Back to GetFilings.com
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 001-14989
WESCO INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 25-1723342
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
COMMERCE COURT 15219
FOUR STATION SQUARE, SUITE 700 (Zip Code)
PITTSBURGH, PENNSYLVANIA
(Address of principal executive offices)
(412) 454-2200
(Registrant's telephone number, including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
TITLE OF CLASS NAME OF EXCHANGE ON WHICH REGISTERED
-------------- ------------------------------------
Common Stock, par value $.01 per share New York Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for at least the past 90 days.
Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
As of February 28, 2002, 40,237,162 shares of Common Stock, par value $.01
per share ("Common Stock") and 4,653,131 shares of Class B Common Stock, par
value $.01 per share ("Class B Common Stock") of the registrant were
outstanding. The registrant estimates that the aggregate market value of the
voting shares held by non-affiliates of the registrant was approximately $99.9
million based on the February 28, 2002 closing price on the New York Stock
Exchange for such stock.
DOCUMENTS INCORPORATED BY REFERENCE:
Part III of this Form 10-K incorporates by reference portions of the
registrant's Proxy Statement.
WESCO INTERNATIONAL, INC.
DECEMBER 31, 2001
TABLE OF CONTENTS
PAGE
---------
PART I
Item 1. Business................................................................... 2
Item 2. Properties................................................................. 15
Item 3. Legal Proceedings.......................................................... 15
Item 4. Submission of Matters to a Vote of Security Holders........................ 15
Executive Officers ........................................................ 16
PART II
Item 5. Market for Registrant's Common Stock and Related Stockholder Matters....... 17
Item 6. Selected Financial Data.................................................... 18
Item 7. Management's Discussion and Analysis of Financial Condition and Results of
Operations................................................................. 19
Item 7A. Quantitative and Qualitative Disclosures About Market Risks................ 28
Item 8. Financial Statements....................................................... 29
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosures................................................................ 29
PART III
Item 10. Directors and Executive Officers of the Registrant......................... 30
Item 11. Executive Compensation..................................................... 30
Item 12. Security Ownership of Certain Beneficial Owners and Management............. 30
Item 13. Certain Relationships and Related Transactions............................. 30
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K............ 30
Signatures................................................................. 34
Index to Consolidated Financial Statements................................. 35
PART I
ITEM 1. BUSINESS
In this Annual Report on Form 10-K, "WESCO" refers to WESCO International,
Inc., and its subsidiaries and its predecessors unless the context otherwise
requires. References to "we," "us," "our" and the "Company" refer to WESCO and
its subsidiaries. Our subsidiaries include WESCO Distribution, Inc. ("WESCO
Distribution") and WESCO Distribution Canada, Inc. ("WESCO Canada"), both of
which are wholly-owned by WESCO.
THE COMPANY
With sales of almost $3.7 billion in 2001, we are a leading North American
provider of electrical construction products and electrical and industrial
maintenance, repair and operating supplies, commonly referred to as "MRO." We
are the second largest distributor in the estimated $73 billion U.S. electrical
distribution industry, and the largest provider of integrated supply services.
Our integrated supply solutions and outsourcing services are designed to fulfill
a customer's industrial MRO procurement needs through a highly automated,
proprietary electronic procurement and inventory replenishment system. This
allows our customers to consolidate suppliers and reduce their procurement and
operating costs. We have over 350 branches and five distribution centers located
in 48 states, nine Canadian provinces, Puerto Rico, Mexico, Guam, the United
Kingdom, Nigeria, Singapore and Venezuela. We serve over 100,000 customers
worldwide, offering over 1,000,000 products from over 24,000 suppliers. Our
diverse customer base includes a wide variety of industrial companies;
contractors for industrial, commercial and residential projects; utility
companies; and commercial, institutional and governmental customers. Our leading
market positions, extensive geographic reach, broad product and service
offerings and acquisition program have enabled us to significantly increase our
net sales and improve our financial performance.
We have acquired 25 companies since August 1995, representing annual sales
of approximately $1.4 billion. Our internal growth, combined with acquisitions,
have increased our net sales and earnings before interest, taxes, depreciation,
amortization and restructuring charges at compounded annual growth rates of 12%
and 23%, respectively, between 1994 and 2001.
INDUSTRY OVERVIEW
The electrical distribution industry serves customers in a number of markets
including the industrial, commercial, construction and utility markets.
Electrical distributors, such as us, provide logistical and technical services
for customers by bundling together a wide range of products typically required
for the construction and maintenance of electrical supply networks, including
wire, lighting, distribution and control equipment and a wide variety of
electrical supplies. This distribution channel enables customers to efficiently
access a broad range of products and has the capacity to deliver value-added
services. Customers are increasingly demanding that distributors provide a
broader and more complex package of services as they seek to outsource non-core
functions and achieve documented cost savings in purchasing, inventory and
supply chain management.
ELECTRICAL DISTRIBUTION. The U.S. electrical distribution industry had sales
of approximately $73 billion in 2001. While overall weakness in the current
economic environment has contributed to recent sales declines, industry growth
has averaged 6% per year from 1985 to 2001. This expansion has been driven by
general economic growth, increased use of electrical products in businesses and
industries, new products and technologies, and customers who are seeking to more
efficiently purchase a broad range of products and services from a single point
of contact, thereby eliminating the costs and expenses of purchasing directly
from manufacturers or multiple sources. The U.S. electrical distribution
industry is also highly fragmented. The four national distributors, including
WESCO, account for less than 20% of estimated total industry sales.
INTEGRATED SUPPLY. The market for integrated supply services has more than
doubled from $5 billion in 1997 to over $10 billion in 2000, an increase of 27%
per year. Recent projections estimate that the integrated supply market will
reach $18.4 billion by 2004. Growth is being driven by the desire of large
industrial companies to reduce operating expenses by implementing comprehensive
third-party programs, which outsource the cost-intensive procurement, stocking
and administrative functions associated with the purchase and consumption of MRO
supplies. For our customers, these costs can account for over 50% of the total
costs for MRO products and services. The total potential in the United States
for integrated supply services, measured as all purchases of industrial MRO
supplies and services, is currently estimated to be approximately $260 billion.
2
COMPETITIVE STRENGTHS
MARKET LEADERSHIP. Our ability to manage large construction projects and
complex multi-site plant maintenance programs and procurement projects that
require special sourcing, technical advice, logistical support and locally based
service has enabled us to establish leadership positions in our principal
markets. We have utilized these skills to generate significant revenues in
industries with intensive use of electrical and MRO products, including:
electrical contracting, utilities, original equipment manufacturing, process
manufacturing and other commercial, institutional and governmental entities. We
have also been able to extend our position within these industries to expand our
customer base.
VALUE-ADDED SERVICES. We are a leader in providing a wide range of services
and procurement solutions that draw on our product knowledge, supply and
logistics expertise and systems capabilities, enabling our customers to reduce
supply chain costs and improve efficiency. These programs include:
- National Accounts -- we coordinate product supply and materials management
activities for MRO supplies for customers with multiple locations who seek
purchasing leverage through a single electrical products provider;
- Integrated Supply -- we design and implement programs that enable our
customers to significantly reduce the number of MRO suppliers they use
through services that include highly automated, proprietary electronic
procurement and inventory replenishment systems and on-site materials
management and logistics services; and
- Major Projects -- we have a dedicated team of experienced construction
management personnel to service the needs of the top engineering and
construction firms which specialize in major projects such as airport
expansions, stadiums and healthcare facilities.
BROAD PRODUCT OFFERING. We provide our customers with a broad product
selection consisting of over 1,000,000 electrical, industrial and data
communications products sourced from over 24,000 suppliers. Our broad product
offering enables us to meet virtually all of a customer's electrical product and
other MRO requirements.
EXTENSIVE DISTRIBUTION NETWORK. Our distribution network consists of over
350 branches and five distribution centers located in 48 states, nine Canadian
provinces, Puerto Rico, Mexico, Guam, the United Kingdom, Nigeria, Singapore and
Venezuela. This extensive network, which would be extremely difficult and
expensive to duplicate, allows us to:
- maintain local customer service, technical support, and sales coverage;
- tailor branch products and services to local customer needs;
- offer multi-site distribution capabilities to large customers and
national accounts; and
- provide same-day deliveries.
LOW COST OPERATOR. Our competitive position has been enhanced by our low
cost position, which is based on:
- extensive use of automation and technology;
- centralization of functions such as purchasing and accounting;
- strategically located distribution centers;
- purchasing economies of scale; and
- incentive programs that increase productivity and encourage
entrepreneurship.
Our low cost position enables us to generate a significant amount of cash
flow as the capital investment required to maintain our business is low. This
cash flow is available for debt reduction, strategic acquisitions and continued
3
investment in the growth of the business.
BUSINESS STRATEGY
Our objective is to be the leading provider of electrical products and other
MRO supplies and services to companies in North America and selected
international markets. In achieving this leadership position, our goal is to
grow earnings at a faster rate than sales by focusing on margin enhancement and
continuous productivity improvement. Our growth strategy leverages our existing
strengths and focuses on developing new initiatives and programs.
ENHANCE OUR LEADERSHIP POSITION IN ELECTRICAL DISTRIBUTION. We intend to
leverage our extensive market presence and brand equity in the WESCO name to
further our leadership position in electrical distribution. We are focusing our
sales and marketing on existing industries where we are expanding our product
and service offerings as well as targeting new clients, both within industries
we currently serve and in new markets which provide significant growth
opportunities. Markets where we believe such opportunities exist include retail,
education, financial services and health care. We are the second largest
electrical distributor in the United States and, through our value-added
products and services, we believe we have become the industry leader in serving
several important and growing markets including:
- industrial customers with large, complex plant maintenance operations,
many of which require a national multi-site service solution for their
electrical distribution product needs;
- large contractors for major industrial and commercial construction
projects;
- the electric utility industry; and
- manufacturers of factory-built homes, recreational vehicles and other
modular structures.
GROW NATIONAL ACCOUNTS PROGRAMS. From 1994 through 2001, revenue from our
national accounts program increased in excess of 11% annually. We will continue
to invest in the expansion of this program. Through our national accounts
program, we coordinate electrical MRO procurement and purchasing activities
primarily for large industrial and commercial companies across multiple
locations. We have well-established relationships with over 300 companies,
providing us with a recurring base of revenue through multi-year agreements. Our
objective is to continue to increase revenue generated through our national
accounts program by:
- offering existing national account customers new products, more services
and additional locations;
- extending certain established national account relationships to include
integrated supply; and
- expanding our customer base by leveraging our existing industry expertise
in markets we currently serve as well as entering into new markets.
FOCUS ON MAJOR PROJECTS. We are increasing our focus on large construction,
renovation and institutional projects. We seek to secure new major projects
contracts through:
- active national marketing of our demonstrated project management
capabilities;
- further development of relationships with leading regional and national
contractors and engineering firms;
- close coordination with national account customers on their major project
requirements; and
4
- offering an integrated supply service approach to contractors for major
projects.
EXTEND OUR LEADERSHIP POSITION IN INTEGRATED SUPPLY. We are the largest
provider of integrated supply services for MRO goods and services in the United
States. We provide a full complement of outsourcing solutions, focusing on
improving the supply chain management process for our customers' indirect
purchases. Our integrated supply programs replace the traditional multi-vendor,
resource-intensive procurement process with a single, outsourced, fully
automated process capable of managing all MRO and related service requirements.
Our solutions range from timely product delivery to assuming full responsibility
for the entire procurement function. Our customers include some of the largest
industrial companies in the United States. We intend to expand our leadership
position as the largest integrated supply service provider by:
- continuing to tailor our proven and profitable business model to the scale
and scope of our customers' operations;
- maximizing the use of our highly automated proprietary information
systems;
- leveraging established relationships with our large industrial customer
base, especially among existing national account customers who could
benefit from our integrated supply model; and
- being a low cost provider of integrated supply services.
We intend to utilize these competitive strengths to increase our integrated
supply sales to both new and existing customers, including our existing national
account customers.
GAIN SHARE IN KEY LOCAL MARKETS. Significant opportunities exist to gain
local market share, since many local markets are highly fragmented. We intend to
increase our market share in key geographic markets through a combination of
increased sales and marketing efforts at existing branches, acquisitions that
expand our product and customer base and new branch openings. We intend to
leverage our existing relationships with preferred suppliers to increase sales
of their products in local markets through various initiatives, including sales
promotions, cooperative marketing efforts, direct participation by suppliers in
national accounts implementation, dedicated sales forces and product
exclusivity. To promote growth, we have instituted a compensation system for
branch managers that encourages our branch managers to increase sales and
optimize business activities in their local markets, including managing the
sales force, configuring inventories, targeting potential customers for
marketing efforts and tailoring local service options.
PURSUE STRATEGIC ACQUISITIONS. Since 1995, we have considered over 300
potential acquisitions and have completed and successfully integrated 25
acquisitions, which represent annual sales of approximately $1.4 billion. We
believe that the highly fragmented nature of the electrical and industrial MRO
distribution industry will continue to provide us with acquisition
opportunities. In our disciplined approach toward acquisitions, potential
acquisitions are evaluated based on a variety of financial, strategic and
operational criteria, including their ability to:
- better serve our existing customers;
- offer expansion into key growth markets;
- add new product or service capabilities;
- support new and existing national accounts;
- strengthen relationships with important manufacturers; and
- meet well-defined financial criteria including return on investment and
earnings accretion.
EXPAND PRODUCT AND SERVICE OFFERINGS. We continue to build on our
demonstrated ability to introduce new products and services to meet existing
customer demands and capitalize on new market opportunities. As the market for
data and electrical products converge, we have integrated our data
communications efforts into our core electrical business. Our existing
electrical sales force has been trained to sell data communications products
resulting in significant new data and electrical projects with large commercial
banks, schools and
5
telecommunications service providers. In addition, we have the platform to sell
integrated lighting control and power distribution equipment in a single package
for multi-site specialty retailers, restaurant chains and department stores.
These are strong growth markets where our national accounts strategies and
logistics infrastructure provide significant benefits for our customers.
LEVERAGE OUR E-COMMERCE AND INFORMATION SYSTEM CAPABILITIES. We conduct a
significant amount of business electronically. Our electronic transaction
management capabilities lower costs and shorten cycle time in the supply chain
process for us and for our customers. We intend to continue to invest in
information technology to create more effective linkages with both customers and
suppliers.
EXPAND OUR INTERNATIONAL OPERATIONS. Our international sales, the majority
of which are in Canada, accounted for approximately 11% of sales in 2001. We
believe that there is significant additional demand for our products and
services outside the United States and Canada. Many of our multinational
domestic customers are seeking distribution, integrated supply and project
management solutions globally. Our approach to international operations is
consistent with our domestic philosophy. We follow our established customers and
pursue business that we believe utilizes and extends our existing capabilities.
This strategy of working through well-developed customer and supplier
relationships significantly reduces risks and provides the opportunity to
establish a profitable business. We have five locations in Mexico headquartered
in Tlalnepantla that serve all of metropolitan Mexico City and the Federal
District and the states of Mexico, Morelos and Hidalgo. We continue to pursue
growth opportunities in existing locations such as Aberdeen, Scotland; London,
England, which support our sales efforts in Europe and the former Soviet Union.
We have an operation in Nigeria to serve West Africa, an office in Caracas,
Venezuela to serve the Northern portion of South America and an office in
Singapore to support our sales to customers in Asia. We are working toward
forming strategic alliances in critical markets, where appropriate.
ACQUISITION AND INTEGRATION PROGRAM
Our strategic acquisition program has been an important element in our
objective to be the leader in the markets we serve. We have completed 25
acquisitions since August 1995, representing total annual sales of approximately
$1.4 billion. Our philosophy toward growth includes a continuous evaluation to
determine whether a particular opportunity, capability or customer need is best
developed internally or purchased through a strategic acquisition. We have a
business development department that consists of a small team of professionals
who locate, evaluate and negotiate all aspects of any acquisition, with
particular emphasis on compatibility of management philosophy and strategic fit.
We believe that the highly fragmented nature of the electrical distribution
industry will continue to provide us with acquisition opportunities. We will
continue to utilize our strong internal capabilities to selectively evaluate the
strategic and financial benefits from potential acquisitions that complement our
customers' overall supply needs, including those in the electrical distribution,
integrated supply and other non-electrical distribution industries. The Company
expects that future acquisitions will be financed out of available internally
generated funds, additional debt and the issuance of equity securities. However,
our ability to make acquisitions will be subject to our compliance with certain
conditions under the terms of our new revolving credit facility. See Part II,
Item 7. - "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources" for a further
description of the new revolving credit facility.
6
WESCO ACQUISITION HISTORY
BRANCH ANNUAL
YEAR ACQUISITIONS LOCATIONS SALES(1)
---- ------------ --------- ---------
(DOLLARS IN MILLIONS)
1995.... 2 2 $ 47
1996.... 7 67 418
1997.... 2 9 52
1998.... 6 21 608
1999.... 4 5 70
2000.... 3 17 92
2001.... 1 10 112
- --- ---
TOTAL. 25 131 $ 1,399
== === =======
- ----------
(1) Represents our estimate of annual sales of acquired businesses at the
time of acquisition, based on our review of internal and/or audited
statements of the acquired business.
PRODUCTS AND SERVICES
Products
Our network of branches and distribution centers stock over 215,000 product
stock keeping units ("SKUs"). Each branch tailors its inventory to meet the
needs of the customers in its local market, typically stocking approximately
4,000 to 8,000 SKUs. Our integrated supply business allows our customers to
access over 1,000,000 products for direct shipment.
Representative products that we sell include:
- Electrical Supplies. Fuses, terminals, connectors, boxes, fittings, tools,
lugs, tape and other MRO supplies.
- Industrial Supplies. Cutting and other tools, abrasives, filters and
safety equipment.
- Distribution. Circuit breakers, transformers, switchboards, panelboards
and busway.
- Lighting. Lamps, fixtures and ballasts.
- Wire and Conduit. Wire, cable, metallic and non-metallic conduit.
- Control, Automation and Motors. Motor control devices, drives,
programmable logic controllers, pushbuttons and operator interfaces.
- Data Communications. Premise wiring, patch panels, terminals and
connectors.
We purchase products from a diverse group of over 24,000 suppliers. In 2001,
our ten largest suppliers accounted for approximately 34% of our purchases. The
largest of these was Eaton Corporation, through its Cutler-Hammer division,
accounting for approximately 14% of total purchases. No other supplier accounted
for more than 5% of total purchases.
Our supplier relationships are important to us, providing access to a wide
range of products, technical training and sales and marketing support. We have
preferred supplier agreements with approximately 150 of our suppliers and
purchase approximately 65% of our stock inventory pursuant to these agreements.
Consistent with industry practice, most of our agreements with suppliers,
including both distribution agreements and preferred supplier agreements, are
terminable by either party on 60 days' notice or less.
7
Services
In conjunction with product sales, we offer customers a wide range of
services and procurement solutions that draw on our product and supply
management expertise and systems capabilities. These services include national
accounts programs, integrated supply programs and major project programs. We are
responding to the needs of our customers, particularly those in processing and
manufacturing industries. To more efficiently manage the MRO process on behalf
of our customers, we offer a range of supply management services, including:
- outsourcing of the entire MRO purchasing process;
- providing technical support for manufacturing process improvements using
state-of-the-art automated solutions;
- implementing inventory optimization programs;
- participating in joint cost savings teams;
- assigning our employees as on-site support personnel;
- recommending energy-efficient product upgrades; and
- offering safety and product training for customer employees.
National accounts programs. The typical national account customer is a
Fortune 500 industrial company, a large utility or other major customer, in each
case with multiple locations. Our national accounts programs are designed to
provide customers with total supply chain cost reductions by coordinating
purchasing activity for MRO supplies across multiple locations. Comprehensive
implementation plans establish jointly managed teams at the local and national
level to prioritize activities, identify key performance measures and track
progress against objectives. We involve our preferred suppliers early in the
implementation process, where they can contribute expertise and product
knowledge to accelerate program implementation and the achievement of cost
savings and process improvements.
Integrated supply programs. Our integrated supply programs offer customers a
variety of services to support their objectives for improved supply chain
management. We integrate our personnel, product and distribution expertise,
electronic technologies and service capabilities with the customer's own
internal resources to meet particular service requirements. Each integrated
supply program is uniquely configured to deliver a significant reduction in the
number of MRO suppliers, reduce total procurement costs, improve operating
controls and lower administrative expenses. Our solutions range from
just-in-time fulfillment to assuming full responsibility for the entire
procurement function for all indirect purchases. We believe that customers will
increasingly seek to utilize us as an "integrator," responsible for selecting
and managing the supply of a wide range of MRO and OEM products.
Major projects. We have a major projects group, comprised of our most
experienced construction management personnel, which focuses on serving the
complex needs of North America's largest engineering and construction firms and
the top 50 U.S. electrical contractors on a multi-regional basis. These
contractors typically specialize in building industrial sites, water treatment
plants, airport expansions, healthcare facilities, correctional institutions and
new sports stadiums.
MARKETS AND CUSTOMERS
We have a large base of approximately 100,000 customers diversified across
our principal markets. While two customers each accounted for almost 3% of 2001
sales, no other customer accounted for more than 2% of 2001 sales.
Industrial customers. Sales to industrial customers, which include numerous
manufacturing and process industries, and original equipment manufacturers
("OEMs") accounted for approximately 42% of our sales in 2001.
MRO products are needed to maintain and upgrade the electrical and
communications networks at all industrial sites. Expenditures are greatest in
the heavy process industries, such as food processing, pulp and paper and
8
petrochemical. Typically, electrical MRO is the first or second ranked product
category by purchase value for total MRO requirements for an industrial site.
Other MRO product categories include, among others, lubricants, pipe, valves and
fittings, fasteners, cutting tools and power transmission products.
OEM customers incorporate electrical components and assemblies into their
own products. OEMs typically require a reliable, high volume supply of a narrow
range of electrical items. Customers in this segment are particularly service
and price sensitive due to the volume and the critical nature of the product
used, and they also expect value-added services such as design and technical
support, just-in-time supply and electronic commerce.
Electrical contractors. Sales to electrical contractors accounted for
approximately 35% of our sales in 2001. These customers range from large
contractors for major industrial and commercial projects, the customer types we
principally serve, to small residential contractors, which represent a small
portion of our sales. Electrical products purchased by electrical
sub-contractors typically account for approximately 40% to 50% of their
installed project cost, and, therefore, accurate cost estimates and competitive
material costs are critical to a contractor's success in obtaining profitable
projects.
Utilities. Sales to utilities accounted for approximately 17% of our sales
in 2001. This market includes large investor-owned utilities, rural electric
cooperatives and municipal power authorities. We provide our utility customers
with power line products and an extensive range of supplies to meet their MRO
and capital projects needs. Full materials management and procurement
outsourcing arrangements are also important in this market as cost pressures and
deregulation cause utility customers to streamline purchasing and inventory
control practices.
Commercial, institutional and governmental customers ("CIG"). Sales to CIG
customers accounted for approximately 6% of our sales in 2001. This fragmented
market includes schools, hospitals, property management firms, retailers and
government agencies of all types. Through our WR Controls Division, we have a
platform to sell integrated lighting control and distribution equipment in a
single package for multi-site specialty retailers, restaurant chains and
department stores.
DISTRIBUTION NETWORK
Branch network. We have over 350 branches, of which approximately 290 are
located in the United States, approximately 50 are located in Canada and the
remainder are located in Puerto Rico, Mexico, Guam, the United Kingdom, Nigeria,
Singapore and Venezuela. Over the last three years, we have opened approximately
seven branches per year, principally to service national account customers. In
addition to consolidations in connection with acquisitions, we occasionally
close or consolidate existing branch locations to improve operating efficiency.
Distribution centers. To support our branch network, we have five
distribution centers located in the United States and Canada, including
facilities located near Pittsburgh, Pennsylvania, serving the Northeast and
Midwest United States; near Reno, Nevada, serving the Western United States;
near Memphis, Tennessee, serving the Southeast and Central United States; near
Montreal, Quebec, serving Eastern and Central Canada; and near Vancouver,
British Columbia, serving Western Canada.
Our distribution centers add value for our branches and customers through
the combination of a broad and deep selection of inventory, on-line ordering,
same day shipment and central order handling and fulfillment. Our distribution
center network reduces the lead-time and improves the reliability of our supply
chain, giving us a distinct competitive advantage in customer service.
Additionally, the distribution centers reduce the time and cost of supply chain
activities through automated replenishment and warehouse management systems, and
economies of scale in purchasing, inventory management, administration and
transportation.
SALES ORGANIZATION
General sales force. Our general sales force is based at the local branches
and comprises approximately 2,200 of our employees, almost half of whom are
outside sales representatives and the remainder are inside sales personnel.
Outside sales representatives are paid under a compensation structure which is
heavily weighted towards commissions. They are responsible for making direct
customer calls, performing on-site technical support, generating new customer
relations and developing existing territories. The inside sales force is a key
point of contact for responding to routine customer inquiries such as price and
availability requests and for entering and tracking orders.
9
National accounts. Our national accounts sales force is comprised of an
experienced group of sales executives who negotiate and administer contracts,
coordinate branch participation and identify sales and service opportunities.
National accounts managers' efforts are aligned by targeted customer industries,
including automotive, pulp and paper, petrochemical, steel, mining and food
processing.
Data communications. Sales of premise cable, connectors, hardware, network
electronics and outside plant products are generated by our general sales force
and a dedicated group of outside and inside data communications sales
representatives. They are supported by a centralized customer service center and
additional resources in product management, purchasing, inventory control and
sales management.
Major projects. Since 1995 our group of experienced sales managers have
targeted, on a national basis, the market for large construction projects with
electrical material valued in excess of $1 million. Through the major projects
group, we can meet the needs of contractors for complex construction projects
such as new sports stadiums, industrial sites, water treatment plants, airport
expansions, healthcare facilities and correctional institutions.
e-Commerce. We established our initial electronic catalog on the Internet in
1996. Since that time, we have worked with a variety of large customers to
establish customized electronic catalogs for their use in internal systems.
Additionally, in 1999 we began a process of providing electronic catalogs to
multiple e-commerce service providers, trade exchanges and industry specific
electronic commerce portals. Our e-business strategy is to serve existing
customers by tailoring our catalog and Internet-based procurement applications
to their internal systems or through their preferred technology and trading
exchange partnerships. We lead our industry in rapid e-implementation to
customers' procurement systems and provide integrated procurement functionality
using "punch-out" technology, a direct system to system link with our customers.
We continue to enhance "WESCOExpress," a new direct ship fulfillment
operation, responsible for supporting smaller customers and select national
account locations. Customers can order over 65,000 electrical and data
communications products stocked in our warehouses through a centralized customer
service center or over the Internet on WESCOdirect.com. We use a proactive
telesales approach utilizing catalogs, direct mail, e-mail and personal phone
selling to provide a high level of customer service. In support of this
initiative, we recently introduced the WESCO Electrical Buyers Guide (TM), a
comprehensive electrical catalog containing over 24,000 products from the top
150 manufacturers in the electrical industry.
INTERNATIONAL OPERATIONS
To serve the Canadian market, we operate a network of approximately 50
branches in nine provinces. Branch operations are supported by two distribution
centers located near Montreal and Vancouver. With sales of approximately US$311
million, Canada represented 8.5% of our total sales in 2001. The Canadian market
for electrical distribution is considerably smaller than the U.S. market, with
roughly US$3.0 billion in total sales in 2001, according to industry sources.
We also have five locations in Mexico headquartered in Tlalnepantla, that
serve all of metropolitan Mexico City and the Federal District and the states
of Mexico, Morelos and Hidalgo.
We sell internationally through domestic export sales offices located within
North America and sales offices in international locations. WESCO operations are
in Aberdeen, Scotland and London, England to support sales efforts in Europe and
the former Soviet Union. We have an operation in Nigeria to serve West Africa,
an office in Caracas, Venezuela to serve the Northern portion of South America
and an office in Singapore to support our sales to Asia. All of the
international locations have been established to primarily serve WESCO's growing
list of customers with global operations referenced under National Accounts
above.
10
MANAGEMENT INFORMATION SYSTEMS
Our corporate information system, WESNET, provides processing for a full
range of our business operations, such as customer service, inventory and
logistics management, accounting and administrative support. The system utilizes
decision support, executive information system analysis and retrieval
capabilities to provide extensive operational analysis and detailed income
statement and balance sheet variance and trend reporting at the branch level.
The system also provides activity-based costing capabilities for analyzing
profitability by customer, sales representative and shipment type. Sales and
margin trends and variances can be analyzed by branch, customer, product
category, supplier or account representative.
The WESNET system operates as a distributed network of fully functional
operating units, and every branch (other than our Bruckner Integrated Supply
Division and certain newly acquired branches) utilizes its own computer system
to support local business activities. All branch operations are linked through a
wide area network to centralized information on inventory status in our
distribution centers as well as other branches and an increasing number of
on-line suppliers. Recent advances in WESNET capabilities make it possible to
consolidate administrative and procurement functions, and bring systematic
improvement through new pricing systems and controls.
We routinely process customer orders, shipping notices, suppliers' purchase
orders, and funds transfer via EDI transactions with our trading partners. Our
e-Commerce strategy calls for more effective linkages to both customers and
suppliers through greater use of technological advances, including Internet and
electronic catalogs, enhanced EDI and other innovative improvements.
Our integrated supply services are supported by our proprietary procurement
and inventory management systems. These systems provide a fully integrated,
flexible supply chain platform that currently handles over 95% of our integrated
supply customers' transactions electronically. Our configuration options for a
customer range from on-line linkages to the customer's business and purchasing
systems, to total replacement of a customer's procurement and inventory
management system for MRO supplies.
COMPETITION
We operate in a highly competitive industry. We compete directly with
national, regional and local providers of electrical and other industrial MRO
supplies. Competition is primarily focused on the local service area, and is
generally based on product line breadth, product availability, service
capabilities and price. Another source of competition is buying groups formed by
smaller distributors to increase purchasing power and provide some cooperative
marketing capability. While increased buying power may improve the competitive
position of buying groups locally, we believe these groups have not been able to
compete effectively with us for national account customers due to the difficulty
in coordinating a diverse ownership group. During 1999 and 2000 numerous special
purpose Internet-based procurement service companies, auction businesses, and
trade exchanges were organized. Many of them targeted industrial MRO and
contractor customers of the type served by WESCO. We responded with our own
e-Commerce capabilities and as of year-end 2000, business losses, if any, to
competitors of this type were minimal. We expect that numerous new competitors
will develop over time as Internet-based enterprises become more established and
refine their service capabilities.
EMPLOYEES
As of December 31, 2001, we had approximately 5,700 employees worldwide, of
which approximately 5,000 were located in the United States and approximately
700 in Canada and our other international locations. Less than 5% of our
employees are represented by unions. We believe our labor relations are
generally good.
INTELLECTUAL PROPERTY
Our trade and service marks, including "WESCO," "the extra effort
people(R)," and the running man design, are filed in the U.S. Patent and
Trademark Office, the Canadian Trademark Office and the Mexican Instituto de la
Propriedad Industrial.
11
ENVIRONMENTAL MATTERS
Our facilities and operations are subject to federal, state and local laws
and regulations relating to environmental protection and human health and
safety. Some of these laws and regulations may impose strict, joint and several
liability on certain persons for the cost of investigation or remediation of
contaminated properties. These persons may include former, current or future
owners or operators of properties, and persons who arranged for the disposal of
hazardous substances. Our owned and leased real property may give rise to such
investigation, remediation and monitoring liabilities under environmental laws.
In addition, anyone disposing of certain products we distribute, such as
ballasts, fluorescent lighting and batteries, must comply with environmental
laws that regulate certain materials in these products.
We believe that we are in compliance with all material respects with
applicable environmental laws. As a result, we will not make significant capital
expenditures for environmental control matters either in the current year or in
the near future.
FORWARD LOOKING INFORMATION
This Annual Report on Form 10-K contains various "forward looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. These statements involve certain unknown risks and uncertainties,
including, among others, those contained in Item 1, "Business" and Item 7,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations." When used in this Annual Report on Form 10-K, the words
"anticipates," "plans," "believes," "estimates," "intends," "expects,"
"projects" and similar expressions may identify forward looking statements,
although not all forward looking statements contain such words. Such statements,
including, but not limited to, our statements regarding business strategy,
growth strategy, productivity and profitability enhancement, competition, new
product and service introductions and liquidity and capital resources are based
on management's beliefs, as well as on assumptions made by, and information
currently available to, management, and involve various risks and uncertainties,
some of which are beyond our control. Our actual results could differ materially
from those expressed in any forward looking statement made by or on our behalf.
In light of these risks and uncertainties, there can be no assurance that the
forward looking information will in fact prove to be accurate. We have
undertaken no obligation to publicly update or revise any forward looking
statements, whether as a result of new information, future events or otherwise.
Important factors that could cause actual results to differ materially from
the forward looking statements we make are described below. All forward looking
statements attributable to us or persons working on our behalf are expressly
qualified by the following cautionary statements:
OUR SUBSTANTIAL AMOUNT OF DEBT REQUIRES SUBSTANTIAL DEBT SERVICE OBLIGATIONS
THAT COULD ADVERSELY AFFECT OUR ABILITY TO FULFILL OUR OBLIGATIONS AND COULD
LIMIT OUR GROWTH AND IMPOSE RESTRICTIONS ON OUR BUSINESS.
We are and will continue to be significantly leveraged. As of December 31,
2001, we had $452.0 million of consolidated indebtedness and stockholders'
equity of $144.7 million. We and our subsidiaries may incur additional
indebtedness in the future, subject to certain limitations contained in the
instruments governing our indebtedness. Accordingly, we will have significant
debt service obligations. These amounts exclude WESCO's accounts receivable
securitization program, through which WESCO sells accounts receivable to a
third party conduit and removes these receivables from its consolidated
balance sheet. See Part II, Item 7.-"Management's Discussion and Analysis of
Financial Condition and Results of Operations-Critical Accounting Policies."
Our debt service obligations have important consequences, including the
following:
- a substantial portion of cash flow from our operations will be dedicated
to the payment of principal and interest on our indebtedness, thereby
reducing the funds available for operations, future business opportunities
and acquisitions and other purposes and increasing our vulnerability to
adverse general economic and industry conditions;
- our ability to obtain additional financing in the future may be limited;
- approximately $169 million of our indebtedness is at variable rates of
interest, which will make us vulnerable to increases in interest rates;
12
- we will be substantially more leveraged than certain of our competitors,
which might place us at a competitive disadvantage; and
- we may be hindered in our ability to adjust rapidly to changing market
conditions.
Our ability to make scheduled payments of the principal of, or to pay
interest on, or to refinance our indebtedness and to make scheduled payments
under our operating leases or to fund planned capital expenditures or finance
acquisitions will depend on our future performance, which to a certain extent is
subject to economic, financial, competitive and other factors beyond our
control. There can be no assurance that our business will continue to generate
sufficient cash flow from operations in the future to service our debt, make
necessary capital expenditures or meet other cash needs. If unable to do so, we
may be required to refinance all or a portion of our existing debt, to sell
assets or to obtain additional financing. There can be no assurance that any
such refinancing or that any such sale of assets or additional financing would
be possible on terms reasonably favorable to us. See Part II - Item 7. -
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
RESTRICTIVE DEBT COVENANTS CONTAINED IN OUR REVOLVING CREDIT FACILITY AND THE
INDENTURE TO OUR SENIOR SUBORDINATED NOTES TO TAKE CERTAIN ACTIONS.
The revolving credit facility and the indenture contain numerous financial
and operating covenants that will limit the discretion of our management with
respect to certain business matters. These covenants place significant
restrictions on the ability of us and our subsidiaries. to:
- incur additional indebtedness;
- pay dividends and other distributions;
- enter into sale and leaseback transactions;
- create liens or other encumbrances;
- make certain payments and investments;
- engage in certain transactions with affiliates;
- make certain acquisitions;
- sell or otherwise dispose of assets; and
- merge or consolidate with other entities,
and will otherwise restrict corporate activities.
The revolving credit facility also requires us to meet certain financial
ratios and tests. Our ability to comply with these and other provisions of the
revolving credit facility and the indenture may be affected by changes in
economic or business conditions or other events beyond our control. A failure to
comply with the obligations contained in the revolving credit facility or the
indenture could result in an event of default under either the revolving credit
facility or the indenture which could result in acceleration of the related debt
and the acceleration of debt under other instruments evidencing indebtedness
that may contain cross-acceleration or cross-default provisions. If the
indebtedness under the revolving credit facility were to be accelerated, there
can be no assurance that our assets would be sufficient to repay in full such
indebtedness and our other indebtedness. See Part II - Item 7. - "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Liquidity and Capital Resources."
13
DOWNTURNS IN THE ELECTRICAL DISTRIBUTION INDUSTRY HAVE HAD IN THE PAST, AND MAY
IN THE FUTURE HAVE, AN ADVERSE EFFECT ON OUR SALES AND PROFITABILITY.
The electrical distribution industry is affected by changes in economic
conditions, including national, regional and local slowdowns in construction and
industrial activity, which are outside our control. Our operating results may
also be adversely affected by increases in interest rates that may lead to a
decline in economic activity, particularly in the construction market, while
simultaneously resulting in higher interest payments under the revolving credit
facility. In addition, during periods of economic slowdown such as the one we
are currently experiencing, our credit losses increase. There can be no
assurance that economic slowdowns, adverse economic conditions or cyclical
trends in certain customer markets will not have a material adverse effect on
our operating results and financial condition.
AN INCREASE IN COMPETITION COULD DECREASE SALES OR EARNINGS.
We operate in a highly competitive industry. We compete directly with
national, regional and local providers of electrical and other industrial MRO
supplies. Competition is primarily focused in the local service area and is
generally based on product line breadth, product availability, service
capabilities and price. Other sources of competition are buying groups formed by
smaller distributors to increase purchasing power and provide some cooperative
marketing capability. During 1999 and 2000 numerous special purpose
Internet-based procurement service companies, auction businesses and trade
exchanges were organized. Many of them targeted industrial MRO and contractor
customers of the type served by us. We expect that numerous new competitors will
develop over time as Internet-based enterprises become more established and
refine their service capabilities.
Some of our existing competitors have, and new market entrants may have,
greater financial and marketing resources than we do. To the extent existing or
future competitors seek to gain or retain market share by reducing prices, we
may be required to lower our prices, thereby adversely affecting financial
results. Existing or future competitors also may seek to compete with us for
acquisitions, which could have the effect of increasing the price and reducing
the number of suitable acquisitions. In addition, it is possible that
competitive pressures resulting from the industry trend toward consolidation
could affect growth and profit margins.
SUCCESS OF OUR GROWTH STRATEGY MAY BE LIMITED BY THE AVAILABILITY OF APPROPRIATE
ACQUISITIONS AND OUR ABILITY TO INTEGRATE ACQUIRED COMPANIES INTO OUR BUSINESS.
A component of our growth strategy is to continue to expand through
additional acquisitions that complement our operations in new or existing
markets. Our acquisitions will involve risks, including the successful
integration and management of acquired operations and personnel. The integration
of acquired businesses may also lead to the loss of key employees of the
acquired companies and diversion of management attention from ongoing business
concerns. We may not be able to identify businesses that meet our strategic
criteria and acquire them on satisfactory terms. We also may not have access to
sufficient capital to complete certain acquisitions, and we will be constrained
by restrictions in our revolving credit facility. Future acquisitions may not
prove advantageous and could have a material adverse effect on our operating
results. See Part II, Item 7. - "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources."
LOSS OF KEY SUPPLIERS OR LACK OF PRODUCT AVAILABILITY COULD DECREASE SALES AND
EARNINGS.
Most of our agreements with suppliers are terminable by either party on 60
days' notice or less. Our ten largest suppliers in 2001 accounted for
approximately 34% of our purchases for the period. Our largest supplier was
Eaton Corporation, through its Cutler-Hammer division, accounting for
approximately 14% of our purchases. The loss of, or a substantial decrease in
the availability of, products from any of these suppliers, or the loss of key
preferred supplier agreements, could have a material adverse effect on our
business. In addition, supply interruptions could arise from shortages of raw
materials, labor disputes or weather conditions affecting products or shipments,
transportation disruptions, or other reasons beyond our control. An interruption
of operations at any of our five distribution centers could have a material
adverse effect on the operations of branches served by the affected distribution
center. Furthermore, we cannot be certain that particular products or product
lines will be available to us, or available in quantities sufficient to meet
customer demand. Such limited product access could put us at a competitive
disadvantage.
14
A DISRUPTION OF OUR INFORMATION SYSTEMS COULD INCREASE EXPENSES, DECREASE SALES
OR REDUCE EARNINGS.
A serious disruption of our information systems could have a material
adverse effect on our business and results of operations. Our computer systems
are an integral part of our business and growth strategies. We depend on our
information systems to process orders, manage inventory and accounts receivable
collections, purchase products, ship products to our customers on a timely
basis, maintain cost-effective operations and provide superior service to our
customers.
WESCO INTERNATIONAL'S CONTROLLING SHAREHOLDERS OWN APPROXIMATELY 44% OF ITS
COMMON STOCK AND CAN EXERCISE SIGNIFICANT INFLUENCE OVER OUR AFFAIRS.
Approximately 44% of the issued and outstanding shares of common stock of
WESCO International is held by Cypress and its affiliates. Accordingly, Cypress
and its affiliates can exercise significant influence over our affairs,
including the election of our directors, appointment of our management and
approval of actions requiring the approval of our stockholders, including the
adoption of amendments to our certificate of incorporation and approval of
mergers or sales of substantially all of our assets.
ITEM 2. PROPERTIES.
We have over 350 branches, of which approximately 290 are located in the
United States, approximately 50 are located in Canada and the remainder are
located in Puerto Rico, Mexico, Guam, the United Kingdom, Nigeria, Singapore and
Venezuela. Approximately 25% of branches are owned facilities, and the remainder
are leased.
The following table summarizes our distribution centers:
LOCATION SQUARE FEET LEASED/OWNED
-------------------------------------------------------------------------
Warrendale, PA..................... 252,700 Owned and Leased
Sparks, NV......................... 196,800 Leased
Byhalia, MS........................ 148,000 Owned
Dorval, QE......................... 90,000 Leased
Burnaby, BC........................ 64,865 Owned
We also lease our 76,200 square foot headquarters in Pittsburgh,
Pennsylvania. We do not regard the real property associated with any single
branch location as material to our operations. We believe our facilities are in
good operating condition.
ITEM 3. LEGAL PROCEEDINGS.
We are party to routine litigation incidental to our business. We do not
believe that any legal proceedings to which we are a party or to which any of
our property is subject will have a material adverse effect on our financial
position or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of the Company's security holders during
the fourth quarter of 2001.
15
EXECUTIVE OFFICERS
Our executive officers and their respective ages and positions are set forth
below.
NAME AGE POSITION
------------ ------ ---------------------
Roy W. Haley..................... 55 Chairman and Chief Executive Officer
William M. Goodwin............... 56 Vice President, Operations
James H. Mehta................... 46 Vice President, Business Development
Robert B. Rosenbaum.............. 44 Vice President, Operations
Patrick M. Swed.................. 58 Vice President, Operations
Donald H. Thimjon................ 58 Vice President, Operations
Ronald P. Van, Jr................ 41 Vice President, Operations
Stephen A. Van Oss............... 47 Vice President and Chief Financial Officer
Daniel A. Brailer................ 44 Secretary and Treasurer
Set forth below is biographical information for our executive officers and
directors listed above.
ROY W. HALEY became Chairman of the Board in August 1998. Mr. Haley has been
Chief Executive Officer and a director of WESCO since February 1994. From 1988
to 1993, Mr. Haley was an executive at American General Corporation, a
diversified financial services company, where he served as Chief Operating
Officer and as President and Director. Mr. Haley is also a director of United
Stationers, Inc. and Cambrex Corporation.
WILLIAM M. GOODWIN has been Vice President, Operations of WESCO since March
1994. Since 1987, Mr. Goodwin has served as a branch, district and region
manager for WESCO in various locations and also served as Managing Director of
WESCOSA, a former Westinghouse affiliated manufacturing and distribution
business in Saudi Arabia.
JAMES H. MEHTA has been Vice President, Business Development of WESCO since
November 1995. From 1993 to 1995, Mr. Mehta was a principal with Schroder
Ventures, a private equity investment firm based in London, England.
ROBERT B. ROSENBAUM has been Vice President, Operations of WESCO since
September 1998. From 1982 until 1998, Mr. Rosenbaum was the President of the
Bruckner Supply Company, Inc., an integrated supply company WESCO acquired in
September 1998.
PATRICK M. SWED has been Vice President, Operations of WESCO since March
1994. Mr. Swed had been Vice President of Branch Operations for WESCO from 1991
to 1994.
DONALD H. THIMJON has been Vice President, Operations of WESCO since 1991.
Mr. Thimjon served as Regional Manager from 1980 to 1991.
RONALD P. VAN, JR. has been Vice President, Operations of WESCO since October
1998. Mr. Van was a Vice President and Controller of EESCO, an electrical
distributor WESCO acquired in 1996.
STEPHEN A. VAN OSS has been Vice President and Chief Financial Officer of
WESCO since October 2000. Mr. Van Oss served as Director, Information Systems
for WESCO from 1997 to 2000 and as Director, Acquisition Management in 1997.
From 1995 to 1996, Mr. Van Oss served as Chief Operating Officer and Chief
Financial Officer of Paper Back Recycling of America, Inc. From 1979 to 1995,
Mr. Van Oss held various management positions with Reliance Electric
Corporation.
DANIEL A. BRAILER has been Treasurer and Director of Investor Relations of
WESCO since March 1999. During 1999, Mr. Brailer was also appointed to the
position of Corporate Secretary. From 1982 to 1999, Mr. Brailer held various
positions at Mellon Financial Corporation, most recently as Senior Vice
President.
16
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS.
On May 17, 1999, WESCO completed its initial public offering of common stock
("the Offering"), which is listed on the New York Stock Exchange under the
symbol "WCC." As of February 28, 2002, there were 40,237,162 shares of common
stock and 4,653,131 shares of Class B common stock outstanding held by
approximately 100 holders of record. We have not paid dividends on the common
stock, and do not presently plan to pay dividends in the foreseeable future. It
is currently expected that earnings will be retained and reinvested to support
either business growth or debt reduction. See Part II, Item 7. - "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Liquidity and Capital Resources." The following table sets forth the high and
low sales price of the shares for the periods indicated.
SALES PRICES
-------------------------
QUARTER HIGH LOW
-------------------------------------------------
2001
First $11.00 $7.06
Second 9.25 7.30
Third 9.20 4.65
Fourth 6.50 3.95
2000
First $ 9.00 $7.06
Second 10.88 7.75
Third 10.13 7.50
Fourth 9.88 7.31
In connection with the Initial Public Offering, the Board of Directors
approved a 57.8 to one stock split effected in the form of a stock dividend of
WESCO's common stock. The Board of Directors also reclassified the Class A
common stock into common stock, increased the authorized common stock to
210,000,000 shares and the authorized Class B common stock to 20,000,000 shares
and authorized 20,000,000 shares of $.01 par value preferred stock, all
effective May 11, 1999.
In May 2000, WESCO's board of directors authorized an additional $25 million
to be added to its existing $25 million share repurchase program which was
authorized in November 1999. WESCO's common stock may be purchased at
management's discretion, subject to certain financial ratios, in open market
transactions and the program may be discontinued at any time. As of February 28,
2002, WESCO had purchased approximately 3.9 million shares of its common stock
for approximately $32.8 million pursuant to this program. In August 2001, WESCO
Distribution entered into an amendment to its revolving credit facility, which,
among other things, prohibited WESCO from repurchasing additional shares of
its common stock.
In March 2002, WESCO entered into a new revolving credit agreement, the
proceeds of which, were used to retire its then existing credit facility. The
new credit agreement permits WESCO to repurchase shares of its common stock,
assuming the Company meets or exceeds certain financial ratios.
17
ITEM 6. SELECTED FINANCIAL DATA.
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------------------
2001 2000 1999 1998 1997
-------------------------------------------------------------------------------
(DOLLARS IN MILLIONS, EXCEPT SHARE DATA)
INCOME STATEMENT DATA:
Net sales................................. $3,658.0 $3,881.1 $3,423.9 $3,025.4 $2,594.8
Gross profit.............................. 643.5 684.1 616.6 537.6 463.9
Selling, general and administrative expenses 517.2 524.3 471.2 415.0 372.5
Depreciation and amortization............. 31.0 25.0 20.4 14.8 11.3
Restructuring charge(1) .................. -- 9.4 -- -- --
Recapitalization costs(2)................. -- -- -- 51.8 --
-------------------------------------------------------------------------------
Income from operations.................... 95.3 125.4 125.0 56.0 80.1
Interest expense, net..................... 45.1 43.8 47.0 45.1 20.1
Other expenses(3)......................... 16.9 24.9 19.5 10.1 --
-------------------------------------------------------------------------------
Income before income taxes................ 33.3 56.7 58.5 0.8 60.0
Provision for income taxes................ 13.1 23.3 23.4 8.5(4) 23.8
-------------------------------------------------------------------------------
Income (loss) before
extraordinary item..................... 20.2 33.4 35.1 (7.7) 36.2
Extraordinary item, net of applicable
TAXES(5)............................... -- -- (10.5) -- --
-------------------------------------------------------------------------------
Net income (loss)......................... $20.2 $33.4 $24.6 $(7.7) $36.2
-------------------------------------------------------------------------------
Earnings (loss) per common share(6)
Basic before extraordinary item ....... 0.45 0.74 0.82 (0.17) 0.61
Basic.................................. 0.45 0.74 0.57 (0.17) 0.61
Diluted before extraordinary item...... 0.43 0.70 0.75 (0.17) 0.55
Diluted................................ 0.43 0.70 0.53 (0.17) 0.55
Weighted average common shares
OUTSTANDING(6)
Basic.................................. 44,862,087 45,326,475 43,057,894 45,051,632 59,030,100
Diluted................................ 46,901,673 47,746,607 47,524,539 45,051,632 66,679,063
OTHER FINANCIAL DATA:
EBITDA before recapitalization and
restructuring charges(7)............... $126.4 $159.8 $145.3 $122.6 $91.4
Capital expenditures...................... 13.8 21.6 21.2 10.7 11.6
Net cash provided by (used for) operating
activities............................. 161.1 46.9 66.4 276.9 (12.0)
Net cash provided by (used for) investing
activities............................. (69.2) (60.7) (71.9) (184.1) (21.5)
Net cash provided by (used for) financing
activities............................. (38.0) 26.0 6.3 (92.3) 41.1
BALANCE SHEET DATA:
Total assets.............................. $1,158.0 $ 1,161.5 $ 1,028.8 $ 950.5 $ 870.9
Total long-term debt (including current
portion)............................... 452.0 483.3 426.4 595.8 295.2
Redeemable common stock(8)................ -- -- -- 21.5 9.0
Stockholders' equity (deficit)............ 144.7 125.0 117.3 (142.6) 184.5
(1) Represents a restructuring charge taken in the fourth quarter of 2000 as
described in Note 4 to the Consolidated Financial Statements.
(2) Represents a one-time charge primarily related to noncapitalized
financing expenses, professional and legal fees and management
compensation costs as a result of the recapitalization described in Note
1 to the Consolidated Financial Statements.
(3) Represents costs relating to the sale of accounts receivable pursuant to
the accounts receivable securitization program as described in Note 5 to
the Consolidated Financial Statements.
(4) Certain nondeductible recapitalization costs and other permanent
differences significantly exceeded income before income taxes and
resulted in an unusually high provision for income taxes.
(5) Represents a charge, net of tax, relating to the write-off of
unamortized debt issuance and other costs associated with the early
extinguishment of debt and the 1999 termination of the existing accounts
receivable securitization program.
(6) Reflects a 57.8 to one stock split effected in the form of a stock
dividend of WESCO common stock effective May 11, 1999.
(7) EBITDA before recapitalization and restructuring charges represents
income from operations plus depreciation, amortization, recapitalization
and restructuring costs. EBITDA before recapitalization and
restructuring charges is presented since management believes that such
information is considered by certain investors to be an additional basis
for evaluating the Company's ability to pay interest and repay debt.
EBITDA should not be considered an alternative to measures of operating
performance as determined in accordance with generally accepted
accounting principles or as a measure of the Company's operating results
and cash flows or as a measure of the Company's liquidity. Since EBITDA
is not calculated identically by all companies, the presentation herein
may not be comparable to other similarly titled measures of other
companies.
(8) Represents redeemable common stock as described in Note 10 to the
Consolidated Financial Statements.
18
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The following discussion should be read in conjunction with the audited
consolidated financial statements and notes thereto included elsewhere in this
Annual Report on Form 10-K.
GENERAL
WESCO's sales can be categorized as stock, direct ship and special order.
Stock orders are filled directly from existing inventory and generally represent
40% to 45% of total sales. Approximately 42% to 48% of WESCO's total sales are
direct ship sales. Direct ship sales are typically custom-built products, large
orders or products that are too bulky to be easily handled and, as a result, are
shipped directly to the customer from the supplier. Special orders are for
products that are not ordinarily stocked in inventory and are ordered based on a
customer's specific request. Special orders represent the remainder of total
sales. Gross profit margins on stock and special order sales are approximately
50% higher than those on direct ship sales. Although direct ship gross margins
are lower, operating profit margins are often comparable, since the product
handling and fulfillment costs associated with direct shipments are much lower.
WESCO has historically financed its working capital needs, capital
expenditures, acquisitions and new branch openings through internally generated
cash flow and borrowings under its credit facilities and its accounts receivable
securitization program. During the initial phase of an acquisition or new branch
opening, WESCO typically incurs expenses related to installing or converting
information systems, training employees and other initial operating activities.
With some acquisitions, WESCO may incur expenses in connection with the closure
of any of its own redundant branches. Historically, the costs associated with
opening new branches, and closing branches in connection with certain
acquisitions, have not been material. WESCO has accounted for its acquisitions
under the purchase method of accounting.
WESCO is a leading consolidator in its industry, having acquired 25
companies since August 1995, representing annual sales of approximately $1.4
billion. Management distinguishes sales attributable to core operations
separately from sales of acquired businesses. The distinction between sales from
core operations and from acquired businesses is based on the Company's internal
records and on management estimates where the integration of acquired businesses
results in the closing or consolidation of branches. However, "core operations"
typically refer to all internally started branches and all acquired branches
that have been in operation for the entire current and prior year-to-date
periods. "Acquired businesses" generally refer to branch operations purchased by
WESCO where the branches have not been under WESCO ownership for the entire
current and prior year-to-date periods.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
WESCO's discussion and analysis of its financial condition and results of
operations are based upon WESCO's consolidated financial statements, which have
been prepared in accordance with accounting principles generally accepted in the
United States. The preparation of these financial statements requires WESCO to
make estimates and judgments that affect the reported amounts of assets,
liabilities, revenues and expenses, and related disclosure of contingent assets
and liabilities. On an on-going basis, WESCO evaluates its estimates, including
those related to supplier programs, bad debts, inventories, goodwill, income
taxes, restructuring cost, contingencies and litigation. WESCO bases its
estimates on historical experience and on various other assumptions that are
believed to be reasonable under the circumstances, the results of which form the
basis for making judgments about the carrying values of assets and liabilities
that are not readily apparent from other sources. Actual results may differ from
these estimates.
WESCO believes the following critical accounting policies affect its
judgments and estimates used in the preparation of its consolidated financial
statements. WESCO maintains allowances for doubtful accounts for estimated
losses resulting from the inability of its customers to make required payments.
If the financial condition of WESCO's customers were to deteriorate, resulting
in an impairment of their ability to make payments, additional allowances may be
required. WESCO writes down its inventory for estimated obsolescence or
unmarketable inventory equal to the difference between the cost of inventory and
the estimated market value based upon assumptions about future demand and market
conditions. If actual market conditions are less favorable than those projected
by management, additional inventory write-downs may be required. WESCO records
its deferred tax assets at amounts that are expected to be realized. WESCO has
considered future taxable income and ongoing prudent and feasible tax planning
strategies in assessing the potential need for a valuation allowance. Should
19
WESCO determine that it would not be able to realize all or part of its net
deferred tax asset in the future, an adjustment to the deferred tax asset would
be charged to income in the period such determination was made.
WESCO maintains an accounts receivable securitization program (the
"Receivables Facility"), whereby we sell, on a continuous basis, to WESCO
Receivables Corporation, a wholly-owned, special purpose company ("SPC"), an
undivided interest in all domestic accounts receivable. The SPC sells without
recourse to a third-party conduit, all the eligible receivables while
maintaining a subordinated interest, in the form of overcollateralization,
in a portion of the receivables.
WESCO accounts for the securitization of accounts receivable in accordance
with Statement of Financial Accounting Standards No. 140, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities."
At the time the receivables are sold, the balances are removed from the balance
sheet. The Receivables Facility represents "off-balance sheet financing," since
the conduit's ownership interest in the accounts receivable of the SPC results
in the removal of accounts receivable from WESCO's consolidated balance sheets,
rather than resulting in the addition of a liability to the conduit.
We believe that the terms of the agreements governing this facility qualify
our trade receivable sales transactions for "sale treatment" under generally
accepted accounting principles, which requires WESCO to remove the accounts
receivable from our consolidated balance sheets. Absent this "sale treatment,"
our consolidated balance sheet would reflect additional accounts receivable and
debt. Our consolidated statements of operations would not be impacted, except
that "Other Expenses" would be classified as "Interest Expense."
2001 DEVELOPMENTS
Developments affecting the 2001 results of operations and financial position
of WESCO include the following:
Economic Trends
The electrical distribution industry experienced a significant overall sales
decline in the markets where WESCO participates. The 2001 decrease varies
dramatically depending upon the product category as well as the market channel
used to distribute such product. Based upon our internal estimates, certain of
our more significant competitors and suppliers, as a group, experienced an
average sales decline of approximately 12% in 2001. WESCO's net sales from
core operations decreased approximately 8.6% in 2001 due to:
- - Sales to the telecom and semiconductor industries, which were strong in 2000,
were considerably weaker in 2001.
- - Sales declines were experienced in our large industrial customer base, with
many customers closing manufacturing and processing plants and significantly
reducing their 2001 MRO and capital spend.
- - A significant decline occurred in sales of control and automation products
used in plant expansions and plant upgrades.
The trend of declining sales has continued into 2002. Core sales for the two
months ended February 28, 2002 decreased approximately 12% from the comparable
period in 2001, and are in line with Company projections and, adjusted for
seasonality, are in line with fourth quarter 2001 run rates.
Refinancing
The Company has taken the following steps to improve its liquidity:
In March 2002, WESCO entered into a $290 million revolving credit agreement
with a group of seven financial institutions that is secured by substantially
all inventory owned by WESCO and also by the accounts receivable of WESCO
Distribution Canada, Inc. Availability under the agreement is based on the
amount of eligible inventory and Canadian receivables applied against certain
advance rates. Proceeds from this agreement were used to retire the Company's
existing revolving credit facility.
In August 2001, WESCO completed an offering of $100 million in aggregate
principal amount of senior subordinated notes due 2008 with interest payable
semi-annually on June 1 and December 1 of each year. The notes were issued with
an issue price of 90.142%. The net proceeds received by the Company from the
offering were approximately $87.6 million after deducting the initial
purchasers' discount and before offering expenses. The net
20
proceeds were used to repay a portion of the outstanding indebtedness of the
Company under its then existing revolving credit facility.
In September and October of 2001, WESCO entered into several
fixed-to-floating interest rate swap agreements with an aggregate notional
amount of $100 million. These swaps effectively convert $100 million of the
senior subordinated notes from fixed to floating rate debt. In 2001 these
agreements had the effect of reducing the interest rate on $100 million of the
senior notes from 9.13% to 6.29%.
Acquisition
In March 2001, WESCO completed its acquisition of all of the outstanding
common stock of Herning Underground Supply, Inc. and Alliance Utility Products,
Inc. (collectively "Herning") headquartered in Hayward, California. Herning, a
distributor serving contractors who install gas, lighting and communication
utility infrastructure, reported net sales of approximately $112 million in
2000. This acquisition was accounted for under the purchase method of
accounting.
21
RESULTS OF OPERATIONS
The following table sets forth the percentage relationship to net sales of
certain items in the Company's Consolidated Statements of Operations for the
periods presented:
YEAR ENDED DECEMBER 31
-------------------------------------
2001 2000 1999
-------------------------------------
Net sales.................................................................. 100.0% 100.0% 100.0%
Gross profit............................................................... 17.6 17.6 18.0
Selling, general and administrative expenses............................... 14.1 13.5 13.7
Depreciation and amortization.............................................. 0.9 0.7 0.6
Restructuring charge....................................................... -- 0.2 --
-------------------------------------
Income from operations................................................ 2.6 3.2 3.7
Interest expense........................................................... 1.2 1.1 1.4
Other expenses............................................................. 0.5 0.6 0.6
-------------------------------------
Income before income taxes and extraordinary item..................... 0.9 1.5 1.7
Provision for income taxes................................................. 0.3 0.6 0.7
Extraordinary item, net of tax benefits.................................... -- -- (0.3)
-------------------------------------
Net income ........................................................... 0.6% 0.9% 0.7%
=====================================
2001 Compared to 2000
Net Sales. Net sales for the year ended December 31, 2001, decreased by
$223.1 million, or 5.7%, to $3.7 billion compared with $3.9 billion in the prior
year. The decrease was due principally to sales declines attributable to core
business operations of 8.6%, partially offset by sales from acquired companies.
Gross Profit. Gross profit for the year ended December 31, 2001, decreased
by $40.6 million to $643.5 million from $684.1 million in the prior year due
principally to the decline in net sales. Gross profit margin was 17.6% in both
2001 and 2000. Gross profit included other charges of $4.4 million in 2000
related to inventory write-downs. Excluding these charges, gross profit was
17.7% of sales in 2000. The decline in the gross profit percentage is due
principally to a decline in supplier rebates, partially offset by increased
billing margins.
Selling, General and Administrative Expenses ("SG&A"). SG&A expenses
decreased by $7.2 million, or 1.4%, to $517.2 million. The year 2000 includes
$7.0 million of other charges, related primarily to a deteriorating credit
environment and customer bankruptcies that have continued at similar levels in
2001. Core business SG&A expenses decreased $15.7 million or 3.1% from 2000, due
principally to decreased payroll costs as the Company reduced its headcount
throughout the year as it rebalanced its branch and headquarters staff to be in
line with developing economic activity. Additionally, incentive compensation
expense decreased in 2001 as sales and profitability declines reduced both
commission and bonus requirements. As a percentage of sales, excluding the other
charges, SG&A expenses increased to 14.1% in 2001 from 13.3% in 2000, reflecting
the negative leverage of lower sales volume.
Depreciation and Amortization. Depreciation and amortization increased $6.0
million to $31.0 million in 2001, reflecting depreciation related to increases
in property, buildings and equipment over the prior year, higher amortization of
goodwill from acquisitions and higher amortization of software costs. In fiscal
2002, WESCO will adopt Statement of Financial Accounting Standards No. 142,
"Goodwill and Other Intangible Assets" which is expected to result in a
reduction in amortization expense in fiscal 2002 and future years. See Note 2 of
the Notes to Consolidated Financial Statements.
Income from Operations. Income from operations decreased $30.1 million to
$95.3 million in 2001, compared with $125.4 million in 2000. Income from
operations in 2000 includes a restructuring charge of $9.4 million. Excluding
the restructuring charge and the aforementioned other charges of $11.4 million,
operating income decreased by $50.8 million, due principally to the decline in
gross profit and the increase in depreciation and amortization.
22
Interest and Other Expenses. Interest expense totaled $45.1 million for
2001, an increase of $1.4 million from 2000. The increase in interest expense
results primarily from an increase in average debt level compared to the
previous year somewhat offset by lower average interest rates. Other expense
totaled $16.9 million and $24.9 million in 2001 and 2000, respectively,
reflecting costs associated with the accounts receivable securitization program.
The $8.0 million decrease was principally due to a decrease in the program's
advance rates.
Income Taxes. Income tax expense totaled $13.1 million in 2001, a decrease
of $10.1 million from 2000. The effective tax rates for 2001 and 2000 were 39.4%
and 41.0%, respectively. The decrease in the rate in 2001 is principally related
to the effect of foreign tax credits on decreased pretax income as compared to
the prior year.
Net Income. Net income and diluted earnings per share totaled $20.2 million
and $0.43 per share, respectively, in 2001, compared with $33.4 million and
$0.70 per share, respectively, in 2000.
2000 Compared to 1999
Net Sales. Net sales for the year ended December 31, 2000, increased by
$457.2 million, or 13.4%, to $3.9 billion compared with $3.4 billion in the
prior year. The increase was due principally to sales gains attributable to core
business operations of almost 10%, while the remainder of the increase was
primarily due to sales of acquired businesses. The mix of direct shipment sales
increased to approximately 47% in 2000 from 46% in 1999 principally due to sales
gains achieved at Bruckner. The majority of Bruckner's sales are direct
shipment.
Gross Profit. Gross profit for the year ended December 31, 2000, increased
by $67.5 million to $684.1 million from $616.6 million in the prior year. Gross
profit margin was 17.6% and 18.0% in 2000 and 1999, respectively. Excluding the
effect of the other charges related to inventory rationalization of $4.4
million, gross profit margin decreased to 17.7% from 18.0% in the prior year
due, in part, to a shift to lower margin direct ship project sales and also due
to increased transportation costs.
Selling, General and Administrative Expenses ("SG&A"). SG&A expenses
increased $53.0 million, or 11.3%, to $524.3 million. Excluding the impact of
the other charges of $7.0 million, related primarily to credit deterioration and
bankruptcies, SG&A expenses increased $46.0 million or 9.8%. This increase was
primarily due to increased expenses in core business operations and, to a lesser
extent, increased SG&A of companies acquired during 1999 and 2000. Core business
SG&A expense increased 6% over 1999, due principally to increased payroll costs.
As a percentage of sales, excluding the other charges, SG&A expenses declined to
13.3% in 2000 from 13.8% in 1999, reflecting enhanced operating leverage at this
higher relative sales volume.
Depreciation and Amortization. Depreciation and amortization increased $4.6
million to $25.0 million in 2000, reflecting higher amortization of goodwill
from acquisitions and depreciation related to increases in property, buildings
and equipment over the prior year.
Income from Operations. Income from operations increased $0.4 million to
$125.4 million in 2000, compared with $125.0 million in 1999. Excluding the
restructuring and other charges in 2000, operating income increased $21.2
million. This increase was primarily due to higher gross profit, partially
offset by increased operating costs as explained above.
Interest and Other Expenses. Interest expense totaled $43.8 million for
2000, a decrease of $3.2 million from 1999. The decrease was primarily due to
the lower level of borrowings since WESCO completed its initial public offering
in the second quarter of 1999, as well as the increased amount of securitized
accounts receivable. Other expense totaled $24.9 million and $19.5 million in
2000 and 1999, respectively, reflecting costs associated with the accounts
receivable securitization program. The $5.4 million increase was principally due
to the increased level of securitized accounts receivable noted above.
Income Taxes. Income tax expense totaled $23.3 million in 2000, relatively
unchanged from 1999. The effective tax rates for 2000 and 1999 were 41.0% and
39.9%, respectively. The increase in the rate in 2000 is principally related to
the effect of increased nondeductible expenses on decreased pretax income as
compared to the prior year.
23
Income Before Extraordinary Item. Income before extraordinary item totaled
$33.4 million, or $0.70 per diluted share, compared with $35.1 million or $0.75
per diluted share, in 1999. Excluding the restructuring charge of $9.4 million,
income before extraordinary item was $39.4 million or $0.83 per diluted share.
Net Income. Net income and diluted earnings per share totaled $33.4 million
and $0.70 per share, respectively, in 2000, compared with $24.6 million and
$0.53 per diluted share, respectively, in 1999. Net income in 1999 included an
extraordinary item which decreased net income by $10.5 million.
LIQUIDITY AND CAPITAL RESOURCES
Total assets were approximately $1.2 billion at December 31, 2001, a $3.5
million decrease from December 31, 2000. Stockholders' equity totaled $144.7
million at December 31, 2001, compared with $125.0 million at December 31, 2000.
The following table sets forth WESCO's outstanding indebtedness:
DECEMBER 31
-----------------------
2001 2000
-----------------------
(IN MILLIONS)
Revolving credit facility............................................................... $ 68.6 $189.6
Senior subordinated notes............................................................... 377.7 291.5
Other................................................................................... 5.6 2.2
-----------------------
451.9 483.3
Less current portion.................................................................... (5.5) (0.6)
-----------------------
$446.4 $482.7
=======================
The following table sets forth details of WESCO's accounts receivable
securitization program:
DECEMBER 31
-----------------------
2001 2000
-----------------------
(IN MILLIONS)
Securitized accounts receivable......................................................... $398.6 $479.0
Subordinated retained interest ......................................................... (65.6) (100.7)
-----------------------
Net accounts receivable removed from balance sheet................................. $333.0 $378.3
=======================
WESCO's liquidity needs arise from seasonal working capital requirements,
capital expenditures, acquisitions and debt service obligations. In addition,
certain of our acquisition agreements contain earn-out provisions based
principally on future earnings targets. The most significant of which relates to
the acquisition of Bruckner Supply Company, which provides for an earn-out
potential of $90 million during any one of the next three years if certain
earnings targets are achieved. The maximum amount payable in any single year
under this agreement is $30 million. Certain other acquisitions also contain
contingent consideration provisions, only one of which could require a
significant payment. Management estimates this payment could range from $0 to
$20 million and would be made in 2008. To meet its funding requirements, WESCO
uses a mix of internally generated cash flow, its revolving credit facility, its
Receivables Facility and equity transactions.
24
The following table summarizes the impact of these items from 1999 to 2001:
DECEMBER 31
--------------------------------------
2001 2000 1999
--------------------------------------
(IN MILLIONS)
LIQUIDITY NEEDS
Working capital and other assets and liabilities.............................. $140.4 $(64.1) $(68.5)
Capital expenditures, net of asset sales...................................... (12.9) (20.0) (20.6)
Acquisitions of businesses.................................................... (56.3) (40.9) (60.0)
Scheduled debt service obligations............................................ (0.6) (3.8) (16.6)
--------------------------------------
Net liquidity surplus (requirements) .................................... 70.6 (128.8) (165.7)
--------------------------------------
LIQUIDITY SOURCES
Internally generated cash flow................................................ 65.7 71.0 74.9
Credit facility activity...................................................... (36.6) 57.1 (157.7)
Receivables facility.......................................................... (45.0) 40.0 60.0
Stock transactions............................................................ 0.5 (26.8) 182.7
Other......................................................................... (1.2) (0.2) 6.5
--------------------------------------
Net liquidity (uses) sources.............................................. (16.6) 141.1 166.4
--------------------------------------
Net change in cash............................................................ $ 54.0 $ 12.3 $ 0.7
======================================
In 2002, WESCO anticipates capital expenditures to be similar to 2001, but
expects acquisitions of businesses to be significantly lower. As of February 28,
2002, the Company has no specific near term plans to make an acquisition.
Acquisition related earn-out payments, if required, will be based on the
performance of recently acquired companies. Management anticipates that working
capital requirements could increase by $50 million or more in 2002 after the
significant reduction achieved in 2001.
The required annual principal repayments for the next five years, as of
December 31, 2001 and after giving effect to the new revolving credit facility
described below, are as follows:
AS OF AFTER GIVING EFFECT TO
DECEMBER 31, NEW REVOLVING CREDIT
2001 FACILITY
---------------------------------------------------
(IN THOUSANDS)
---------------------------------------------------
2002..................................................... $ 5,530 $5,530
2003..................................................... 30 30
2004..................................................... 68,614 30
2005..................................................... 30 30
2006..................................................... 6 6
New Revolving Credit Facility
In March 2002, WESCO Distribution entered into a $290 million revolving
credit agreement that is secured by substantially all inventory owned by WESCO
and also by the accounts receivable of WESCO Canada. Availability under the
agreement, which matures in 2007, is based on the amount of eligible inventory
and Canadian receivables applied against certain advance rates. Proceeds from
this agreement were used to retire WESCO's existing revolving credit facility.
Future proceeds from this facility can be used for general corporate purposes
including acquisitions, share repurchases, and bond redemptions. Interest on
this facility will be determined by LIBOR plus a margin that will range between
200 basis points to 275 basis points depending upon the amount of excess
availability under the facility. As long as the average daily excess
availability for both the preceding and projected succeeding 90 day period is
greater than $50 million, then WESCO would be permitted to make acquisitions and
repurchase outstanding public stock and bonds.
The above permitted transactions would also be allowed if such excess
availability is between $25 million and $50 million and WESCO's fixed charge
coverage ratio, as defined by the agreement, is at least 1.25 to 1.0 after
taking into consideration the permitted transaction. Additionally, if WESCO's
excess availability under the agreement is less than $50 million, then WESCO
must maintain a fixed charge coverage ratio of 1.1 to 1.0. At the date of
inception, WESCO was in compliance with all covenants of the new credit
facility.
25
Former Revolving Credit Facility
In June 1999, WESCO Distribution entered into a revolving credit facility
with a syndicate of financial institutions. At December 31, 2001, the revolving
credit facility, which matures in June 2004, consisted of up to $228 million of
revolving loans denominated in U.S. dollars and a Canadian sublimit totaling
US$35 million. Borrowings under the revolving credit facility are collateralized
by substantially all of the assets of WESCO Distribution other than real
property and the accounts receivable sold under the receivables facility, and
are guaranteed by WESCO International and certain subsidiaries.
The LIBOR borrowing margins applicable to advances under the revolving
credit facility range from 150 to 250 basis points, depending upon our leverage
ratio. This facility also had various restrictive covenants including financial
ratios. WESCO was in compliance with all such covenants as of December 31, 2001.
Debt Offering
In August 2001, WESCO completed an offering of $100 million in aggregate
principal amount of senior subordinated notes due 2008. The notes were issued
with an issue price of 90.142%. The net proceeds received by the Company from
the offering were approximately $87.6 million after deducting the initial
purchasers' discount and before offering expenses. The net proceeds were used to
repay a portion of the outstanding indebtedness of the Company under its then
existing revolving credit facility.
Interest Rate Swap Agreements
During September and October of 2001, WESCO entered into four separate
fixed-to-floating interest rate swap agreements, each with a notional amount of
$25 million. These agreements have six-year terms expiring concurrently with the
9.13% senior subordinated notes with the intent of converting $100 million of
the senior subordinated notes from a fixed to floating rate facility. Pursuant
to these agreements, WESCO will receive fixed interest payments at the rate of
9.13% and will pay interest at three month LIBOR plus a premium. The LIBOR rates
in the agreements are reset quarterly. In 2001, the agreements had the effect of
reducing the interest rate on $100 million of the senior notes from 9.13% to
6.29%.
WESCO entered into interest rate swap agreements as a means to hedge its
interest rate exposure and maintain certain amounts of variable rate and fixed
rate debt. Since the swaps have been designated as hedging instruments, their
fair values are reflected in the Company's Consolidated Balance Sheets. Net
amounts to be received or paid under the swap agreements are reflected as
adjustments to interest expense.
Accounts Receivable Securitization Program
WESCO maintains a Receivables Facility with a group of financial
institutions with a purchase commitment up to $396 million. Under the
Receivables Facility, WESCO sells, on a continuous basis, to WESCO Receivables
Corporation, a wholly-owned SPC, an undivided interest in all domestic accounts
receivable. The SPC sells without recourse to a third-party conduit, all the
eligible receivables while maintaining a subordinated interest, in the form of
overcollateralization, in a portion of the receivables. WESCO has agreed to
continue servicing the sold receivables for the financial institution at market
rates; accordingly, no servicing asset or liability has been recorded. See Note
5 of the Notes to Consolidated Financial Statements.
Initial Public Offering
On May 17, 1999, WESCO completed its initial public offering (the
"Offering") of 11,183,750 shares of common stock at $18.00 per share. In
connection with the Offering, certain employee rights to require WESCO to
repurchase outstanding redeemable common stock were terminated and approximately
$31.5 million of convertible notes were converted into 1,747,228 shares of
common stock. Proceeds from the Offering (after deducting Offering costs)
totaling $186.8 million and borrowings of approximately $65 million were used to
redeem all of the 11 1/8% senior discount notes ($62.8 million) and to repay the
revolving credit and term loan facilities ($188.8 million).
Share Repurchase Program
In May 2000, WESCO International's board of directors authorized an
additional $25 million to be added to its existing $25 million share repurchase
program which was authorized in November 1999. As of December 31, 2001, WESCO
International had purchased approximately 3.9 million shares for approximately
$32.8 million pursuant to this program. On August 3, 2001, WESCO Distribution
entered into an amendment to its former revolving credit
26
facility, which, among other things, prohibited WESCO International from
purchasing its shares of common stock. Subsequently, as mentioned above, WESCO
entered into a new revolving credit facility that allows WESCO International to
purchase shares of its common stock assuming certain financial ratios are met.
An analysis of cash flows for 2001 and 2000 follows:
Operating Activities. Cash provided by operating activities totaled $161.1
million for the year ended December 31, 2001, compared to $46.9 million a year
ago. Cash provided by operations in 2001 includes $45.0 million used by our
accounts receivable securitization program. Cash provided by operations in 2000
includes $40.0 million from the sale of accounts receivable in connection with
the accounts receivable securitization program. Excluding these transactions,
operating activities provided $206.1 million in 2001 and $6.9 million in 2000.
On this basis, the year-to-year increase in operating cash flow of $199.2
million was primarily due to an improvement in working capital.
Investing Activities. Net cash used in investing activities was $69.2
million in 2001, compared to $60.7 million in 2000. Cash used for investing
activities was higher in 2001 primarily due to amounts invested in business
acquisitions, partially offset by reduced capital expenditures in 2001. Capital
expenditures in 2001 were $13.8 million compared to $21.6 million in 2000 and
were for computer equipment and software, and branch and distribution center
facility improvements.
Financing Activities. Cash used by financing activities was $38.0 million in
2001 which was primarily due to net debt repayments of $37.2 million. Cash
provided by financing activities was $26.0 million in 2000 which was primarily
due to net borrowings of $53.3 million, partially offset by the Company's share
purchase program.
The following summarizes WESCO's contractual obligations at December 31,
2001, and the effect such obligations are expected to have on its liquidity and
cash flow in future periods.
Contractual Cash Obligations and Other Commercial Commitments
(IN MILLIONS)
---------------------------------------------------------
2003 to 2005 to AFTER
TOTAL 2002 2004 2006 2006
---------------------------------------------------------
Contractual Cash Obligations:
Revolving credit facility........................... $ 68.6 $ -- $ 68.6 $ -- $ --
Senior subordinated notes........................... 400.0 -- -- -- 400.0
Non-cancelable operating leases..................... 92.6 25.5 34.5 17.0 15.6
Other long-term obligations......................... 15.6 15.5 0.1 -- --
---------------------------------------------------------
Total Contractual Cash Obligations.................. $ 576.8 $41.0 $103.2 $17.0 $415.6
=========================================================
(IN MILLIONS)
---------------------------------------------------------
2003 to 2005 to AFTER
TOTAL 2002 2004 2006 2006
---------------------------------------------------------
Other Commercial Commitments:
Letters of Credit .................................. $1.0 $ 1.0 $ -- $ -- $ --
Management believes that cash generated from operations, together with
amounts available under the credit agreement and the receivables facility, will
be sufficient to meet WESCO's working capital, capital expenditures and other
cash requirements for the foreseeable future. There can be no assurance,
however, that this will be the case. Financing of acquisitions can be funded
under the existing credit agreement and may, depending on the number and size of
the acquisitions, require the issuance of additional debt and equity securities.
INFLATION
The rate of inflation, as measured by changes in the consumer price index,
did not have a material effect on the sales or operating results of the Company
during the periods presented. However, inflation in the future could affect the
Company's operating costs. Price changes from suppliers have historically been
consistent with inflation and have not had a material impact on the Company's
results of operations.
27
SEASONALITY
The Company's operating results are affected by certain seasonal factors.
Sales are typically at their lowest during the first quarter due to a reduced
level of activity during the winter months. Sales increase during the warmer
months beginning in March and continuing through November. Sales drop again
slightly in December as the weather cools and also as a result of a reduced
level of activity during the holiday season. As a result, the Company reports
sales and earnings in the first quarter that are generally lower than that of
the remaining quarters.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities." This
statement, as amended by SFAS No. 138, was adopted by WESCO on January 1, 2001.
This statement requires the recognition of the fair value of any derivative
financial instrument on the balance sheet. Changes in fair value of the
derivative and, in certain instances, changes in the fair value of an underlying
hedged asset or liability, are recognized through either income or as a
component of other comprehensive income. The adoption of this statement did not
have a material impact on the results of operations or financial position of
WESCO.
In July 2001, the FASB issued SFAS No. 141, "Business Combinations" and SFAS
No. 142, "Goodwill and Other Intangible Assets." Under SFAS No. 141, all
business combinations are accounted for under the purchase method. Under SFAS
No. 142, goodwill will no longer be amortized, but will be reduced only if it
is found to be impaired. Goodwill would be tested for impairment annually or
more frequently when events or circumstances occur indicating that goodwill
might be impaired. A fair-value based impairment test would be used to measure
goodwill for impairment. As goodwill is measured as a residual amount in an
acquisition, it is not possible to directly measure the fair value of goodwill.
Under this statement, the net assets of a reporting unit are subtracted from the
fair value of that reporting unit to determine the implied fair value of
goodwill. An impairment loss would be recognized to the extent the carrying
amount of goodwill exceeds the implied fair value. The provisions of this
statement are effective for all business combinations completed after July 1,
2001 and fiscal years beginning after December 15, 2001 for existing goodwill.
As required by this statement, management is currently evaluating its goodwill
for impairment and has not yet completed its analysis. Management believes the
adoption of this standard will have a material non-cash impact on WESCO's
results of operations due to goodwill no longer being amortized. Goodwill
amortization was $11.9 million in 2001.
In June 2001, the FASB issued SFAS No. 143, "Accounting for Obligations
Associated with the Retirement of Long-Lived Assets". This statement, is
required to be adopted by WESCO January 1, 2003, although earlier adoption is
permitted. The objectives of SFAS No. 143 are to establish accounting standards
for the recognition and measurement of an asset retirement obligation and its
associated asset retirement cost. It applies to legal obligations that result
from the acquisition, construction, development, or the normal operation of a
long-lived asset, excluding certain obligations of leases. Management believes
the adoption of this standard will not have a material impact on the results of
operations or financial position of WESCO.
In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment
of Long-Lived Assets". This statement addresses financial accounting and
reporting for the impairment of long-lived assets and for long-lived assets to
be disposed of and supersedes SFAS No. 121. This statement retains the
fundamental provisions of SFAS No. 121 for recognition and measurement of the
impairment of long-lived assets to be held and used and measurement of
long-lived assets to be disposed of by sale, whether previously held and used or
newly acquired. This statement was adopted by WESCO as of January 1, 2002. The
adoption of this statement did not have a material impact on the results of
operations or financial position of WESCO.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS.
FOREIGN CURRENCY RISKS
Over 90% of WESCO's sales are denominated in United States dollars and are
primarily from customers in the United States. As a result, currency
fluctuations are currently not material to WESCO's operating results. WESCO does
have foreign subsidiaries located in North America, Europe and Asia and may
establish additional foreign
28
subsidiaries in the future. Accordingly, WESCO may derive a more significant
portion of its sales from international operations and a portion of these sales
may be denominated in foreign currencies. As a result, WESCO's future operating
results could become subject to fluctuations in the exchange rates of those
currencies in relation to the United States dollar. Furthermore, to the extent
that WESCO engages in international sales denominated in United States dollars,
an increase in the value of the United States dollar relative to foreign
currencies could make WESCO's products less competitive in international
markets. WESCO has and will continue to monitor its exposure to currency
fluctuations.
INTEREST RATE RISKS
WESCO's indebtedness as of December 31, 2001 is comprised of $68.6 million
of variable-rate borrowings outstanding under its revolving credit facility and
$383.4 million of fixed-rate borrowings. Interest cost under the revolving
credit facility is based on various indices plus a borrowing margin.
In September and October of 2001, WESCO entered into several
fixed-to-floating interest rate swap agreements with an aggregate notional
amount of $100 million. Under the terms of these agreements, WESCO pays interest
on the notional amount of the swap at LIBOR plus a premium and receives fixed
payments at the rate of 9 1/8%. The LIBOR rates in the agreements are reset
quarterly. At December 31, 2001 the net fair value of interest-rate-related
derivatives designated as fair value hedges of debt was $3.2 million. These
interest rate swap agreements reduced interest expense by approximately $0.6
million in 2001.
At December 31, 2001, we had approximately $169 million of variable rate
debt. A hypothetical 10% change in interest rates based on these variable-rate
borrowing levels would result in a $0.6 million increase or decrease in interest
expense.
ITEM 8. FINANCIAL STATEMENTS
The information required by this item is set forth in the Company's
Consolidated Financial Statements contained in this Annual Report on Form 10-K.
Specific financial statements can be found at the pages listed below:
WESCO International, Inc. PAGE
-------
Report of Independent Accountants..................................................................... 36
Consolidated Balance Sheets as of December 31, 2001 and 2000.......................................... 37
Consolidated Statements of Operations for the years ended December 31, 2001, 2000 and 1999............ 38
Consolidated Statements of Stockholders' Equity and Redeemable Common Stock
for the years ended December 31, 2001, 2000 and 1999................................................ 39
Consolidated Statements of Cash Flows for the years ended
December 31, 2001, 2000 and 1999.................................................................... 40
Notes to Consolidated Financial Statements............................................................ 41
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES.
None.
29
PART III
ITEMS 10 THROUGH 13.
In accordance with the provisions of General Instruction G to Form 10-K, the
information required by Item 10 (Directors and Executive Officers of the
Registrant), Item 11 (Executive Compensation), Item 12 (Security Ownership of
Certain Beneficial Owners and Management) and Item 13 (Certain Relationships and
Related Transactions) is incorporated herein by reference to the Company's
definitive Proxy Statement for its Annual Meeting of Stockholders to be held on
May 22, 2002. The definitive Proxy Statement will be filed with the Securities
and Exchange Commission not later than 120 days after December 31, 2001.
Information relating to the executive officers of the Company is set forth in
Part I of this Annual Report on Form 10-K.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
The financial statements, financial statement schedules and exhibits listed
below are filed as part of this annual report:
(a)(1) FINANCIAL STATEMENTS
--------------------
The list of financial statements required by this item is set forth
in Item 8 "Financial Statements and Supplementary Data" and is
incorporated herein by reference.
(2) FINANCIAL STATEMENT SCHEDULES
-----------------------------
Report of Independent Accountants
Schedule II - Valuation and Qualifying Accounts
(b) REPORTS ON FORM 8-K
--------------------
None
(c) EXHIBITS
--------
PRIOR FILING OR
EXHIBIT NO. DESCRIPTION OF EXHIBIT SEQUENTIAL PAGE NUMBER
- -------------------------------------------------------------------------------------------------------------------
2.1 Recapitalization Agreement, dated as of March 27, 1998, Incorporated by reference to Exhibit
among Thor Acquisitions L.L.C., WESCO International, Inc. 2.1 to WESCO's Registration Statement
(formerly known as CDW Holding Corporation) and certain on Form S-4 (No. 333-43225)
securityholders of WESCO International, Inc.
2.2 Purchase Agreement, dated as of May 29, 1998, among WESCO Incorporated by reference to Exhibit
International, Inc., WESCO Distribution, Inc., Chase 2.2 to WESCO's Registration Statement
Securities Inc. and Lehman Brothers, Inc. on Form S-4 (No. 333-43225)
2.3 Asset Purchase Agreement, dated as of September 11, 1998, Incorporated by reference to Exhibit
among Bruckner Supply Company, Inc. and WESCO Distribution, 2.01 to WESCO's Current Report on
Inc. Form 8-K, dated September 11, 1998
2.4 Purchase Agreement, dated August 16, 2001, among WESCO Incorporated by reference to Exhibit
International, Inc., WESCO Distribution, Inc. and the 2.4 to WESCO's Registration Statement
Initial Purchasers listed therein. on Form S-4 (No. 333-70404)
3.1 Restated Certificate of Incorporation of WESCO Incorporated by reference to Exhibit
International, Inc. 3.1 to WESCO's Registration Statement
on Form S-4 (No. 333-70404)
30
PRIOR FILING OR
EXHIBIT NO. DESCRIPTION OF EXHIBIT SEQUENTIAL PAGE NUMBER
- -------------------------------------------------------------------------------------------------------------------
3.2 By-Laws of WESCO International, Inc. Incorporated by reference to Exhibit
3.2 to WESCO's Registration Statement
on Form S-4 (No. 333-70404)
4.1 Indenture, dated as of June 5, 1998, among WESCO Incorporated by reference herein to
International, Inc., WESCO Distribution, Inc. and Bank One, Exhibit 4.1 to WESCO's Registration
N.A. Statement on Form S-4 (No. 333-43225)
4.2 Form of 9 1/8% Senior Subordinated Note Due 2008, Series A Incorporated by reference herein to
(included in Exhibit 4.1). Exhibit 4.2 to WESCO's Registration
Statement on Form S-4 (No. 333-43225)
4.3 Form of 9 1/8% Senior Subordinated Note Due 2008, Series B Incorporated by reference herein to
(included in Exhibit 4.1). Exhibit 4.3 to WESCO's Registration
Statement on Form S-4 (No. 333-43225)
4.4 Exchange and Registration Rights Agreement, dated as of Incorporated by reference herein to
June 5, 1998, among the Company, WESCO International, Inc. Exhibit 4.4 to WESCO's Registration
and the Initial Purchasers (as defined therein). Statement on Form S-4 (No. 333-43225)
4.5 Exchange and Registration Rights Agreement, dated as of Incorporated by reference herein to
June 5, 1998, among WESCO International, Inc. and the Exhibit 4.8 to WESCO's Registration
initial purchasers (as defined therein). Statement on Form S-4 (No. 333-43225)
4.6 Indenture, dated as of August 23, 2001, among WESCO Incorporated by reference to Exhibit
International, Inc., WESCO Distribution, Inc. and Bank One 4.6 to WESCO's Registration Statement
N.A. on Form S-4 (No. 333-70404)
4.7 Exchange and Registration Rights Agreement, dated August Incorporated by reference to Exhibit
23, 2001, among WESCO International, Inc., WESCO 4.7 to WESCO's Registration Statement
Distribution, Inc. and the initial purchasers listed on Form S-4 (No. 333-70404)
therein.
4.8 Form of 9 1/8% Original Senior Subordinated Note Due 2008 Incorporated by reference to Exhibit
(included in Exhibit 4.6). 4.8 to WESCO's Registration Statement
on Form S-4 (No. 333-70404)
4.9 Form of 9 1/8% Exchange Senior Subordinated Note Due 2008 Incorporated by reference to Exhibit
(included in Exhibit 4.6). 4.9 to WESCO's Registration Statement
on Form S-4 (No. 333-70404)
10.1 CDW Holding Corporation Stock Purchase Plan. Incorporated by reference herein to
Exhibit 10.1 to WESCO's Registration
Statement on Form S-4 (No. 333-43225)
10.2 Form of Stock Subscription Agreement. Incorporated by reference herein to
Exhibit 10.2 to WESCO's Registration
Statement on Form S-4 (No. 333-43225)
10.3 CDW Holding Corporation Stock Option Plan. Incorporated by reference herein to
Exhibit 10.3 to WESCO's Registration
Statement on Form S-4 (No. 333-43225)
10.4 Form of Stock Option Agreement. Incorporated by reference herein to
Exhibit 10.4 to WESCO's Registration
Statement on Form S-4 (No. 333-43225)
31
PRIOR FILING OR
EXHIBIT NO. DESCRIPTION OF EXHIBIT SEQUENTIAL PAGE NUMBER
- -------------------------------------------------------------------------------------------------------------------
10.5 CDW Holding Corporation Stock Option Plan for Branch Incorporated by reference herein to
Employees. Exhibit 10.5 to WESCO's Registration
Statement on Form S-4 (No. 333-43225)
10.6 Form of Branch Stock Option Agreement. Incorporated by reference herein to
Exhibit 10.6 to WESCO's Registration
Statement on Form S-4 (No. 333-43225)
10.7 Non-Competition Agreement, dated as of February 28, 1996, Incorporated by reference herein to
between Westinghouse, WESCO International, Inc. and WESCO Exhibit 10.8 to WESCO's Registration
Distribution, Inc. Statement on Form S-4 (No. 333-43225)
10.8 Lease, dated as of May 24, 1995, as amended by Amendment Incorporated by reference herein to
One, dated as of June 1995, and by Amendment Two, dated as Exhibit 10.10 to WESCO's Registration
of December 24, 1995, by and between WESCO Distribution, Statement on Form S-4 (No. 333-43225)
Inc. as Tenant and Opal Investors, L.P. and Mural GEM
Investors as Landlord.
10.9 Lease, dated as of April 1, 1992, as renewed by Letter of Incorporated by reference herein to
Notice of Intent to Renew, dated as of December 13, 1996, Exhibit 10.11 to WESCO's Registration
by and between the Company as successor in interest to Statement on Form S-4 (No. 333-43225)
Westinghouse Electric Corporation as tenant and Utah
State Retirement Fund as Landlord.
10.10 Lease, dated as of September 4, 1997, between WESCO Incorporated by reference herein to
Distribution, Inc. as Tenant and The Buncher Company as Exhibit 10.12 to WESCO's Registration
Landlord. Statement on Form S-4 (No. 333-43225)
10.11 Lease, dated as of March 1995, by and between WESCO Incorporated by reference herein to
Distribution-Canada, Inc. as Tenant and Atlantic Exhibit 10.13 to WESCO's Registration
Construction, Inc. as Landlord. Statement on Form S-4 (No. 333-43225)
10.12 Amended and Restated Registration and Participation Incorporated by reference herein to
Agreement, dated as of June 5, 1998, among WESCO Exhibit 10.19 to WESCO's Registration
International, Inc. and certain securityholders of WESCO Statement on Form S-4 (No. 333-43225)
International, Inc. named therein.
10.13 Employment Agreement between WESCO Distribution, Inc. and Incorporated by reference herein to
Roy W. Haley. Exhibit 10.20 to WESCO's Registration
Statement on Form S-4 (No. 333-43225)
10.14 WESCO International, Inc. 1998 Stock Option Plan. Incorporated by reference to Exhibit
10.1 to WESCO's Quarterly Report on
Form 10-Q for the quarter ended
September 30, 1998
10.15 Form of Management Stock Option Agreement. Incorporated by reference to Exhibit
10.2 to WESCO's Quarterly Report on
Form 10-Q for the quarter ended
September 30, 1998
10.16 1999 Deferred Compensation Plan for Non-Employee Directors. Incorporated by reference to Exhibit
10.22 to WESCO's Annual Report on
Form 10-K for the year ended December
31, 1998
10.17 Credit Agreement, dated as of June 29, 1999, among WESCO Incorporated by reference to Exhibit
Distribution Inc., WESCO Distribution-Canada, Inc., WESCO 10.1 to WESCO's Quarterly Report on
International, Inc. and the Lenders identified therein. Form 10-Q for the quarter ended June
30, 1999
32
PRIOR FILING OR
EXHIBIT NO. DESCRIPTION OF EXHIBIT SEQUENTIAL PAGE NUMBER
- -------------------------------------------------------------------------------------------------------------------
10.18 Amendment, dated as of December 20, 2000, to the Credit Incorporated by reference to Exhibit
Agreement, dated as of June 29, 1999, among WESCO 10.24 to WESCO's Annual Report on
Distribution, Inc., WESCO Distribution-Canada, Inc., WESCO Form 10-K for the year ended December
International, Inc. and the Lenders identified therein. 31, 2000
10.19 Amendment, dated as of August 3, 2001, to the Credit Incorporated by reference to Exhibit
Agreement, dated as of June 29, 1999, among WESCO 10.19 to WESCO's Registration
Distribution, Inc., WESCO Distribution-Canada, Inc., WESCO Statement on Form S-4 (No. 333-70404)
International, Inc. and the Lenders identified therein.
10.20 Credit Agreement, dated as of March 19, 2002, among WESCO Filed herewith
Distribution Inc., the other Credit Parties signatory
thereto, General Electric Capital Corporation, The CIT
Group/Business Credit, Inc., Fleet Capital Corporation and
the other Lenders signatory thereto.
10.21 Intercreditor Agreement, dated as of March 19, 2002, among Filed herewith
PNC Bank, National Association, General Electric Capital
Corporation, WESCO Receivables Corp., WESCO Distribution,
Inc., Fifth Third Bank, N.A., Mellon Bank, N.A., The Bank
of Nova Scotia, Herning Enterprises, Inc. and WESCO Equity
Corporation.
10.22 Receivables Purchase Agreement, dated as of June 30, 1999, Incorporated by reference to Exhibit
among WESCO Receivables Corp., WESCO Distribution, Inc., 10.2 to WESCO's Quarterly Report on
Market Street Capital Corp. and PNC Bank, National Form 10-Q for the quarter ended June
Association. 30, 1999
10.23 Amended and Restated Receivables Purchase Agreement, dated Incorporated by reference to Exhibit
as of September 28, 1999, among WESCO Receivables Corp., 10.1 to WESCO's Quarterly Report on
WESCO Distribution, Inc. and PNC Bank, National Form 10-Q for the quarter ended
Association. September 30, 1999
10.24 1999 Long-Term Incentive Plan. Incorporated by reference to Exhibit
10.22 to WESCO's Registration
Statement on Form S-1 (No. 333-73299)
21.1 Subsidiaries of WESCO. Incorporated by reference to Exhibit
21.1 to WESCO's Registration
Statement on Form S-4 (No. 333-70404)
23.1 Consent of PricewaterhouseCoopers LLP, Independent Filed herewith
Accountants.
- ------------------------
The registrant hereby agrees to furnish supplementally to the Commission, upon
request, a copy of any omitted schedule to any of the agreements contained
herein.
Copies of exhibits may be retrieved electronically at the Securities and
Exchange Commission's home page at www.sec.gov. Exhibits will also be furnished
without charge by writing to Stephen A. Van Oss, Vice President, Chief Financial
Officer, Commerce Court, Four Station Square, Suite 700, Pittsburgh,
Pennsylvania 15219. Requests may also be directed to (412) 454-2200.
33
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
WESCO INTERNATIONAL, INC.
By: /s/ ROY W. HALEY
-----------------------
Name: Roy W. Haley
Title: Chairman of the Board and
Chief Executive Officer
Date: March 29, 2002
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
- -------------------------------------------------------------------------------------------------------------------
/s/ ROY W. HALEY Chairman and Chief Executive Officer (Principal Executive March 29, 2002
- ---------------------------------- Officer)
Roy W. Haley
/s/ STEPHEN A. VAN OSS Vice President, Chief Financial Officer (Principal March 29, 2002
- ---------------------------------- Financial and Accounting Officer)
Stephen A. Van Oss
/s/ JAMES L. SINGLETON Director March 29, 2002
- ----------------------------------
James L. Singleton
/s/ JAMES A. STERN Director March 29, 2002
- ----------------------------------
James A. Stern
/s/ MICHAEL J. CHESHIRE Director March 29, 2002
- ----------------------------------
Michael J. Cheshire
/s/ ROBERT J. TARR, JR. Director March 29, 2002
- ----------------------------------
Robert J. Tarr, Jr.
/s/ KENNETH L. WAY Director March 29, 2002
- ----------------------------------
Kenneth L. Way
/s/ GEORGE L. MILES, JR. Director March 29, 2002
- ----------------------------------
George L. Miles, Jr.
/s/ ROBERT Q. BRUHL Director March 29, 2002
- ----------------------------------
Robert Q. Bruhl
34
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
-------
Report of Independent Accountants................................................................... 36
Consolidated Balance Sheets as of December 31, 2001 and 2000........................................ 37
Consolidated Statements of Operations for the years ended December 31, 2001, 2000 and 1999.......... 38
Consolidated Statements of Stockholders' Equity and Redeemable Common Stock for the years ended
December 31, 2001, 2000 and 1999.................................................................. 39
Consolidated Statements of Cash Flows for the years ended December 31, 2001, 2000 and 1999.......... 40
Notes to Consolidated Financial Statements.......................................................... 41
35
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and Board of Directors of
WESCO International, Inc.:
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, stockholders' equity and redeemable
common stock and cash flows present fairly, in all material respects, the
financial position of WESCO International, Inc. and its subsidiaries
(collectively, "WESCO") at December 31, 2001 and 2000, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 2001, in conformity with accounting principles generally accepted
in the United States of America. These financial statements are the
responsibility of WESCO's management; our responsibility is to express
an opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with auditing standards generally
accepted in the United States of America, which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
Pittsburgh, Pennsylvania /s/ PricewaterhouseCoopers LLP
February 12, 2002, except for Note 20
as to which the date is March 19, 2002
36
WESCO INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31
-------------------------------
2001 2000
-------------------------------
(DOLLARS IN THOUSANDS,
EXCEPT SHARE DATA)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents............................................... $ 75,057 $ 21,079
Trade accounts receivable, net of allowance for doubtful accounts of
$11,816 and $9,794 in 2001 and 2000, respectively (NOTE 5)............ 217,920 259,988
Other accounts receivable............................................... 26,413 31,365
Inventories, net........................................................ 380,022 421,083
Income taxes receivable................................................. 3,643 2,374
Prepaid expenses and other current assets............................... 6,639 5,602
Deferred income taxes (NOTE 11)........................................ 8,341 14,157
-------------------------------
Total current assets................................................ 718,035 755,648
Property, buildings and equipment, net (NOTE 8).............................. 120,599 123,477
Goodwill, net of accumulated amortization of $39,851 and $27,959 in 2001 and
2000, respectively (NOTE 6)............................................... 311,073 274,862
Other assets................................................................. 8,251 7,469
-------------------------------
Total assets........................................................ $1,157,958 $1,161,456
===============================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable........................................................ $ 469,107 $ 460,535
Accrued payroll and benefit costs....................................... 16,480 27,027
Current portion of long-term debt....................................... 5,530 585
Other current liabilities............................................... 38,362 37,672
-------------------------------
Total current liabilities........................................... 529,479 525,819
Long-term debt (NOTE 9)...................................................... 446,436 482,740
Other noncurrent liabilities................................................. 10,086 6,823
Deferred income taxes (NOTE 11).............................................. 27,306 21,087
-------------------------------
Total liabilities................................................... 1,013,307 1,036,469
Commitments and contingencies (NOTE 15)
STOCKHOLDERS' EQUITY (NOTES 3 AND 10):
Preferred stock, $.01 par value; 20,000,000 shares authorized, no shares
issued or outstanding................................................. . -- --
Common stock, $.01 par value; 210,000,000 shares authorized, 44,269,810
and 44,093,664 shares issued in 2001 and 2000, respectively.......... . 443 441
Class B nonvoting convertible common stock, $.01 par value; 20,000,000
shares authorized, 4,653,131 issued in 2001 and 2000.................. 46 46
Additional capital...................................................... 569,997 569,288
Retained earnings (deficit)............................................. (389,919) (410,144)
Treasury stock, at cost; 4,032,648 and 3,976,897 shares in 2001 and
2000, respectively.................................................... (33,852) (33,406)
Accumulated other comprehensive income (loss)........................... (2,064) (1,238)
-------------------------------
Total stockholders' equity.......................................... 144,651 124,987
-------------------------------
Total liabilities and stockholders' equity.......................... $1,157,958 $1,161,456
===============================
The accompanying notes are an integral part of the consolidated financial
statements.
37
WESCO INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31
---------------------------------------------------
2001 2000 1999
---------------------------------------------------
(IN THOUSANDS, EXCEPT SHARE DATA)
Net sales.................................................... $3,658,033 $3,881,096 $3,423,858
Cost of goods sold........................................... 3,014,520 3,196,952 2,807,240
---------------------------------------------------
Gross profit.............................................. 643,513 684,144 616,618
Selling, general and administrative expenses................. 517,156 524,309 471,275
Depreciation and amortization................................ 30,972 24,993 20,350
Restructuring charge (NOTE 4) ............................... -- 9,404 --
---------------------------------------------------
Income from operations.................................... 95,385 125,438 124,993
Interest expense, net........................................ 45,140 43,780 46,968
Other expenses (NOTE 5)...................................... 16,877 24,945 19,547
---------------------------------------------------
Income before income taxes and extraordinary item......... 33,368 56,713 58,478
Provision for income taxes (NOTE 11)......................... 13,143 23,275 23,333
---------------------------------------------------
Income before extraordinary item.......................... 20,225 33,438 35,145
Extraordinary item, net of tax benefit of $6,711 ............ -- -- (10,507)
---------------------------------------------------
Net income ............................................... $ 20,225 $ 33,438 $ 24,638
===================================================
Earnings per share (NOTE 12) Basic:
Income before extraordinary item.......................... $0.45 $0.74 $0.82
Extraordinary item........................................ -- -- (0.25)
---------------------------------------------------
Net income ............................................... $0.45 $0.74 $0.57
===================================================
Diluted:
Income before extraordinary item.......................... $0.43 $0.70 $0.75
Extraordinary item........................................ -- -- (0.22)
---------------------------------------------------
Net income ............................................... $0.43 $0.70 $0.53
===================================================
The accompanying notes are an integral part of the consolidated financial
statements.
38
WESCO INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
AND REDEEMABLE COMMON STOCK
ACCUMULATED
CLASS B RETAINED OTHER REDEEMABLE
COMPREHENSIVE COMMON COMMON ADDITIONAL EARNINGS TREASURY COMPREHENSIVE COMMON
INCOME STOCK STOCK CAPITAL (DEFICIT) STOCK INCOME (LOSS) STOCK
-----------------------------------------------------------------------------------------------
(IN THOUSANDS)
---------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1998... $252 $46 $326,783 $(468,220) $ -- $(1,422) $21,506
Issuance of common stock..... 112 186,662
Termination of redemption
rights.................. 49 21,457 (21,506)
Conversion of convertible
notes................... 17 29,574
Repurchase of common stock... (4,756)
Exercise of stock options,
including tax benefit... 3 1,421 (34)
Net income .................. $24,638 24,638
Translation adjustment....... 723 723
-----------
Comprehensive income......... $25,361
===========----------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1999... 433 46 565,897 (443,582) (4,790) (699) --
Repurchase of common stock .. (28,064)
Exercise of stock options,
including tax benefit... 8 3,391 (552)
Net income .................. $33,438 33,438
Translation adjustment....... (539) (539)
-----------
Comprehensive income......... $32,899
===========----------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 2000... 441 46 569,288 (410,144) (33,406) (1,238) --
---------------------------------------------------------------------------------
Exercise of stock options,
including tax benefit,
net..................... 2 709 (446)
Net income .................. $20,225 20,225
Translation adjustment....... (826) (826)
-----------
Comprehensive income......... $19,399
===========----------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 2001... $443 $46 $569,997 $(389,919) $ (33,852) $(2,064) $ --
=================================================================================
The accompanying notes are an integral part of the consolidated financial
statements.
39
WESCO INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31
--------------------------------------------
2001 2000 1999
--------------------------------------------
(IN THOUSANDS)
OPERATING ACTIVITIES:
Net income ..................................................... $20,225 $33,438 $24,638
Adjustments to reconcile net income to net cash provided
by operating activities:
Restructuring charge......................................... -- 9,404 --
Extraordinary item, net of tax benefits...................... -- -- 10,507
Depreciation and amortization................................ 30,972 24,993 20,350
Accretion of original issue and amortization of purchase
discounts.................................................. 1,799 1,147 4,441
Amortization of debt issuance and interest rate cap costs ... 1,168 608 1,153
(Gain) loss on sale of property, buildings and equipment..... (520) (841) 314
Deferred income taxes........................................ 12,035 2,260 13,367
Changes in assets and liabilities, excluding the effects of
acquisitions:
Change in receivables facility............................. (45,000) 40,000 60,000
Trade and other receivables................................ 106,072 (97,570) (66,725)
Inventories................................................ 48,511 (16,047) (44,964)
Prepaid expenses and other current assets.................. (1,642) (1,609) 3,660
Other assets............................................... (836) (99) 417
Accounts payable........................................... 3,402 39,345 41,788
Accrued payroll and benefit costs.......................... (10,547) 8,488 (1,443)
Other current and noncurrent liabilities................... (4,547) 3,394 (1,147)
--------------------------------------------
Net cash provided by operating activities.............. 161,092 46,911 66,356
INVESTING ACTIVITIES:
Capital expenditures............................................ (13,820) (21,552) (21,230)
Proceeds from the sale of property, buildings and equipment..... 933 1,543 650
Receipts from affiliate......................................... -- 224 8,667
Acquisitions, net of cash acquired ............................. (56,269) (40,904) (59,983)
--------------------------------------------
Net cash used by investing activities.................. (69,156) (60,689) (71,896)
FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt........................ 766,363 724,038 683,772
Repayments of long-term debt.................................... (803,548) (670,734) (858,072)
Debt issuance costs............................................. (1,262) (475) (2,160)
Proceeds from issuance of common stock, net of offering
costs, and exercise of options .......................... 489 1,273 187,482
Repurchase of common stock...................................... -- (28,064) (4,756)
--------------------------------------------
Net cash (used) provided by financing activities...... (37,958) 26,038 6,266
--------------------------------------------
Net change in cash and cash equivalents......................... 53,978 12,260 726
Cash and cash equivalents at the beginning of period............ 21,079 8,819 8,093
--------------------------------------------
Cash and cash equivalents at the end of period.................. $75,057 $21,079 $8,819
============================================
The accompanying notes are an integral part of the consolidated financial
statements.
40
WESCO INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION
WESCO International, Inc. and its subsidiaries (collectively, "WESCO"),
headquartered in Pittsburgh, Pennsylvania, is a full-line distributor of
electrical supplies and equipment and is a provider of integrated supply
procurement services. WESCO currently operates over 350 branch locations and
five distribution centers in the United States, Canada, Mexico, Puerto Rico,
Guam, the United Kingdom, Nigeria, Singapore and Venezuela.
On June 5, 1998, WESCO repurchased and retired all of the common stock of
WESCO principally held by non-management shareholders for $10.75 per share for
net consideration of approximately $653.5 million. In addition, WESCO repaid
approximately $379.1 million of then outstanding indebtedness, and sold
29,604,351 shares of common stock to an investor group led by affiliates of the
Cypress Group LLC ("Cypress") representing approximately 88.7% of WESCO at that
time for an aggregate cash consideration of $318.1 million. Existing management
retained approximately an 11.3% interest in WESCO immediately following the
transaction. WESCO funded the equity consideration and the repayment of
indebtedness from proceeds of the cash equity contribution, issuance of
approximately $351 million of senior subordinated and senior discount notes, a
$170 million credit facility and the sale of approximately $250 million of
accounts receivable. Given the 11.3% retained ownership, the transaction was
treated as a recapitalization for financial reporting purposes and, accordingly,
the historical bases of WESCO's assets and liabilities were not affected.
2. ACCOUNTING POLICIES
Basis of Presentation
The consolidated financial statements include the accounts of WESCO
International, Inc. and all of its subsidiaries. All significant intercompany
accounts and transactions have been eliminated in consolidation.
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 consolidated financial
statements and accompanying disclosures. Although these estimates are based on
management's best knowledge of current events and actions the Company may
undertake in the future, actual results may ultimately differ from the
estimates.
Revenue Recognition
Revenues are recognized when title, ownership and risk of loss pass to the
customer, or services are rendered.
Shipping and Handling Costs and Fees
WESCO records all costs and fees associated with transporting its products
to customers as a component of selling, general and administrative expenses.
Cash Equivalents
Cash equivalents are defined as highly liquid investments with original
maturities of 90 days or less when purchased.
Asset Securitization
WESCO accounts for the securitization of accounts receivable in accordance
with Statement of Financial Accounting Standards ("SFAS") No. 140, "Accounting
for Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities." At the time the receivables are sold the balances are removed from
the balance sheet.
41
SFAS No. 140 also requires retained interests in the transferred assets to be
measured by allocating the previous carrying amount between the assets sold and
retained interests based on their relative fair values at the date of transfer.
The Company estimates fair value based on the present value of expected future
cash flows discounted at a rate commensurate with the risks involved.
Inventories
Inventories primarily consist of merchandise purchased for resale and are
stated at the lower of cost or market. Cost is determined principally under the
average cost method. The Company makes provisions for obsolete or slow-moving
inventories as necessary to properly reflect inventory value. Reserves for
excess and obsolete inventories were $16.8 million and $18.7 million at December
31, 2001 and 2000, respectively.
Property, Buildings and Equipment
Property, buildings and equipment are recorded at cost. Depreciation expense
is determined using the straight-line method over the estimated useful lives of
the assets. Leasehold improvements are amortized over either their respective
lease terms or their estimated lives, whichever is shorter. Estimated useful
lives range from five to forty years for buildings and leasehold improvements,
three to seven years for furniture, fixtures and equipment and two to five years
for software costs.
Expenditures for new facilities and improvements that extend the useful
life of an asset are capitalized. Ordinary repairs and maintenance are expensed
as incurred. When property is retired or otherwise disposed of, the cost and the
related accumulated depreciation are removed from the accounts and any related
gains or losses are recorded.
Intangible Assets
Goodwill arising from acquisitions and other intangible assets are amortized
on a straight-line basis over periods ranging from 25 to 35 years. The carrying
values of individual components of intangible assets are regularly reviewed by
evaluating the estimated future undiscounted cash flows to determine
recoverability of the assets. Any decrease in value is recognized on a current
basis. As discussed in Recent Accounting Pronouncements in this note, WESCO will
adopt SFAS No. 141 and SFAS No. 142 effective January 1, 2002.
Income Taxes
Income taxes are accounted for under the liability method. Deferred tax
assets and liabilities are determined based on differences between the financial
reporting and tax basis of assets and liabilities and are measured using the
enacted tax rates and laws that will be in effect when the differences are
expected to reverse. Valuation allowances, if any, are provided when a portion
or all of a deferred tax asset may not be realized.
Foreign Currency Translation
The local currency is the functional currency for all of WESCO's operations
outside the United States. Assets and liabilities of these operations are
translated to U.S. dollars at the exchange rate in effect at the end of each
period. Income statement accounts are translated at the average exchange rate
prevailing during the period. Translation adjustments arising from the use of
differing exchange rates from period to period are included as a component of
stockholders' equity. Gains and losses from foreign currency transactions are
included in net income for the period.
Treasury Stock
Common stock purchased for treasury is recorded at cost. At the date of
subsequent reissue, the treasury stock account is reduced by the cost of such
stock on the weighted average cost basis.
Fair Value of Financial Instruments
For certain of WESCO's financial instruments, including cash and cash
equivalents, short-term investments, accounts receivable, notes payable and
short-term borrowings, accounts payable and other accrued liabilities, the
carrying amounts approximate fair value due to their short maturities. The
estimated fair value of WESCO's senior subordinated notes was $374.0 million at
December 31, 2001, compared to a carrying value of $377.8 million. The estimated
42
fair value of the debt is based primarily on quoted market prices, as well as
borrowing rates currently available to WESCO for bank loans with similar terms
and maturities.
Interest Rate Swaps
WESCO enters into interest rate swap agreements to reduce the exposure of
its debt to interest rate risk and formally documents this strategy as part of
its risk management program. Interest rate swaps are used to modify the market
risk exposures for a portion of WESCO's debt to achieve LIBOR-based floating
interest expense. The swap transactions generally involve the exchange of fixed
for floating interest payment obligations and are accounted for as fair value
hedges. The gain or loss on the derivative instrument, as well as the offsetting
gain or loss on the hedged item, is recognized in earnings in the current
period.
WESCO estimates the fair value of derivatives based on quoted market prices
or pricing models using current market rates, and records all derivatives on the
balance sheet at fair value. At December 31, 2001, the net fair value of
interest-rate-related derivatives designated as fair value hedges of debt was
$3.2 million and is recorded in non-current liabilities. Cash flows from
derivative instruments are presented in a manner consistent with the underlying
transaction.
Environmental Expenditures
WESCO has facilities and operations which distribute certain products that
must comply with environmental regulations and laws. Expenditures for current
operations are expensed or capitalized, as appropriate. Expenditures relating to
existing conditions caused by past operations, and which do not contribute to
future revenue, are expensed. Liabilities are recorded when remedial efforts are
probable and the costs can be reasonably estimated.
Reclassifications
Certain prior period amounts have been reclassified to conform with the
current year presentation.
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities." This
statement, as amended by SFAS No. 138, was adopted by WESCO on January 1, 2001.
This statement requires the recognition of the fair value of any derivative
financial instrument on the balance sheet. Changes in fair value of the
derivative and, in certain instances, changes in the fair value of an underlying
hedged asset or liability, are recognized through either income or as a
component of other comprehensive income. The adoption of this statement did not
have a material impact on the results of operations or financial position of
WESCO.
In July 2001, the FASB issued SFAS No. 141, "Business Combinations" and SFAS
No. 142, "Goodwill and Other Intangible Assets." Under SFAS No. 141, all
business combinations are accounted for under the purchase method. Under SFAS
No. 142, goodwill will no longer be amortized, but will be reduced only if it
is found to be impaired. Goodwill would be tested for impairment annually or
more frequently when events or circumstances occur indicating that goodwill
might be impaired. A fair-value based impairment test would be used to measure
goodwill for impairment. As goodwill is measured as a residual amount in an
acquisition, it is not possible to directly measure the fair value of goodwill.
Under this statement, the net assets of a reporting unit are subtracted from the
fair value of that reporting unit to determine the implied fair value of
goodwill. An impairment loss would be recognized to the extent the carrying
amount of goodwill exceeds the implied fair value. The provisions of this
statement are effective for all business combinations completed after July 1,
2001 and fiscal years beginning after December 15, 2001 for existing goodwill.
As required by this statement, management is currently evaluating its goodwill
for impairment and has not yet completed its analysis. Management believes the
adoption of this standard will have a material non-cash impact on WESCO's
results of operations due to goodwill no longer being amortized. Goodwill
amortization was $11.9 million in 2001.
In June 2001, the FASB issued SFAS No. 143, "Accounting for Obligations
Associated with the Retirement of Long-Lived Assets". This statement, is
required to be adopted by WESCO January 1, 2003, although earlier adoption is
permitted. The objectives of SFAS No. 143 are to establish accounting standards
for the recognition and
43
measurement of an asset retirement obligation and its associated asset
retirement cost. It applies to legal obligations that result from the
acquisition, construction, development, or the normal operation of a long-lived
asset, excluding certain obligations of leases. Management believes the adoption
of this standard will not have a material impact on the results of operations or
financial position of WESCO.
In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment
of Long-Lived Assets". This statement addresses financial accounting and
reporting for the impairment of long-lived assets and for long-lived assets to
be disposed of and supersedes SFAS No. 121. This statement retains the
fundamental provisions of SFAS No. 121 for recognition and measurement of the
impairment of long-lived assets to be held and used and measurement of
long-lived assets to be disposed of by sale, whether previously held and used or
newly acquired. This statement was adopted by WESCO as of January 1, 2002. The
adoption of this statement did not have a material impact on the results of
operations or financial position of WESCO.
3. INITIAL PUBLIC OFFERING
On May 17, 1999, WESCO completed its initial public offering of 11,183,750
shares of common stock ("Offering") at $18.00 per share. In connection with the
Offering, certain employee rights to require WESCO to repurchase outstanding
redeemable common stock were terminated and approximately $31.5 million of
convertible notes were converted into 1,747,228 shares of common stock. Proceeds
from the Offering (after deducting Offering costs of $14.5 million) totaling
$186.8 million and borrowings of approximately $65 million were used to redeem
all of the 11 1/8% senior discount notes ($62.8 million) and to repay the
existing revolving credit and term loan facilities ($188.8 million).
In connection with the Offering, the Board of Directors approved a 57.8 to
one stock split effected in the form of a stock dividend of WESCO's common
stock. The Board of Directors also reclassified the Class A common stock into
common stock, increased the authorized common stock to 210,000,000 shares and
the authorized Class B common stock to 20,000,000 shares and authorized
20,000,000 shares of $.01 par value preferred stock, all effective May 11, 1999.
In this report, all share and per share data have been restated to reflect the
stock split.
4. RESTRUCTURING CHARGE
In the fourth quarter of 2000, WESCO commenced certain programs to reduce
costs, improve productivity and exit certain operations. Total costs under these
programs were $9.4 million, and were comprised of $5.4 million related to the
closure of fourteen branch operations in the United States, Canada and the
Balkans, and $4.0 million related to the write-down of an investment in an
affiliate. The $5.4 million charge related to the closure of fourteen branch
operations is principally comprised of an inventory write-down of approximately
$4.0 million and lease termination costs of approximately $1.0 million, the
majority of which was paid in 2001. The $4.0 million investment write-down was a
result of management's decision to no longer pursue its business strategy with
an affiliate.
5. ACCOUNTS RECEIVABLE SECURITIZATION
In June 1999, WESCO and certain of its subsidiaries terminated its previous
accounts receivable securitization program and entered into a new accounts
receivable securitization program ("Receivables Facility"). Under the
Receivables Facility, WESCO sells, on a continuous basis, to WESCO Receivables
Corporation, a wholly-owned, special purpose company ("SPC"), an undivided
interest in all domestic accounts receivable. The SPC sells without recourse to
a third-party conduit all the eligible receivables while maintaining a
subordinated interest, in the form of overcollateralization, in a portion of the
receivables. WESCO has agreed to continue servicing the sold receivables for the
financial institution at market rates; accordingly, no servicing asset or
liability has been recorded.
As of December 31, 2001 and 2000, securitized accounts receivable totaled
approximately $398 million and $479 million, respectively, of which the
subordinated retained interest was approximately $65 million and $101 million,
respectively. Accordingly, approximately $333 million and $378 million of
accounts receivable balances were removed from the consolidated balance sheets
at December 31, 2001 and 2000, respectively. WESCO reduced its
44
accounts receivable securitization program by $45.0 million in 2001. Net
proceeds from the transactions totaled $40.0 million in 2000. Costs associated
with the Receivables Facility totaled $16.9 million, $24.9 million and $19.5
million in 2001, 2000 and 1999, respectively. These amounts are recorded as
other expenses in the consolidated statement of operations and are primarily
related to the discount and loss on the sale of accounts receivables, partially
offset by related servicing revenue.
The key economic assumptions used to measure the retained interest at the
date of the securitization for securitizations completed in 2001 were a discount
rate of 3% and an estimated life of 1.5 months. At December 31, 2001, an
immediate adverse change in the discount rate or estimated life of 10% and 20%
would result in a reduction in the fair value of the retained interest of $0.1
million and $0.3 million, respectively. These sensitivities are hypothetical and
should be used with caution. As the figures indicate, changes in fair value
based on a 10% variation in assumptions generally cannot be extrapolated because
the relationship of the change in assumption to the change in fair value may not
be linear. Also, in this example, the effect of a variation in a particular
assumption on the fair value of the retained interest is calculated without
changing any other assumption. In reality, changes in one factor may result in
changes in another.
6. ACQUISITIONS
In March 2001, WESCO acquired a distributor serving contractors who install
gas, lighting and communication utility infrastructure. In 2000 and 1999, WESCO
acquired three and four electrical distributors, respectively. Certain of the
acquisitions also contain contingent consideration provisions that are not
material to the consolidated financial statements of WESCO. A summary of certain
information with respect to all acquisitions follows:
YEAR ENDED DECEMBER 31
------------------------------------------
2001 2000 1999
------------------------------------------
(IN THOUSANDS)
Aggregate purchase price, including contingent consideration............. $62,956 $47,801 $40,076
Recorded goodwill........................................................ 47,339 38,223 25,455
All of the acquisitions were accounted for under the purchase method of
accounting for business combinations. The results of operations of these
companies are included in the consolidated financial statements prospectively
from the acquisition dates. Pro forma results of these acquisitions, assuming
they had been made at the beginning of each year presented, would not be
materially different from the consolidated results reported herein.
On September 11, 1998, WESCO acquired substantially all the assets and
assumed substantially all liabilities and obligations relating to the operations
of Bruckner Supply Company, Inc. ("Bruckner"), a privately owned company
headquartered in Port Washington, New York. Bruckner is a provider of integrated
supply procurement and outsourcing activities for large industrial companies.
Additional contingent consideration, if any, is to be paid based on a
multiple of increases in earnings before interest, taxes, depreciation and
amortization of Bruckner through 2004. Up to 50% of the additional future
contingent consideration, if any, may be converted at the election of the holder
into common stock at the then market value. The purchase agreement provides for
an additional earn-out potential of $90 million during any one of the next three
years if certain earning targets are achieved. The maximum amount payable in any
single year under this agreement is $30 million. Certain other acquisitions also
contain contingent consideration provisions, one of which could require a
significant payment in 2008.
7. CONCENTRATIONS OF CREDIT RISK AND SIGNIFICANT SUPPLIERS
WESCO distributes its products and services and extends credit to a large
number of customers in the industrial, construction, utility and manufactured
structures markets. In addition, one supplier accounted for approximately 14%,
13% and 13% of WESCO's purchases for each of the three years, 2001, 2000 and
1999, respectively.
45
8. PROPERTY, BUILDINGS AND EQUIPMENT
The following table sets forth the components of property, buildings and
equipment:
DECEMBER 31
---------------------------
2001 2000
---------------------------
(IN THOUSANDS)
Land................................................................................. $18,588 $18,699
Buildings and leasehold improvements................................................. 66,921 62,905
Furniture, fixtures and equipment.................................................... 76,899 67,210
Software costs....................................................................... 28,292 18,406
--------------------------
190,700 167,220
Accumulated depreciation and amortization............................................ (72,705) (55,984)
--------------------------
117,995 111,236
Construction in progress............................................................. 2,604 12,241
--------------------------
$120,599 $123,477
==========================
9. LONG TERM DEBT
The following table sets forth WESCO's outstanding indebtedness:
DECEMBER 31
------------------------
2001 2000
------------------------
(IN THOUSANDS)
Revolving credit facility.............................................................. $ 68,584 $189,624
Senior subordinated notes (1).......................................................... 377,756 291,489
Other.................................................................................. 5,626 2,212
------------------------
451,966 483,325
Less current portion................................................................... (5,530) (585)
------------------------
$446,436 $482,740
========================
- ------------
(1) Net of original issue discount of $9,963 and $723 and purchase discount of
$9,105 and $7,788 in 2001 and 2000, respectively.
Revolving Credit Facility
In June 1999, WESCO Distribution, Inc., a wholly-owned subsidiary of WESCO,
entered into a $400 million revolving credit facility with certain financial
institutions. The revolving credit facility, which matures in June 2004,
consists of up to $365 million of revolving loans denominated in U.S. dollars
and a Canadian sublimit totaling US$35 million. Borrowings under the revolving
credit facility are collateralized by substantially all the assets of WESCO
Distribution, Inc. other than real property and accounts receivable sold under
the Receivables Facility, and are guaranteed by WESCO International, Inc. and
certain subsidiaries.
In August 2001, WESCO Distribution, Inc. entered into an amendment to its
revolving credit facility, which, among other things, affected the pricing of
and amounts available under the revolving credit facility. The LIBOR borrowing
margins applicable to advances under the revolving credit facility, which
previously ranged from 100 to 200 basis points, were amended to range from 150
to 250 basis points depending upon WESCO's leverage ratio. The amendment also
provided for reduction in the maximum amount available under the revolving
credit facility from approximately $379 million to approximately $263 million.
The amendment further provided for subsequent quarterly decreases in the maximum
amount available as follows:
- beginning January 1, 2002 through July 1, 2002, the maximum amount
available will be reduced by $5 million per quarter;
- from October 1, 2002 through January 1, 2004, the maximum amount
available will be reduced by $12.5 million per quarter; and
46
- on April 1, 2004, the maximum amount available will be reduced by $10
million.
Borrowings bear rates of interest equal to various indices, at WESCO's
option, such as LIBOR, Prime Rate or the Federal Funds Rate, plus a borrowing
margin based on WESCO's financial performance. At December 31, 2001 and December
31, 2000, the interest rates on revolving credit facility borrowings were 6.0%
and 8.4%, respectively. A commitment fee of 30 to 50 basis points per year is
due on unused portions of the revolving credit facility.
As discussed in Note 20, in March 2002 WESCO Distribution, Inc. terminated
the revolving credit facility discussed above and entered into a $290 million
revolving credit agreement that is collateralized by substantially all inventory
owned by WESCO and also by the accounts receivable of WESCO Distribution Canada,
Inc.
Senior Subordinated Notes
In August 2001, WESCO completed an offering of $100 million in aggregate
principal amount of 9 1/8% senior subordinated notes due on June 1, 2008. The
notes were issued with an issue price of 90.142%. The net proceeds received by
WESCO from the offering were approximately $87.6 million after deducting the
initial purchasers' discount and before offering expenses. The net proceeds were
used to repay a portion of the outstanding indebtedness of the Company under its
revolving credit facility.
The senior subordinated notes in an aggregate principal amount of $400
million were issued by WESCO Distribution, Inc. The notes are unsecured
obligations and are fully and unconditionally guaranteed by WESCO International,
Inc.
The senior subordinated notes bear interest at a stated rate of 9 1/8%
payable semiannually on June 1 and December 1 through June 1, 2008. The
effective interest rate for the senior subordinated notes is 9.6%.
The senior subordinated notes are redeemable at the option of WESCO
Distribution, Inc. in whole or in part, at any time after June 1, 2003 at the
following prices:
Redemption Price
----------------
2003............................................... 104.563%
2004............................................... 103.042
2005............................................... 101.521
2006 and thereafter................................ 100.000
At any time prior to June 1, 2003, the senior subordinated notes may be
redeemed, in whole but not in part, at the option of the Company at any time
within 180 days after a change of control, at a redemption price equal to the
principal amount thereof plus accrued and unpaid interest and the then
applicable premium. In addition, the noteholders have the right to require
WESCO, upon a change of control, to repurchase all or any part of the senior
subordinated notes at a redemption price equal to 101% of the principal amount
provided plus accrued and unpaid interest.
In September and October 2001, WESCO entered into certain interest rate
swap agreements with respect to $100 million notional amount of indebtedness.
Pursuant to the agreements, WESCO will receive semi-annual fixed interest
payments at the rate of 9 1/8% commencing December 1, 2001 and will make
quarterly variable interest rate payments at rates based on LIBOR plus a margin
commencing December 1, 2001 (currently rates range from 6.051% to 6.241%). The
swap agreements terminate on June 1, 2008.
Other
At December 31, 2001 and 2000, other borrowings primarily consisted of
notes issued to sellers in connection with acquisitions.
47
The following table sets forth the aggregate principal repayment
requirements for all indebtedness for the next five years without giving effect
to the new revolving credit agreement:
(IN THOUSANDS)
----------------------
2002......................................... $ 5,530
2003......................................... 30
2004 ........................................ 68,614
2005......................................... 30
2006......................................... 6
WESCO's credit agreements contain various restrictive covenants that, among
other things, impose limitations on (i) dividend payments or certain other
restricted payments or investments; (ii) the incurrence of additional
indebtedness and guarantees or issuance of additional stock; (iii) creation of
liens; (iv) mergers, consolidation or sales of substantially all of WESCO's
assets; (v) certain transactions among affiliates; (vi) payments by certain
subsidiaries to WESCO; and (vii) capital expenditures. In addition, the
agreements require WESCO to meet certain leverage, working capital and interest
coverage ratios. WESCO was in compliance with all such covenants at December 31,
2001.
WESCO is permitted to pay dividends under certain limited circumstances. At
December 31, 2001 and 2000, no retained earnings were available for dividend
payments.
WESCO had $1.0 million and $0.5 million of outstanding letters of credit at
December 31, 2001 and 2000, respectively. These letters of credit are used as
collateral for potential obligation under WESCO's insurance programs as well as
certain foreign commercial transactions. The fair value of the letters of credit
approximates the contract value.
10. CAPITAL STOCK
Preferred Stock
There are 20,000,000 shares of preferred stock authorized at a par value of
$.01 per share. The Board of Directors has the authority, without further action
by the stockholders, to issue all authorized preferred shares in one or more
series and to fix the number of shares, designations, voting powers,
preferences, optional and other special rights and the restrictions or
qualifications thereof. The rights, preferences, privileges and powers of each
series of preferred stock may differ with respect to dividend rates, liquidation
values, voting rights, conversion rights, redemption provisions and other
matters.
Common Stock
There are 210,000,000 shares of common stock and 20,000,000 shares of Class
B common stock authorized at a par value of $.01 per share. The Class B common
stock is identical to the common stock, except for voting and conversion rights.
The holders of Class B common stock have no voting rights. With certain
exceptions, Class B common stock may be converted, at the option of the holder,
into the same number of shares of common stock.
Redeemable Common Stock
Prior to the Offering, certain employees and key management of WESCO held
common stock and options that required WESCO to repurchase, under certain
conditions, death, disability or termination without cause during the term of
employment, all of the shares and the exercisable portion of the options held.
In connection with these redemption features, WESCO had classified outside of
permanent equity, an amount representing the initial fair value of the
redeemable shares. These shares and exercisable options were not marked to
market since the events of redemption were considered remote. This repurchase
right terminated upon the consummation of the Offering and as a result, the
redeemable shares were reclassified to stockholders' equity.
48
The following table sets forth capital stock share activity:
CLASS B REDEEMABLE
COMMON STOCK TREASURY STOCK COMMON STOCK COMMON STOCK
-------------------------------------------------------------------------
December 31, 1998.................. 25,209,817 -- 4,653,131 4,901,902
Shares issued...................... 11,183,750 -- -- --
Termination of redemption rights... 4,901,902 -- -- (4,901,902)
Conversion of convertible notes.... 1,747,228 -- -- --
Treasury shares purchased.......... -- (632,700) -- --
Options exercised.................. 248,622 (4,559) -- --
-------------------------------------------------------------------------
December 31, 1999.................. 43,291,319 (637,259) 4,653,131 --
Treasury shares purchased.......... -- (3,265,300) -- --
Options exercised.................. 802,345 (74,338) -- --
-------------------------------------------------------------------------
December 31, 2000.................. 44,093,664 (3,976,897) 4,653,131 --
Options exercised, net............. 176,146 (55,751) -- --
-------------------------------------------------------------------------
December 31, 2001.................. 44,269,810 (4,032,648) 4,653,131 --
=========================================================================
In May 2000, WESCO's Board of Directors authorized an additional $25
million to be added to its existing $25 million share repurchase program which
was authorized in November 1999. WESCO's common stock may be purchased at
management's discretion, subject to certain financial ratios, in open market
transactions and the program may be discontinued at any time. As of December 31,
2001, the Company had purchased 3,898,000 shares of its common stock for $32.8
million pursuant to this program.
11. INCOME TAXES
The following table sets forth the components of the provision for income
taxes before extraordinary item:
YEAR ENDED DECEMBER 31
----------------------------------------
2001 2000 1999
----------------------------------------
(IN THOUSANDS)
Current taxes:
Federal........................................................... $ 1,051 $19,597 $9,201
State............................................................. (1,502) 1,030 (311)
Foreign........................................................... 1,559 388 1,076
----------------------------------------
Total current................................................... 1,108 21,015 9,966
Deferred taxes:
Federal........................................................... 9,990 832 10,416
State............................................................. 2,297 183 2,779
Foreign........................................................... (252) 1,245 172
----------------------------------------
Total deferred.................................................. 12,035 2,260 13,367
----------------------------------------
$13,143 $23,275 $23,333
========================================
The following table sets forth the components of income before income taxes
and extraordinary item by jurisdiction:
YEAR ENDED DECEMBER 31
----------------------------------------
2001 2000 1999
----------------------------------------
(IN THOUSANDS)
United States...................................................... $29,921 $52,963 $54,070
Foreign............................................................ 3,447 3,750 4,408
----------------------------------------
$33,368 $56,713 $58,478
========================================
49
The following table sets forth the reconciliation between the federal
statutory income tax rate and the effective rate:
YEAR ENDED DECEMBER 31
---------------------------------------
2001 2000 1999
---------------------------------------
Federal statutory rate................................................. 35.0% 35.0% 35.0%
State taxes, net of federal tax benefit................................ 1.5 1.4 2.7
Nondeductible expenses................................................. 4.2 3.4 2.9
Foreign taxes.......................................................... -- 0.3 (0.3)
Other(1)............................................................... (1.3) 0.9 (0.4)
---------------------------------------
39.4% 41.0% 39.9%
- ------------------------------------- =======================================
(1)Includes the impact of adjustments for certain tax liabilities and the effect
of differences between the recorded provision and the final filed tax return
for the prior year.
The following table sets forth deferred tax assets and liabilities:
DECEMBER 31
---------------------------------
2001 2000
---------------------------------
(IN THOUSANDS)
Accounts receivable............................................................... $6,014 $ 6,512
Inventory......................................................................... 1,134 6,077
Other............................................................................. 1,193 1,568
---------------------------------
Deferred tax assets.......................................................... 8,341 14,157
---------------------------------
Intangibles....................................................................... (17,244) (14,539)
Property, buildings and equipment................................................. (11,795) (8,497)
Other............................................................................. 1,733 1,949
---------------------------------
Deferred tax liabilities..................................................... (27,306) (21,087)
---------------------------------
$(18,965) $(6,930)
=================================
12. EARNINGS PER SHARE
Basic earnings per share is computed by dividing net income by the weighted
average common shares outstanding during the periods. Diluted earnings per share
are computed by dividing net income by the weighted average common shares and
common share equivalents outstanding during the periods. The dilutive effect of
common share equivalents is considered in the diluted earnings per share
computation using the treasury stock method.
The following table sets forth the details of basic and diluted earnings per
share:
YEAR ENDED DECEMBER 31
---------------------------------------------------
2001 2000 1999
---------------------------------------------------
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
Income before extraordinary item...................... $20,225 $33,438 $35,145
Interest on convertible debt........................... -- -- 595
---------------------------------------------------
Earnings used in diluted earnings per share............ $20,225 $33,438 $35,740
Weighted average common shares outstanding used in
computing basic earnings per share.................. 44,862,087 45,326,475 43,057,894
Common shares issuable upon exercise of dilutive stock
options ............................................ 2,039,586 2,420,132 3,516,733
Assumed conversion of convertible debt................. -- -- 949,912
---------------------------------------------------
Weighted average common shares outstanding and common
share equivalents used in computing diluted
earnings per share.................................. 46,901,673 47,746,607 47,524,539
===================================================
Earnings per share before extraordinary item
Basic............................................... $0.45 $0.74 $0.82
Diluted............................................. $0.43 0.70 0.75
50
Options to purchase 4.4 million and 3.8 million shares of common stock at a
weighted average exercise price of $10.24 per share and $10.62 per share were
outstanding as of December 31, 2001 and 2000, respectively, but were not
included in the computation of diluted earnings per share because the option
exercise prices were greater than the average market price of WESCO common
stock.
13. EMPLOYEE BENEFIT PLANS
A majority of WESCO's employees are covered by defined contribution
retirement savings plans for their service rendered subsequent to WESCO's
formation. U.S. employee contributions of not more than 6% of eligible
compensation are matched 50% by WESCO. WESCO's contributions for Canadian
employees range from 1% to 6% of eligible compensation based on years of
service. For the years ended December 31, 2001, 2000 and 1999, WESCO contributed
$5.5 million, $5.5 million and $6.0 million, respectively, which was charged to
expense. Contributions may be taken in the form of WESCO's stock at the
employee's election.
In addition, employer profit sharing contributions may be made at the
discretion of the Board of Directors and can be based on WESCO's financial
performance. No such contributions were made during 2001, 2000 or 1999.
14. STOCK INCENTIVE PLANS
Stock Purchase Plans
In connection with the Recapitalization, WESCO established a stock purchase
plan ("1998 Stock Purchase Plan") under which certain employees may be granted
an opportunity to purchase WESCO's common stock. The maximum number of shares
available for purchase may not exceed 427,720. There were no shares issued in
2001, 2000 or 1999.
In 1994, WESCO established a stock purchase plan ("1994 Stock Purchase
Plan") under which certain employees were granted an opportunity to purchase
WESCO's common stock. Future purchases of shares under the 1994 Stock Purchase
Plan were terminated in conjunction with the establishment of the 1998 Stock
Purchase Plan.
Stock Option Plans
WESCO has sponsored four stock option plans, the 1999 Long-Term Incentive
Plan ("LTIP"), the 1998 Stock Option Plan, the Stock Option Plan for Branch
Employees and the 1994 Stock Option Plan. The LTIP was designed to be the
successor plan to all prior plans. Outstanding options under prior plans will
continue to be governed by their existing terms, which are substantially similar
to the LTIP. Any remaining shares reserved for future issuance under the prior
plans are available for issuance under the LTIP. The LTIP is administered by the
Compensation Committee of the Board of Directors.
An initial reserve of 6,936,000 shares of common stock has been authorized
for issuance under the LTIP. This reserve automatically increases by (i) the
number of shares of common stock covered by unexercised options granted under
prior plans that are canceled or terminated after the effective date of the LTIP
and (ii) the number of shares of common stock surrendered by employees to pay
the exercise price and/or minimum withholding taxes in connection with the
exercise of stock options granted under our prior plans.
Options granted vest and become exercisable over periods ranging from four
to five years or earlier based on WESCO achieving certain financial performance
criteria. All options vest immediately in the event of a change in control. Each
option terminates on the tenth anniversary of its grant date unless terminated
sooner under certain conditions.
All awards under WESCO's stock incentive plans are designed to be issued at
fair market value.
The following sets forth shares of common stock reserved for future issuance at
December 31, 2001:
Stock Purchase Plan......................................... 135,830
LTIP........................................................ 6,879,000
51
The following table sets forth a summary of stock option activity and
related information for the years indicated:
2001 2000 1999
------------------------------------------------------------------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE
------------------------------------------------------------------------------
Beginning of year................... 9,588,306 $6.13 9,254,770 $5.44 9,527,290 $5.34
Granted ............................ 907,350 4.70 1,606,000 9.21 14,675 18.00
Exercised........................... (176,146) 2.78 (802,345) 2.27 (248,622) 2.31
Canceled............................ (320,433) 9.50 (470,119) 9.54 (38,573) 3.38
-------------- ------------- --------------
End of year......................... 9,999,077 5.96 9,588,306 6.13 9,254,770 5.44
============== ============= ==============
Exercisable at end of year.......... 7,897,336 $4.92 6,043,337 $4.33 6,193,150 $3.33
The following table sets forth exercise prices for options outstanding as of
December 31, 2001:
OPTIONS OPTIONS WEIGHTED AVERAGE
RANGE OF EXERCISE PRICES OUTSTANDING EXERCISABLE REMAINING CONTRACTUAL LIFE
-----------------------------------------------------------------------------------------------------
$ 1.73 2,930,278 2,930,278 2.5
$ 1.98 647,707 647,707 4.0
$ 3.38 1,049,735 1,049,735 5.0
$ 4.34 60,112 60,112 5.9
$ 4.50 -- $ 7.75 1,335,350 1,022,994 9.4
$ 8.13 -- $ 9.31 25,500 -- 8.4
$ 9.75 -- $ 9.88 1,051,500 -- 8.4
$ 10.75 2,884,220 2,171,835 6.5
$ 18.00 14,675 14,675 7.4
--------- ---------
9,999,077 7,897,336
========= =========
In connection with the implementation of SFAS No. 123, "Accounting for
Stock-Based Compensation," WESCO has elected to continue to account for
stock-based compensation arrangements under the provisions of Accounting
Principles Board (APB) Opinion No. 25.
If compensation costs had been determined based on the fair value at the
grant dates according to SFAS No. 123, WESCO's net income and earnings per share
would have been as follows:
YEAR ENDED DECEMBER 31
------------------------------------------
2001 2000 1999
------------------------------------------
(IN THOUSANDS, EXCEPT SHARE DATA)
Net income (loss)
As reported......................................................... $20,225 $33,438 $24,638
Pro forma........................................................... 17,351 30,979 22,912
Basic earnings (loss) per share
As reported......................................................... $0.45 $0.74 $0.57
Pro forma........................................................... 0.39 0.68 0.53
Diluted earnings (loss) per share
As reported......................................................... $0.43 $0.70 $0.53
Pro forma........................................................... 0.37 0.65 0.49
The weighted average fair value per option granted was $2.99, $4.82 and
$8.00 for the years ended December 31, 2001, 2000 and 1999, respectively.
52
For purposes of presenting pro forma results, the fair value of each option
grant is estimated on the date of grant using the Black-Scholes option pricing
model and the following assumptions:
YEAR ENDED DECEMBER 31
-------------------------------------
2001 2000 1999
-------------------------------------
Risk-free interest rate.................. 4.9% 6.0% 6.0%
Expected life (years).................... 6.0 6.0 7.0
Stock price volatility................... 65.0% 45.0% 30.0%
15. COMMITMENTS AND CONTINGENCIES
Future minimum rental payments required under operating leases, primarily
for real property that have noncancelable lease terms in excess of one year as
of December 31, 2001, are as follows:
(IN THOUSANDS)
------------------
2002.................................................... $25,493
2003.................................................... 19,626
2004.................................................... 14,900
2005.................................................... 10,134
2006.................................................... 6,798
Thereafter.............................................. 15,643
Rental expense for the years ended December 31, 2001, 2000 and 1999, was
$32.5 million, $30.3 million and $33.3 million, respectively.
WESCO has litigation arising from time to time in the normal course of
business. In management's opinion, any present litigation WESCO is aware of will
not materially affect WESCO's consolidated financial position, results of
operations or cash flows.
16. SEGMENTS AND RELATED INFORMATION
WESCO is engaged principally in one line of business -- the sale of
electrical products and maintenance repair and operating supplies -- which
represents more than 90% of the consolidated net sales, income from operations
and assets, for 2001, 2000 and 1999. There were no material amounts of sales or
transfers among geographic areas and no material amounts of export sales.
The following table sets forth information about WESCO by geographic area:
NET SALES LONG-LIVED ASSETS
YEAR ENDED DECEMBER 31 YEAR ENDED DECEMBER 31
-------------------------------------- ----------------------------------------
2001 2000 1999 2001 2000 1999
-------------------------------------- ----------------------------------------
(IN THOUSANDS) (IN THOUSANDS)
United States.................... $3,266,352 $3,494,527 $3,059,901 $427,062 $392,820 $357,696
Canada........................... 311,471 319,823 288,203 11,257 11,286 11,157
Other foreign.................... 80,210 66,746 75,754 1,604 1,702 1,881
-------------------------------------- ----------------------------------------
$3,658,033 $3,881,096 $3,423,858 $439,923 $405,808 $370,734
====================================== ========================================
53
17. SUPPLEMENTAL CASH FLOW INFORMATION
The following table sets forth supplemental cash flow information:
YEAR ENDED DECEMBER 31
------------------------------------------
2001 2000 1999
------------------------------------------
(IN THOUSANDS)
Details of acquisitions:
Fair value of assets acquired..................................... $72,270 $63,764 $47,425
Deferred acquisition payment...................................... 8,585 3,353 30,000
Liabilities assumed............................................... (9,586) (15,963) (7,349)
Notes issued to seller............................................ (5,000) (2,500) (1,500)
Deferred acquisition payable...................................... (10,000) (7,750) (8,593)
------------------------------------------
Cash paid for acquisitions........................................... $56,269 $40,904 $59,983
============= ============== =============
Cash paid for interest............................................... $41,914 $ 41,676 $42,817
Cash paid for income taxes........................................... 3,259 19,589 5,249
Noncash investing activities not reflected in the consolidated statement of
cash flows for 2000, consisted of the write-off of a $4.0 million investment in
an affiliate. Noncash financing activities not reflected in the consolidated
statement of cash flows for 1999 consisted of the conversion of $31.5 million of
notes payable to common stock.
54
18. OTHER FINANCIAL INFORMATION
In June 1998, WESCO Distribution, Inc. issued $300 million of 9 1/8% senior
subordinated notes. The senior subordinated notes are fully and unconditionally
guaranteed by WESCO International, Inc. on a subordinated basis to all existing
and future senior indebtedness of WESCO International, Inc. Condensed
consolidating financial information for WESCO International, Inc., WESCO
Distribution, Inc. and the non-guarantor subsidiaries are as follows:
CONDENSED CONSOLIDATING BALANCE SHEETS
DECEMBER 31, 2001
---------------------------------------------------------------------------------------
(IN THOUSANDS)
WESCO Consolidating
International, WESCO Non-Guarantor and Eliminating
Inc. Distribution, Inc. Subsidiaries Entries Consolidated
---------------------------------------------------------------------------------------
Cash and cash equivalents............ $ 2 $ 17,877 $ 57,178 $ -- $ 75,057
Trade accounts receivable............ -- 45,873 172,047 -- 217,920
Inventories.......................... -- 341,597 38,425 -- 380,022
Other current assets................. -- 50,514 24,481 (29,959) 45,036
---------------------------------------------------------------------------------------
Total current assets.............. 2 455,861 292,131 (29,959) 718,035
Intercompany receivables, net........ -- 279,269 -- (279,269) --
Property, buildings and equipment,
net............................... -- 49,330 71,269 -- 120,599
Goodwill and other intangibles, net.. -- 272,281 38,792 -- 311,073
Investments in affiliates and other
noncurrent assets................. 372,598 276,886 2,869 (644,102) 8,251
---------------------------------------------------------------------------------------
Total assets...................... $372,600 $1,333,627 $405,061 $ (953,330) $1,157,958
=======================================================================================
Accounts payable..................... $ -- $450,107 $ 19,000 $ -- $ 469,107
Other current liabilities............ 10,752 43,106 36,473 (29,959) 60,372
---------------------------------------------------------------------------------------
Total current liabilities......... 10,752 493,213 55,473 (29,959) 529,479
Intercompany payables, net........... 215,134 -- 64,135 (279,269) --
Long-term debt....................... -- 433,808 12,628 -- 446,436
Other noncurrent liabilities......... -- 34,008 3,384 -- 37,392
Stockholders' equity................. 146,714 372,598 269,441 (644,102) 144,651
---------------------------------------------------------------------------------------
Total liabilities and
stockholders' equity.............. $372,600 $1,333,627 $405,061 $ (953,330) $1,157,958
=======================================================================================
55
DECEMBER 31, 2000
---------------------------------------------------------------------------------------
(IN THOUSANDS)
WESCO Consolidating
International, WESCO Non-Guarantor and Eliminating
Inc. Distribution, Inc. Subsidiaries Entries Consolidated
---------------------------------------------------------------------------------------
Cash and cash equivalents............ $ 10 $ 14,911 $ -- $ 6,158 $ 21,079
Trade accounts receivable............ -- 43,790 216,198 -- 259,988
Inventories.......................... -- 383,025 38,058 -- 421,083
Other current assets................. -- 54,635 18,768 (19,905) 53,498
---------------------------------------------------------------------------------------
Total current assets.............. 10 496,361 273,024 (13,747) 755,648
Intercompany receivables, net........ -- 317,818 32,364 (350,182) --
Property, buildings and equipment,
net............................... -- 53,280 70,197 -- 123,477
Goodwill and other intangibles, net.. -- 271,690 3,172 -- 274,862
Investments in affiliates and other
noncurrent assets................. 482,026 295,094 3,018 (772,669) 7,469
---------------------------------------------------------------------------------------
Total assets...................... $482,036 $1,434,243 $381,775 $(1,136,598) $1,161,456
=======================================================================================
Accounts payable..................... $ -- $ 410,171 $ 44,206 $ 6,158 $ 460,535
Other current liabilities............ 5,629 56,805 22,755 (19,905) 65,284
---------------------------------------------------------------------------------------
Total current liabilities......... 5,629 466,976 66,961 (13,747) 525,819
Intercompany payables, net........... 350,182 -- -- (350,182) --
Long-term debt....................... -- 460,416 22,324 -- 482,740
Other noncurrent liabilities......... -- 24,825 3,085 -- 27,910
Stockholders' equity................. 126,225 482,026 289,405 (772,669) 124,987
---------------------------------------------------------------------------------------
Total liabilities and
stockholders' equity.............. $482,036 $1,434,243 $381,775 $(1,136,598) $1,161,456
=======================================================================================
56
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 2001
---------------------------------------------------------------------------------------
(IN THOUSANDS)
WESCO Consolidating
International, WESCO Non-Guarantor and Eliminating
Inc. Distribution, Inc. Subsidiaries Entries Consolidated
---------------------------------------------------------------------------------------
Net sales............................ $ -- $3,203,752 $454,281 $ -- $3,658,033
Cost of goods sold................... -- 2,643,448 371,072 -- 3,014,520
Selling, general and administrative
expenses.......................... -- 487,204 29,952 -- 517,156
Depreciation and amortization........ -- 26,469 4,503 -- 30,972
Results of affiliates' operations.... 15,572 94,356 -- (109,928) --
Interest expense (income), net....... (7,162) 59,045 (6,743) -- 45,140
Other (income) expense............... -- 91,897 (75,020) -- 16,877
Provision for income taxes........... 2,509 (25,527) 36,161 -- 13,143
---------------------------------------------------------------------------------------
Net income (loss)................. $ 20,225 $ 15,572 $ 94,356 $(109,928) $ 20,225
=======================================================================================
YEAR ENDED DECEMBER 31, 2000
---------------------------------------------------------------------------------------
(IN THOUSANDS)
WESCO Consolidating
International, WESCO Non-Guarantor and Eliminating
Inc. Distribution, Inc. Subsidiaries Entries Consolidated
---------------------------------------------------------------------------------------
Net sales............................ $ -- $3,497,076 $ 384,020 $ -- $3,881,096
Cost of goods sold................... -- 2,882,626 314,326 -- 3,196,952
Selling, general and administrative
expenses.......................... -- 476,680 47,629 -- 524,309
Depreciation and amortization........ -- 21,951 3,042 -- 24,993
Restructuring charge................. -- 9,094 310 -- 9,404
Results of affiliates' operations.... 22,984 56,250 -- (79,234) --
Interest expense (income), net....... (16,083) 68,164 (8,301) -- 43,780
Other (income) expense............... -- 85,005 (60,060) -- 24,945
Provision for income taxes........... 5,629 (13,178) 30,824 -- 23,275
---------------------------------------------------------------------------------------
Net income (loss)................. $ 33,438 $ 22,984 $ 56,250 $ (79,234) $ 33,438
=======================================================================================
57
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1999
--------------------------------------------------------------------------------------
(IN THOUSANDS)
WESCO Consolidating
International, WESCO Non-Guarantor and Eliminating
Inc. Distribution, Inc. Subsidiaries Entries Consolidated
--------------------------------------------------------------------------------------
Net sales ............................ $ -- $ 3,083,173 $ 340,685 $ -- $ 3,423,858
Cost of goods sold ................... -- 2,528,631 278,609 -- 2,807,240
Selling, general and administrative
expenses .......................... -- 426,181 45,094 -- 471,275
Depreciation and amortization ........ -- 17,733 2,617 -- 20,350
Results of affiliates' operations .... 26,446 52,047 -- (78,493) --
Interest expense (income), net ....... (5,075) 60,729 (8,686) -- 46,968
Other (income) expense ............... -- 79,595 (60,048) -- 19,547
Provision for income taxes ........... 1,776 (7,195) 28,752 -- 23,333
--------------------------------------------------------------------------------------
Income (loss) before extraordinary
item ............................. 29,745 29,546 54,347 (78,493) 35,145
Extraordinary item, net of tax benefit (5,107) (3,100) (2,300) -- (10,507)
--------------------------------------------------------------------------------------
Net income (loss) ................. $ 24,638 $ 26,446 $ 52,047 $ (78,493) $ 24,638
======================================================================================
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31, 2001
(IN THOUSANDS)
WESCO Consolidating
International, WESCO Non-Guarantor and Eliminating
Inc. Distribution, Inc. Subsidiaries Entries Consolidated
---------------------------------------------------------------------------
Net cash provided (used) by
operating activities ........... $ 9,551 $ 42,793 $ 114,906 $(6,158) $ 161,092
Investing activities:
Capital expenditures ........... -- (11,654) (2,166) -- (13,820)
Acquisitions ................... -- 933 -- -- 933
Other .......................... -- (10,496) (45,773) -- (56,269)
---------------------------------------------------------------------------
Net cash used in investing
activities...................... -- (21,217) (47,939) -- (69,156)
Financing activities:
Net borrowings (repayments) .... (10,048) (17,397) (9,740) -- (37,185)
Equity transactions ............ 489 -- -- -- 489
Other .......................... -- (1,213) (49) -- (1,262)
---------------------------------------------------------------------------
Net cash (used in) provided by
financing activities ........... (9,559) (18,610) (9,789) -- (37,958)
---------------------------------------------------------------------------
Net change in cash and cash
equivalents .................... (8) 2,966 57,178 (6,158) 53,978
Cash and cash equivalents at
beginning of year .............. 10 14,911 -- 6,158 21,079
---------------------------------------------------------------------------
Cash and cash equivalents at end of
period ......................... $ 2 $ 17,877 $ 57,178 $ -- $ 75,057
=========================================================================
58
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31, 2000
(IN THOUSANDS)
WESCO Consolidating
International, WESCO Non-Guarantor and Eliminating
Inc. Distribution, Inc. Subsidiaries Entries Consolidated
---------------------------------------------------------------------------------------
Net cash provided (used) by
operating activities............. $ 13,585 $ 32,332 $(23,167) $ 24,161 $ 46,911
Investing activities:
Capital expenditures............. -- (18,167) (3,385) -- (21,552)
Acquisitions..................... -- (40,904) -- -- (40,904)
Other............................ -- 267 1,500 -- 1,767
---------------------------------------------------------------------------------------
Net cash used in investing
activities....................... -- (58,804) (1,885) -- (60,689)
Financing activities:
Net borrowings (repayments) ..... 13,206 41,858 (1,760) -- 53,304
Equity transactions.............. (26,791) -- -- -- (26,791)
Other............................ -- (475) -- -- (475)
---------------------------------------------------------------------------------------
Net cash (used in) provided by
financing activities............. (13,585) 41,383 (1,760) -- 26,038
---------------------------------------------------------------------------------------
Net change in cash and cash
equivalents...................... -- 14,911 (26,812) 24,161 12,260
Cash and cash equivalents at
beginning of year................ 10 -- 26,812 (18,003) 8,819
---------------------------------------------------------------------------------------
Cash and cash equivalents at end of
period........................... $ 10 $ 14,911 $ -- $ 6,158 $ 21,079
=======================================================================================
YEAR ENDED DECEMBER 31, 1999
---------------------------------------------------------------------------------------
(IN THOUSANDS)
WESCO Consolidating
International, WESCO Non-Guarantor and Eliminating
Inc. Distribution, Inc. Subsidiaries Entries Consolidated
---------------------------------------------------------------------------------------
Net cash provided (used) by
operating activities ........... $ (36) $ 84,962 $ (567) $ (18,003) $ 66,356
Investing activities:
Capital expenditures ........... -- (17,452) (3,778) -- (21,230)
Acquisitions ................... -- (59,983) -- -- (59,983)
Other .......................... -- 8,717 600 -- 9,317
---------------------------------------------------------------------------------------
Net cash used in investing
activities ..................... -- (68,718) (3,178) -- (71,896)
Financing activities:
Net borrowings (repayments) .... (182,680) (14,084) 22,464 -- (174,300)
Equity transactions ............ 182,726 -- -- -- 182,726
Other .......................... -- (2,160) -- -- (2,160)
---------------------------------------------------------------------------------------
Net cash (used in) provided by
financing activities ........... 46 (16,244) 22,464 -- 6,266
---------------------------------------------------------------------------------------
Net change in cash and cash
equivalents .................... 10 -- 18,719 (18,003) 726
Cash and cash equivalents at
beginning of year .............. -- -- 8,093 -- 8,093
---------------------------------------------------------------------------------------
Cash and cash equivalents at end of
period ......................... $ 10 $ -- $ 26,812 $ (18,003) $ 8,819
=======================================================================================
59
19. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
The following table sets forth selected quarterly financial data for the
years ended December 31, 2001 and 2000:
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER(1)
----------------------------------------------------------
(IN THOUSANDS, EXCEPT SHARE DATA)
2001
Net sales............................................ $928,057 $944,136 $905,554 $880,286
Gross profit......................................... 167,119 164,831 159,219 152,344
Income from operations............................... 22,931 28,008 24,275 20,171
Income before income taxes ......................... 5,869 12,472 8,492 6,535
Net income .......................................... 3,492 7,513 5,095 4,125
Basic earnings (loss) per share...................... 0.08 0.17 0.11 0.09
Diluted earnings (loss) per share.................... 0.07 0.16 0.11 0.09
2000
Net sales............................................ $925,022 $990,931 $976,332 $988,811
Gross profit......................................... 165,018 173,872 178,951 166,303
Income from operations............................... 31,374 38,077 42,354 13,633
Income (loss) before income taxes .................. 15,233 21,350 24,314 (4,184)
Net income (loss) ................................... 9,155 12,831 14,603 (3,151)
Basic earnings (loss) per share...................... 0.20 0.28 0.32 (0.07)
Diluted earnings (loss) per share.................... 0.19 0.27 0.31 (0.07)
- ----------
(1) The fourth quarter of 2000 includes a restructuring charge of $9.4 million
(see Note 4).
20. SUBSEQUENT EVENT
In March 2002, WESCO Distribution, Inc. entered into a $290 million
revolving credit agreement that is collateralized by substantially all inventory
owned by WESCO and also by the accounts receivable of WESCO Distribution Canada,
Inc. Availability under the agreement, which matures in 2007, is limited to the
amount of eligible inventory and Canadian receivables applied against certain
advance rates. Proceeds from this agreement were used to retire WESCO
Distribution, Inc.'s existing revolving credit facility. Interest on this
facility will be at LIBOR plus a margin that will range between 2.0% to 2.75%
depending upon the amount of excess availability under the facility. As long as
the average daily excess availability for both the preceding and projected
succeeding 90 day period is greater than $50 million, then WESCO would be
permitted to make acquisitions and repurchase outstanding public stock and
bonds.
The above permitted transactions would also be allowed if such excess
availability is between $25 million and $50 million but WESCO's fixed charge
coverage ratio, as defined by the agreement, is at least 1.25 to 1.0 after
taking into consideration the permitted transaction. Additionally, if WESCO's
excess availability under the agreement is less than $50 million, then WESCO
must maintain a fixed charge coverage ratio of 1.1 to 1.0.
At the date of inception, WESCO was in compliance with all covenants of the
new facility.
60
REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT
SCHEDULE
To the Stockholders and Board of Directors of WESCO
International, Inc.:
Our audits of the consolidated financial statements referred to in our report
dated February 12, 2002, except for Note 20 as to which the date is March 19,
2002 also included an audit of the financial statement schedule listed
in the index appearing under Item 14(a)(2) on page 30 of this Form 10-K. In our
opinion, this financial statement schedule presents fairly, in all material
respects, the information set forth therein when read in conjunction with the
related consolidated financial statements.
/s/ PricewaterhouseCoopers LLP
Pittsburgh, Pennsylvania
February 12, 2002 except for Note 20
to which the date is March 19, 2002
S-2
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
COL. A COL. B COL. C COL. D COL. E
- -------------------------------------------------------------------------------------------------------------------
ADDITIONS
-------------------------------
BALANCE AT CHARGED TO BALANCE AT
BEGINNING CHARGED TO OTHER END OF
OF PERIOD EXPENSE ACCOUNTS(a) DEDUCTIONS(b) PERIOD
----------------------------------------------------------------------------
Year ended December 31, 2001.... $9,794 $10,291 $504 $(8,773) $11,816
Year ended December 31, 2000.... 7,023 9,970 574 (7,773) 9,794
Year ended December 31, 1999.... 8,082 2,465 604 (4,128) 7,023
- ----------
a Represents allowance for doubtful accounts in connection with certain
acquisitions.
b Includes a reduction in the allowance for doubtful accounts related to the
sale of receivables at fair market value in connection with the Receivables
Facility.
COL. A COL. B COL. C COL. D COL. E
- -------------------------------------------------------------------------------------------------------------------
ADDITIONS
-------------------------------
BALANCE AT CHARGED TO BALANCE AT
BEGINNING CHARGED TO OTHER END OF
OF PERIOD EXPENSE ACCOUNTS DEDUCTIONS(c) PERIOD
----------------------------------------------------------------------------
Inventory reserve:
Year ended December 31, 2001.... $18,727 $2,607 $ 663(a) $(5,202) $16,795
Year ended December 31, 2000.... 16,043 4,342 3,573(a)(b) (5,231) 18,727
Year ended December 31, 1999.... 15,851 3,985 49(a) (3,842) 16,043
- ----------
a Includes inventory reserves in connection with certain acquisitions.
b Includes inventory reserves in connection with a restructuring charge
taken in 2000.
c Includes a reduction in the inventory reserve due to disposal of
inventory
S-2
INDEX TO EXHIBITS
The registrant hereby agrees to furnish supplementally to the Commission,
upon request, a copy of any omitted schedule to any of the agreements contained
herein.
PRIOR FILING OR
EXHIBIT NO. DESCRIPTION OF EXHIBIT SEQUENTIAL PAGE NUMBER
- -------------------------------------------------------------------------------------------------------------------
2.1 Recapitalization Agreement, dated as of March 27, 1998, Incorporated by reference to Exhibit
among Thor Acquisitions L.L.C., WESCO International, Inc. 2.1 to WESCO's Registration Statement
(formerly known as CDW Holding Corporation) and certain on Form S-4 (No. 333-43225)
securityholders of WESCO International, Inc.
2.2 Purchase Agreement, dated as of May 29, 1998, among WESCO Incorporated by reference to Exhibit
International, Inc., WESCO Distribution, Inc., Chase 2.2 to WESCO's Registration Statement
Securities Inc. and Lehman Brothers, Inc. on Form S-4 (No. 333-43225)
2.3 Asset Purchase Agreement, dated as of September 11, 1998, Incorporated by reference to Exhibit
among Bruckner Supply Company, Inc. and WESCO Distribution, 2.01 to WESCO's Current Report on
Inc. Form 8-K, dated September 11, 1998
2.4 Purchase Agreement, dated August 16, 2001, among WESCO Incorporated by reference to Exhibit
International, Inc., WESCO Distribution, Inc. and the 2.4 to WESCO's Registration Statement
Initial Purchasers listed therein. on Form S-4 (No. 333-70404)
3.1 Restated Certificate of Incorporation of WESCO Incorporated by reference to Exhibit
International, Inc. 3.1 to WESCO's Registration Statement
on Form S-4 (No. 333-70404)
3.2 By-Laws of WESCO International, Inc. Incorporated by reference to Exhibit
3.2 to WESCO's Registration Statement
on Form S-4 (No. 333-70404)
4.1 Indenture, dated as of June 5, 1998, among WESCO Incorporated by reference herein to
International, Inc., WESCO Distribution, Inc. and Bank One, Exhibit 4.1 to WESCO's Registration
N.A. Statement on Form S-4 (No. 333-43225)
4.2 Form of 9 1/8% Senior Subordinated Note Due 2008, Series A Incorporated by reference herein to
(included in Exhibit 4.1). Exhibit 4.2 to WESCO's Registration
Statement on Form S-4 (No. 333-43225)
4.3 Form of 9 1/8% Senior Subordinated Note Due 2008, Series B Incorporated by reference herein to
(included in Exhibit 4.1). Exhibit 4.3 to WESCO's Registration
Statement on Form S-4 (No. 333-43225)
4.4 Exchange and Registration Rights Agreement, dated as of Incorporated by reference herein to
June 5, 1998, among the Company, WESCO International, Inc. Exhibit 4.4 to WESCO's Registration
and the Initial Purchasers (as defined therein). Statement on Form S-4 (No. 333-43225)
4.5 Exchange and Registration Rights Agreement, dated as of Incorporated by reference herein to
June 5, 1998, among WESCO International, Inc. and the Exhibit 4.8 to WESCO's Registration
initial purchasers (as defined therein). Statement on Form S-4 (No. 333-43225)
4.6 Indenture, dated as of August 23, 2001, among WESCO Incorporated by reference to Exhibit
International, Inc., WESCO Distribution, Inc. and Bank One 4.6 to WESCO's Registration Statement
N.A. on Form S-4 (No. 333-70404)
PRIOR FILING OR
EXHIBIT NO. DESCRIPTION OF EXHIBIT SEQUENTIAL PAGE NUMBER
- -------------------------------------------------------------------------------------------------------------------
4.7 Exchange and Registration Rights Agreement, dated August Incorporated by reference to Exhibit
23, 2001, among WESCO International, Inc., WESCO 4.7 to WESCO's Registration Statement
Distribution, Inc. and the initial purchasers listed on Form S-4 (No. 333-70404)
therein.
4.8 Form of 9 1/8% Original Senior Subordinated Note Due 2008 Incorporated by reference to Exhibit
(included in Exhibit 4.6). 4.8 to WESCO's Registration Statement
on Form S-4 (No. 333-70404)
4.9 Form of 9 1/8% Exchange Senior Subordinated Note Due 2008 Incorporated by reference to Exhibit
(included in Exhibit 4.6). 4.9 to WESCO's Registration Statement
on Form S-4 (No. 333-70404)
10.1 CDW Holding Corporation Stock Purchase Plan. Incorporated by reference herein to
Exhibit 10.1 to WESCO's Registration
Statement on Form S-4 (No. 333-43225)
10.2 Form of Stock Subscription Agreement. Incorporated by reference herein to
Exhibit 10.2 to WESCO's Registration
Statement on Form S-4 (No. 333-43225)
10.3 CDW Holding Corporation Stock Option Plan. Incorporated by reference herein to
Exhibit 10.3 to WESCO's Registration
Statement on Form S-4 (No. 333-43225)
10.4 Form of Stock Option Agreement. Incorporated by reference herein to
Exhibit 10.4 to WESCO's Registration
Statement on Form S-4 (No. 333-43225)
10.5 CDW Holding Corporation Stock Option Plan for Branch Incorporated by reference herein to
Employees. Exhibit 10.5 to WESCO's Registration
Statement on Form S-4 (No. 333-43225)
10.6 Form of Branch Stock Option Agreement. Incorporated by reference herein to
Exhibit 10.6 to WESCO's Registration
Statement on Form S-4 (No. 333-43225)
10.7 Non-Competition Agreement, dated as of February 28, 1996, Incorporated by reference herein to
between Westinghouse, WESCO International, Inc. and WESCO Exhibit 10.8 to WESCO's Registration
Distribution, Inc. Statement on Form S-4 (No. 333-43225)
10.8 Lease, dated as of May 24, 1995, as amended by Amendment Incorporated by reference herein to
One, dated as of June 1995, and by Amendment Two, dated as Exhibit 10.10 to WESCO's Registration
of December 24, 1995, by and between WESCO Distribution, Statement on Form S-4 (No. 333-43225)
Inc. as Tenant and Opal Investors, L.P. and Mural GEM
Investors as Landlord.
10.9 Lease, dated as of April 1, 1992, as renewed by Letter of Incorporated by reference herein to
Notice of Intent to Renew, dated as of December 13, 1996, Exhibit 10.11 to WESCO's Registration
by and between the Company as successor in interest to Statement on Form S-4 (No. 333-43225)
Westinghouse Electric Corporation as tenant and Utah
State Retirement Fund as Landlord.
10.10 Lease, dated as of September 4, 1997, between WESCO Incorporated by reference herein to
Distribution, Inc. as Tenant and The Buncher Company as Exhibit 10.12 to WESCO's Registration
Landlord. Statement on Form S-4 (No. 333-43225)
PRIOR FILING OR
EXHIBIT NO. DESCRIPTION OF EXHIBIT SEQUENTIAL PAGE NUMBER
- -------------------------------------------------------------------------------------------------------------------
10.11 Lease, dated as of March 1995, by and between WESCO Incorporated by reference herein to
Distribution-Canada, Inc. as Tenant and Atlantic Exhibit 10.13 to WESCO's Registration
Construction, Inc. as Landlord. Statement on Form S-4 (No. 333-43225)
10.12 Amended and Restated Registration and Participation Incorporated by reference herein to
Agreement, dated as of June 5, 1998, among WESCO Exhibit 10.19 to WESCO's Registration
International, Inc. and certain securityholders of WESCO Statement on Form S-4 (No. 333-43225)
International, Inc. named therein.
10.13 Employment Agreement between WESCO Distribution, Inc. and Incorporated by reference herein to
Roy W. Haley. Exhibit 10.20 to WESCO's Registration
Statement on Form S-4 (No. 333-43225)
10.14 WESCO International, Inc. 1998 Stock Option Plan. Incorporated by reference to Exhibit
10.1 to WESCO's Quarterly Report on
Form 10-Q for the quarter ended
September 30, 1998
10.15 Form of Management Stock Option Agreement. Incorporated by reference to Exhibit
10.2 to WESCO's Quarterly Report on
Form 10-Q for the quarter ended
September 30, 1998
10.16 1999 Deferred Compensation Plan for Non-Employee Directors. Incorporated by reference to Exhibit
10.22 to WESCO's Annual Report on
Form 10-K for the year ended December
31, 1998
10.17 Credit Agreement, dated as of June 29, 1999, among WESCO Incorporated by reference to Exhibit
Distribution Inc., WESCO Distribution-Canada, Inc., WESCO 10.1 to WESCO's Quarterly Report on
International, Inc. and the Lenders identified therein. Form 10-Q for the quarter ended June
30, 1999
10.18 Amendment, dated as of December 20, 2000, to the Credit Incorporated by reference to Exhibit
Agreement, dated as of June 29, 1999, among WESCO 10.24 to WESCO's Annual Report on
Distribution, Inc., WESCO Distribution-Canada, Inc., WESCO Form 10-K for the year ended December
International, Inc. and the Lenders identified therein. 31, 2000
10.19 Amendment, dated as of August 3, 2001, to the Credit Incorporated by reference to Exhibit
Agreement, dated as of June 29, 1999, among WESCO 10.19 to WESCO's Registration
Distribution, Inc., WESCO Distribution-Canada, Inc., WESCO Statement on Form S-4 (No. 333-70404)
International, Inc. and the Lenders identified therein.
PRIOR FILING OR
EXHIBIT NO. DESCRIPTION OF EXHIBIT SEQUENTIAL PAGE NUMBER
- -------------------------------------------------------------------------------------------------------------------
10.20 Credit Agreement, dated as of March 19, 2002, among WESCO Filed herewith
Distribution Inc., the other Credit Parties signatory
thereto, General Electric Capital Corporation, The CIT
Group/Business Credit, Inc., Fleet Capital Corporation and
the other Lenders signatory thereto.
10.21 Intercreditor Agreement, dated as of March 19, 2002, among Filed herewith
PNC Bank, National Association, General Electric Capital
Corporation, WESCO Receivables Corp., WESCO Distribution,
Inc., Fifth Third Bank, N.A., Mellon Bank, N.A., The Bank
of Nova Scotia, Herning Enterprises, Inc. and WESCO Equity
Corporation.
10.22 Receivables Purchase Agreement, dated as of June 30, 1999, Incorporated by reference to Exhibit
among WESCO Receivables Corp., WESCO Distribution, Inc., 10.2 to WESCO's Quarterly Report on
Market Street Capital Corp. and PNC Bank, National Form 10-Q for the quarter ended June
Association. 30, 1999
10.23 Amended and Restated Receivables Purchase Agreement, dated Incorporated by reference to Exhibit
as of September 28, 1999, among WESCO Receivables Corp., 10.1 to WESCO's Quarterly Report on
WESCO Distribution, Inc. and PNC Bank, National Form 10-Q for the quarter ended
Association. September 30, 1999
10.24 1999 Long-Term Incentive Plan. Incorporated by reference to Exhibit
10.22 to WESCO's Registration
Statement on Form S-1 (No. 333-73299)
21.1 Subsidiaries of WESCO. Incorporated by reference to Exhibit
21.1 to WESCO's Registration
Statement on Form S-4 (No. 333-70404)
23.1 Consent of PricewaterhouseCoopers LLP, Independent Filed herewith
Accountants.