (“ARC”), which is considered a wholly owned, bankruptcy remote, variable interest entity (“VIE”). The Company is the primary beneficiary as defined under this accounting guidance and, therefore, consolidates the account balances of ARC. As a result of the adoption, assets and liabilities of ARC are presented separately on the Company’s Consolidated Balance Sheet at December 31, 2010. The adoption did not change the Company’s accounting for VIE’s as ARC was previously consolidated and included in the Company’s Consolidated Balance Sheet. See Note 5. “Debt” for further information regarding ARC and the impact to the Company’s Consolidated Financial Statements at the end of 2010.
 
In January 2010, the FASB issued new accounting guidance on improving disclosures about fair value measurements. The new guidance requires new disclosures relating to significant transfers between Level 1 and 2 of the fair value hierarchy and, for Level 3 fair value measurements, disclosures regarding purchases, sales, issuances and settlements. The guidance also clarifies existing disclosures about inputs and valuation techniques and the appropriate level of disaggregation of assets and liabilities for which fair values are provided. The Company has provided these disclosures in Note 9. “Fair Value Measurements” in the notes to the consolidated financial statements. The Company does not have any Level 3 fair value measurements under the fair value hierarchy as of December 31, 2010.
Income (Loss) Per Share
INCOME (LOSS) PER SHARE
 
NOTE 2.  INCOME (LOSS) PER SHARE
 
The following table sets forth the computation of basic and diluted income (loss) per share:
 
                         
    Years Ended  
    December 31,
    January 1,
    January 2,
 
(In millions, except per share data)   2010     2010     2009  
 
Basic Income (Loss) per Share:
                       
Net income (loss)
  $ 108.5     $ (29.3 )   $ 187.9  
                         
Weighted-average common shares outstanding
    34.1       35.1       35.4  
Net income (loss) per basic share
  $ 3.18     $ (0.83 )   $ 5.30  
Diluted Income (Loss) per Share:
                       
Net income (loss)
  $ 108.5     $ (29.3 )   $ 187.9  
Weighted-average common shares outstanding
    34.1       35.1       35.4  
Effect of dilutive securities:
                       
Stock options and units
    0.5             0.8  
Convertible notes due 2033
    0.9             2.4  
Convertible senior notes due 2013
                 
                         
Weighted-average common shares outstanding
    35.5       35.1       38.6  
                         
Net income (loss) per diluted share
  $ 3.05     $ (0.83 )   $ 4.87  
 
The Company’s Notes due 2013 are not currently convertible. In periods when the Notes due 2013 are convertible, any conversion will be settled in cash up to the principal amount, and any excess conversion value will be delivered, at the Company’s election in cash, common stock or a combination of cash and common stock. The conversion rate and the conversion price of the Notes due 2013 were adjusted in October 2010 to reflect the special dividend (see Note 11. “Stockholders’ Equity”). For further information regarding these adjustments, see Note 5. “Debt”. The Company’s average stock price for fiscal 2010 and 2009 did not exceed the conversion price of $59.78 in fiscal 2010 or $63.48 in fiscal 2009 and, therefore, the Notes due 2013 were antidilutive for both of these periods.
 
The Company’s Notes due 2033 are currently convertible. In periods when the Notes due 2033 are convertible, any conversion will be settled in cash up to the accreted principal amount, and any amount in excess of the accreted principal value will be settled in common stock. The conversion rate of the Notes due 2033 was adjusted in October 2010 to reflect the special dividend. For further information regarding these adjustments, see Note 5. “Debt.” As a result of the conversion value exceeding the average accreted principal value at the end of 2010 and 2008, the Company included 0.9 million and 2.4 million additional shares, respectively, related to the Notes due 2033 in the diluted weighted-average common shares outstanding. Although convertible, as a result of the Company’s recognition of a net loss in fiscal 2009, 0.8 million additional shares were excluded from the computation of diluted earnings per share because they were antidilutive.
 
The Company repurchased a portion of its common stock in 2010 which resulted in the recognition of additional net income per diluted share of $0.07 in fiscal 2010. Although the Company repurchased shares in 2009, the impact on the net loss per diluted share for that period was insignificant.
 
In 2010 and 2008, 0.5 million and 0.8 million additional shares related to stock options and stock units were included in the computation of diluted earnings per share because the effect of those common stock equivalents were dilutive during these periods. Conversely, as a result of the Company’s recognition of a net loss in fiscal 2009, 0.5 million additional shares related to stock option and stock units were excluded from the computation of diluted earnings per share, because they were antidilutive. In 2010, 2009 and 2008, the Company issued 0.6 million, 0.4 million and 0.7 million shares, respectively, due to stock option exercises and vesting of stock units.
Accrued Expenses
ACCRUED EXPENSES
 
NOTE 3.  ACCRUED EXPENSES
 
Accrued expenses consisted of the following:
 
                 
    December 31,
    January 1,
 
    2010     2010  
    (In millions)  
 
Salaries and fringe benefits
  $ 94.6     $ 67.5  
Other accrued expenses
    124.3       88.4  
                 
Total accrued expenses
  $ 218.9     $ 155.9  
                 
 
Accrued expenses increased to $218.9 million at the end of fiscal 2010 from $155.9 million at the end of fiscal 2009 as a result of higher variable costs, including employee incentives, due to the growth in sales during fiscal 2010. Also, the increase is due to the accrual of $25.3 million related to the unfavorable arbitration ruling at the end of 2010. The accrual for the arbitration ruling includes the interim award and associated expenses estimated at the end of fiscal 2010. The Company also has recorded an asset of $5.2 million for insurance proceeds related to this matter that are probable for recovery. See Note 6. “Commitments and Contingencies” for further information regarding this matter.
Severance
SEVERANCE
 
NOTE 4.  SEVERANCE
 
In 2009 and 2008, the Company undertook expense reduction actions that resulted in $5.7 million and $8.1 million, respectively, of severance costs primarily related to staffing reductions needed to re-align the Company’s business in response to current market conditions. The majority of these costs were incurred in North America while the balance of the expenses was primarily incurred in Europe. There were no such actions taken in 2010 and the 2009 obligations for these expense reduction actions were fully paid by the end of 2010.
Debt
DEBT
 
NOTE 5.  DEBT
 
Certain debt agreements entered into by the Company’s subsidiaries contain various restrictions. The Company has guaranteed substantially all of the debt of its subsidiaries. Aggregate annual maturities of debt at December 31, 2010 were as follows: 2011 — $203.6 million; 2012 — $194.0 million; 2013 — $264.2 million; 2014 — $30.6 million and 2015 — $200.0 million. The estimated fair value of the Company’s debt at December 31, 2010 and January 1, 2010 was $1,021.9 million and $952.0 million, respectively, based on public quotations and current market rates. Interest paid in 2010, 2009 and 2008 was $36.4 million, $37.2 million and $40.7 million, respectively. The Company’s weighted-average borrowings outstanding were $845.0 million and $983.1 million for the fiscal years ending December 31, 2010 and January 1, 2010, respectively. The Company’s weighted-average cost of borrowings was 6.3%, 6.7% and 5.4% for the years ended December 31, 2010 and January 1, 2010 and January 2, 2009, respectively.
 
Debt is summarized below:
 
                 
    December 31,
    January 1,
 
    2010     2010  
    (In millions)  
 
Long-term debt:
               
Convertible senior notes due 2013
  $ 264.2     $ 249.1  
Senior notes due 2015
    200.0       200.0  
Revolving lines of credit and other
    145.5       96.1  
Convertible notes due 2033
    48.5       112.7  
Senior notes due 2014
    30.6       163.5  
                 
Total long-term debt
    688.8       821.4  
Short-term debt
    203.6       8.7  
                 
Total debt
  $ 892.4     $ 830.1  
                 
 
Revolving Lines of Credit
 
At the end of fiscal 2010, the Company had approximately $259.8 million in available, committed, unused credit lines with financial institutions that have investment-grade credit ratings. As such, the Company expects to have access to this availability based on its assessment of the viability of the associated financial institutions which are party to these agreements. Long-term borrowings under the following credit facilities totaled $145.5 million and $96.1 million at December 31, 2010 and January 1, 2010, respectively.
 
At December 31, 2010, the Company’s primary liquidity source is the $350 million (or the equivalent in Euro) 5-year revolving credit agreement at Anixter Inc. maturing in April of 2012. At December 31, 2010, long-term borrowings under this facility were $131.1 million as compared to $95.8 million of outstanding long-term borrowings at the end of fiscal 2009. The following are the key terms to the revolving credit agreement:
 
  •  The consolidated fixed charge coverage ratio (as defined in the revolving credit agreement) requires a minimum coverage of 2.25 times through September 30, 2010, 2.50 times from December 2010 through December 2011 and 3.00 times thereafter. As of December 31, 2010, the consolidated fixed charge coverage ratio was 3.70.
  •  The consolidated leverage ratio (as defined in the revolving credit agreement) limits the maximum leverage allowed to 3.25. As of December 31, 2010, the consolidated leverage ratio was 1.90.
  •  Anixter Inc. is required to have, on a proforma basis, a minimum of $50 million of availability under the revolving credit agreement at any time it elects to distribute funds to the Company to prepay, purchase or redeem the Company’s indebtedness.
  •  Anixter Inc. is permitted to distribute funds to the Company for payment of dividends and share repurchases up to a maximum amount of $150 million plus 50% of Anixter Inc.’s cumulative net income from July of 2009 through the maturity of the facility. In both 2010 and 2009, the Company repurchased 1.0 million shares for $41.2 million and $34.9 million, respectively. In 2010, the Company paid a special dividend of $111.0 million. As of December 31, 2010, Anixter Inc. has the ability to distribute $43.4 million of funds to the Company.
  •  The ratings-based pricing grid is such that the all-in drawn cost of borrowings, based on Anixter Inc.’s current credit ratings of BB+/Ba1, is Libor plus 250 basis points on all borrowings.
 
The agreement, which is guaranteed by the Company, contains financial covenants that restrict the amount of leverage and set a minimum fixed charge coverage ratio as described above. The Company is in compliance with all of these covenant ratios and believes that there is adequate margin between the covenant ratios and the actual ratios given the current trends of the business. As of December 31, 2010, the total availability of all revolving lines of credit at Anixter Inc. would be permitted to be borrowed.
 
The Company’s operating subsidiary in Canada, Anixter Canada Inc., has a $40.0 million (Canadian dollar) unsecured revolving credit facility, that matures in April of 2012 and is used for general corporate purposes. The Canadian dollar-borrowing rate under the agreement is the BA/CDOR plus the applicable bankers’ acceptance fee (currently 250.0 basis points) for Canadian dollar advances or the prime rate plus the applicable margin (currently 150.0 basis points). In addition, standby fees on the unadvanced balance are currently 65.0 basis points. At December 31, 2010 and January 1, 2010, the Company had no borrowings outstanding under this facility.
 
Excluding the primary revolving credit facility and the $40.0 million (Canadian dollar) facility at December 31, 2010 and January 1, 2010, certain subsidiaries had long-term borrowings under other bank revolving lines of credit and miscellaneous facilities of $14.4 million and $0.3 million, respectively, which mature beyond twelve months of the Company’s fiscal year end December 31, 2010.
 
Senior Notes Due 2014
 
In March 2009, the Company’s primary operating subsidiary, Anixter Inc., issued $200 million in principal of its 10% Senior Notes due 2014 (“Notes due 2014”) which were priced at a discount to par that resulted in a yield to maturity of 12%. The Notes due 2014 pay interest semiannually at a rate of 10% per annum and mature on March 15, 2014. In addition, before March 15, 2012, Anixter Inc. may redeem up to 35% of the Notes due 2014 at the redemption price of 110% of their principal amount plus accrued interest, using the net cash proceeds from public sales of the Company’s stock. Net proceeds from this offering were approximately $180.4 million after deducting discounts, commissions and expenses of $4.8 million which are being amortized through March 2014. At December 31, 2010 and January 1, 2010, the Notes due 2014 outstanding was $30.6 million and $163.5 million, respectively. The Company fully and unconditionally guarantees the Notes due 2014, which are unsecured obligations of Anixter Inc.
 
Convertible Debt
 
Convertible Senior Notes Due 2013
 
In February 2007, the Company completed a private placement of $300.0 million principal amount of Notes due 2013. In May 2007, the Company registered the Notes due 2013 and shares of the Company’s common stock issuable upon conversion of the Notes due 2013 for resale by certain selling security holders. The Notes due 2013 are structurally subordinated to the indebtedness of Anixter.
 
The Notes due 2013 pay interest semiannually at a rate of 1.00% per annum. Prior to the declaration of the special dividend in 2010 (see Note 11. “Stockholders’ Equity”), the Notes due 2013 were convertible, at the holders’ option, at an initial conversion rate of 15.753 shares per $1,000 principal amount of Notes due 2013, equivalent to a conversion price of $63.48 per share. As a result of the payment of the special dividend in 2010, the conversion rate and conversion price were adjusted. Holders of the Notes due 2013 may convert each Note into 16.727 shares, or 5.0 million, compared to 15.753 shares, or 4.7 million, before the adjustment of the Company’s common stock. The Company has sufficient authorized shares to settle such conversion. The conversion price of $63.48 per share was adjusted to $59.78 per share.
 
In periods during which the Notes due 2013 are convertible, any conversion will be settled in cash up to the principal amount, and any excess conversion value will be delivered, at the Company’s election in cash, common stock or a combination of cash and common stock. Based on the Company’s stock price at the end of fiscal 2010, the Notes due 2013 are not currently convertible.
 
In connection with the Notes due 2013 issuance in February 2007, the Company purchased a call option that initially covered 4.7 million shares of its common stock, subject to customary anti-dilution adjustments. Prior to the payment of the special dividend in 2010, the purchased call option had an exercise price of $63.48 per share. As a result of the special dividend, this price was adjusted to $59.78 per share and the shares related to the call option were adjusted to 5.0 million shares.
 
Concurrently with purchasing the call option, the Company sold to the counterparty a warrant to purchase 4.7 million shares of its common stock, subject to customary anti-dilution adjustments. Prior to the payment of the special dividend in 2010, the sold warrant had an exercise price of $82.80 and may not be exercised prior to the maturity of the notes. As a result of the special dividend, the price was adjusted to $77.98 per share and the shares related to the warrant were adjusted to 5.0 million shares.
 
Holders of the Notes due 2013 may convert them prior to the close of business on the business day before the maturity date based on the applicable conversion rate only under the following circumstances:
 
Conversion Based on Common Stock Price
 
Holders may convert during any fiscal quarter and only during any fiscal quarter, if the closing price of the Company’s common stock for at least 20 trading days in the 30 consecutive trading days ending on the last trading day of the immediately preceding fiscal quarter is more than 130% of the conversion price per share, or $77.71. The conversion price per share is equal to $1,000 divided by the then applicable conversion rate (currently 16.727 shares per $1,000 principal amount).
 
Conversion Based on Trading Price of Notes
 
Holders may convert during the five business day period after any period of five consecutive trading days in which the trading price per $1,000 principal amount of Notes due 2013 for each trading day of that period was less than 98% of the product of the closing price of the Company’s common stock for each trading day of that period and the then applicable conversion rate.
 
Conversion Upon Certain Distributions
 
If the Company elects to:
 
  •  distribute, to all holders of the Company’s common stock, any rights entitling them to purchase, for a period expiring within 45 days of distribution, common stock, or securities convertible into common stock, at less than, or having a conversion price per share less than, the closing price of the Company’s common stock; or
  •  distribute, to all holders of the Company’s common stock, assets, cash, debt securities or rights to purchase the Company’s securities, which distribution has a per share value exceeding 15% of the closing price of such common stock,
 
holders may surrender their Notes due 2013 for conversion at any time until the earlier of the close of business on the business day prior to the ex-dividend date or the Company’s announcement that such distribution will not take place.
 
Conversion Upon a Fundamental Change
 
Holders may surrender Notes due 2013 for conversion at any time beginning 15 days before the anticipated effective date of a fundamental change and until the Company makes any required purchase of the Notes due 2013 as a result of the fundamental change. A “fundamental change” means the occurrence of a change of control or a termination of trading of the Company’s common stock. Certain change of control events may give rise to a make whole premium.
 
Conversion at Maturity
 
Holders may surrender their Notes due 2013 for conversion at any time beginning on January 15, 2013 and ending at the close of business on the business day immediately preceding the maturity date.
 
The “conversion rate” is 16.727 shares of the Company’s common stock, subject to certain customary anti-dilution adjustments. These adjustments consist of adjustments for:
 
  •  stock dividends and distributions, share splits and share combinations,
  •  the issuance of any rights to all holders of the Company’s common stock to purchase shares of such stock at an issuance price of less than the closing price of such stock, exercisable within 45 days of issuance,
  •  the distribution of stock, debt or other assets, to all holders of the Company’s common stock, other than distributions covered above, and
  •  issuer tender offers at a premium to the closing price of the Company’s common stock.
 
The “conversion value” of the Notes due 2013 means the average of the daily conversion values, as defined below, for each of the 20 consecutive trading days of the conversion reference period. The “daily conversion value” means, with respect to any trading day, the product of (1) the applicable conversion rate and (2) the volume weighted-average price per share of the Company’s common stock on such trading day.
 
The “conversion reference period” means:
 
  •  for Notes due 2013 that are converted during the one month period prior to maturity date of the notes, the 20 consecutive trading days preceding and ending on the maturity date, subject to any extension due to a market disruption event, and
  •  in all other instances, the 20 consecutive trading days beginning on the third trading day following the conversion date.
 
The “conversion date” with respect to the Notes due 2013 means the date on which the holder of the Notes due 2013 has complied with all the requirements under the indenture to convert such Notes due 2013.
 
Convertible Notes Due 2033
 
The Company’s 3.25% zero coupon Notes due 2033 have an aggregate principal amount at maturity of $100.2 million as of December 31, 2010. The book value of the Notes due 2033 was $48.5 million and $112.7 million at December 31, 2010 and January 1, 2010, respectively. The principal amount at maturity of each note due 2033 is $1,000 and they are structurally subordinated to the indebtedness of Anixter. In periods when the Notes due 2033 are convertible, any conversion will be settled in cash up to the accreted principal amount. If the conversion value exceeds the accreted principal amount of the Notes due 2033 at the time of conversion, the amount in excess of the accreted value will be settled in stock. The Company may redeem the Notes due 2033, in whole or in part, on or after July 7, 2011 for cash at the accreted value. Additionally, holders may require the Company to purchase, in cash, all or a portion of their Notes due 2033 on the following dates:
 
  •  July 7, 2011 at a price equal to $492.01 per Convertible Note due 2033;
  •  July 7, 2013 at a price equal to $524.78 per Convertible Note due 2033;
  •  July 7, 2018 at a price equal to $616.57 per Convertible Note due 2033;
  •  July 7, 2023 at a price equal to $724.42 per Convertible Note due 2033; and
  •  July 7, 2028 at a price equal to $851.13 per Convertible Note due 2033.
 
Although the Notes due 2033 are convertible at the end of 2010 and the holders may require the Company to purchase their notes on July 7, 2011, they are classified as long-term at December 31, 2010 as the Company has the intent and ability to refinance the accreted value under existing long-term financing agreements.
 
The accreted conversion price per share as of any day will equal the initial principal amount of this security plus the accrued issue discount to that day, divided by the conversion rate on that day. Prior to the payment of the special dividend in 2010, holders of the Notes due 2033 could convert each Note into 15.067 shares, or 1.5 million, of the Company’s common stock for which the Company has sufficient authorized shares to settle such conversion. As a result of the payment of the special dividend in 2010, the conversion rate was adjusted to 16.023 shares, or 1.6 million shares.
 
The Notes due 2033 are convertible in any fiscal quarter based on the following conditions:
 
Conversion Based on Common Stock Price
 
Holders may surrender these securities for conversion if the sale price of the Company’s common stock for at least 20 trading days in a period of 30 consecutive trading days ending on the last trading day of the preceding fiscal quarter is more than 120% of the accreted conversion price per share of common stock on the last day of such preceding fiscal quarter. The accreted conversion price per share as of any day will equal the initial principal amount of this security plus the accrued issue discount to that day, divided by the conversion rate on that day.
 
The conversion trigger price per share of the Company’s common stock is equal to the accreted conversion price per share of common stock multiplied by 120%. The conversion trigger price for the fiscal quarter beginning July 1, 2033 is $74.89. The foregoing calculation of the conversion trigger price assumes that no future events will occur that would require an adjustment to the conversion rate.
 
Conversion Based on Credit Rating Downgrade
 
Holders may also surrender these securities for conversion at any time when the rating assigned to these securities by Moody’s is B3 or lower, Standard & Poor’s is B+ or lower or Fitch is B+ or lower, the securities are no longer rated by either Moody’s or Standard & Poor’s, or the credit rating assigned to the securities has been suspended or withdrawn by either Moody’s or Standard & Poor’s.
 
Conversion Based upon Notice of Redemption
 
A holder may surrender for conversion a security called for redemption by the Company at any time prior to the close of business on the second business day immediately preceding the redemption date, even if it is not otherwise convertible at such time. The Company may redeem the Notes due 2033, in whole or in part, on or after July 7, 2011 for cash at the accreted value.
 
Conversion Based upon Occurrence of Certain Corporate Transactions
 
If the Company is party to a consolidation, merger or binding share exchange or a transfer of all or substantially all of the Company’s assets, a security may be surrendered for conversion at any time from and after the date which is 15 days prior to the anticipated effective date of the transaction until 15 days after the actual effective date of such transaction.
 
The securities will also be convertible in the event of distributions described in the third, fourth or fifth bullet points below with respect to anti-dilution adjustments, which in the case of the fourth or fifth bullet point have a per share value equal to more than 15% of the sale price of the Company’s common stock on the day preceding the declaration date for such distribution.
 
The “conversion rate” is 16.023 shares of the Company’s common stock, subject to certain customary anti-dilution adjustments. These adjustments consists of adjustments for:
 
  •  stock dividends and distributions,
  •  subdivisions, combinations and reclassifications of the Company’s common stock,
 
  •  the distribution to all holders of the Company’s common stock of certain rights to purchase stock, expiring within 60 days, at less than the current sale price,
  •  the distribution to holders of the Company’s common stock of certain stock, the Company’s assets (including equity interests in subsidiaries), debt securities or certain rights to purchase the Company’s securities, and
  •  certain cash dividends.
 
The “conversion value” is equal to the conversion rate multiplied by the average sales price of the Company’s common stock for the five consecutive trading days immediately following the conversion date.
 
Senior Notes Due 2015
 
Anixter Inc. also has the $200.0 million 5.95% Senior Notes due 2015 (“Notes due 2015”), which are fully and unconditionally guaranteed by the Company. Interest of 5.95% on the Notes due 2015 is payable semi-annually on March 1 and September 1 of each year.
 
Short-term Borrowings
 
As of December 31, 2010 and January 1, 2010, the Company’s short-term debt outstanding was $203.6 million and $8.7 million, respectively. Short-term debt consists primarily of the funding related to accounts receivable securitization facility which Anixter Inc. renewed for a new 364-day period ending in July of 2011. Specifically, the Company amended its Amended and Restated Receivables Purchase Agreement and its Amended and Restated Receivables Sale Agreement, both dated October 3, 2002. The renewed program carries an all-in drawn funding cost of Commercial Paper (“CP”) plus 115 basis points (previously CP plus 150 basis points). Unused capacity fees decreased from a range of 75 to 85 basis points to a range of 57.5 to 60 basis points. All other material terms and conditions remain unchanged.
 
Under Anixter’s accounts receivable securitization program, the Company sells, on an ongoing basis without recourse, a majority of the accounts receivable originating in the United States to ARC, which is considered a wholly-owned, bankruptcy-remote VIE. The Company is the primary beneficiary as defined by accounting guidance and, therefore, consolidates the account balances of ARC. As of December 31, 2010, $407.8 million of the Company’s receivables were sold to ARC. ARC in turn sells an interest in these receivables to a financial institution for proceeds of up to $200.0 million. The assets of ARC (limited to the amount of outstanding borrowings) are not available to creditors of Anixter in the event of bankruptcy or insolvency proceedings. The average outstanding funding extended to ARC during 2010 and 2009 was approximately $112.2 million and $42.3 million, respectively. The issuance costs related to amending and restating the accounts receivable securitization facility totaled $0.3 million in 2010.
 
Repurchases of Debt
 
During 2010, Anixter Inc. retired $133.7 million of accreted value of its Notes due 2014 for $165.5 million. Available cash and other borrowings were used to retire these notes. As a result, the Company recognized a pre-tax loss of $33.3 million, inclusive of $2.7 million of debt issuance costs that were written off and $0.3 million of fees associated with the repurchase.
 
During 2010, the Company repurchased a portion of the Notes due 2033 for $119.6 million. Long-term revolving credit borrowings were used to repurchase these notes. In connection with the repurchases, the Company reduced the accreted value of the debt by $67.0 million, recorded a reduction in equity of $54.0 million ($20.4 million, net of the reduction of deferred tax liabilities of $33.6 million), which was based on the fair value of the liability and equity components at the time of repurchase. The repurchases resulted in the recognition of a pre-tax gain of $1.4 million.
 
During 2009, the Company’s primary operating subsidiary, Anixter Inc., retired $23.6 million of accreted value of the Notes due 2014 for $27.7 million ($1.2 million of which was accrued at year-end 2009). Available cash was used to retire these notes. As a result of the retirement, the Company recognized a pre-tax loss of $4.7 million, inclusive of $0.6 million of debt issue costs that were written off.
 
During 2009, the Company repurchased a portion of the Notes due 2033 for $90.8 million. Long-term revolving credit borrowings were used to repurchase these notes. In connection with the repurchases and in accordance with accounting rules for convertible debt instruments, the Company reduced the accreted value of the debt by $60.1 million and recorded a reduction in equity of $34.3 million (reflecting the fair value of the liability and equity components at the time of repurchase). The repurchases resulted in the recognition of a pre-tax gain of $3.6 million.
Commitments and Contingencies
COMMITMENTS AND CONTINGENCIES
 
NOTE 6.  COMMITMENTS AND CONTINGENCIES
 
Substantially all of the Company’s office and warehouse facilities and equipment 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 2027. Most operating leases entered into by the Company contain renewal options.
 
Minimum lease commitments under operating leases at December 31, 2010 are as follows:
 
         
    (In millions)  
 
2011
  $ 60.3  
2012
    50.0  
2013
    38.3  
2014
    30.1  
2015
    23.2  
2016 and thereafter
    58.2  
         
Total
  $ 260.1  
         
 
Total rental expense was $78.4 million, $79.6 million and $82.0 million in 2010, 2009 and 2008, respectively. Aggregate future minimum rentals to be received under non-cancelable subleases at December 31, 2010 were $2.2 million.
 
In April 2008, the Company voluntarily disclosed to the U.S. Departments of Treasury and Commerce that one of its foreign subsidiaries may have violated U.S. export control laws and regulations in connection with re-exports of goods to prohibited parties or destinations including Cuba and Syria, countries identified by the State Department as state sponsors of terrorism. The Company has performed a thorough review of its export and re-export transactions and did not identify any other potentially significant violations. The Company has determined appropriate corrective actions. The Company has submitted the results of its review and its corrective action plan to the applicable U.S. government agencies. Civil penalties may be assessed against the Company in connection with any violations that are determined to have occurred, but based on information currently available, management does not believe that the ultimate resolution of this matter will have a material effect on the business, operations or financial condition of the Company.
 
On May 20, 2009, Raytheon Co. filed for arbitration against one of the Company’s subsidiaries, Anixter Inc., alleging that it had supplied non-conforming parts to Raytheon. Raytheon sought damages of approximately $26 million. The arbitration hearing concluded on October 22, 2010 and the arbitration panel rendered its decision on December 13, 2010. The arbitration panel entered an interim award against the Company in the amount of $20.8 million and ruled that Raytheon Co. may seek an additional award of attorneys’ fees and arbitration proceeding costs in this matter. Raytheon Co. has sought $3.4 million to reimburse it for attorneys’ fees and arbitration proceeding costs in this matter. The Company has appealed the interim award. The Company recorded a pre-tax charge of $20.0 million in the fourth quarter of 2010 which approximates the expected cost of the award after consideration of insurance proceeds and all legal costs.
 
On September 11, 2009, the Garden City Employees’ Retirement System filed a purported class action under the federal securities laws in the United States District Court for the Northern District of Illinois against the Company, its current and former chief executive officers and its chief financial officer. On November 18, 2009, the Court entered an order appointing the Indiana Laborers Pension Fund as lead plaintiff and appointing lead plaintiff’s counsel. On January 6, 2010, the lead plaintiff filed an amended complaint. The amended complaint principally alleges that the Company made misleading statements during 2008 regarding certain aspects of its financial performance and outlook. The amended complaint seeks unspecified damages on behalf of persons who purchased the common stock of the Company between January 29 and October 20, 2008. On April 19, 2010, the Company filed a motion to dismiss the complaint and is awaiting the court’s decision. The Company and the other defendants intend to defend themselves vigorously against the allegations. Based on facts known to management at this time, the Company cannot estimate the amount of loss, if any, and, therefore, has not made any accrual for this matter in these financial statements.
 
In October 2009, the Company disclosed to the U.S. Government that it may have violated laws and regulations restricting entertainment of government employees. The Inspector General of the relevant federal agency is investigating the disclosure and the Company is cooperating in the investigation. Civil and or criminal penalties could be assessed against the Company in connection with any violations that are determined to have occurred. Based on facts known to management at this time, the Company cannot estimate the amount of loss, if any, and, therefore, has not made any accrual for this matter in these financial statements.
 
From time to time, in the ordinary course of business, the Company and its subsidiaries become involved as plaintiffs or defendants in various other legal proceedings not enumerated above. The claims and counterclaims in such other legal proceedings, including those for punitive damages, individually in certain cases and in the aggregate, involve amounts that may be material. However, it is the opinion of the Company’s management, based on the advice of its counsel, that the ultimate disposition of those proceedings will not be material.
Income Taxes
INCOME TAXES
 
NOTE 7.  INCOME TAXES
 
Taxable Income:  Domestic income before income taxes was $115.1 million, $95.9 million and $196.3 million for 2010, 2009 and 2008, respectively. Foreign income before income taxes (and before goodwill impairment loss) was $64.2 million, $21.3 million and $109.2 million for fiscal years 2010, 2009 and 2008, respectively.
 
Tax Provisions and Reconciliation to the Statutory Rate: The components of the Company’s tax expense and the reconciliation to the statutory federal rate are identified below.
 
Income tax expense (benefit) was comprised of (in millions):
 
                         
    Years Ended  
    December 31,
    January 1,
    January 2,
 
    2010     2010     2009  
          As adjusted (See Note 1.)  
 
Current:
                       
Foreign
  $ 20.6     $ 18.6     $ 40.2  
State
    4.0       0.4       10.6  
Federal
    24.6       29.1       74.8  
                         
      49.2       48.1       125.6  
Deferred:
                       
Foreign
    0.4       (5.9 )     (3.2 )
State
    2.3       0.2       (0.4 )
Federal
    18.9       4.1       (4.4 )
                         
      21.6       (1.6 )     (8.0 )
                         
Income tax expense
  $ 70.8     $ 46.5     $ 117.6  
                         
 
Reconciliations of income tax expense to the statutory corporate federal tax rate of 35% were as follows (in millions):
 
                         
    Years Ended  
    December 31,
    January 1,
    January 2,
 
    2010     2010     2009  
          As adjusted (See Note 1.)  
 
Statutory tax expense
  $ 62.7     $ 6.0     $ 106.9  
Increase (reduction) in taxes resulting from:
                       
Nondeductible goodwill impairment loss
          35.0        
State income taxes, net
    4.1       2.6       6.9  
Foreign tax effects
    2.1       8.2       2.3  
Reversal of Mexico’s valuation allowance
          (4.5 )      
Audit activity*
          (1.0 )     (0.1 )
Other, net
    1.9       0.2       1.6  
                         
Income tax expense
  $ 70.8     $ 46.5     $ 117.6  
                         
 
 
* Benefits in 2009 are primarily associated with the settlement of the Wisconsin railroad income tax dispute.
 
Tax Payments: The Company made net payments for income taxes in 2010, 2009 and 2008 of $61.9 million, $56.2 million and $141.5 million, respectively.
 
Net Operating Losses: The Company and its U.S. subsidiaries file their federal income tax return on a consolidated basis. As of December 31, 2010, the Company had $0.2 million net operating loss (“NOL”) related to the Infast acquisition, which will be utilized over the next ten years. The Company also had $0.7 million NOL related to the acquisition of Clark Security Products, Inc and General Lock, LLC (collectively “Clark”), which can be utilized over the next twelve years. See Note 13. “Business Segments” for general discussion regarding this acquisition. The Company also had $0.2 million state credit carryovers related to the Clark acquisition. The Company had no tax credit carryforwards for U.S. federal income tax purposes.
 
At December 31, 2010, various foreign subsidiaries of the Company had aggregate cumulative NOL carryforwards for foreign income tax purposes of approximately $143.2 million, which are subject to various provisions of each respective country. Approximately $107.5 million of this amount has an indefinite life while $0.5 million of NOL carryforwards expire in 2011. The remaining $8.3 million, $18.1 million and $8.7 million of NOL carryforwards expire during the fiscal years 2012 to 2014, 2015 to 2017 and 2018 to 2020, respectively. NOL carryforwards of $0.1 million expires in 2024.
 
Of the $143.2 million NOL carryforwards of foreign subsidiaries mentioned above, $92.2 million relates to losses that have already provided a tax benefit in the U.S. due to rules permitting flow-through of such losses in certain circumstances. Without such losses included, the cumulative NOL carryforwards at December 31, 2010 were approximately $51.0 million, which are subject to various carryforward provisions of each respective country. Approximately $31.5 million of this amount has an indefinite life while $0.5 million of these NOL carryforwards expire in 2011. The remaining $6.7 million, $3.6 million and $8.6 million of NOL carryforwards not previously benefited expire during the fiscal years 2012 to 2014, 2015 to 2017 and 2018 to 2020, respectively. NOL carryforwards of $0.1 million not previously benefited expire in 2024.
 
The deferred tax asset and valuation allowance, shown below relating to foreign NOL carryforwards, have been adjusted to reflect only the carryforwards for which the Company has not taken a tax benefit in the United States. In 2010 and 2009, the Company recorded a valuation allowance related to its foreign NOL carryforwards to reduce the deferred tax asset to the amount that is more likely than not to be realized.
 
Undistributed Earnings: The undistributed earnings of the Company’s foreign subsidiaries amounted to approximately $398.6 million at December 31, 2010. The Company considers those earnings to be indefinitely reinvested and, accordingly, no provision for U.S. federal and state income taxes or any withholding taxes has been recorded. Upon distribution of those earnings in the form of dividends or otherwise, the Company may be subject to both U.S. income taxes (subject to adjustment for foreign tax credits) and withholding taxes payable to the various foreign countries. With respect to the countries that have undistributed earnings as of December 31, 2010, according to the foreign laws and treaties in place at that time, estimated U.S. federal income tax of approximately $33.6 million and various foreign jurisdiction withholding taxes of approximately $25.8 million would be payable upon the remittance of all earnings at December 31, 2010.
 
Deferred Income Taxes: Significant components of the Company’s deferred tax assets and (liabilities) were as follows (in millions):
 
                 
    December 31,
    January 1,
 
    2010     2010  
 
Property, equipment, intangibles and other
  $ (21.6 )   $ (20.8 )
Accreted interest (Notes due 2033)
    (6.0 )     (24.2 )
                 
Gross deferred tax liabilities
    (27.6 )     (45.0 )
Deferred compensation and other postretirement benefits
    57.7       53.2  
Inventory reserves
    31.5       27.6  
Foreign NOL carryforwards and other
    21.8       24.6  
Allowance for doubtful accounts
    8.3       9.3  
Other
    10.8       15.9  
                 
Gross deferred tax assets
    130.1       130.6  
                 
Deferred tax assets, net of deferred tax liabilities
    102.5       85.6  
Valuation allowance
    (18.8 )     (18.7 )
                 
Net deferred tax assets
  $ 83.7     $ 66.9  
                 
Net current deferred tax assets
  $ 50.3     $ 47.5  
Net non-current deferred tax assets
    33.4       19.4  
                 
Net deferred tax assets
  $ 83.7     $ 66.9  
                 
 
Uncertain Tax Positions and Jurisdictions Subject to Examinations: A reconciliation of the beginning and ending amount of unrecognized tax benefits for fiscal 2009 and 2010 is as follows:
 
         
    (In millions)  
 
Balance at January 2, 2009
  $ 5.8  
Additions for tax positions of prior years
    4.0  
Reductions for tax positions of prior years
    (5.2 )
         
Balance at January 1, 2010
  $ 4.6  
Additions for tax positions of prior years
    1.9  
Reductions for tax positions of prior years
    (2.5 )
         
Balance at December 31, 2010
  $ 4.0  
         
 
During 2009, the Company settled the Wisconsin income tax dispute and paid certain other items that had been included in the reserves, which decreased the reserves, net of interest accrual, by $5.2 million.
 
Interest and penalties related to taxes were $1.4 million in 2010 and $0.9 million in 2009. Interest and penalties are reflected in the “Other, net” line in the Consolidated Statement of Operations. Included in the unrecognized tax benefit balance of $5.9 million and $5.1 million at December 31, 2010 and January 1, 2010, respectively, are accruals of $1.9 million and $0.5 million, respectively, for the payment of interest and penalties.
 
The Company estimates that of the unrecognized tax benefit balance of $5.9 million, all of which would affect the effective tax rate, $2.3 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 $5.9 million cover a wide range of issues, in particular related to intercompany charges and foreign withholding taxes on such charges as well as on importations, and involve numerous different taxing jurisdictions.
 
Only the returns for fiscal tax years 2007 and later remain subject to examination by the Internal Revenue Service (“IRS”) in the United States, which is the most significant tax jurisdiction for the Company. An IRS examination of fiscal tax years 2008 and 2009 is in the early stages. For most states, fiscal tax years 2007 and later remain subject to examination, although for some states that are currently in the midst of examinations or in various stages of appeal, the period subject to examination ranges back to as early as fiscal tax year 1999. In Canada, the fiscal tax years 2006 and later are still subject to examination, while in the United Kingdom, the fiscal tax years 2007 and later remain subject to examination.
Derivative Instruments and Hedging Activities
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
 
NOTE 8. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
 
Interest rate agreements: The Company uses interest rate swaps to reduce its exposure to fluctuations in interest rates. The objective of the currently outstanding interest rate swaps (cash flow hedges) is to convert variable interest to fixed interest associated with forecasted interest payments resulting from revolving borrowings in the U.K. and continental Europe and are designated as hedging instruments. The Company does not enter into interest rate transactions for speculative purposes. Changes in the value of the interest rate swaps are expected to be highly effective in offsetting the changes attributable to fluctuations in the variable rates. The Company’s counterparties to its interest rate swap contracts have investment-grade credit ratings. The Company expects the creditworthiness of its counterparties to remain intact through the term of the transactions. When entered into, these financial instruments were designated as hedges of underlying exposures (interest payments associated with the U.K. and continental Europe borrowings) attributable to changes in the respective benchmark interest rates.
 
As of January 1, 2010, the Company had three interest rate swap agreements outstanding with notional amounts of GBP 15 million and Euro 50 million (two Euro 25 million agreements). During 2010, one of the two Euro swap agreements matured and related borrowings were retired. The GBP swap agreement obligates the Company to pay a fixed rate through July 2012 while the Euro swap agreement obligates the Company to pay a fixed rate through November 2011.
 
In 2009, the Company cancelled two interest rate swap agreements due to the repayment of the related borrowings. As a result, the Company recorded pre-tax losses of $2.1 million in 2009 associated with settling the liability positions on these two contracts.
 
Foreign currency forward contracts: 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 perfectly 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). The Company’s counterparties to its foreign currency forward contracts have investment-grade credit ratings. The Company 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.
 
At December 31, 2010 and January 1, 2010, forward contracts were revalued at then-current foreign exchange rates, with the changes in valuation reflected directly in “Other, net” in the Consolidated Statement of Operations offsetting the transaction gain/loss recorded on the foreign currency-denominated accounts. At December 31, 2010 and January 1, 2010, the notional amount of the foreign currency forward contracts outstanding was approximately $223.0 million and $198.3 million, respectively. The Company recorded losses on its foreign currency forward contracts in 2010, 2009 and 2008 of $0.8 million, $12.0 million and $1.9 million, respectively. Included in the losses were costs associated with the hedging programs of $2.0 million, $3.9 million and $1.3 million in 2010, 2009 and 2008, respectively. The Company recorded losses (gains) on the foreign-denominated accounts that were hedged of $3.2 million, $(3.7) million and $12.5 million in 2010, 2009 and 2008, respectively. The Company does not hedge 100% of its foreign-denominated accounts and results of the hedging can vary significantly based on various factors, such as the timing of executing the forward contracts versus the movement of the currencies as well as the fluctuations in the account balances throughout each reporting period.
 
See Note 9. “Fair Value Measurements” for information related to the fair value of interest rate agreements and foreign currency forward contracts.
Fair Value Measurements
FAIR VALUE MEASUREMENTS
 
NOTE 9.  FAIR VALUE MEASUREMENTS
 
The fair value of the Company’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 primarily consists of nonconvertible and convertible debt as follows:
 
  •  Nonconvertible fixed-rate debt consisting of the Company’s Notes due 2015 and Notes due 2014.
  •  Convertible fixed-rate debt consisting of the Company’s Notes due 2013 and Notes due 2033.
 
At December 31, 2010, the Company’s carrying value of its fixed-rate debt was $543.3 million as compared to $725.3 million at January 1, 2010. The estimated fair market value of the Company’s fixed-rate debt at December 31, 2010 and January 1, 2010 was $672.8 million and $847.2 million, respectively. The decline in the carrying value and estimated fair market value is due to the repurchase of a portion of the Notes due 2014 and Notes due 2033 during 2010. As of December 31, 2010 and January 1, 2010, the Company’s carrying value of its variable-rate debt was $349.1 million and $104.8 million, respectively, which approximates the estimated fair market value.
 
The fair value of the Company’s interest rate swaps is determined by means of a mathematical model that calculates the present value of the anticipated cash flows from the transaction using mid-market prices and other economic data and assumptions, or by means of pricing indications from one or more other dealers selected at the discretion of the respective banks. These inputs would be considered Level 2 in the fair value hierarchy described in recently issued accounting guidance on fair value measurements. At December 31, 2010 and January 1, 2010, interest rate swaps were revalued at current interest rates, with the changes in valuation reflected directly in “Accumulated Other Comprehensive Loss” in the Company’s Consolidated Balance Sheets. The fair market value of the Company’s outstanding interest rate agreements, which is the estimated exit price that the Company would pay to cancel the interest rate agreements, was not significant at December 31, 2010 or January 1, 2010.
 
The fair value of the Company’s foreign currency forward contracts were not significant at December 31, 2010 or January 1, 2010. 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 forward currency forward contracts is measured using observable market information. These inputs would be considered Level 2 in the fair value hierarchy.
Pension Plans, Post-Retirement Benefits and Other Benefits
PENSION PLANS, POST-RETIREMENT BENEFITS AND OTHER BENEFITS
 
NOTE 10.  PENSION PLANS, POST-RETIREMENT BENEFITS AND OTHER BENEFITS
 
The Company has various defined benefit and defined contribution pension plans. The defined benefit plans of the Company are the Anixter Inc. Pension Plan, Executive Benefit Plan and Supplemental Executive Retirement Plan (SERP) (together the “Domestic Plans”) and various pension plans covering employees of foreign subsidiaries (“Foreign Plans”). The majority of the Company’s pension plans are non-contributory and 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 and 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.
 
The assets 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, Anixter seeks to achieve a high level of total investment return consistent with a prudent level of portfolio risk. The risk tolerance of Anixter indicates an above average ability to accept risk relative to that of a typical defined benefit pension plan as the duration of the projected benefit obligation is longer than the average company. The risk preference indicates a willingness to accept some increases in short-term volatility in order to maximize long-term returns. However, the duration of the fixed income portion of the Domestic Plan approximates the duration of the projected benefit obligation to reduce the effect of changes in discount rates that are used to measure the funded status of the Plan. The measurement date for all plans of the Company is equal to the fiscal year end.
 
The Domestic Plans’ and Foreign Plans’ asset mixes as of December 31, 2010 and January 1, 2010 and the Company’s asset allocation guidelines for such plans are summarized as follows:
 
                                         
    Domestic Plans  
    December 31,
    January 1,
    Allocation Guidelines  
    2010     2010     Min     Target     Max  
 
Large capitalization U.S. stocks
    33.2 %     33.8 %     20 %     30 %     40 %
Small capitalization U.S. stocks
    17.3       15.0       15       20       25  
International stocks
    16.6       17.8       15       20       25  
                                         
Total equity securities
    67.1       66.6               70          
Fixed income investments
    30.3       30.7       25       30       35  
Other investments
    2.6       2.7                    
                                         
      100.0 %     100.0 %             100 %        
                                         
 
                         
    Foreign Plans  
    December 31,
    January 1,
    Allocation Guidelines  
    2010     2010     Target  
 
Equity securities
    46.2 %     43.1 %     48 %
Fixed income investments
    44.9       48.3       45  
Other investments
    8.9       8.6       7  
                         
      100.0 %     100.0 %     100.0 %
                         
 
The pension committees meet regularly to assess investment performance and re-allocate 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.
 
The North American investment policy guidelines are 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;
  •  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 domestic equity funds are limited as to the percentage that can be invested in international securities;
  •  The international stock fund is limited to readily marketable securities; and
  •  The fixed income fund has a duration that approximates the duration of the projected benefit obligations.
 
The investment policies for the European 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; and
  •  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 and generally does not change annually. The weighted-average expected rate of return on plan assets for 2010 is 7.16%.
 
Included in accumulated other comprehensive income as of December 31, 2010 are the deferred prior service cost, deferred net transition obligation and deferred net actuarial loss of $3.3 million, $0.1 million and $40.5 million, respectively. Included in accumulated other comprehensive income as of January 1, 2010 are the deferred prior service cost, deferred net transition obligation and deferred net actuarial loss of $1.2 million, $0.1 million and $55.5 million, respectively. During the year ended December 31, 2010, the Company adjusted accumulated other comprehensive income by $12.9 million (net of deferred tax benefit of $3.1 million), $11.7 million of which related to deferred actuarial gains (net of tax of $3.0 million) offset by additional deferred prior service costs of $2.3 million (net of tax of $1.4 million). Also included in the 2010 adjustments of $12.9 million to accumulated other comprehensive income were reclassifications of $0.2 million and $3.3 million from deferred prior service cost and deferred actuarial loss, respectively, as a result of being recognized as components of net periodic pension cost. The net actuarial loss and prior service cost for the defined benefit pension plan that will be amortized from accumulated other comprehensive income into net periodic benefit costs over the next fiscal year are $3.7 million and $0.2 million, respectively. Amortization of the transition obligation over the next fiscal year will be insignificant.
 
The following represents a reconciliation of the funded status of the Company’s pension plans from the beginning of fiscal 2009 to the end of fiscal 2010:
 
                                                 
    Pension Benefits  
    Domestic     Foreign     Total  
    2010     2009     2010     2009     2010     2009  
    (In millions)  
 
Change in projected benefit obligation:
                                               
Beginning balance
  $ 197.9     $ 187.3     $ 175.9     $ 123.4     $ 373.8     $ 310.7  
Service cost
    6.1       6.6       4.7       4.0       10.8       10.6  
Interest cost
    11.6       11.0       9.9       8.6       21.5       19.6  
Plan participants contributions
                0.3       0.3       0.3       0.3  
Actuarial (gain) loss
    15.3       (1.7 )     (6.1 )     29.9       9.2       28.2  
Benefits paid
    (6.1 )     (5.3 )     (5.6 )     (5.1 )     (11.7 )     (10.4 )
Foreign currency exchange rate changes
                (4.5 )     14.8       (4.5 )     14.8  
Other
    0.6                         0.6        
                                                 
Ending balance
  $ 225.4     $ 197.9     $ 174.6     $ 175.9     $ 400.0     $ 373.8  
                                                 
Change in plan assets at fair value:
                                               
Beginning balance
  $ 127.3     $ 114.6     $ 149.5     $ 115.3     $ 276.8     $ 229.9  
Actual return (loss) on plan assets
    19.9       8.7       15.0       15.9       34.9       24.6  
Company contributions
    6.9       9.3       10.0       9.6       16.9       18.9  
Plan participants contributions
                0.3       0.3       0.3       0.3  
Benefits paid
    (6.1 )     (5.3 )     (5.6 )     (5.1 )     (11.7 )     (10.4 )
Foreign currency exchange rate changes
                (3.4 )     13.5       (3.4 )     13.5  
                                                 
Ending balance
  $ 148.0     $ 127.3     $ 165.8     $ 149.5     $ 313.8     $ 276.8  
                                                 
Reconciliation of funded status:
                                               
Projected benefit obligation
  $ (225.4 )   $ (197.9 )   $ (174.6 )   $ (175.9 )   $ (400.0 )   $ (373.8 )
Plan assets at fair value
    148.0       127.3       165.8       149.5       313.8       276.8  
                                                 
Funded status
  $ (77.4 )   $ (70.6 )   $ (8.8 )   $ (26.4 )   $ (86.2 )   $ (97.0 )
                                                 
Included in the 2010 and 2009 funded status is accrued benefit cost of approximately $13.0 million and $16.2 million, respectively, related to two non-qualified plans, which cannot be funded pursuant to tax regulations.
Noncurrent asset
  $     $     $ 2.0     $ 3.8     $ 2.0     $ 3.8  
Current liability
    (0.6 )     (0.7 )                 (0.6 )     (0.7 )
Noncurrent liability
    (76.8 )     (69.9 )     (10.8 )     (30.2 )     (87.6 )     (100.1 )
                                                 
Funded status
  $ (77.4 )   $ (70.6 )   $ (8.8 )   $ (26.4 )   $ (86.2 )   $ (97.0 )
                                                 
Weighted-average assumptions used for measurement of the projected benefit obligation:
Discount rate
    5.53 %     5.99 %     5.43 %     5.77 %     5.49 %     5.88 %
Salary growth rate
    3.91 %     3.91 %     3.57 %     3.59 %     3.76 %     3.79 %
 
The following represents the funded components of net periodic pension cost as reflected in the Company’s Consolidated Statements of Operations and the weighted-average assumptions used to measure net periodic cost for the years ending December 31, 2010, January 1, 2010 and January 2, 2009:
 
                                                                                 
    Pension Benefits  
    Domestic     Foreign     Total        
    2010     2009     2008     2010     2009     2008     2010     2009     2008        
    (In millions)  
 
Components of net periodic cost:
                                                                               
Service cost
  $ 6.1     $ 6.6     $ 5.8     $ 4.7     $ 4.0     $ 5.7     $ 10.8     $ 10.6     $ 11.5          
Interest cost
    11.6       11.0       10.3       9.9       8.6       10.0       21.5       19.6       20.3          
Expected return on plan assets
    (10.8 )     (9.9 )     (11.8 )     (8.9 )     (7.9 )     (11.0 )     (19.7 )     (17.8 )     (22.8 )        
Net amortization
    3.5       3.7       0.5       0.6       (0.1 )     0.1       4.1       3.6       0.6          
Curtailment loss
                0.9                                     0.9          
                                                                                 
Net periodic cost
  $ 10.4     $ 11.4     $ 5.7     $ 6.3     $ 4.6     $ 4.8     $ 16.7     $ 16.0     $ 10.5          
                                                                                 
Weighted-average assumption used to measure net periodic cost:
Discount rate
    5.99 %     5.90 %     6.50 %     5.77 %     6.45 %     5.63 %     5.88 %     6.12 %     6.03 %        
Expected return on plan assets
    8.50 %     8.50 %     8.50 %     6.02 %     6.02 %     6.82 %     7.16 %     7.26 %     7.66 %        
Salary growth rate
    3.91 %     4.43 %     4.38 %     3.59 %     3.66 %     3.79 %     3.79 %     4.05 %     4.08 %        
 
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 2010, 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 the Company’s pension assets valued by Level 1 inputs are comprised of Domestic equity and fixed income securities 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 the Company’s pension assets valued by Level 2 inputs are comprised of common/collective/pool funds (i.e., mutual funds) which are not exchange traded. These assets are valued at their Net Asset Values (“NAV”) 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 Company does not have any pension assets valued by Level 3 inputs.
 
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 31, 2010, which have been categorized under the fair value hierarchy for the Domestic and Foreign Plans by the Company are as follows:
 
                                                                         
    Pension Assets  
    Domestic     Foreign     Total  
    Level 1     Level 2     Total     Level 1     Level 2     Total     Level 1     Level 2     Total  
    (In millions)  
 
Asset Categories:
                                                                       
Cash and short-term investments
  $ 3.9     $     $ 3.9     $ 1.6     $     $ 1.6     $ 5.5     $     $ 5.5  
Equity securities:
                                                                       
Domestic
    74.7             74.7             35.8       35.8       74.7       35.8       110.5  
International
          24.6       24.6             40.8       40.8             65.4       65.4  
Fixed income securities:
                                                                       
Domestic
    30.4       4.3       34.7       0.1       57.2       57.3       30.5       61.5       92.0  
Corporate bonds
          10.1       10.1             17.2       17.2             27.3       27.3  
Insurance funds
                            12.6       12.6             12.6       12.6  
Other
                      0.1       0.4       0.5       0.1       0.4       0.5  
                                                                         
Total
  $ 109.0     $ 39.0     $ 148.0     $ 1.8     $ 164.0     $ 165.8     $ 110.8     $ 203.0     $ 313.8  
                                                                         
 
The Company’s estimated future benefits payments are as follows at the end of 2010:
 
                         
    Estimated Future Benefit
 
    Payments  
    Domestic     Foreign     Total  
    (In millions)  
 
2011
  $ 6.3     $ 5.1     $ 11.4  
2012
    7.2       5.7       12.9  
2013
    7.9       6.4       14.3  
2014
    8.6       6.7       15.3  
2015
    9.2       6.4       15.6  
2016-2020
    58.2       39.1       97.3  
                         
Total
  $ 97.4     $ 69.4     $ 166.8  
                         
 
The accumulated benefit obligation in 2010 and 2009 was $202.0 million and $177.3 million, respectively, for the Domestic Plans and $148.5 million and $142.3 million, respectively, for the Foreign Plans. The Company had seven plans in 2010 and 2009 where the accumulated benefit obligation was in excess of the fair value of plan assets. For pension plans with accumulated benefit obligations in excess of plan assets the aggregate pension accumulated benefit obligation was $209.4 million and $235.9 million for 2010 and 2009, respectively, and aggregate fair value of plan assets was $154.5 million and $177.8 million for 2010 and 2009, respectively.
 
The Company currently estimates that it will make contributions of approximately $8.7 million to its Domestic Plans and $8.0 million to its Foreign Plans in 2011.
 
Non-union domestic employees of the Company hired on or after June 1, 2004 earn a benefit under a personal retirement account (hypothetical account balance). Each year, a participant’s account receives a credit equal to 2.0% of the participant’s salary (2.5% if the participant’s years of service at August 1 of the plan year are five years or more). Participants who are active as of January 1, 2011 are fully vested in their hypothetical personal retirement account balance after three years of service (previously, participants vested after five 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 in the Domestic Plan and is based on the 10-year Treasury note rate as of the last business day of December.
 
Anixter Inc. adopted the Anixter Inc. Employee Savings Plan effective January 1, 1994. The Plan is a defined-contribution plan covering all non-union domestic employees of the Company. Participants are eligible and encouraged to enroll in the tax-deferred plan on their date of hire, and are automatically enrolled approximately 60 days after their date of hire unless they opt out. The savings plan is subject to the provisions of ERISA. The Company makes a matching contribution equal to 25% of a participant’s contribution, up to 6% of a participant’s compensation. The Company also has certain foreign defined contribution plans. The Company’s contributions to these plans are based upon various levels of employee participation and legal requirements. The total expense related to defined contribution plans was $5.5 million, $5.2 million and $4.9 million in 2010, 2009 and 2008, respectively.
 
A non-qualified deferred compensation plan was implemented on January 1, 1995. The plan permits selected employees to make pre-tax deferrals of salary and bonus. Interest is accrued monthly on the deferred compensation balances based on the average 10-year Treasury note rate for the previous three months times a factor of 1.4, and the rate is further adjusted if certain financial goals of the Company are achieved. The plan provides for benefit payments upon retirement, death, disability, termination or other scheduled dates determined by the participant. At December 31, 2010 and January 1, 2010, the deferred compensation liability was $42.3 million and $41.9 million, respectively.
 
Concurrent with the implementation of the deferred compensation plan, the Company purchased variable, separate account life insurance policies on the plan participants with benefits accruing to the Company. To provide for the liabilities associated with the deferred compensation plan and an executive non-qualified defined benefit plan, fixed general account “increasing whole life” insurance policies were purchased on the lives of certain participants. Prior to 2006, the Company paid level annual premiums on the above company-owned policies. The last premium was paid in 2005. Policy proceeds are payable to the Company upon the insured participant’s death. At December 31, 2010 and January 1, 2010, the cash surrender value of $34.8 million and $31.8 million, respectively, was recorded under this program and reflected in “Other assets” on the consolidated balance sheets.
 
The Company has no other post-retirement benefits other than the pension and savings plans described herein.
Stockholders' Equity
STOCKHOLDERS' EQUITY
 
NOTE 11.  STOCKHOLDERS’ EQUITY
 
Preferred Stock
 
The Company has the authority to issue 15.0 million shares of preferred stock, par value $1.00 per share, none of which was outstanding at the end of fiscal 2010 and 2009.
 
Common Stock
 
The Company has the authority to issue 100.0 million shares of common stock, par value $1.00 per share, of which 34.3 million shares and 34.7 million shares were outstanding at the end of fiscal 2010 and 2009, respectively.
 
Special Dividend
 
On September 23, 2010, the Company’s Board of Directors declared a special dividend of $3.25 per common share, or approximately $113.7 million, as a return of excess capital to shareholders. The dividend declared was recorded as a reduction to retained earnings as of the end of the third quarter of 2010 and was paid on October 28, 2010 to shareholders of record on October 15, 2010.
 
In accordance with the antidilution provisions of the Company’s stock incentive plans, the exercise price and number of options outstanding were adjusted to reflect the special dividend. The average exercise price of outstanding options decreased from $43.88 to $41.16, and the number of outstanding options increased from 1.3 million to 1.4 million. In addition, the dividend will be paid to holders of stock units upon vesting of the units. These changes resulted in no additional compensation expense.
 
The conversion rates of the Notes due 2033 and Notes due 2013 were adjusted in October 2010 to reflect the special dividend. Holders of the Notes due 2033 may convert each Note into 16.023 shares, compared to 15.067 shares before the adjustment, of the Company’s common stock, for which the Company has reserved 1.6 million of its authorized shares, compared to 1.5 million shares before adjustment. Holders of the Notes due 2013 may convert each Note into 16.727 shares, compared to 15.753 shares before the adjustment, of the Company’s common stock, for which the Company has reserved 5.0 million of its authorized shares, compared to 4.7 million shares before adjustment.
 
Stock-Based Compensation
 
In 2010, the Company’s shareholders approved the 2010 Stock Incentive Plan consisting of 1.8 million shares of the Company’s common stock. At December 31, 2010, there were 2.4 million shares reserved for issuance under all incentive plans.
 
Stock Units
 
The Company granted 268,701, 371,131 and 173,792 stock units to employees in 2010, 2009 and 2008, respectively, with a weighted-average grant date fair value of $42.72, $29.41 and $65.24 per share, respectively. The grant-date value of the stock units is amortized and converted to outstanding shares of common stock on a one-for-one basis primarily over a four-year or six-year vesting period from the date of grant based on the specific terms of the grant. Compensation expense associated with the stock units was $11.6 million, $10.3 million and $12.0 million in 2010, 2009 and 2008, respectively.
 
The Company’s Director Stock Unit Plan allows the Company to pay its non-employee directors annual retainer fees and, at their election, meeting fees in the form of stock units. Currently, these units are granted quarterly and vest immediately. Therefore, the Company includes these units in its common stock outstanding on the date of vesting as the conditions for conversion are met. However, the actual issuance of shares related to all director units are deferred until a pre-arranged time selected by each director. Stock units were granted to twelve directors in 2010, twelve directors in 2009 and eleven directors in 2008 having an aggregate value at grant date of $1.3 million, $1.9 million and $2.3 million, respectively. Compensation expense associated with the director stock units was $1.7 million, $1.9 million and $1.8 million in 2010, 2009 and 2008, respectively.
 
The following table summarizes the activity under the director and employee stock unit plans:
 
                                 
          Weighted
          Weighted
 
    Director
    Average
    Employee
    Average
 
    Stock
    Grant Date
    Stock
    Grant Date
 
    Units(1)     Value(2)     Units(1)     Value(2)  
    (Units in thousands)  
 
Outstanding balance at December 28, 2007
    150.4     $ 36.95       645.9     $ 45.83  
Granted
    45.1       50.68       173.8       65.24  
Converted
    (1.6 )     37.17       (231.6 )     37.81  
Cancelled
                (5.5 )     52.15  
                                 
Outstanding balance at January 2, 2009
    193.9       40.14       582.6       54.74  
Granted
    48.9       38.39       371.1       29.41  
Converted
    (2.7 )     46.91       (177.4 )     46.02  
Cancelled
                (17.2 )     47.79  
                                 
Outstanding balance at January 1, 2010
    240.1       39.71       759.1       44.55  
Granted
    26.8       47.32       268.7       42.72  
Converted
    (37.2 )     38.14       (197.4 )     51.09  
Cancelled
                (6.7 )     45.32  
                                 
Outstanding balance at December 31, 2010
    229.7     $ 40.85       823.7     $ 42.38  
                                 
 
(1) Generally, stock units are included in the Company’s common stock outstanding on the date of vesting as the conditions for conversion have been met. However, director and employee units are considered convertible units if vested and the individual has elected to defer for conversion until a pre-arranged time selected by each individual. All of the director stock units outstanding are convertible. Approximately 6,000 of employee units outstanding were convertible at the end of 2010.
 
(2) Director and employee stock units are granted at no cost to the participants.
 
The Company’s stock price was $59.73, $47.10 and $32.17 at December 31, 2010, January 1, 2010 and January 2, 2009, respectively. The weighted-average remaining contractual term for outstanding employee units that have not been deferred is 2.1 years.
 
The aggregate intrinsic value of units converted into stock represents the total pre-tax intrinsic value (calculated using the Company’s stock price on the date of conversion multiplied by the number of units converted) that was received by unit holders. The aggregate intrinsic value of units converted into stock for 2010, 2009 and 2008 was $10.4 million, $5.3 million and $13.3 million, respectively.
 
The aggregate intrinsic value of units outstanding represents the total pre-tax intrinsic value (calculated using the Company’s closing stock price on the last trading day of the fiscal year multiplied by the number of units outstanding) that will be received by the unit recipients upon vesting. The aggregate intrinsic value of units outstanding for 2010, 2009 and 2008 was $62.9 million, $47.1 million and $25.0 million, respectively.
 
The aggregate intrinsic value of units convertible represents the total pre-tax intrinsic value (calculated using the Company’s closing stock price on the last trading day of the fiscal year multiplied by the number of units convertible) that would have been received by the unit holders. The aggregate intrinsic value of units convertible for 2010, 2009 and 2008 was $14.1 million, $12.0 million and $6.7 million, respectively.
 
Stock Options
 
Options previously granted under these plans have been granted with exercise prices at, or higher than, the fair market value of the common stock on the date of grant. All options expire ten years after the date of grant. The Company generally issues new shares to satisfy stock option exercises as opposed to adjusting treasury shares. In accordance with U.S. GAAP, the fair value of stock option grants is amortized over the respective vesting period representing the requisite service period.
 
During 2010, 2009 and 2008, the Company granted 96,492, 97,222 and 230,892 stock options, respectively, to employees with a grant-date fair market value of approximately $1.6 million, $1.2 million and $5.5 million, respectively. These options were granted with vesting periods that range from three to six years representing the requisite service period based on the specific terms of the grant. The weighted-average fair value of the 2010, 2009 and 2008 stock option grants was $17.10, $12.37 and $23.65 per share, respectively, which was estimated at the date of the grants using the Black-Scholes option pricing model with the following assumptions:
 
                     
        Risk-Free
       
    Expected Stock
  Interest
  Expected
  Average
    Price Volatility   Rate   Dividend Yield   Expected Life
 
2010 Grants:
                   
4 year vesting
  36.2%   2.7%     0 %   6.13 years
2009 Grants:
                   
4 year vesting
  35.4%   2.7%     0 %   7 years
2008 Grants:
                   
4 year vesting (2 grants)
  27.8% and 28.0%   3.0% and 3.6%     0 %   7 years
5 year vesting
  27.8%   3.0%     0 %   7 years
 
Primarily due to the change in the population of employees that receive options together with changes in the stock compensation plans (which now include restricted stock units as well as stock options), historical exercise behavior on previous grants do not provide a reasonable estimate for future exercise activity. Therefore, the average expected term was calculated using the simplified method, as defined by U.S. GAAP, for estimating the expected term.
 
The Company’s compensation expense associated with the stock options in 2010, 2009 and 2008 was $3.4 million, $3.0 million and $4.4 million, respectively.
 
The following table summarizes the activity under the employee option plans (Options in thousands):
 
                 
          Weighted-
 
          Average
 
    Employee
    Exercise
 
    Options     Price  
 
Balance at December 28, 2007
    2,048.3     $ 26.19  
Granted
    230.9       65.10  
Exercised
    (549.4 )     18.66  
Cancelled
           
                 
Balance at January 2, 2009
    1,729.8       33.78  
Granted
    97.2       29.41  
Exercised
    (264.8 )     18.21  
Cancelled
           
                 
Balance at January 1, 2010
    1,562.2       36.15  
Adjusted(a)
    87.2       37.87  
Granted
    96.5       42.71  
Exercised
    (510.9 )     21.25  
Cancelled
    (0.1 )     22.39  
                 
Balance at December 31, 2010
    1,234.9     $ 40.27  
                 
Options exercisable at year-end:
               
2008
    1,168.3     $ 20.86  
2009
    956.8     $ 20.43  
2010(a)
    661.2     $ 26.12  
 
(a) In accordance with the provisions of the stock option plan, the exercise price and number of options outstanding and exercisable were adjusted to reflect the special dividend in 2010.
 
The Company’s stock price was $59.73, $47.10 and $32.17 at December 31, 2010, January 1, 2010 and January 2, 2009, respectively. The weighted-average remaining contractual term for options outstanding for 2010 was 5.8 years. The weighted-average remaining contractual term for options exercisable for 2010 was 3.8 years.
 
The aggregate intrinsic value of options exercised represents the total pre-tax intrinsic value (calculated as the difference between the Company’s stock price on the date of exercise and the exercise price, multiplied by the number of options exercised) that was received by the option holders. The aggregate intrinsic value of options exercised for 2010, 2009 and 2008 was $15.5 million, $5.8 million and $24.4 million, respectively.
 
The aggregate intrinsic value of options outstanding represents the total pre-tax intrinsic value (calculated as the difference between the Company’s closing stock price on the last trading day of each fiscal year and the weighted-average exercise price, multiplied by the number of options outstanding at the end of the fiscal year) that could be received by the option holders if such option holders exercised all options outstanding at fiscal year-end. The aggregate intrinsic value of options outstanding for 2010, 2009 and 2008 was $39.9 million, $43.4 million and $31.3 million, respectively.
 
The aggregate intrinsic value of options exercisable represents the total pre-tax intrinsic value (calculated as the difference between the Company’s closing stock price on the last trading day of each fiscal year and the weighted-average exercise price, multiplied by the number of options exercisable at the end of the fiscal year) that would have been received by the option holders had all option holders elected to exercise the options at fiscal year-end. The aggregate intrinsic value of options exercisable for 2010, 2009 and 2008 was $22.2 million, $25.5 million and $13.2 million, respectively.
 
Stock Modification
 
During 2008, the Company recorded additional stock compensation expense of $4.2 million related to amendments made to the employment contract of the Company’s former Chief Executive Officer (“CEO”) who retired in that year. The amendments extended the terms of his non-competition and non-solicitation restrictions in exchange for allowing the vesting and termination provisions of previously granted equity awards to run to their original grant term dates rather than expiring 90 days following retirement.
 
Summary of Non-Vested Shares
 
The following table summarizes the changes to the unvested employee stock units and options:
 
                 
          Weighted-Average
 
    Non-vested
    Grant Date
 
    Shares     Fair Value  
    (Shares in thousands)  
 
Non-vested shares at January 1, 2010
    1,349.8     $ 48.73  
Adjusted(a)
    50.8       50.00  
Granted
    365.2       42.72  
Vested
    (367.7 )     53.18  
Cancelled
    (6.8 )     45.03  
                 
Non-vested shares at December 31, 2010
    1,391.3     $ 44.40  
                 
 
(a) In accordance with the provisions of the stock option plan, the exercise price and number of options outstanding and exercisable were adjusted to reflect the special dividend in 2010.
 
As of December 31, 2010, there was $17.7 million of total unrecognized compensation cost related to unvested stock units and options granted to employees which is expected to be recognized over a weighted-average period of 1.5 years.
 
Share Repurchases
 
During 2010, the Company purchased 1.0 million shares at an average cost of $41.24 per share. Purchases were made in the open market using available cash on hand and available borrowings. During 2009, the Company purchased 1.0 million shares at an average cost of $34.95 per share. Purchases were made in the open market and were financed from cash generated by operations and the net proceeds from the issuance of the Notes due 2014. During 2008, the Company repurchased 1.7 million shares at an average cost of $59.76 per share. Purchases were made in the open market and financed from cash generated by operations.
 
Convertible Debt Repurchases
 
During 2010, the Company repurchased a portion of the Notes due 2033 for $119.6 million. Long-term revolving credit borrowings were used to repurchase these notes. In connection with the repurchases, the Company reduced the accreted value of the debt by $67.0 million, recorded a reduction in equity of $54.0 million ($20.4 million, net of the reduction of deferred tax liabilities of $33.6 million), which was based on the fair value of the liability and equity components at the time of repurchase. The repurchases resulted in the recognition of a pre-tax gain of $1.4 million. See Note 5. “Debt” for further information.
 
During 2009, the Company repurchased a portion of the Notes due 2033 for $90.8 million. Available cash was used to repurchase these notes. In connection with the repurchases and in accordance with fair value accounting rules for convertible debt instruments, the Company recorded a reduction in equity of $34.3 million (reflecting the fair value of the liability and equity components at the time of repurchase). The remaining proceeds were allocated to reducing accreted debt and deferred tax balances resulting in a pre-tax gain of $3.6 million. See Note 5. “Debt” for further information.
Goodwill Impairment
GOODWILL IMPAIRMENT
 
NOTE 12.  GOODWILL IMPAIRMENT
 
On an annual basis, the Company tests for goodwill impairment using a two-step process, unless there is a triggering event, in which case a test would be performed at the time that such triggering event occurs. The first step is to identify a potential impairment by comparing the fair value of a reporting unit with its carrying amount. For all periods presented, the Company’s reporting units are consistent with its operating segments of North America, Europe, Latin America and Asia Pacific. The estimates of fair value of a reporting unit are determined based on a discounted cash flow analysis. A discounted cash flow analysis requires the Company to make various judgmental assumptions, including assumptions about future cash flows, growth rates and discount rates. The assumptions about future cash flows and growth rates are based on management’s forecast of each reporting unit. Discount rate assumptions are based on an assessment of the risk inherent in the future cash flows of the respective reporting units from the perspective of market participants. The Company also reviews market multiple information to corroborate the fair value conclusions recorded through the aforementioned income approach. If step one 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 fair value of goodwill is determined in the same manner as the amount of goodwill recognized in a business combination.
 
The Company performed its 2010 annual impairment analysis during the third quarter of 2010 and concluded that no impairment existed. The Company expects the carrying amount of remaining goodwill to be fully recoverable.
 
In 2009, the Company experienced a flat daily sales trend through the first and second quarters. The resulting effect was that the Company did not experience the normal sequential growth pattern from the first to the second quarter. Because of those flat daily sales patterns, on a sequential basis, reported sales were actually down from the first quarter of 2009. When the second quarter of 2009 sequential drop in reported sales was evaluated against the second quarter of 2008, the result was the largest negative sales comparison experienced since the current economic downturn began. Due to these market and economic conditions, the Company concluded that there were impairment indicators for the North America, Europe and Asia Pacific reporting units that required an interim impairment analysis be performed under U.S. GAAP during the second fiscal quarter of 2009.
 
In the first step of the impairment analysis, the Company performed valuation analyses utilizing the income approach to determine the fair value of its reporting units. The Company also considered the market approach as described in U.S. GAAP. Under the income approach, the Company determined the fair value based on estimated future cash flows discounted by an estimated weighted-average cost of capital, which reflects the overall level of inherent risk of the reporting unit and the rate of return an outside investor would expect to earn. The inputs used for the income approach were significant unobservable inputs, or Level 3 inputs, in the fair value hierarchy described in recently issued accounting guidance on fair value measurements. Estimated future cash flows were based on the Company’s internal projection models, industry projections and other assumptions deemed reasonable by management as those that would be made by a market participant. Based on the results of the Company’s assessment in step one, it was determined that the carrying value of the Europe reporting unit exceeded its estimated fair value while North America and Asia Pacific’s fair value exceeded the carrying value.
 
Therefore, the Company performed a second step of the impairment test to estimate the implied fair value of goodwill in Europe. In the second step of the impairment analysis, the Company determined the implied fair value of goodwill for the Europe reporting unit by allocating the fair value of the reporting unit to all of Europe’s assets and liabilities, as if the reporting unit had been acquired in a business combination and the price paid to acquire it was the fair value. The analysis indicated that there would be an implied value attributable to goodwill of $12.1 million in the Europe reporting unit and accordingly, in the second quarter of 2009, the Company recorded a non-cash impairment charge related to the write off of the remaining goodwill of $100.0 million associated with its Europe reporting unit.
Business Segments
BUSINESS SEGMENTS
 
NOTE 13.  BUSINESS SEGMENTS
 
The Company is engaged in the distribution of communications and security products, electrical wire and cable products and fasteners and other small parts (“C” Class inventory components) from top suppliers to contractors and installers, and also to end users including manufacturers, natural resources companies, utilities and original equipment manufacturers who use the Company’s products as a component in their end product. The Company is organized by geographic regions, and accordingly, has identified North America (United States and Canada), Europe and Emerging Markets (Asia Pacific and Latin America) as reportable segments. The Company obtains and coordinates financing, tax, information technology, legal and other related services, certain of which are rebilled to subsidiaries. Certain corporate expenses are allocated to the segments based primarily on specific identification, projected sales and estimated use of time. Interest expense and other non-operating items are not allocated to the segments or reviewed on a segment basis. Intercompany transactions are not significant. No customer accounted for more than 2% of sales in 2010. Export sales were insignificant.
 
The Company attributes foreign sales based on the location of the customer purchasing the product. In North America, sales in the United States were $3,260.9 million, $3,010.0 million and $3,601.4 million in 2010, 2009 and 2008, respectively. Canadian sales were $628.5 million, $579.1 million and $677.4 million in 2010, 2009 and 2008, respectively. No other individual foreign country’s net sales within the Europe or Emerging Markets’ geographic segments were material to the Company in 2010, 2009 or 2008. The Company’s tangible long-lived assets primarily consist of property, plant and equipment in the United States. No other individual foreign country’s tangible long-lived assets are material to the Company.
 
Segment information for 2010, 2009 and 2008 was as follows (in millions):
 
                                 
    North
          Emerging
       
    America     Europe     Markets     Total  
 
2010
                               
Net sales
  $ 3,889.4     $ 1,023.9     $ 558.8     $ 5,472.1  
Operating income
    235.4       (2.1 )     32.9       266.2  
Depreciation
    14.7       5.6       2.2       22.5  
Amortization of intangibles
    5.0       6.2       0.1       11.3  
Tangible long-lived assets
    97.2       24.7       5.5       127.4  
Total assets
    2,045.9       586.7       300.7       2,933.3  
Capital expenditures
    16.6       1.9       1.1       19.6  
2009
                               
Net sales
  $ 3,589.1     $ 907.2     $ 486.1     $ 4,982.4  
Operating income
    193.6       (119.2 )     29.1       103.5  
Depreciation
    15.0       7.0       2.1       24.1  
Amortization of intangibles
    6.3       6.6       0.1       13.0  
Tangible long-lived assets
    93.9       32.7       5.5       132.1  
Total assets
    1,869.7       545.5       256.5       2,671.7  
Capital expenditures
    17.0       2.9       2.0       21.9  
2008
                               
Net sales
  $ 4,278.8     $ 1,309.4     $ 548.4     $ 6,136.6  
Operating income
    315.0       35.9       41.0       391.9  
Depreciation
    15.6       7.3       2.0       24.9  
Amortization of intangibles
    3.6       6.1             9.7  
Tangible long-lived assets
    87.7       33.0       5.5       126.2  
Total assets
    2,030.3       755.7       276.4       3,062.4  
Capital expenditures
    20.5       8.7       3.2       32.4  
 
The following table presents the changes in goodwill allocated to the Company’s reportable segments from January 2, 2009 to December 31, 2010 (in millions):
 
                                 
    North
          Emerging
       
    America     Europe     Markets     Total  
 
Balance January 2, 2009
  $ 345.2     $ 105.0     $ 8.4     $ 458.6  
Acquisition related(a)
    (12.7 )     2.8       0.2       (9.7 )
Foreign currency translation
    2.2       4.5       2.1       8.8  
                                 
Subtotal
  $ 334.7     $ 112.3     $ 10.7     $ 457.7  
Goodwill impairment(b)
          (100.0 )           (100.0 )
                                 
Balance January 1, 2010
  $ 334.7     $ 12.3     $ 10.7     $ 357.7  
Acquisition related(c)
    15.3                   15.3  
Foreign currency translation
    0.8       (0.7 )     1.2       1.3  
                                 
Balance December 31, 2010
  $ 350.8     $ 11.6     $ 11.9     $ 374.3  
                                 
 
(a) Relates primarily to adjustments to goodwill as a result of the finalization of purchase price allocations for prior acquisitions.
 
(b) Europe’s goodwill balance includes $100.0 million of accumulated impairment losses at January 1, 2010 and December 31, 2010. See Note 12. “Goodwill Impairment” for further information.
 
(c) In 2010, the Company paid for $36.4 million, net of cash acquired, for Clark which resulted in the recognition of goodwill of $15.3 million based on the preliminary valuation. The purchase price, as well as the allocation thereof, will be finalized in 2011.
Summarized Financial Information of Anixter Inc
SUMMARIZED FINANCIAL INFORMATION OF ANIXTER INC
 
NOTE 14.  SUMMARIZED FINANCIAL INFORMATION OF ANIXTER INC.
 
The Company guarantees, fully and unconditionally, substantially all of the debt of its subsidiaries, which include Anixter Inc. The Company has no independent assets or operations and all subsidiaries other than Anixter Inc. are minor.
 
The following summarizes the financial information for Anixter Inc. (in millions):
 
ANIXTER INC.
 
CONDENSED CONSOLIDATED BALANCE SHEETS
 
                 
    December 31,
    January 1,
 
    2010     2010  
 
Assets:
               
Current assets
  $ 2,284.3     $ 2,047.5  
Property, equipment and capital leases, net
    99.8       103.8  
Goodwill
    374.3       357.7  
Other assets
    191.3       172.8  
                 
    $ 2,949.7     $ 2,681.8  
                 
Liabilities and Stockholder’s Equity:
               
Current liabilities
  $ 1,067.4     $ 666.7  
Subordinated notes payable to parent
    8.5       3.5  
Long-term debt
    394.4       478.8  
Other liabilities
    160.6       156.2  
Stockholder’s equity
    1,318.8       1,376.6  
                 
    $ 2,949.7     $ 2,681.8  
                 
 
ANIXTER INC.
 
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 
                         
    Years Ended
    December 31,
  January 1,
  January 2,
    2010   2010   2009
 
Net sales
  $ 5,472.1     $ 4,982.4     $ 6,136.6  
Operating income
  $ 272.0     $ 109.2     $ 396.9  
Income before income taxes
  $ 203.3     $ 39.9     $ 329.1  
Net income (loss)
  $ 123.2     $ (15.4 )   $ 196.9  
Selected Quarterly Financial Data (Unaudited)
SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
NOTE 15.  SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
 
The following is a summary of the unaudited interim results of operations and the price range of the common stock composite for each quarter in the years ended December 31, 2010 and January 1, 2010. The Company has never paid ordinary cash dividends on its common stock. However, in 2010, the Company declared a special dividend of $3.25 per common share, or $113.7 million, as a return of excess capital to shareholders and was paid on October 28, 2010 to shareholders of record on October 15, 2010. As of February 18, 2011, the Company had 2,340 shareholders of record.
 
                                 
    First
  Second
  Third
  Fourth
    Quarter(1)   Quarter(2)   Quarter(3)   Quarter(4)
    (In millions, except per share amounts)
 
Year ended December 31, 2010
                               
Net sales
  $ 1,272.6     $ 1,367.2     $ 1,397.9     $ 1,434.4  
Cost of goods sold
    982.9       1,054.2       1,073.2       1,100.6  
Operating income
    57.0       70.1       77.5       61.6  
Income before income taxes
    9.8       57.7       63.8       48.0  
Net income
  $ 5.9     $ 34.6     $ 36.5     $ 31.5  
Net income per basic share
  $ 0.17     $ 1.02     $ 1.07     $ 0.92  
Net income per diluted share
  $ 0.16     $ 0.98     $ 1.03     $ 0.88  
Stock price range:
                               
High
  $ 48.85     $ 54.16     $ 54.99     $ 61.17  
Low
  $ 38.42     $ 41.31     $ 41.27     $ 52.10  
Close
  $ 47.16     $ 41.90     $ 54.28     $ 59.73  
 
(1) During the first quarter of 2010, the Company repurchased a portion of its Notes due 2014 which resulted in the recognition of a pre-tax loss of $30.5 million ($18.9 million, net of tax).
 
(2) Net income in the second quarter includes a foreign exchange gain of $2.1 million ($0.8 million, net of tax) due to the remeasurement of Venezuela’s bolivar-denominated balance sheet at the new government rate. During the second quarter of 2010, the Company repurchased a portion of its Notes due 2033 which resulted in the recognition of a pre-tax gain of $0.8 million ($0.5 million, net of tax).
 
(3) During third quarter of 2010, the Company repurchased a portion of its Notes due 2014 and 2033 which resulted in the recognition of a pre-tax loss of $2.7 million ($1.7 million, net of tax).
 
(4) During the fourth quarter of 2010, the Company recorded a charge of $20.0 million to operating expense ($12.3 million, net of tax) related to an unfavorable arbitration award. Also during the fourth quarter of 2010, the Company repurchased a portion of its Notes due 2033 which resulted in the recognition of a pre-tax gain of $0.5 million ($0.3 million, net of tax). Also during the fourth quarter of 2010, the Company recorded a tax benefit of $1.3 million for the reversal of prior year foreign taxes.
 
                                 
    First
  Second
  Third
  Fourth
    Quarter(1)   Quarter(2)   Quarter(3)   Quarter(4)
    (In millions, except per share amounts)
 
Year ended January 1, 2010
                               
Net sales
  $ 1,271.2     $ 1,220.6     $ 1,273.0     $ 1,217.6  
Cost of goods sold
    977.9       944.1       984.8       945.0  
Operating income (loss)
    56.9       (58.7 )     58.4       46.9  
Income (loss) before income taxes
    43.0       (79.3 )     41.7       11.8  
Net income (loss)
  $ 25.7     $ (89.8 )   $ 22.1     $ 12.7  
Net income (loss) per basic share
  $ 0.72     $ (2.53 )   $ 0.63     $ 0.37  
Net income (loss) per diluted share
  $ 0.72     $ (2.53 )   $ 0.61     $ 0.35  
Stock price range:
                               
High
  $ 36.46     $ 43.80     $ 41.50     $ 48.55  
Low
  $ 24.46     $ 31.06     $ 31.57     $ 38.49  
Close
  $ 32.95     $ 38.59     $ 38.50     $ 47.10  
 
(1) Second quarter of 2009 operating loss of $58.7 million was negatively affected by a $100.0 million non-cash impairment charge related to the write-off of goodwill associated with the Company’s European reporting unit. In the second quarter of 2009, the Company undertook expense reduction actions that resulted in a reduction to operation income of $5.7 million ($3.9 million, net of tax) related to severance costs primarily related to staffing reductions needed to re-align the Company’s business in response to current market conditions. In connection with the cancellation of interest rate hedging contracts resulting from the repayment of the related borrowings in the second quarter, the Company recorded a pre-tax loss of $2.1 million ($1.5 million, net of tax).
 
(2) During the third quarter of 2009, the Company repurchased a portion of its Notes due 2033 which resulted in the recognition of a pre-tax gain of $1.2 million ($0.7 million, net of tax).
 
(3) Fourth quarter of 2009 operating income of $46.9 million was negatively affected by $4.2 million ($2.6 million, net of tax) in an exchange rate-driven inventory lower of cost or market adjustment in Venezuela. During the fourth quarter of 2009, the Company also recorded a pre-tax loss of $13.8 million ($6.3 million, net of tax) due to foreign exchange losses related to the repatriation of cash from Venezuela and the revaluation of the Venezuelan balance sheet at the parallel exchange rate. As a result of the early retirement of debt in the fourth quarter of 2009, the Company recorded a net pre-tax loss of $2.3 million ($1.4 million, net of tax). Partially offsetting these losses recorded in the fourth quarter of 2009, were net tax benefits of $4.8 million associated with the reversal of a valuation allowance.
Subsequent Event
SUBSEQUENT EVENT
 
NOTE 16.  SUBSEQUENT EVENTS
 
In February 2011, the Company repurchased a portion of the Notes due 2033 for $38.1 million. Available borrowings under the Company’s long-term revolving credit facility were used to repurchase these notes. In connection with the repurchases, the Company reduced the accreted value of the debt by $16.3 million and recorded a reduction in equity of $21.9 million ($13.6 million, net of the reduction of deferred tax liabilities of $8.3 million, which was based on the fair value of the liability and equity components at the time of repurchase). The repurchases resulted in the recognition of a pre-tax gain of $0.1 million.
 
Also in February 2011, bondholders of the Notes due 2033 converted $2.5 million of principal amount at maturity. The conversion value of the bonds converted was approximately $2.8 million and will be settled in March 2011. The Company will pay approximately $1.2 million in cash to reduce the accreted value of debt at the time of conversion and the remaining conversion value of $1.6 million will be settled in stock.
Condensed Financial Information of Registrant Anixter International Inc. (Parent Company)
CONDENSED FINANCIAL INFORMATION OF REGISTRANT ANIXTER INTERNATIONAL INC. (PARENT COMPANY)
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT

ANIXTER INTERNATIONAL INC.

SCHEDULE I — CONDENSED FINANCIAL INFORMATION OF REGISTRANT
ANIXTER INTERNATIONAL INC. (PARENT COMPANY)

STATEMENTS OF OPERATIONS
 
                         
    Years Ended  
    December 31,
    January 1,
    January 2,
 
    2010     2010     2009  
    (In millions)  
 
Operating loss
  $ (4.6 )   $ (4.2 )   $ (3.8 )
Other (expense) income:
                       
Interest expense, including intercompany
    (17.3 )     (18.4 )     (14.9 )
Other
    1.7       4.2        
                         
Loss before income taxes and equity in earnings of subsidiaries
    (20.2 )     (18.4 )     (18.7 )
Income tax benefit
    7.7       6.7       12.5  
                         
Loss before equity in earnings of subsidiaries
    (12.5 )     (11.7 )     (6.2 )
Equity in earnings (loss) of subsidiaries
    121.0       (17.6 )     194.1  
                         
Net income (loss)
  $ 108.5     $ (29.3 )   $ 187.9  
                         
 
See accompanying note to the condensed financial information of registrant.
ANIXTER INTERNATIONAL INC.

SCHEDULE I — CONDENSED FINANCIAL INFORMATION OF REGISTRANT
ANIXTER INTERNATIONAL INC. (PARENT COMPANY)

BALANCE SHEETS
 
                 
    December 31,
    January 1,
 
    2010     2010  
    (In millions)  
 
ASSETS
Current assets:
               
Cash and cash equivalents
  $ 0.4     $ 0.6  
Other assets
    0.5       3.5  
                 
Total current assets
    0.9       4.1  
Investment in and advances to subsidiaries
    1,328.9       1,381.0  
Other assets
    1.9       2.7  
                 
    $ 1,331.7     $ 1,387.8  
                 
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities:
               
Accounts payable and accrued expenses, due currently
  $ 2.3     $ 1.3  
Amounts currently due to affiliates, net
    4.1       0.7  
Long-term debt
    312.7       361.7  
Other non-current liabilities
    1.8        
                 
Total liabilities
    320.9       363.7  
Stockholders’ equity:
               
Common stock
    34.3       34.7  
Capital surplus
    230.1       225.1  
Accumulated other comprehensive loss
    (27.8 )     (55.3 )
Retained earnings
    774.2       819.6  
                 
Total stockholders’ equity
    1,010.8       1,024.1  
                 
    $ 1,331.7     $ 1,387.8  
                 
 
See accompanying note to the condensed financial information of registrant.
ANIXTER INTERNATIONAL INC.

SCHEDULE I — CONDENSED FINANCIAL INFORMATION OF REGISTRANT
ANIXTER INTERNATIONAL INC. (PARENT COMPANY)

STATEMENTS OF CASH FLOWS
 
                         
    Years Ended  
    December 31,
    January 1,
    January 2,
 
    2010     2010     2009  
    (In millions)  
 
Operating activities:
                       
Net income (loss)
  $ 108.5     $ (29.3 )   $ 187.9  
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
                       
Dividend from subsidiary
    271.8       125.7        
Equity in earnings of subsidiaries
    (121.0 )     17.6       (194.1 )
Net gain on retirement of debt
    (1.4 )     (3.6 )      
Accretion of debt discount
    18.0       19.3       18.4  
Stock-based compensation
    1.8       1.9       1.8  
Amortization of deferred financing costs
    0.9       0.8       0.9  
Intercompany transactions
    (0.9 )     (12.4 )     (0.4 )
Income tax benefit
    (7.7 )     (6.7 )     (12.5 )
Changes in current assets and liabilities, net
    (2.1 )     (0.3 )     (4.8 )
                         
Net cash provided by (used in) operating activities
    267.9       113.0       (2.8 )
Investing activities
                 
Financing activities:
                       
Purchase of common stock for treasury
    (41.2 )     (34.9 )     (104.6 )
Payment of cash dividend
    (111.0 )     (0.3 )     (0.7 )
Retirement of Notes due 2033 — debt component
    (65.6 )     (56.5 )      
Retirement of Notes due 2033 — equity component
    (54.0 )     (34.3 )      
Loans (to) from subsidiaries, net
    (5.0 )     11.0       98.0  
Proceeds from issuance of common stock
    8.7       2.5       10.1  
                         
Net cash (used in) provided by financing activities
    (268.1 )     (112.5 )     2.8  
                         
(Decrease) increase in cash and cash equivalents
    (0.2 )     0.5        
Cash and cash equivalents at beginning of year
    0.6       0.1       0.1  
                         
Cash and cash equivalents at end of year
  $ 0.4     $ 0.6     $ 0.1  
                         
 
See accompanying note to the condensed financial information of registrant.
ANIXTER INTERNATIONAL INC.

SCHEDULE I — CONDENSED FINANCIAL INFORMATION OF REGISTRANT
ANIXTER INTERNATIONAL INC. (PARENT COMPANY)

NOTE TO THE CONDENSED FINANCIAL INFORMATION OF REGISTRANT
 
Note A — Basis of Presentation
 
In the parent company condensed financial statements, the Company’s investment in subsidiaries is stated at cost plus equity in undistributed earnings of subsidiaries since the date of acquisition. The Company’s share of net income of its unconsolidated subsidiaries is included in consolidated income using the equity method. The parent company financial statements should be read in conjunction with the Company’s consolidated financial statements.
Valuation and Qualifying Accounts and Reserves
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES

ANIXTER INTERNATIONAL INC.
 
SCHEDULE II — VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
 
Years ended December 31, 2010, January 1, 2010 and January 2, 2009
 
                                         
    Balance at
      Charged
      Balance at
    beginning of
  Charged
  to other
      end of
Description   the period   to income   accounts   Deductions   the period
    (In millions)
 
Year ended December 31, 2010:
                                       
Allowance for doubtful accounts
  $ 25.7     $ 12.3     $ (0.4 )   $ (13.5 )   $ 24.1  
Allowance for deferred tax asset
  $ 18.7     $ 1.7     $ (1.6 )   $     $ 18.8  
Year ended January 1, 2010:
                                       
Allowance for doubtful accounts
  $ 29.4     $ 12.4     $ 0.6     $ (16.7 )   $ 25.7  
Allowance for deferred tax asset
  $ 13.8     $ (6.6 )   $ 11.5     $     $ 18.7  
Year ended January 2, 2009:
                                       
Allowance for doubtful accounts
  $ 25.6     $ 37.0     $ 1.8     $ (35.0 )   $ 29.4  
Allowance for deferred tax asset
  $ 15.4     $ 0.3     $ (1.9 )   $     $ 13.8