NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     Basis of presentation: The accompanying condensed consolidated financial statements should be read in conjunction with the consolidated financial statements included in Anixter International Inc.’s (“the Company”) Annual Report on Form 10-K for the year ended January 1, 2010. The condensed consolidated financial information furnished herein reflects all adjustments (consisting of normal recurring accruals), which are, in the opinion of management, necessary for a fair presentation of the condensed consolidated financial statements for the periods shown. Certain amounts have been reclassified to conform to the current year presentation. The results of operations of any interim period are not necessarily indicative of the results that may be expected for a full fiscal year.

     Recently issued and adopted accounting pronouncements: In June 2009, the Financial Accounting Standard Board (“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 new accounting guidance was effective for annual reporting periods that begin after November 15, 2009 and for interim periods within that first annual reporting period. The new accounting guidance did not have any impact on the Company’s condensed consolidated financial statements in the third quarter 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 7. “Fair Value Measurements” in the notes to the condensed consolidated financial statements. The Company does not have any Level 3 fair value measurements under the fair value hierarchy as of October 1, 2010.

NOTE 2. COMPREHENSIVE INCOME

     Comprehensive income, net of tax, consisted of the following:

		Three Months Ended								Nine Months Ended
		October 1,				October 2,				October 1,				October 2,
(In millions)		2010				2009				2010				2009
Net income (loss)		$	36.5			$	22.1			$	77.0			$	(42.0	)
Foreign currency translation			18.2				14.2				5.2				42.2
Changes in unrealized pension cost			0.5				0.6				3.6				1.3
Changes in fair market value of derivatives(a)			0.3				0.2				—				0.7
Comprehensive income		$	55.5			$	37.1			$	85.8			$	2.2

NOTE 3. INCOME (LOSS) PER SHARE

     The following table sets forth the computation of basic and diluted income (loss) per share:

		Three Months Ended								Nine Months Ended
		October 1,				October 2,				October 1,				October 2,
(In millions, except per share data)		2010				2009				2010				2009
Basic Income (Loss) per Share:
Net income (loss)		$	36.5			$	22.1			$	77.0			$	(42.0	)
Weighted-average common shares outstanding			34.0				34.9				34.1				35.3
Net income (loss) per basic share		$	1.07			$	0.63			$	2.26			$	(1.19	)
Diluted Income (Loss) per Share:
Net income (loss)		$	36.5			$	22.1			$	77.0			$	(42.0	)
Weighted-average common shares outstanding			34.0				34.9				34.1				35.3
Effect of dilutive securities:
Stock options and units			0.5				0.5				0.5				—
Convertible notes due 2033			0.9				0.8				0.9				—
Weighted-average common shares outstanding			35.4				36.2				35.5				35.3
Net income (loss) per diluted share		$	1.03			$	0.61			$	2.17			$	(1.19	)

     The Company’s $300 million convertible notes due 2013 (“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 Company’s average stock price for the three and nine months ended October 1, 2010 and October 2, 2009 did not exceed the conversion price of $63.48 and, therefore, the Notes due 2013 were antidilutive for all of these periods. The conversion rate and the conversion price of the Notes due 2013 were adjusted in October 2010 to reflect the special dividend. For further information regarding these adjustments, see Note 5 “Debt.”

     The Company’s 3.25% zero coupon convertible notes due 2033 (“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. As a result of the conversion value exceeding the average accreted principal value during the three and nine months ended October 1, 2010, the Company included 0.9 million additional shares for both periods related to the Notes due 2033 in the diluted weighted-average common shares outstanding. As a result of the conversion value exceeding the average accreted principal value during the three months ended October 2, 2009, 0.8 million additional shares were included in the diluted weighted-average common shares outstanding. However, during the nine months ended October 2, 2009, 0.7 million additional shares were excluded from the computation of diluted earnings per share, because they would have been antidilutive. 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.”

     In both the three and nine months ended October 1, 2010, 0.5 million additional shares were included in the computation of diluted earnings per share because the effect of these common stock equivalents were dilutive during the periods presented. In the three months ended October 2, 2009, 0.5 million additional shares were included in the computation of diluted earnings per share because the effect of these common stock equivalents were dilutive during this period. Conversely, as a result of a net loss in the nine months ended October 2, 2009, 0.5 million additional shares were excluded from the computation of diluted earnings per share because they would have been antidilutive.

     In the three and nine months ended October 1, 2010, the Company issued 0.1 million and 0.4 million shares, respectively, due to stock option exercises and vesting of stock units. In the three and nine months ended October 2, 2009, the Company issued 0.1 million and 0.3 million shares, respectively, due to stock option exercises and vesting of stock units.

NOTE 4. INCOME TAXES

     During the current quarter, an effective tax rate of 42.8% resulted in income tax expense of $27.3 million, compared to an effective tax rate of 47.1% resulting in $19.6 million of income tax expense in the year ago quarter. The current quarter tax rate reflects a revised full year 2010 tax rate of 41.4% versus the previous estimate of 40.0%. The variability in the rate in both years is primarily driven by income dispersion by geography.

     During the nine months ended October 1, 2010, an effective tax rate of 41.4% resulted in income tax expense of $54.3 million. This compares to $47.4 million of income tax expense in the corresponding period in the prior year, or an effective tax rate of 45.0%, exclusive of the pre-tax effects of a $100.0 million goodwill impairment charge, which had no associated tax benefits.

     The difference between the statutory corporate federal tax rate of 35% and the Company’s effective tax rate referenced for the above periods is primarily due to state income taxes and foreign income taxes.

NOTE 5. DEBT

     At October 1, 2010, the Company’s total debt outstanding was $727.6 million as compared to $830.1 million at January 1, 2010. The Company’s weighted-average cost of borrowings was 6.1% and 7.7% for the three months ended October 1, 2010 and October 2, 2009, respectively, and 6.6% and 6.4% for the nine months ended October 1, 2010 and October 2, 2009, respectively.

Convertible Notes and Special Dividend

     Prior to the declaration of the special dividend in the third quarter of 2010 (see Note 10. “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 October 2010, the conversion rate and conversion price were adjusted. Beginning in October 2010, 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 the adjustment. The conversion price of $63.48 was adjusted to $59.78 per share.

     In periods in 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 the third quarter of 2010, the Notes due 2013 are not currently convertible.

     In connection with the Notes due 2013 issuance in February 2007, the Company paid $88.8 million ($54.7 million net of tax) for a call option that initially covered 4.7 million shares of its common stock, subject to customary anti-dilution adjustments. Prior to the declaration of the special dividend during the third quarter of 2010, the purchased call option had an exercise price $63.48. 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 for $52.0 million a warrant to purchase 4.7 million shares of its common stock, subject to customary anti-dilution adjustments. Prior to the declaration of the special dividend during the third quarter of 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, this price was adjusted to $77.98 per share and the shares related to the warrant were adjusted to 5.0 million shares.

     At the end of the third quarter of 2010, the Notes due 2033 have an aggregate principal amount at maturity of $162.7 million and an accreted value of $78.2 million. The principal amount at maturity of each Note due 2033 is $1,000. 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. In periods in which the Notes due 2033 are convertible, any conversion will be settled in cash up to the principal amount, and any excess of the accreted principal amount will be settled in common stock. Based on the Company’s stock price at the end of the third quarter of 2010, the Notes due 2033 are currently convertible.

     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 October 2010, holders of the Notes due 2033 could convert each Note into 15.067 shares of the Company’s common stock for which the Company had reserved 2.2 million of its authorized shares. As a result of the payment of the special dividend in October 2010, the conversion rate was adjusted to 16.023 shares and the Company has now reserved 2.3 million of its authorized shares.

     For further information regarding the special dividend, see Note 10. “Stockholders’ Equity.”

Repurchases of Debt

     During the nine months ended October 1, 2010, the Company retired $133.7 million of accreted value of its 10% Senior Notes due 2014 (“Notes due 2014”) for $165.5 million. Available cash and other borrowings were used to retire these notes. As a result of the retirements, the Company recognized a pre-tax loss for the three and nine months ended October 1, 2010 of $2.8 million and $33.3 million, respectively, inclusive of $0.2 million and $2.7 million, respectively, of debt issuance costs that were written off and $0.3 million of fees associated with the repurchase.

     During the nine months ended October 1, 2010, the Company repurchased a portion of the Notes due 2033 for $63.0 million of which $8.4 million was accrued at the end of the third quarter. Available cash and other borrowings were used to repurchase these notes. In connection with the repurchases, the Company reduced the accreted value of the debt by $36.8 million, recorded a reduction in equity of $16.8 million (reflecting the fair value of the conversion option at the time of repurchase) and reduced deferred tax liabilities by $10.3 million. The repurchases resulted in the recognition of a pre-tax gain for the three and nine months ended October 1, 2010 of $0.1 million and $0.9 million, respectively.

Other

     Certain debt agreements entered into by the Company’s operating subsidiaries contain various restrictions, including restrictions on payments to the Company. These restrictions have not had, nor are expected to have, an adverse impact on the Company’s ability to meet its cash obligations. The Company has approximately $321.8 million in available, committed, unused credit lines and, at October 1, 2010 has drawn $75.0 million of borrowings under its $200 million accounts receivable facility.

     The Company may redeem its Notes due 2033, in whole or in part, on July 7, 2011 for cash at the accreted value. Additionally, holders may require the Company to purchase all or a portion of their Convertible Notes due 2033 at various prices on certain future dates beginning July 7, 2011. The Company is required to pay the purchase price in cash. The Notes due 2033 are structurally subordinated to the indebtedness of Anixter. Although the notes were convertible at the October 1, 2010, they are classified as long-term as the Company has the intent and ability to refinance the accreted value under existing long-term financing agreements available at October 1, 2010.

     On July 23, 2010, the Company’s primary operating subsidiary, Anixter Inc., renewed its accounts receivable securitization program 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.

     See Note 7. “Fair Value Measurements” for information related to the fair value of outstanding debt obligations.

NOTE 6. 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 the third quarter of 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.

     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 October 1, 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 Condensed Consolidated Statement of Operations offsetting the transaction gain/loss recorded on the foreign currency-denominated accounts. The impact of these foreign currency forward contracts, net of the offsetting transaction gain/loss recorded on the foreign currency denominated accounts, on the income statement was insignificant for the three and nine month periods ended October 1, 2010 and October 2, 2009. At October 1, 2010 and January 1, 2010, the notional amount of the foreign currency forward contracts outstanding was approximately $234.7 million and $198.3 million, respectively.

     See Note 7. “Fair Value Measurements” for information related to the fair value of interest rate agreements and foreign currency forward contracts.

NOTE 7. 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 $200.0 million 5.95% Senior Notes due 2015 (“Notes due 2015”) and Notes due 2014.
	•		Convertible fixed-rate debt consisting of the Company’s Notes due 2013 and Notes due 2033.

     At October 1, 2010, the Company’s carrying value of its fixed-rate debt was $569.0 million as compared to $725.3 million at January 1, 2010. The estimated fair market value of the Company’s fixed-rate debt at October 1, 2010 and January 1, 2010 was $683.3 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 in the first and third quarters of 2010 and the repurchase of the Notes due 2033 in the second and third quarters of 2010.

     Currently, the fair value of the 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 October 1, 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 Condensed 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 October 1, 2010 or January 1, 2010.

     The fair value of the Company’s foreign currency forward contracts were not significant at October 1, 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.

NOTE 8. PENSION PLANS

     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 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.

     Components of net periodic pension cost are as follows (in millions):

		Three Months Ended
		Domestic								Foreign								Total
		October 1,				October 2,				October 1,				October 2,				October 1,				October 2,
		2010				2009				2010				2009				2010				2009
Service cost		$	1.5			$	1.7			$	1.2			$	1.3			$	2.7			$	3.0
Interest cost			2.9				2.7				2.5				2.0				5.4				4.7
Expected return on plan assets			(2.7	)			(2.4	)			(2.2	)			(1.9	)			(4.9	)			(4.3	)
Net amortization			0.9				0.9				0.1				—				1.0				0.9
Net periodic cost		$	2.6			$	2.9			$	1.6			$	1.4			$	4.2			$	4.3

		Nine Months Ended
		Domestic								Foreign								Total
		October 1,				October 2,				October 1,				October 2,				October 1,				October 2,
		2010				2009				2010				2009				2010				2009
Service cost		$	4.6			$	5.0			$	3.5			$	3.1			$	8.1			$	8.1
Interest cost			8.7				8.2				7.4				6.0				16.1				14.2
Expected return on plan assets			(8.1	)			(7.4	)			(6.7	)			(5.6	)			(14.8	)			(13.0	)
Net amortization			2.6				2.8				0.5				(0.1	)			3.1				2.7
Net periodic cost		$	7.8			$	8.6			$	4.7			$	3.4			$	12.5			$	12.0

NOTE 9. 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):

CONDENSED CONSOLIDATED BALANCE SHEETS

		October 1,				January 1,
		2010				2010
		(Unaudited)
Assets:
Current assets		$	2,213.9			$	2,047.5
Property, equipment and capital leases, net			100.9				103.8
Goodwill			358.3				357.7
Other assets			165.7				172.8
		$	2,838.8			$	2,681.8
Liabilities and Stockholder’s Equity:
Current liabilities		$	931.4			$	666.7
Subordinated notes payable to parent			5.0				3.5
Long-term debt			330.7				478.8
Other liabilities			153.8				156.2
Stockholder’s equity			1,417.9				1,376.6
		$	2,838.8			$	2,681.8

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)

		Three Months Ended								Nine Months Ended
		October 1,				October 2,				October 1,				October 2,
		2010				2009				2010				2009
Net sales		$	1,397.9			$	1,273.0			$	4,037.7			$	3,764.8
Operating income		$	78.6			$	60.0			$	208.9			$	60.8
Income before income taxes		$	69.9			$	46.5			$	149.4			$	23.4
Net income (loss)		$	35.6			$	26.9			$	88.1			$	(26.5	)

NOTE 10. STOCKHOLDERS’ EQUITY

Share Repurchase

     In both the nine months ended October 1, 2010 and October 2, 2009, the Company repurchased 1.0 million of its outstanding shares at an average cost of $41.24 and $34.95 per share, respectively. Purchases were made in the open market using available cash on hand and available borrowings.

Stock-Based Compensation

     In the second quarter of 2010, the Company’s shareholders approved the 2010 Stock Incentive Plan consisting of 1.8 million shares of the Company’s common stock. At the end of the third quarter of 2010, there were 2.3 million shares reserved for issuance under various incentive plans. 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. Employee and director stock units are included in common stock outstanding on the date of vesting and stock options are included in common stock outstanding upon exercise by the participant. The fair value of stock options and stock units is amortized over the respective vesting period representing the requisite service period. During the third quarter of 2010, the Company granted directors approximately 7,428 stock units with a grant-date fair value of $53.99.

     During the three and nine months ended October 1, 2010, compensation expense associated with stock options and stock units was $4.2 million and $12.5 million, respectively. During the three and nine months ended October 2, 2009, compensation expense associated with stock options and stock units was $4.0 million and $11.4 million, 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 paid 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 2.3 million of its authorized shares, compared to 2.2 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.

NOTE 11. LEGAL CONTINGENCIES

     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 is seeking damages of approximately $26 million. The arbitration hearing concluded on October 22, 2010 and the Company expects the arbitration panel will render its decision by year-end. 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. The Company maintains insurance that may limit its financial exposure for defense costs, as well as liability, if any, for claims covered by the insurance.

     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.

NOTE 12. GOODWILL IMPAIRMENT IN 2009

     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.

     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, and the Company did not experience the traditional pattern of sequential growth from the first to the second quarter, 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.

     The Company performed its 2010 annual impairment analysis during the third quarter of 2010 and currently expects the carrying amount of remaining goodwill to be fully recoverable.

NOTE 13. BUSINESS SEGMENTS

     The Company is engaged in the distribution of communications and specialty wire and cable products and “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.

     Segment information for the three and nine months ended October 1, 2010 and October 2, 2009 and as of October 1, 2010 and January 1, 2010 was as follows (in millions):

		Three Months Ended								Nine Months Ended
		October 1,				October 2,				October 1,				October 2,
		2010				2009				2010				2009
Net sales:
North America		$	1,007.0			$	921.5			$	2,889.0			$	2,740.3
Europe			247.2				219.8				752.3				676.9
Emerging Markets			143.7				131.7				396.4				347.6
		$	1,397.9			$	1,273.0			$	4,037.7			$	3,764.8
Operating income (loss):
North America		$	70.3			$	53.6			$	184.4			$	145.0
Europe			(1.9	)			(5.1	)			(2.1	)			(113.2	)
Emerging Markets			9.1				9.9				22.3				24.8
		$	77.5			$	58.4			$	204.6			$	56.6

		October 1,				January 1,
		2010				2010
Total assets:
North America		$	1,942.6			$	1,869.7
Europe			581.7				545.5
Emerging Markets			302.8				256.5
		$	2,827.1			$	2,671.7

     The following tables presents the changes in goodwill allocated to the Company’s reportable segments during the nine months ended October 1, 2010 (in millions):

		Nine Months Ended October 1, 2010
		North America				Europe(a)				Emerging Markets				Total
Balance as of January 1, 2010		$	334.7			$	12.3			$	10.7			$	357.7
Foreign currency translation			0.3				(0.4	)			0.7				0.6
Balance as of October 1, 2010		$	335.0			$	11.9			$	11.4			$	358.3

NOTE 14. SUBSEQUENT EVENTS

     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. On October 28, 2010, the Company paid $111.0 million of the dividend to shareholders of record as of October 15, 2010 with the remaining balance to be paid to holders of employee stock units on the future vesting dates of those units.

     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 2.3 million of its authorized shares, compared to 2.2 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.

     In October and November 2010, the Company repurchased a portion of its Notes due 2033 for $23.8 million. Available borrowings under the Company’s long-term revolving credit facility were used to repurchase these notes. As a result of the repurchases, the Company reduced the accreted value of debt by $13.3 million, recorded a reduction in equity of $6.7 million (reflecting the fair value of the conversion option at the time of the repurchases) and reduced deferred tax liabilities by $4.1 million. The repurchases resulted in the recognition of a pre-tax gain of $0.3 million in the fourth quarter of fiscal 2010.