Debt

6 Months Ended

Jul. 01, 2011

NOTE 5. DEBT

At July 1, 2011, the Company’s total debt outstanding was $964.2 million as compared to $892.4 million at December 31, 2010. The Company’s weighted-average cost of borrowings was 5.0% and 6.3% for the three months ended July 1, 2011 and July 2, 2010, respectively, and 5.1% and 6.8% for the six months ended July 1, 2011 and July 2, 2010, respectively.

Retirement of Debt

During the first six months of 2011, the Company retired a portion of the Notes due 2033 as a result of repurchases and bondholder conversions. The Company paid approximately $82.2 million in cash and $1.6 million was settled in stock. Available borrowings under the Company’s long-term revolving credit facility were used to retire these notes. In connection with the retirement of debt, the Company reduced the accreted value of the debt by $37.4 million, recorded a reduction in equity of $44.9 million ($22.9 million, net of the reduction of deferred tax liabilities of $22.0 million). These reductions resulted in the recognition of a pre-tax gain of $0.1 million based on the fair value of the liability and equity components at the time of retirement.

During the first quarter of 2010, the Company retired $121.9 million of accreted value of its 10% Senior Notes due 2014 (“Notes due 2014”) for $150.8 million. Available cash and other borrowings were used to retire these notes. As a result of the retirement of debt, the Company recognized a pre-tax loss of $30.5 million, inclusive of $2.5 million of debt issuance costs that were written off and $0.3 million of fees associated with the retirement.

During the second quarter of 2010, the Company retired a portion of the Notes due 2033 for $40.9 million. Available cash was used to retire these notes. In connection with the retirement of debt, the Company reduced the accreted value of the debt by $28.6 million, recorded a reduction in equity of $13.1 million (reflecting the fair value of the conversion option at the time of repurchase) and reduced deferred tax liabilities by $8.0 million. The retirement of debt resulted in the recognition of a pre-tax gain of $0.8 million.

Accounts Receivable Securitization Facility

In the second quarter of 2011, the Company’s primary operating subsidiary, Anixter Inc., amended the agreements governing its accounts receivable securitization program. The following key changes were made to the program:

	•		The size of the program increased from $200 million to $275 million.

	•		The liquidity termination date of the program will be May 2013 (formerly a program maturing July 2011).

	•		The renewed program carries an all-in drawn funding cost of Commercial Paper (“CP”) plus 90 basis points (previously CP plus 115 basis points).

	•		Unused capacity fees decreased from 57.5 to 60 basis points to 45 to 55 basis points depending on utilization.

All other material terms and conditions remain unchanged. As a result of the change in maturity, this debt was classified as long-term on the Company’s condensed consolidated balance sheet at July 1, 2011 (formerly short-term debt as of December 31, 2010).

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 Anixter Receivables Corporation (“ARC”), which is considered a wholly-owned, bankruptcy-remote variable interest entity (“VIE”). The Company is the primary beneficiary as defined by accounting guidance and, therefore, consolidates the account balances of ARC. As of July 1, 2011 and December 31, 2010, $517.9 million and $407.8 million of the Company’s receivables were sold to ARC, respectively. ARC in turn sells an interest in these receivables to a financial institution for proceeds up to $275.0 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.

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 $259.8 million in available, committed, unused credit lines. At July 1, 2011, the Company has drawn $245.0 million of borrowings under its $275.0 million accounts receivable facility.

In the second quarter of 2011, the Company’s primary operating subsidiary, Anixter Inc., refinanced its senior unsecured revolving credit facility. The following key changes were made to the prior revolving credit agreement:

	•		The size of the credit facility was increased from $350 million to $400 million (or the equivalent in Euros).

	•		The maturity date of the new agreement will be April 2016.

	•		Anixter Inc. will be permitted to direct funds to the Company for payment of dividends and share repurchases to a maximum of $175 million plus 50 percent of Anixter Inc.’s cumulative net income from the effective date of the new agreement.

	•		Anixter Inc. will be allowed to prepay, purchase or redeem indebtedness of the Company, provided that its proforma leverage ratio (as defined in the agreement) is less than or equal to 2.75 to 1.00 and that its unrestricted domestic cash balance plus availability under the revolving credit agreement and the accounts receivable securitization facility is equal to or greater than $175 million.

	•		The pricing grid has been adjusted to a leverage-based pricing grid. Based on Anixter Inc.’s current leverage ratio, the applicable margin will be Libor plus 200 basis points, similar to the prior agreement.

All other material terms and conditions of the revolving credit agreement, which is guaranteed by the Company, are similar to the prior credit agreement. In connection with the amendment, the Company recognized a pre-tax loss of $0.1 million due to a write-off of deferred financing fees related to the prior revolving credit agreement.

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

- Definition

The entire disclosure for information about short-term and long-term debt arrangements, which includes amounts of borrowings under each line of credit, note payable, commercial paper issue, bonds indenture, debenture issue, own-share lending arrangements and any other contractual agreement to repay funds, and about the underlying arrangements, rationale for a classification as long-term, including repayment terms, interest rates, collateral provided, restrictions on use of assets and activities, whether or not in compliance with debt covenants, and other matters important to users of the financial statements, such as the effects of refinancing and noncompliance with debt covenants.

+ References+ Details