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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, 2000
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 22, 2001, 40,158,973 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 as of February 22, 2001, the
aggregate market value of the voting shares held by non-affiliates of the
registrant was approximately $154.1 million based on the 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.
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WESCO INTERNATIONAL, INC.
DECEMBER 31, 2000
TABLE OF CONTENTS
PAGE
-----
PART I
Item 1. Business................................................................... 2
Item 2. Properties................................................................. 10
Item 3. Legal Proceedings.......................................................... 10
Item 4. Submission of Matters to a Vote of Security Holders........................ 10
Executive Officers ........................................................ 11
PART II
Item 5. Market for Registrant's Common Stock and Related Stockholder Matters....... 12
Item 6. Selected Financial Data.................................................... 13
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations...................................................... 14
Item 7A. Quantitative and Qualitative Disclosures About Market Risks................ 20
Item 8. Financial Statements....................................................... 20
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosures...................................................... 20
PART III
Item 10. Directors and Executive Officers of the Registrant......................... 21
Item 11. Executive Compensation..................................................... 21
Item 12. Security Ownership of Certain Beneficial Owners and Management............. 21
Item 13. Certain Relationships and Related Transactions............................. 21
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K............ 21
Signatures................................................................. 24
Index to Consolidated Financial Statements................................. 25
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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.
OVERVIEW
With sales of almost $3.9 billion in 2000, we are a leading provider of
electrical products and other industrial MRO supplies and services in North
America. We are the second largest distributor in the $79 billion U.S.
electrical distribution industry, which has grown at a compounded annual rate of
approximately 7% over the last 15 years. We are also a provider of Integrated
Supply services. Our Integrated Supply solutions and outsourcing services
fulfill all of a customer's industrial MRO procurement needs through a highly
automated, proprietary electronic procurement and inventory replenishment
system. Demand for Integrated Supply services has increased approximately 56%
annually since 1994, and the total U.S. market potential, measured as all
purchases of industrial MRO supplies and services, is estimated to be $260
billion.
We have over 350 branches and five distribution centers located in 48
states, nine Canadian provinces, Puerto Rico, Mexico, Guam, the United Kingdom
and Singapore. We serve over 130,000 customers worldwide, offering over
1,000,000 products from over 23,000 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.
We have acquired 24 companies since August 1995, representing annual sales
of approximately $1.3 billion. Combining strong internal growth with
acquisitions, our net sales and earnings before interest, taxes, depreciation
and amortization ("EBITDA") (as defined in Item 6 "Selected Financial Data")
have increased at a compounded annual growth rate of approximately 16% and 31%,
respectively, since 1994.
INDUSTRY OVERVIEW
Electrical Distribution
With 2000 sales estimated at $79 billion, the U.S. industry is large and
growing. The industry is also stable with compounded annual growth of 7% since
1985, and it is projected to grow another 7% in 2001. The U.S. electrical
distribution industry is also highly fragmented. In 1999, the latest year for
which data is available, the four national distributors, including WESCO,
accounted for less than 16% of estimated total industry sales.
Integrated Supply
Demand for Integrated Supply services is growing rapidly, as more companies
realize they can lower costs by outsourcing their MRO procurement and related
services. Since the customer's costs of procuring high volumes of low dollar
value MRO supplies can be over 50% of the cost of the products, such
improvements can be significant. The total market for MRO industrial supplies is
approximately $260 billion. Within that market, Integrated Supply has more than
doubled from $5 billion in 1997 to over $10 billion in 2000, or 27% per year.
Recent projections estimate that the Integrated Supply market will reach $18.4
billion by 2004.
OUR 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.
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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 the second
largest electrical distributor in the U.S. and, through our value-added products
and services, we believe we have become the industry leader in serving several
important and growing markets including:
o industrial customers with large, complex plant maintenance operations,
many of which require a national multi-site service solution for their
electrical distribution product needs;
o large contractors for major industrial and commercial construction
projects;
o the electric utility industry; and
o manufacturers of factory-built homes, recreational vehicles and other
modular structures.
GROW NATIONAL PROGRAMS. Since 1994, revenue from our National Accounts
program has increased in excess of 15% 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:
o increasing sales to existing National Account customers through new
products, more services and additional locations;
o extending established National Account relationships to include
Integrated Supply;
o expanding our customer base by leveraging our existing expertise and
presence within the automotive, petrochemical, pulp and paper, metals
and mining industries and food processing; and
o building strong positions in additional industry segments such as
multi-site retail, financial, commercial and telecommunications.
In addition, through our Major Projects Group, we are increasing our focus
on large projects such as industrial sites, water treatment plants, airport
expansions, healthcare facilities, correctional institutions and new sports
stadiums. We intend to secure new Major Projects contracts through:
o aggressive national marketing of our demonstrated project management
capabilities;
o further development of relationships with leading contractors and
engineering firms;
o close coordination with National Accounts customers on their
renovation and new plant improvement projects; and
o comprehensive materials management services, involving a
multi-commodity Integrated Supply approach to contractor materials for
large 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. Competitive strengths of our
Integrated Supply business include:
o a proven and profitable business model highly adaptable to the scale
of our customers' operations;
o low operating costs;
o highly automated proprietary information systems; and
o established relationships with a large industrial customer base.
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.
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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 to
expand our product and customer base and new branch openings. Furthermore, 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 based on sales and profit increases and efficient working
capital management at the branch level. Our compensation system 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. We have completed 24 acquisitions since
August 1995, which represent annual sales of approximately $1.3 billion.
We believe that the highly fragmented nature of the electrical and industrial
MRO distribution industry will provide us with a number of acquisition
opportunities. We utilize a disciplined approach toward acquisitions which
includes well-defined strategic criteria and established targets for 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 customer
demands and capitalize on market opportunities. WESCO is committed to developing
new customers in the education, retail, healthcare, financial services,
government and telecommunications market segments. As the market for data and
electrical products converge, WESCO has 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
telecommunications service providers. In addition, through our WR Controls
Division, we now 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. This is another attractive growth
market where our National Accounts strategies and logistics infrastructure
provides measurable benefits for renovation, new construction and ongoing
maintenance activities.
LEVERAGE OUR E-COMMERCE AND INFORMATION SYSTEM CAPABILITIES. We conduct a
significant amount of business electronically and continue to invest in
information technology to create tighter linkages with both customers and
suppliers. Our electronic transaction management capabilities lower costs and
shorten cycle time in the supply chain process for our customers and for us by:
o routinely processing customer orders, shipping notices, supplier
purchase orders and funds transfer electronically with our trading
partners;
o creating tighter linkages to both customers and suppliers through the
use of technological advances, including an ability to check product
availability, receive pricing information, and order product real-time
directly from branches or over the Internet;
o providing low cost, highly functional processing of a full-range of
our business operations such as customer service, inventory, logistics
management, accounting and administrative support; and
o analyzing market potential, sales performance and cost of doing
business by branch, customer, product, sales representative and
shipment type enabling us to work with customers to streamline
activities and reduce costs.
EXPAND OUR INTERNATIONAL OPERATIONS. Our international sales, the majority
of which are in Canada, accounted for 10% of sales in 2000. We believe that
there is significant additional demand for our products and services outside the
U.S. 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 reduces risks and provides
the opportunity to establish a profitable business. We continue to pursue growth
opportunities in existing locations such as Aberdeen, Scotland; London, England
and Mexico as well as take advantage of various export opportunities in Latin
America and Africa. To take advantage of these growth opportunities, WESCO is
working toward forming strategic alliances in critical markets.
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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. 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 believe that the highly fragmented nature of the
electrical distribution industry will continue to provide us with a significant
number of acquisition opportunities. We continue to evaluate potential
acquisitions, including those in the electrical distribution industry, the
Integrated Supply market and other non-electrical distributors that would
complement our customers' overall supply needs. However, as we continue to
improve our internal capabilities, the strategic and financial benefits from
acquisitions will be evaluated more critically. We have completed 24
acquisitions since August 1995, representing total annual sales of approximately
$1.3 billion.
WESCO ACQUISITION HISTORY
(DOLLARS IN MILLIONS)
YEAR ACQUISITIONS BRANCH LOCATIONS ANNUAL SALES(1)
---------------------------------------------------------------------------------------
1995............................ 2 2 $ 47
1996............................ 7 67 418
1997............................ 2 9 52
1998............................ 6 21 608
1999............................ 4 5 70
2000............................ 3 17 92
----------------------------------------------------
Total...................... 24 121 $1,287
-----------------
(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.
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 of gas, lighting and communication utility products, reported net
sales of approximately $112 million in 2000. This acquisition will be accounted
for under the purchase method of accounting.
Our business development department 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. Since 1995, we have considered over 300 potential acquisitions. We
initially evaluate potential acquisitions based on their ability to:
o better serve our existing customers;
o offer expansion into key growth markets;
o add new product or service capabilities;
o support new National Account customers; and
o strengthen relationships with important manufacturers.
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:
o Supplies: Fuses, terminals, connectors, boxes, fittings, tools, lugs,
tape and other MRO supplies
o Distribution Equipment: Circuit breakers, transformers, switchboards,
panelboards and busway
o Lighting: Lamps (light bulbs), fixtures and ballasts
o Wire and Conduit: Wire, cable, metallic and non-metallic conduit
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o Control, Automation and Motors: Motor control devices, drives,
programmable logic controllers, pushbuttons and operator interfaces
o Data Communications: Premise wiring, patch panels, terminals,
connectors
We purchase products from a diverse group of over 23,000 suppliers. In 2000,
our ten largest suppliers accounted for approximately 32% of our purchases. The
largest of these was Eaton Corporation, through its Cutler-Hammer division,
accounting for approximately 13% of total purchases. No other supplier accounted
for more than 5%.
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 no more than 60 days' notice.
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:
o outsourcing of the entire MRO purchasing process;
o providing manufacturing process improvements using state-of-the-art
automated solutions;
o implementing inventory optimization programs;
o participating in joint cost savings teams;
o assigning our employees as on-site support personnel;
o recommending energy-efficient product upgrades; and
o 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 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 130,000 customers diversified across
our principal markets. While one customer accounted for approximately 3% of 2000
sales, no other customer accounted for more than 2%.
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INDUSTRIAL CUSTOMERS. Sales to industrial customers, which include numerous
manufacturing and process industries, and original equipment manufacturers
("OEMs") accounted for approximately 43% of our sales in 2000.
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
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 36% of our sales in 2000. 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 16% of our sales
in 2000. 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 5% of our sales in 2000. This fragmented
market includes schools, hospitals, property management firms, retailers and
government agencies of all types. Through our WR Controls Division, we now 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 U.S., approximately 50 are located in Canada and the remainder
are located in Puerto Rico, Mexico, Guam, the United Kingdom and Singapore. 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 U.S.; near Reno, Nevada, serving the Western U.S.; near Memphis,
Tennessee, serving the Southeast and Central U.S.; 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.
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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, who have an average of more than eight years of
experience with us, 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.
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. We also have a training organization that provides our general
sales force and customers with state-of-the-art, industry certified product and
installation training.
MAJOR PROJECTS. Since 1995 our group of experienced sales managers target,
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. Additionally, we have entered into several e-business
partnerships with leading technology or marketing oriented e-portals that target
selected market segments and will continue to do so. Through these niche
oriented marketing arrangements, we expect to reach thousands of new customers
who were previously not served through WESCO's sales force.
We have initiated "WESCO Direct," a new direct ship fulfillment operation,
responsible for supporting smaller customers and select national account
locations. Customers can order over 35,000 electrical and data communications
products stocked in WESCO warehouses through a centralized customer service
center or over the Internet on wescodirect.com. A proactive telesales approach
utilizing catalogs, direct mail, e-mail and personal phone selling is used to
provide a high level of customer service. In support of this initiative, WESCO
recently introduced a lighting catalog and is in the process of completing a new
comprehensive electrical catalog.
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 $320
million, Canada represented 8.2% of our total sales in 2000. The Canadian market
for electrical distribution is considerably smaller than the U.S. market, with
roughly US $2.9 billion in total sales in 2000, according to industry sources.
We sell internationally through domestic export sales offices located within
North America and sales offices in international locations. We have operations
in Aberdeen, Scotland and London, England to support our sales efforts in
Europe, Africa and the former Soviet Union, and an office in Singapore to
support our sales in Asia. We also have branch operations in Mexico.
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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 is fully distributed within WESCO, 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. EESCO, one of our largest acquisitions to-date, was
integrated into the WESNET system during the third quarter of 2000.
We routinely process customer orders, shipping notices, suppliers' purchase
orders, and funds transfer via EDI transactions with our trading partners. Our
electronic commerce strategy calls for tighter 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
WESCO operates 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. WESCO responded with its 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, 2000, we had approximately 6,000 employees worldwide, of
which approximately 5,200 were located in the U.S. and approximately 800 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.
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ENVIRONMENTAL MATTERS
We believe that we are in compliance in all material respects with
applicable environmental laws. We do not expect significant capital expenditures
for environmental control matters 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.
ITEM 2. PROPERTIES.
We have over 350 branches, of which approximately 290 are located in the
U.S., approximately 50 are located in Canada and the remainder are located in
Puerto Rico, Mexico, Guam, the United Kingdom and Singapore. Approximately 30%
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..................................... 34,300 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 2000.
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EXECUTIVE OFFICERS
Our executive officers and their respective ages and positions are set forth
below.
NAME AGE POSITION
--------- --- ------------------------------------
Roy W. Haley..................... 54 Chairman and Chief Executive Officer
William M. Goodwin............... 55 Vice President, Operations
James H. Mehta................... 45 Vice President, Business Development
Robert B. Rosenbaum.............. 43 Vice President, Operations
Patrick M. Swed.................. 57 Vice President, Operations
Donald H. Thimjon................ 57 Vice President, Operations
Ronald P. Van, Jr................ 40 Vice President, Operations
Stephen A. Van Oss............... 46 Vice President and Chief Financial Officer
Daniel A. Brailer................ 43 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 March
1994. Mr. Thimjon served as Vice President, Utility Group for WESCO from 1991 to
1994 and 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.
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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 22, 2001, there were 40,158,973 shares of common
stock and 4,653,131 shares of Class B common stock outstanding held by
approximately 123 holders of record. No dividends were paid on the common stock,
nor does the Company intend to pay dividends in the foreseeable future. See
"Liquidity and Capital Resources." The following table sets forth the high and
low sales price of the shares since the Offering.
QUARTER HIGH LOW
-----------------------------------------------------------------------
2000
First 9 7 1/16
Second 10 7/8 7 3/4
Third 10 1/8 7 1/2
Fourth 9 7/8 6 5/16
1999
Second (from Offering date) 21 1/4 17 1/2
Third 22 7/8 12 3/8
Fourth 14 1/2 5 1/2
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 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 22,
2001, the Company had purchased approximately 3.9 million shares of its common
stock for approximately $32.8 million pursuant to this program.
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ITEM 6. SELECTED FINANCIAL DATA.
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------------------
2000 1999(9) 1998(9) 1997(9) 1996(9)
-------------------------------------------------------------------------------
(DOLLARS IN MILLIONS, EXCEPT SHARE DATA)
INCOME STATEMENT DATA:
Net sales................................. $3,881.1 $3,423.9 $3,025.4 $2,594.8 $2,274.6
Gross profit.............................. 684.1 616.6 537.6 463.9 405.0
Selling, general and administrative
expenses............................... 524.3 471.2 415.0 372.5 326.0
Depreciation and amortization............. 25.0 20.4 14.8 11.3 10.8
Restructuring charge (1) ................. 9.4 -- -- -- --
Recapitalization costs(2)................. -- -- 51.8 -- --
-------------------------------------------------------------------------------
Income from operations.................... 125.4 125.0 56.0 80.1 68.2
Interest expense, net..................... 43.8 47.0 45.1 20.1 17.4
Other expenses(3)......................... 24.9 19.5 10.1 -- --
-------------------------------------------------------------------------------
Income before income taxes................ 56.7 58.5 0.8 60.0 50.8
Provision for income taxes................ 23.3 23.4 8.5(4) 23.8 18.3
-------------------------------------------------------------------------------
Income (loss) before
extraordinary item..................... 33.4 35.1 (7.7) 36.2 32.5
Extraordinary item, net of applicable
taxes(5)............................... -- (10.5) -- -- --
-------------------------------------------------------------------------------
Net income (loss)......................... $33.4 $24.6 $(7.7) $36.2 $32.5
===============================================================================
Earnings (loss) per common share (6)
Basic before extraordinary item ....... 0.74 0.82 (0.17) 0.61 0.55
Basic.................................. 0.74 0.57 (0.17) 0.61 0.55
Diluted before extraordinary item...... 0.70 0.75 (0.17) 0.55 0.51
Diluted................................ 0.70 0.53 (0.17) 0.55 0.51
Weighted average common shares
outstanding(6)
Basic.................................. 45,326,475 43,057,894 45,051,632 59,030,100 58,680,756
Diluted................................ 47,746,607 47,524,539 45,051,632 66,679,063 63,670,919
OTHER FINANCIAL DATA:
EBITDA before recapitalization and
restructuring charges(7)............... $159.8 $145.3 $122.6 $91.4 $79.0
Capital expenditures...................... 21.6 21.2 10.7 11.6 9.3
Net cash provided by (used for) operating
activities............................. 46.9 66.4 276.9 (12.0) 15.1
Net cash provided by (used for) investing
activities............................. (60.7) (71.9) (184.1) (21.5) (110.9)
Net cash provided by (used for) financing
activities............................. 26.0 6.3 (92.3) 41.1 87.2
BALANCE SHEET DATA:
Total assets.............................. $ 1,170.0 $ 1,028.8 $ 950.5 $ 870.9 $ 773.5
Total long-term debt (including current
portion)............................... 483.3 426.4 595.8 295.2 262.2
Redeemable common stock (8)............... -- -- 21.5 9.0 8.9
Stockholders' equity (deficit)............ 125.0 117.3 (142.6) 184.5 148.7
(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
described in Note 5 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 6 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 11 to Consolidated
Financial Statements.
(9) Certain prior period amounts have been reclassified to conform with the
current year presentation. Pursuant to Emerging Issues Task Force Issue No.
00-10, Accounting for Shipping and Handling Fees and Costs, WESCO has
reclassified freight billed to customers from selling, general and
administrative expenses to net sales.
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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 acquisitions, new branch openings,
working capital needs and capital expenditures through internally generated cash
flow and borrowings under its credit facilities. 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 24
companies since August 1995, representing annual sales of approximately $1.3
billion. Management distinguishes sales attributable to core operations separate
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.
2000 DEVELOPMENTS
Developments affecting the 2000 results of operations and financial position
of WESCO include the following:
Restructuring and Special Charges. 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 will be paid in 2001. The
$4.0 million investment write-down is a result of management's decision to no
longer pursue its business strategy with an affiliate.
In addition, WESCO recorded other charges of $11.4 million in the fourth
quarter of 2000. The other charges were comprised of $7.0 million due to the
deteriorating credit environment and customer bankruptcy filings and $4.4
million relating to inventory write-downs as a result of actions taken to align
inventories with current market conditions. These other charges were recorded in
selling, general and administrative expenses and costs of goods sold.
Acquisitions. During 2000, WESCO purchased three electrical supply
distributors with annual sales of approximately $90 million for an aggregate
consideration of $38.7 million, resulting in goodwill of approximately $28.8
million.
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Stock Repurchase Program. 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 22, 2001, the Company had purchased approximately 3.9
million shares of its common stock for approximately $32.8 million pursuant to
this program.
RECENT DEVELOPMENTS
In March 2001, WESCO completed its acquisition of all of the outstanding
common stock of Herning headquartered in Hayward, California. Herning, a
distributor of gas, lighting and communication utility products, reported net
sales of approximately $112 million in 2000. This acquisition will be accounted
for under the purchase method of accounting.
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
-------------------------------------
2000 1999 1998
-------------------------------------
Net sales.................................................................. 100.0% 100.0% 100.0%
Gross profit............................................................... 17.6 18.0 17.8
Selling, general and administrative expenses............................... 13.5 13.7 13.7
Depreciation and amortization.............................................. 0.7 0.6 0.5
Restructuring charge....................................................... 0.2 -- --
Recapitalization costs..................................................... -- -- 1.7
-------------------------------------
Income from operations................................................ 3.2 3.7 1.9
Interest expense........................................................... 1.1 1.4 1.6
Other expenses............................................................. 0.6 0.6 0.3
-------------------------------------
Income before income taxes and extraordinary item..................... 1.5 1.7 --
Provision for income taxes................................................. 0.6 0.7 0.3
Extraordinary item, net of tax benefits.................................... -- (0.3) --
-------------------------------------
Net income (loss)..................................................... 0.9% 0.7% (0.3)%
=====================================
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
effects 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.
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17
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.
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.
1999 Compared to 1998
Net Sales. Net sales for the year ended December 31, 1999, increased by
$398.4 million, or 13.2%, to $3.4 billion compared with $3.0 billion in the
prior year, primarily due to sales attributable to acquired companies. Core
business sales increased approximately 4% over 1998. The mix of direct shipment
sales increased to approximately 46% in 1999 from 42% in 1998, principally due
to the Bruckner acquisition completed in September 1998. Substantially all of
Bruckner's sales are direct shipment.
Gross Profit. Gross profit for the year ended December 31, 1999, increased
by $79.0 million to $616.6 million from $537.6 million in 1998. Gross profit
margin was 18.0% and 17.8% in 1999 and 1998, respectively. Excluding the effects
of the Bruckner acquisition, which has a higher proportion of lower-margin
direct shipment sales, gross profit margin increased to 18.7% from 18.1% in the
prior year due to gross margin improvement initiatives.
Selling, General and Administrative Expenses. SG&A expenses increased $56.2
million, or 13.6%, to $471.3 million. This increase was substantially due to
incremental expenses of companies acquired during 1998 and 1999 and, to a lesser
extent, increased SG&A in WESCO's core business. Core business SG&A increased 6%
over 1998, due principally to increased payroll costs and, to a lesser extent,
increased transportation costs and bad debt expenses. These increases were
partially offset by reductions in certain incentive-based compensation expenses
and a reduction in certain discretionary benefits. As a percentage of sales,
SG&A expenses remained flat compared to the prior year.
Depreciation and Amortization. Depreciation and amortization increased $5.5
million to $20.4 million in 1999, 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 $69.0 million to
$125.0 million in 1999, compared with $56.0 million in 1998. Excluding the
nonrecurring recapitalization costs in 1998, operating income increased
16
18
$17.2 million. The increase was primarily due to higher gross profit, partially
offset by increased operating costs as explained above.
Interest and Other Expenses. Interest expense totaled $47.0 million for
1999, an increase of $1.8 million over 1998. The increase was primarily due to
the higher levels of borrowings associated with the Recapitalization and
acquisitions, partially offset by the Offering. Other expenses totaled $19.5
million and $10.1 million in 1999 and 1998, respectively, reflecting costs
associated with the accounts receivable securitization program that commenced in
June 1998.
Income Taxes. Income tax expense totaled $23.3 million in 1999 and the
effective tax rate was 39.9%. In 1998, income tax expense totaled $8.5 million.
In 1998, WESCO recorded charges of $51.8 million associated with the
Recapitalization that resulted in $0.8 million of income before taxes. Certain
nondeductible recapitalization costs and other permanent differences
significantly exceeded the $0.8 million of income before income taxes and
resulted in an unusually high effective income tax rate.
Income Before Extraordinary Item. For 1999, income before extraordinary item
totaled $35.1 million, or $0.75 per diluted share, compared with a loss of $7.7
million, or $0.17 per share, in 1998. The increases are primarily due to
nonrecurring recapitalization costs incurred in 1998 and to improved operating
results in 1999.
Net Income (Loss). Net income and diluted earnings per share totaled $24.6
million and $0.53 per share, respectively, in 1999, compared with a loss of $7.7
million, or $0.17 per share, respectively, in 1998. The increase is principally
due to the recapitalization costs of $51.8 million incurred in 1998 and improved
operating results in 1999 offset, in part, by the extraordinary item of $10.5
million in 1999.
LIQUIDITY AND CAPITAL RESOURCES
Total assets were approximately $1.2 billion at December 31, 2000, a $141
million increase over December 31, 1999. Stockholders' equity totaled $125.0
million at December 31, 2000, compared with $117.3 million at December 31, 1999.
The following table sets forth WESCO's outstanding indebtedness:
DECEMBER 31
-----------------------
2000 1999
-----------------------
(IN MILLIONS)
Revolving credit facility...................................... $189.6 $132.0
Senior subordinated notes...................................... 291.5 290.3
Other.......................................................... 2.2 4.0
-----------------------
483.3 426.3
Less current portion........................................... (0.6) (3.8)
-----------------------
$482.7 $422.5
=======================
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).
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Revolving Credit Facility
In June 1999, WESCO Distribution entered into a $400 million revolving
credit facility with a consortium of 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 $35
million. Borrowings under the revolving credit facility are collateralized by
substantially all the assets, excluding real property, of WESCO Distribution and
are guaranteed by WESCO International, Inc. and certain subsidiaries.
Borrowings bear rates of interest equal to various indices, at WESCO's
option plus a borrowing margin. At December 31, 2000, the interest rate on the
revolving credit facility borrowings was 8.4%. A commitment fee of 30 to 50
basis points per year is due on unused portions of the revolving credit
facility.
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, 2000.
In December 2000, WESCO amended its revolving credit facility, which
provided additional operating flexibility and increased the maximum amount
allowable under the accounts receivable securitization program to $475 million
from $375 million, and also amended certain financial covenants. Receivables
sold under the accounts receivable securitization program in excess of $375
million will permanently reduce the amount available under the revolving credit
facility on a dollar for dollar basis. In February 2001, WESCO increased the
amount of receivables sold under the securitization to $396 million from $375
million. This simultaneously decreased the amount available under the revolving
credit agreement to $379 million.
WESCO's liquidity needs arise from seasonal working capital requirements,
capital expenditures, debt service obligations and acquisitions. As of December
31, 2000, required annual principal repayments for the next five years are as
follows:
(IN THOUSANDS)
----------------------
2001............................................. $ 585
2002............................................. 1,530
2003............................................. 30
2004............................................. 189,654
2005............................................. 30
Accounts Receivable Securitization Program
WESCO maintains a $375 million accounts receivable securitization program
("Receivables Facility") with a financial institution. 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
eligible accounts receivable. 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.
An analysis of cash flows for 2000 and 1999 follows:
Operating Activities. Cash provided by operating activities totaled $46.9
million for the year ended December 31, 2000, compared to $66.4 million a year
ago. Cash provided by operations in 2000 and 1999 included proceeds of $40.0
million and $60.0 million, respectively, from the sale of accounts receivable in
connection with the accounts receivable securitization program. Excluding these
proceeds, operating activities provided $6.9 million in 2000 and $6.4 million in
1999. On this basis, the year-to-year increase in operating cash flow of $0.5
million was primarily due to increased income adjusted for non-cash charges,
partially offset by an increase in working capital.
Investing Activities. Net cash used in investing activities was $60.7
million in 2000, compared to $71.9 million in 1999. Cash used for investing
activities was higher in 1999 primarily due to amounts invested in business
acquisitions. Capital expenditures in 2000 were $21.6 million compared to $21.2
million in 1999 and were for
18
20
computer equipment and software, branch and distribution center facility
improvements, forklifts and delivery vehicles. Capital expenditures for 2001 are
not expected to differ significantly from 2000.
Financing Activities. 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 treasury stock purchase program. Cash provided
by financing activities in 1999 totaled $6.3 million and was primarily due to
the Offering, partially offset by a reduction in long-term debt and treasury
stock purchases.
For the year ended December 31, 2000, WESCO purchased approximately 3.3
million shares of its common stock for approximately $28.1 million.
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.
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 December 1999, the staff of the Securities and Exchange Commission (SEC)
issued Staff Accounting Bulletin (SAB) No. 101, "Revenue Recognition in
Financial Statements." SAB No. 101 outlines the basic criteria that must be met
to recognize revenue, and provides guidelines for disclosure related to revenue
recognition policies. The application of this guidance did not have a material
impact on WESCO's consolidated financial statements in 2000.
In September 2000, the FASB issued SFAS No. 140, a modification of SFAS No.
125. SFAS No. 140 is effective for transfers after March 31, 2001 and is
effective for disclosures about securitizations and collateral and for
recognition and reclassification of collateral for fiscal years ending after
December 15, 2000. The disclosure provisions of this statement have been
adopted. The adoption of this statement for future transfers is not expected to
have a material impact on the results of operations or financial position of
WESCO.
19
21
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 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, 2000 is comprised of $189.6 million
of variable-rate borrowings outstanding under its revolving credit facility and
$293.7 million of fixed-rate borrowings. Interest cost under the revolving
credit facility is based on various indices plus a borrowing margin. WESCO uses
interest rate cap agreements to hedge a portion of its debt cost in an attempt
to strike a favorable balance between fixed and variable rate. The interest
rate cap agreements effectively cap WESCO's base LIBOR rate at 7.25% for $100.0
million of borrowings through May 2001 and at 7.0% for $25.0 million of
borrowings through August 2001. The interest rate cap agreements did not have a
material impact on the Company's consolidated financial statements for the year
ended December 31, 2000. The interest rate on WESCO's revolving credit
agreement was 8.4% at December 31, 2000. A hypothetical 10% change in this
interest rate based on variable-rate borrowing levels at December 31, 2000 and
including the impact of the interest rate caps would result in a $1.6 million
increase or decrease in interest rate 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:
PAGE
------
WESCO International, Inc.
Report of Independent Accountants..................................................................... 26
Consolidated Balance Sheets as of December 31, 2000 and 1999.......................................... 27
Consolidated Statements of Operations for the years ended December 31, 2000, 1999 and 1998............ 28
Consolidated Statements of Stockholders' Equity and Redeemable Common Stock
for the years ended December 31, 2000, 1999 and 1998................................................ 29
Consolidated Statements of Cash Flows for the years ended
December 31, 2000, 1999 and 1998.................................................................... 30
Notes to Consolidated Financial Statements............................................................ 31
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURES.
None.
20
22
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 23, 2001. The definitive Proxy Statement will be filed with the Securities
and Exchange Commission not later than 120 days after December 31, 2000.
Information relating to the executive officers of the Company is set forth in
Part I.
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 among Incorporated by reference
Thor Acquisitions L.L.C., WESCO International, Inc. (formerly to WESCO's Exhibit 2.1 to
known as CDW Holding Corporation, "WESCO") and certain the Registration Statement
securityholders of WESCO. on Form S-4 (No. 333-43225)
(the "Form S-4")
2.2 Purchase Agreement dated May 29, 1998 among WESCO, WESCO Incorporated by reference
Distribution, Inc. ("WESCO Distribution"), Chase Securities to Exhibit 2.2 to the Form
Inc. and Lehman Brothers Inc. S-4
2.3 Asset Purchase Agreement among Bruckner Supply Company, Inc. Incorporated by reference
and WESCO Distribution dated September 11, 1998, previously to Exhibit 2.01 to the
filed. Current Report on Form 8-K
dated September 11, 1998
3.1 Amended and Restated Certificate of Incorporation of WESCO. Incorporated by reference
to Exhibit 3.2 to the Form
S-1 (No. 333-73299) (the
"Form S-1")
3.2 By-Laws of WESCO. Incorporated by reference
to Exhibit 3.3 to the
Registration Statement on
Form S-1
4.1 Indenture dated as of June 5, 1998 among WESCO, WESCO Incorporated by reference
Distribution and Bank One, N.A. to Exhibit 4.1 to the Form
S-4
4.2 Form of 9-1/8% Senior Subordinated Note Due 2008, Series A Incorporated by reference
(included in Exhibit 4.3). to Exhibit 4.2 to the Form
S-4
4.3 Form of 9-1/8% Senior Subordinated Note Due 2008, Series B Incorporated by reference
(included in Exhibit 4.3). to Exhibit 4.3 to the Form
S-4
21
23
PRIOR FILING OR
EXHIBIT NO. DESCRIPTION OF EXHIBIT SEQUENTIAL PAGE NUMBER
- ---------------------------------------------------------------------------------------------------------------------
4.4 Exchange and Registration Rights Agreement dated as of June 5, Incorporated by reference
1998 among the Company, WESCO and The Initial Purchasers. to Exhibit 4.4 to the Form
S-4
4.8 Exchange and Registration Rights Agreement dated as of June 5, Incorporated by reference
1998 among WESCO and the Initial Purchasers. to Exhibit 4.8 to the Form
S-4
10.1 CDW Holding Corporation Stock Purchase Plan. Incorporated by reference
to Exhibit 10.1 to the Form
S-4
10.2 Form of Stock Subscription Agreement. Incorporated by reference
to Exhibit 10.2 to the Form
S-4
10.3 CDW Holding Corporation Stock Option Plan. Incorporated by reference
to Exhibit 10.3 to the Form
S-4
10.4 Form of Stock Option Agreement. Incorporated by reference
to Exhibit 10.4 to the Form
S-4
10.5 CDW Holding Corporation Stock Option Plan for Branch Employees. Incorporated by reference
to Exhibit 10.5 to the Form
S-4
10.6 Form of Branch Stock Option Agreement. Incorporated by reference
to Exhibit 10.6 to the Form
S-4
10.7 Non-Competition Agreement, dated as of February 28, 1996, Incorporated by reference
between Westinghouse, WESCO and WESCO Distribution. to Exhibit 10.8 to the Form
S-4
10.8 Lease dated May 24, 1995 as amended by Amendment One dated Incorporated by reference
June, 1995 and by Amendment Two dated December 24, 1995 by to Exhibit 10.10 to the
and between WESCO Distribution as Tenant and Opal Investors, L.P. Form S-4
and Mural GEM Investors as Landlord.
10.9 Lease dated April 1, 1992 as renewed by Letter of Notice of Incorporated by reference
Intent to Renew dated December 13, 1996 by and between the to Exhibit 10.11 to the
Company successor in interest to Westinghouse Electric Form S-4
Corporation as Tenant and Utah State Retirement Fund as
Landlord.
10.10 Lease dated September 4, 1997 between WESCO Distribution as Incorporated by reference
Tenant and The Buncher Company as Landlord. to Exhibit 10.12 to the
Form S-4
10.11 Lease dated March 1995 by and between WESCO Incorporated by reference
Distribution-Canada, Inc. ("WESCO Canada") as Tenant and to Exhibit 10.13 to the
Atlantic Construction, Inc. as Landlord. Form S-4
10.18 Amended and Restated Registration and Participation Agreement Incorporated by reference
dated June 5, 1998 among WESCO and certain securityholders of to Exhibit 10.19 to the
WESCO named therein. Form S-4
10.19 Employment Agreement between WESCO Distribution and Roy W. Incorporated by reference
Haley. to Exhibit 10.20 to the
Form S-4
10.20 WESCO International, Inc. 1998 Stock Option Plan. Incorporated by reference
to WESCO's Exhibit 10.1 to
Quarterly Report on Form
10-Q for the quarter ended
September 30, 1998
10.21 Form of Management Stock Option Agreement. Incorporated by reference
to WESCO's Exhibit 10.1 to
Quarterly Report on Form
10-Q for the quarter ended
September 30, 1998
10.22 1999 Deferred Compensation Plan for Non-Employee Directors. Incorporated by reference
to WESCO's Exhibit 10.22 to
Annual Report on Form 10-K
for the year ended December
31, 1998
10.23 Credit Agreement among WESCO Distribution, Inc., WESCO Incorporated by reference
Distribution-Canada, Inc., WESCO International, Inc. and the to WESCO's Exhibit 10.1 to
Lenders identified therein, dated June 29, 1999. Quarterly Report on Form
10-Q for the period ended
June 30, 1999 (the "Second
Quarter Form 10-Q")
22
24
PRIOR FILING OR
EXHIBIT NO. DESCRIPTION OF EXHIBIT SEQUENTIAL PAGE NUMBER
- ---------------------------------------------------------------------------------------------------------------------
10.24 Amendment, dated December 20, 2000, to the Credit Agreement Filed herewith
among WESCO Distribution, Inc., WESCO Distribution-Canada,
Inc., WESCO International, Inc. and the Lenders identified
therein, dated June 29, 1999.
10.25 Receivables Purchase Agreement dated as of June 30, 1999, among Incorporated by reference
WESCO Receivables Corp., WESCO Distribution, Inc., Market to Exhibit 10.2 to the
Street Capital Corp. and PNC Bank, National Association. Second Quarter Form 10-Q
10.26 Amended and Restated Receivables Purchase Agreement, dated as Incorporated by reference
of September 28, 1999, among WESCO Receivables Corp., WESCO to WESCO's Exhibit 10.1 to
Distribution, Inc., and PNC Bank, National Association. Quarterly Report on Form
10-Q for the period ended
September 30, 1999
10.27 1999 Long-Term Incentive Plan. Incorporated by reference
to WESCO's Exhibit 10.22 to
Form S-1
21.1 Subsidiaries of WESCO. Incorporated by reference
to Exhibit 21.1 to the
Registration Statement on
Form S-1
23.1 Consent of PricewaterhouseCoopers LLP, Independent Accountants. Filed herewith
- ------------------------
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.
23
25
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: April 2, 2001
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
Roy W. Hale (Principal Executive Officer) April 2, 2001
/s/ STEPHEN A. VAN OSS Vice President,
- ----------------------------- Chief Financial Officer
Stephen A. Van Oss (Principal Financial and
Accounting Officer) April 2, 2001
/s/ JAMES L. SINGLETON Director April 2, 2001
- -----------------------------
James L. Singleton
/s/ JAMES A. STERN Director April 2, 2001
- -----------------------------
James A. Stern
/s/ ANTHONY D. TUTRONE Director April 2, 2001
- -----------------------------
Anthony D. Tutrone
/s/ MICHAEL J. CHESHIRE Director April 2, 2001
- -----------------------------
Michael J. Cheshire
/s/ ROBERT J. TARR, JR. Director April 2, 2001
- -----------------------------
Robert J. Tarr, Jr.
/s/ KENNETH L. WAY Director April 2, 2001
- -----------------------------
Kenneth L. Way
/s/ GEORGE L. MILES, JR. Director April 2, 2001
- -----------------------------
George L. Miles, Jr.
24
26
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
----
Report of Independent Accountants........................................ 26
Consolidated Balance Sheets as of December 31, 2000 and 1999............. 27
Consolidated Statements of Operations for the years ended
December 31, 2000, 1999 and 1998....................................... 28
Consolidated Statements of Stockholders' Equity and
Redeemable Common Stock for the years ended
December 31, 2000, 1999 and 1998....................................... 29
Consolidated Statements of Cash Flows for the years ended
December 31, 2000, 1999 and 1998....................................... 30
Notes to Consolidated Financial Statements............................... 31
25
27
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 at December
31, 2000 and 1999, and the results of their operations and their cash flows for
each of the three years in the period ended December 31, 2000 in conformity with
accounting principles generally accepted in the United States of America. These
financial statements are the responsibility of the Company'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.
600 Grant Street
Pittsburgh, Pennsylvania /s/ PricewaterhouseCoopers LLP
February 9, 2001
26
28
WESCO INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31
2000 1999
--------------------------------
(DOLLARS IN THOUSANDS,
EXCEPT SHARE DATA)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents............................................... $ 21,079 $ 8,819
Trade accounts receivable, net of allowance for doubtful accounts of
$9,794 and $7,023 in 2000 and 1999, respectively (NOTE 6)............. 259,988 188,307
Other accounts receivable............................................... 31,365 31,829
Inventories............................................................. 421,083 397,669
Income taxes receivable................................................. 10,951 10,667
Prepaid expenses and other current assets............................... 5,602 4,930
Deferred income taxes (NOTE 12)......................................... 14,157 11,580
--------------------------------
Total current assets................................................ 764,225 653,801
Property, buildings and equipment, net (NOTE 9).............................. 123,477 116,638
Goodwill and other intangibles, net of accumulated amortization of $29,053
and $18,956 in 2000 and 1999, respectively (NOTE 7)..................... 277,763 249,240
Other assets................................................................. 4,568 9,114
--------------------------------
Total assets........................................................ $1,170,033 $1,028,793
================================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable........................................................ $460,535 $ 406,963
Accrued payroll and benefit costs....................................... 27,027 18,171
Current portion of long-term debt....................................... 585 3,831
Other current liabilities............................................... 35,695 25,820
--------------------------------
Total current liabilities........................................... 523,842 454,785
Long-term debt (NOTE 10)..................................................... 482,740 422,539
Other noncurrent liabilities................................................. 6,823 7,504
Deferred income taxes (NOTE 12).............................................. 31,641 26,660
--------------------------------
Total liabilities................................................... 1,045,046 911,488
Commitments and contingencies (NOTE 16)
STOCKHOLDERS' EQUITY (NOTES 3 AND 11):
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, 44,093,664
and 43,291,319 shares issued in 2000 and 1999, respectively.............. 441 433
Class B nonvoting convertible common stock, $.01 par value; 20,000,000
shares authorized, 4,653,131 issued in 2000 and 1999.................... 46 46
Additional capital...................................................... 569,288 565,897
Retained earnings (deficit)............................................. (410,144) (443,582)
Treasury stock, at cost; 3,976,897 and 637,259 shares in 2000 and
1999, respectively.......................................................... (33,406) (4,790)
Accumulated other comprehensive income (loss)........................... (1,238) (699)
--------------------------------
Total stockholders' equity.......................................... 124,987 117,305
--------------------------------
Total liabilities and stockholders' equity.......................... $1,170,033 $1,028,793
================================
The accompanying notes are an integral part of the
consolidated financial statements.
27
29
WESCO INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31
---------------------------------------------------
2000 1999 1998
---------------------------------------------------
(IN THOUSANDS, EXCEPT SHARE DATA)
Net sales.................................................... $3,881,096 $3,423,858 $3,025,439
Cost of goods sold........................................... 3,196,952 2,807,240 2,487,780
---------------------------------------------------
Gross profit.............................................. 684,144 616,618 537,659
Selling, general and administrative expenses................. 524,309 471,275 415,028
Depreciation and amortization................................ 24,993 20,350 14,805
Restructuring charge (NOTE 4) ............................... 9,404 -- --
Recapitalization costs (NOTE 5).............................. -- -- 51,800