WESCO International, Inc. 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
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þ |
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 2008
or
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o |
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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)
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Delaware
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25-1723342 |
(State or other jurisdiction of
incorporation or organization)
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(IRS Employer Identification No.) |
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225 West Station Square Drive |
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Suite 700 |
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Pittsburgh, Pennsylvania 15219
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(412) 454-2200 |
(Address of principal executive offices)
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(Registrants telephone number, including area code) |
N/A
(Former name or former address, if changed since last report)
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 þ No
o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer,
a non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer and smaller reporting company in
Rule 12b-2 of the Exchange Act. (Check one):
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Large accelerated filer þ
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Accelerated filer o
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Non-accelerated filer o
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Smaller reporting company o |
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(Do not check if a smaller reporting company) |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Exchange Act). Yes o No þ
As of May 8, 2008, WESCO International, Inc. had
42,124,519 shares of common stock
outstanding.
WESCO INTERNATIONAL, INC. AND SUBSIDIARIES
QUARTERLY REPORT ON FORM 10-Q
Table of Contents
1
WESCO INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
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March 31, |
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December 31, |
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Amounts in thousands, except share data |
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2008 |
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2007 |
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Assets
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Current Assets: |
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Cash and cash equivalents |
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$ |
94,432 |
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$ |
72,297 |
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Trade accounts receivable, net of allowance for doubtful accounts of
$17,541 and $17,418 in 2008 and 2007, respectively (Note 5) |
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864,127 |
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844,514 |
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Other accounts receivable |
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31,101 |
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44,783 |
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Inventories, net |
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615,281 |
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666,027 |
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Current deferred income taxes |
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3,146 |
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4,026 |
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Income taxes receivable |
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17,916 |
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38,793 |
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Prepaid expenses and other current assets |
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11,152 |
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10,059 |
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Total current assets |
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1,637,155 |
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1,680,499 |
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Property, buildings and equipment, net |
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110,505 |
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104,119 |
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Intangible assets, net |
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94,271 |
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133,791 |
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Goodwill |
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855,833 |
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924,358 |
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Investment in subsidiary |
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47,267 |
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Deferred
income taxes |
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13,743 |
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Other assets |
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31,368 |
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17,120 |
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Total assets |
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$ |
2,790,142 |
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$ |
2,859,887 |
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Liabilities and Stockholders Equity
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Current Liabilities: |
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Accounts payable |
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$ |
638,821 |
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$ |
626,293 |
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Accrued payroll and benefit costs |
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36,825 |
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51,415 |
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Short-term debt (Note 5) |
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486,000 |
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502,300 |
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Current portion of long-term debt |
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2,706 |
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2,676 |
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Deferred acquisition payable |
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1,284 |
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1,285 |
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Bank overdrafts |
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44,087 |
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58,948 |
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Other current liabilities |
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64,837 |
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49,008 |
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Total current liabilities |
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1,274,560 |
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1,291,925 |
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Long-term debt |
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748,022 |
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811,311 |
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Deferred income taxes |
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109,182 |
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118,084 |
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Other noncurrent liabilities |
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29,739 |
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30,091 |
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Total liabilities |
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$ |
2,161.503 |
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$ |
2,251,411 |
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Commitments and contingencies (Note 8) |
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Stockholders Equity: |
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Preferred stock, $.01 par value; 20,000,000
shares authorized, no shares issued or
outstanding |
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Common stock, $.01 par value; 210,000,000
shares authorized, 54,866,936 and 54,663,418
shares issued and 42,715,309 and 43,144,032
shares outstanding in 2008 and 2007,
respectively |
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549 |
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546 |
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Class B nonvoting convertible common stock,
$.01 par value; 20,000,000 shares authorized,
4,339,431 issued and no shares outstanding in
2008 and 2007, respectively |
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43 |
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43 |
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Additional capital |
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815,759 |
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808,739 |
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Retained earnings |
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329,624 |
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284,794 |
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Treasury stock, at cost; 16,491,058 and
15,858,817 shares in 2008 and 2007,
respectively |
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(536,411 |
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(511,478 |
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Accumulated other comprehensive income |
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19,075 |
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25,832 |
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Total stockholders equity |
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628,639 |
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608,476 |
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Total liabilities and stockholders equity |
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$ |
2,790,142 |
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$ |
2,859,887 |
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The accompanying notes are an integral part of the condensed consolidated financial statements.
2
WESCO INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
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Three Months Ended March 31, |
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Amounts in thousands, except per share data |
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2008 |
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2007 |
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Net sales |
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$ |
1,465,206 |
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$ |
1,450,556 |
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Cost of goods sold (excluding depreciation and amortization below) |
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1,169,561 |
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1,151,533 |
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Selling, general and administrative expenses |
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211,639 |
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207,558 |
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Depreciation and amortization |
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6,933 |
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8,930 |
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Income from operations |
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77,073 |
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82,535 |
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Interest expense, net (Note 5) |
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14,563 |
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12,220 |
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Other income (Note 6) |
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(2,744 |
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Income before income taxes |
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65,254 |
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70,315 |
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Provision for income taxes |
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20,424 |
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22,157 |
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Net income |
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$ |
44,830 |
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$ |
48,158 |
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Earnings per share (Note 4): |
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Basic: |
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$ |
1.05 |
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$ |
0.98 |
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Diluted |
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$ |
1.02 |
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$ |
0.93 |
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The accompanying notes are an integral part of the condensed consolidated financial statements.
3
WESCO INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
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Three Months Ended |
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March 31, |
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Amounts in thousands |
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2008 |
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2007 |
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Operating Activities: |
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Net income |
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$ |
44,830 |
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$ |
48,158 |
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Adjustments to reconcile net income to net cash provided by operating activities: |
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Depreciation and amortization |
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6,933 |
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8,930 |
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Amortization of debt issuance costs |
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948 |
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969 |
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Deferred income taxes |
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(1,453 |
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Stock-based compensation expense |
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3,223 |
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3,268 |
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Gain on sale of property, buildings and equipment |
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(149 |
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Loss on sale of subsidiary |
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3,005 |
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Equity income |
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(2,744 |
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Excess tax benefit from stock-based compensation (Note 3) |
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(1,568 |
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(14,919 |
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Interest related to uncertain tax positions (Note 11) |
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232 |
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Changes in assets and liabilities
Trade and other receivables, net |
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(16,896 |
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(34,640 |
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Inventories, net |
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26,904 |
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7,770 |
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Prepaid expenses and other current assets |
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8,211 |
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27,741 |
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Accounts payable |
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23,418 |
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55,898 |
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Accrued payroll and benefit costs |
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(14,468 |
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(28,753 |
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Other current and noncurrent liabilities |
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9,933 |
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2,981 |
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Net cash provided by operating activities |
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91,961 |
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75,801 |
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Investing Activities: |
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Capital expenditures |
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(11,319 |
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(2,848 |
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Acquisition payments |
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(96 |
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(3,553 |
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Proceeds from sale of subsidiary |
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60,000 |
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Proceeds from sale of assets |
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13 |
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Net cash provided (used) by investing activities |
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48,598 |
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(6,401 |
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Financing Activities: |
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Proceeds from issuance of long-term debt |
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324,500 |
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332,000 |
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Repayments of long-term debt |
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(404,133 |
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(227,656 |
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Debt issuance costs |
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(287 |
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Proceeds from the exercise of stock options |
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2,233 |
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5,493 |
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Excess tax benefit from stock-based compensation (Note 3) |
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1,568 |
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14,919 |
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Repurchase of common stock |
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(24,933 |
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(207,229 |
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Decrease in bank overdrafts |
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(14,862 |
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(4,089 |
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Payments on capital lease obligations |
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(499 |
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(407 |
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Net cash used by financing activities |
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(116,126 |
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(87,256 |
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Effect of exchange rate changes on cash and cash equivalents |
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(2,298 |
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(170 |
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Net change in cash and cash equivalents |
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22,135 |
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(18,026 |
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Cash and cash equivalents at the beginning of period |
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72,297 |
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73,395 |
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Cash and cash equivalents at the end of period |
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$ |
94,432 |
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$ |
55,369 |
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Supplemental disclosures: |
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Non-cash investing and financing activities: |
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Property, plant and equipment acquired through capital leases |
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574 |
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598 |
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Issuance of treasury stock |
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187 |
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The accompanying notes are an integral part of the condensed consolidated financial statements.
4
WESCO INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. ORGANIZATION
WESCO International, Inc. and its subsidiaries (collectively, WESCO or the Company),
headquartered in Pittsburgh, Pennsylvania, is a full-line distributor of electrical supplies and
equipment and is a provider of integrated supply procurement services with operations in the United
States, Canada, Mexico, the United Kingdom, Nigeria, United Arab Emirates and Singapore. WESCO
currently operates more than 400 full service branch locations and seven distribution centers (five
in the United States and two in Canada.)
2. ACCOUNTING POLICIES
Basis of Presentation
The unaudited condensed consolidated financial statements of WESCO have been prepared in
accordance with Rule 10-01 of Regulation S-X of the Securities and Exchange Commission (the SEC).
The unaudited condensed consolidated financial statements should be read in conjunction with the
audited consolidated financial statements and notes thereto included in WESCOs 2007 Annual Report
on Form 10-K filed with the SEC. The December 31, 2007 condensed balance sheet data was derived
from audited financial statements, but does not include all disclosures required by accounting
principles generally accepted in the United States.
The unaudited condensed consolidated balance sheet as of March 31, 2008, the unaudited
condensed consolidated statements of income for the three months ended March 31, 2008 and 2007,
respectively, and the unaudited condensed consolidated statements of cash flows for the three
months ended March 31, 2008 and 2007, respectively, in the opinion of management, have been
prepared on the same basis as the audited consolidated financial statements and include all
adjustments necessary for the fair statement of the results of the interim periods. All
adjustments reflected in the unaudited condensed consolidated financial statements are of a normal
recurring nature unless indicated. Results for the interim periods presented are not necessarily
indicative of the results to be expected for the full year.
Recent Accounting Pronouncements
In September 2006, the Financial Accounting Standards Board (the FASB) issued Statement of
Financial Accounting Standards (SFAS) No. 157, Fair Value Measurements (SFAS 157) which defines
fair value, establishes a framework for measuring fair value in generally accepted accounting
principles, and expands disclosures about fair value measurements.
This statement applies whenever other accounting standards require or
permit assets or liabilities to be measured at fair value but does
not expand the use of fair value to new accounting transactions and
does not apply to pronouncements that address share-based payment
transactions. On February 12, 2008, the FASB
issued FASB Staff Position (FSP) SFAS No. 157-2, Effective Date of SFAS No. 157. The FSP amends
SFAS 157 to delay the effective date of SFAS 157 for all nonfinancial assets and liabilities,
except those that are recognized or disclosed at fair value in the financial statements on a
recurring basis (that is, at least annually) to fiscal years beginning after November 15, 2008.
Except for the delay for nonfinancial assets and liabilities, SFAS 157 was effective for fiscal
years beginning after November 15, 2007. Consistent with its requirements, WESCO adopted SFAS 157
for its financial assets and liabilities on January 1, 2008.
WESCOs financial instruments consist of cash and cash
equivalents, accounts receivable, accounts payable, bank overdrafts and debt. The
Company believes that the recorded values of its financial
instruments, except for long-term debt, approximate fair value
because of their nature and respective duration. The adoption of SFAS 157 did not
impact WESCOs financial position, results of operations, or cash flows. WESCO is currently
evaluating the effect that the implementation of FSP 157-2 will have on its financial position,
results of operations and cash flows.
In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and
Liabilities (SFAS 159) which provides companies with an option to report certain financial assets
and liabilities at fair value, with changes in value recognized in earnings each reporting period.
SFAS 159 establishes presentation and disclosure requirements designed to facilitate comparisons
between companies that choose different measurement attributes for similar types of assets and
liabilities. SFAS 159 was effective for fiscal years beginning after November 15, 2007.
Consistent with its requirements, WESCO adopted SFAS 159 on
January 1, 2008. WESCO did not elect to value its debt with the
fair value option in accordance with SFAS 159. Therefore, the adoption of SFAS
159 did not impact WESCOs financial position, results of operations, or cash flows.
In December 2007, the FASB issued SFAS No. 141 (revised 2007), Business Combinations (SFAS
141R) which establishes additional principles and requirements for how the acquirer in a business
combination recognizes and measures in its financial statements the identifiable assets acquired,
the liabilities assumed and any noncontrolling interest in the acquiree at the acquisition date
fair value. SFAS 141R is designed to improve the relevance,
5
representational faithfulness, and comparability of the financial information that a reporting
entity provides in its financial reports about a business combination and its effects. SFAS 141R
applies prospectively to business combinations for which the acquisition date is in or after the
beginning of the first annual reporting period beginning after December 15, 2008. WESCO is
currently evaluating the effect that the implementation of SFAS 141R will have on its financial
position, results of operations and cash flows.
In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated
Financial Statements an Amendment of ARB No. 51 (SFAS 160). This statement amends Accounting
Research Bulletin No. 51, Consolidated Financial Statements (ARB 51) to establish accounting and
reporting standards for a noncontrolling interest in a subsidiary and for the deconsolidation of a
subsidiary. It clarifies that a noncontrolling interest in a subsidiary is an ownership interest
in the consolidated entity that should be reported as equity in the consolidated financial
statements. SFAS 160 is effective for fiscal years beginning after December 15, 2008. WESCO is
currently evaluating the effect that the implementation of SFAS 160 will have on its financial
position, results of operations and cash flows.
3. STOCK-BASED COMPENSATION
WESCOs stock-based employee compensation plans are comprised of stock options and
stock-settled stock appreciation rights. During the year ended December 31, 2003, WESCO adopted
the provisions of SFAS No. 123, Accounting for Stock-Based Compensation. Beginning January 1,
2006, WESCO adopted SFAS No. 123 (revised 2004), Share-Based Payment(SFAS 123R) , using the
modified prospective method. Under SFAS 123R, compensation cost for all stock-based awards is
measured at fair value on the date of grant and compensation cost is recognized, net of estimated
forfeitures, over the service period for awards expected to vest. The fair value of stock-based
awards is determined using the Black-Scholes valuation model. The forfeiture assumption is based
on WESCOs historical employee behavior that is reviewed on an annual basis. No dividends are
assumed.
During the three months ended March 31, 2008, WESCO granted the following stock-settled stock
appreciation rights at the following weighted average assumptions:
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Three Months |
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Ended March 31, |
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2008 |
Stock-settled appreciations rights granted |
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1,800 |
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Risk free interest rate |
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2.5 |
% |
Expected life |
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4 years |
Expected volatility |
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38 |
% |
There were no stock-settled stock appreciation rights granted during the three months ended
March 31, 2007. For the three months ended March 31, 2008, the weighted average fair value per
equity award granted was $13.03.
WESCO recognized $3.2 million and $3.3 million of non-cash stock-based compensation expense,
which is included in selling, general and administrative expenses, for the three months ended March
31, 2008 and 2007, respectively. As of March 31, 2008, there was $16.4 million of total
unrecognized compensation cost related to non-vested stock-based compensation arrangements for all
awards previously made, of which approximately $7.6 million is expected to be recognized over the
remainder of 2008, $6.5 million in 2009, $2.2 million in 2010 and $0.1 million in 2011.
During the three months ended March 31, 2008 and 2007, the total intrinsic value of awards
exercised was $5.5 million and $42.7 million, respectively, and the total amount of cash received
from the exercise of options was $2.2 million and $5.5 million, respectively. The tax benefit
associated with the exercise of awards for the three months ended March 31, 2008 and 2007 totaled
$1.6 million and $14.9 million, respectively, and was recorded as a credit to additional paid-in
capital.
6
The following table sets forth a summary of both stock options and stock appreciation rights
and related information for the three months ended March 31, 2008:
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Weighted |
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Weighted Average |
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Average |
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Remaining |
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Aggregate |
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Exercise |
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Contractual Term |
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Intrinsic Value |
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|
Awards |
|
|
Price |
|
|
(In Years) |
|
|
(In Thousands) |
|
Outstanding at December 31, 2007 |
|
|
4,213,863 |
|
|
$ |
28.85 |
|
|
|
|
|
|
|
|
|
Granted |
|
|
1,800 |
|
|
|
38.94 |
|
|
|
|
|
|
|
|
|
Exercised |
|
|
(208,749 |
) |
|
|
11.22 |
|
|
|
|
|
|
|
|
|
Forfeited |
|
|
(5,416 |
) |
|
|
59.31 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at March 31, 2008 |
|
|
4,001,498 |
|
|
|
29.74 |
|
|
|
5.8 |
|
|
$ |
55,899 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at March 31, 2008 |
|
|
2,764,269 |
|
|
$ |
18.47 |
|
|
|
4.5 |
|
|
$ |
54,381 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4. EARNINGS PER SHARE
Basic earnings per share are computed by dividing net income by the weighted average common
shares outstanding during the periods. Diluted earnings per share are computed by dividing net
income by the weighted average common shares and common share equivalents outstanding during the
periods. The dilutive effect of common share equivalents is considered in the diluted earnings per
share computation using the treasury stock method, which includes consideration of stock-based
compensation required by SFAS No. 123R and SFAS No. 128, Earnings Per Share.
The following table sets forth the details of basic and diluted earnings per share:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
March 31, |
|
|
|
2008 |
|
|
2007 |
|
Amounts in thousands, except share and per share data |
|
|
|
|
|
|
|
|
Net income reported |
|
$ |
44,830 |
|
|
$ |
48,158 |
|
|
|
|
|
|
|
|
Weighted average common shares outstanding used in computing
basic earnings per share |
|
|
42,741,818 |
|
|
|
48,901,184 |
|
Common shares issuable upon exercise of dilutive stock options |
|
|
1,291,654 |
|
|
|
1,893,300 |
|
Common shares issuable from contingently convertible debentures
(see note below for basis of calculation) |
|
|
|
|
|
|
1,212,411 |
|
|
|
|
|
|
|
|
Weighted average common shares outstanding and common share
equivalents used in computing diluted earnings per share |
|
|
44,033,472 |
|
|
|
52,006,895 |
|
|
|
|
|
|
|
|
Earnings per share: |
|
|
|
|
|
|
|
|
Basic |
|
$ |
1.05 |
|
|
$ |
0.98 |
|
Diluted |
|
$ |
1.02 |
|
|
$ |
0.93 |
|
For the three months ended March 31, 2008 and 2007, the computation of diluted earnings per
share excluded stock-settled stock appreciation rights of approximately 1.1 million and 0.5 million
at weighted average exercise prices of $63.19 per share and $68.88 per share, respectively. These
amounts were excluded because their effect would have been antidilutive.
Under EITF Issue No. 04-8, The Effect of Contingently Convertible Instruments on Diluted
Earnings Per Share, and EITF Issue No. 90-19, Convertible Bonds with Issuer Option to Settle for
Cash upon Conversion, and because of WESCOs obligation to settle the par value of the 2.625%
Convertible Senior Debentures due 2025 (the 2025 Debentures) and the 1.75% Convertible Senior
Debentures due 2026 (the 2026 Debentures and collectively with the 2025 Debentures, the
Debentures) in cash, WESCO is not required to include any shares underlying the Debentures in
its diluted weighted average shares outstanding until the average stock price per share for the
period exceeds the conversion price of the respective Debentures. At such time, only the number of
shares that would be issuable (under the treasury method of accounting for share dilution) would
be included, which is based upon the amount by which the average stock price exceeds the
conversion price. The conversion prices of the 2026 Debentures and 2025 Debentures are $88.15 and
$41.86, respectively. Share dilution is limited to a maximum of 3,403,110 shares for the 2026
Debentures and 3,583,080 shares for the 2025 Debentures. Since the average stock price for the
three months ended March 31, 2008 was less than the conversion prices, there was no impact of the
Debentures on diluted earnings per share. For the three months ended March 31, 2007, the effect
of the 2025 Debentures on diluted earnings per share was a decrease of $0.02.
7
5. ACCOUNTS RECEIVABLE SECURITIZATION
WESCO maintains a $500 million accounts receivable securitization program (the Receivables
Facility) that has a three year term and is subject to renewal in May 2010. Under the Receivables
Facility, WESCO sells, on a continuous basis, an undivided interest in all domestic accounts
receivable to WESCO Receivables Corporation, a wholly owned, special purpose entity (SPE). The
SPE sells, without recourse, a senior undivided interest in the receivables to third-party conduits
and financial institutions for cash while maintaining a subordinated undivided interest in a
portion of the receivables, in the form of overcollateralization. WESCO has agreed to continue
servicing the sold receivables for the third-party conduits and financial institutions at market
rates; accordingly, no servicing asset or liability has been recorded.
Prior to December 2006, WESCO accounted for transfers of receivables pursuant to the
Receivables Facility as a sale and removed them from the consolidated balance sheet. In December
2006, the Receivables Facility was amended and restated such that WESCO effectively maintains
control of receivables transferred pursuant to the Receivables Facility; therefore the transfers no
longer qualify for sale treatment under SFAS No. 140. As a result, all transfers are accounted
for as secured borrowings and the receivables sold pursuant to the Receivables Facility are
included on the balance sheet as trade receivables, along with WESCOs retained subordinated
undivided interest in those receivables.
As of March 31, 2008 and December 31, 2007, accounts receivable eligible for securitization
totaled approximately $602.7 million and $604.0 million, respectively. The consolidated balance
sheets as of March 31, 2008 and December 31, 2007 reflect $483.0 million and $480.0 million,
respectively, of account receivable balances legally sold to third parties, as well as the related
borrowings for equal amounts.
Interest expense and other costs associated with the Receivables Facility totaled $5.5 million
and $6.2 million for the three months ended March 31, 2008 and 2007, respectively. At March 31,
2008, the interest rate on borrowings under this facility was approximately 4.2%.
6. EQUITY INVESTMENT
During the quarter ended March 31, 2008, WESCO and Deutsch Engineering Connecting Devices,
Inc. (Deutsch) completed a previously announced transaction with respect to WESCOs LADD
operations, which resulted in a joint venture in which Deutsch owns a 60% interest and WESCO owns a
40% interest. Deutsch paid to WESCO aggregate consideration of approximately $75 million,
consisting of $60 million in cash plus a $15 million promissory note, which is included in other
assets in the consolidated balance sheet. Deutsch is entitled, but not obliged, to acquire the
remaining 40% after January 1, 2010. As a result of this transaction, WESCO recognized an
after-tax loss of approximately $2.1 million and removed from the consolidated balance sheet net
assets of approximately $119.6 million, of which $68.8 million was related to goodwill and $37.7
million was related to intangible assets. WESCO accounts for its investment in the joint venture
using the equity method of accounting as prescribed by Accounting Principles Board No. 18, The
Equity Method of Accounting for Investments in Common Stock. Accordingly, earnings from the joint
venture are recorded as other income in the consolidated statement of income.
7. EMPLOYEE BENEFIT PLANS
A majority of WESCOs employees are covered by defined contribution retirement savings plans
for their services rendered subsequent to WESCOs formation. WESCO also offers a deferred
compensation plan for select individuals. For U.S. participants, WESCO will make contributions in
an amount equal to 50% of the participants total monthly contributions up to a maximum of 6% of
eligible compensation. For Canadian participants, WESCO will make contributions in an amount
ranging from 1% to 7% of the participants eligible compensation based on years of continuous
service. In addition, employer contributions may be made at the discretion of the Board of
Directors. For the three months ended March 31, 2008 and 2007, WESCO incurred charges of $5.8
million and $6.5 million, respectively, for all such plans. Contributions are made in cash to
employee retirement savings plan accounts. Employees then have the option to transfer balances
allocated to their accounts into any of the available investment options, including WESCO common
stock.
8. COMMITMENTS AND CONTINGENCIES
WESCO is a co-defendant in a lawsuit filed in a state court in Indiana in which a customer
alleges that WESCO sold defective products manufactured or remanufactured by others and is seeking
monetary damages in the amount of $52 million. WESCO has denied any liability, believes that it
has meritorious defenses and intends to vigorously defend itself against these allegations.
8
9. COMPREHENSIVE INCOME
The following tables set forth comprehensive income and its components:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
March 31, |
|
Amounts in thousands |
|
2008 |
|
|
2007 |
|
Net income |
|
$ |
44,830 |
|
|
$ |
48,158 |
|
Foreign currency translation adjustment |
|
|
(6,757 |
) |
|
|
3 |
|
|
|
|
|
|
|
|
Comprehensive income |
|
$ |
38,073 |
|
|
$ |
48,161 |
|
|
|
|
|
|
|
|
10. SHARE REPURCHASE PLAN
On September 28, 2007, WESCO announced that its Board of Directors authorized a stock
repurchase program in the amount of up to $400 million with an expiration date of September 30,
2009. The shares may be repurchased from time to time in the open market or through privately
negotiated transactions. The stock repurchase program may be implemented or discontinued at any
time by WESCO. During the three month period ended March 31, 2008, WESCO repurchased approximately
0.6 million shares for $24.8 million.
In addition, during the three months ended March 31, 2008, WESCO purchased 3,637 shares from
employees for approximately $0.1 million in connection with the settlement of tax withholding
obligations arising from the exercise of common stock options and stock-settled stock appreciation
rights.
11. INCOME TAXES
The following tables set forth the reconciliation between the federal statutory income tax
rate and the effective rate:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
March 31, |
|
|
2008 |
|
2007 |
Federal statutory rate |
|
|
35.0 |
% |
|
|
35.0 |
% |
State taxes, net of federal tax benefit |
|
|
2.6 |
|
|
|
2.6 |
|
Nondeductible expenses |
|
|
0.5 |
|
|
|
0.5 |
|
Domestic tax benefit from foreign operations |
|
|
(0.5 |
) |
|
|
(0.2 |
) |
Foreign tax rate differences(1) |
|
|
(6.4 |
) |
|
|
(5.2 |
) |
Federal tax credits |
|
|
|
|
|
|
(0.3 |
) |
Domestic production activity deduction |
|
|
(0.2 |
) |
|
|
(0.2 |
) |
Adjustment related to uncertain tax positions |
|
|
(0.5 |
) |
|
|
|
|
Other |
|
|
0.8 |
|
|
|
(0.7 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
31.3 |
% |
|
|
31.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes a benefit of $3.7 million and $3.6 million for the three months ended
March 31, 2008 and 2007, respectively, from the recapitalization of Canadian operations. |
In accordance with FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes
an interpretation of FASB Statement No. 109, WESCO analyzes its filing positions for all open tax
years in all jurisdictions.
The Company is currently under examination in several tax jurisdictions, both within the United
States and outside the United States, and remains subject to examination until the statute of
limitations expires for the respective tax jurisdictions. The following summary sets forth the tax
years that remain open in the Companys major tax jurisdictions:
|
|
|
United States Federal
|
|
1999 and forward |
United States States
|
|
2003 and forward |
Canada
|
|
1996 and forward |
The total amounts of unrecognized tax benefits were $9.7 million and $10.0 million as of March
31, 2008 and December 31, 2007, respectively. If these tax benefits were recognized in the
consolidated financial statements, the portion of these amounts that would reduce the
9
Companys
effective tax rate would be $7.8 million and $8.1 million, respectively. WESCO records interest related to uncertain tax positions as a part of interest expense in the consolidated statement of
income. Any penalties are recognized as part of income tax expense. As of March 31, 2008 and
December 31, 2007, WESCO had an accrued liability of $4.7 million and $4.4 million, respectively,
for interest related to uncertain tax positions. As of March 31, 2008, WESCO had a liability for
tax penalties of $0.5 million.
12. OTHER FINANCIAL INFORMATION
WESCO Distribution, Inc. issued $150 million in aggregate principal amount of 7.50% Senior
Subordinated Notes due 2017 (the 2017 Notes), and WESCO International, Inc. issued $150 million
in aggregate principal amount of 2025 Debentures and $300 million in aggregate principal amount of
2026 Debentures. The 2017 Notes are fully and unconditionally guaranteed by WESCO International,
Inc. on a subordinated basis to all existing and future senior indebtedness of WESCO International,
Inc. The 2025 Debentures and 2026 Debentures are fully and unconditionally guaranteed by WESCO
Distribution, Inc. on a senior subordinated basis to all existing and future senior indebtedness of
WESCO Distribution, Inc.
Condensed consolidating financial information for WESCO International, Inc., WESCO
Distribution, Inc. and the non-guarantor subsidiaries is as follows:
10
WESCO INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2008 |
|
|
(In thousands) |
|
|
WESCO |
|
WESCO Distribution, |
|
Non-Guarantor |
|
Consolidating and |
|
|
|
|
International, Inc. |
|
Inc. |
|
Subsidiaries |
|
Eliminating Entries |
|
Consolidated |
Cash and cash equivalents |
|
$ |
(4 |
) |
|
$ |
32,928 |
|
|
$ |
61,508 |
|
|
$ |
|
|
|
$ |
94,432 |
|
Trade accounts receivable |
|
|
|
|
|
|
|
|
|
|
864,127 |
|
|
|
|
|
|
|
864,127 |
|
Inventories |
|
|
|
|
|
|
413,232 |
|
|
|
202,049 |
|
|
|
|
|
|
|
615,281 |
|
Other current assets |
|
|
(16 |
) |
|
|
27,003 |
|
|
|
36,328 |
|
|
|
|
|
|
|
63,315 |
|
|
|
|
Total current assets |
|
|
(20 |
) |
|
|
473,163 |
|
|
|
1,164,012 |
|
|
|
|
|
|
|
1,637,155 |
|
Intercompany receivables, net |
|
|
|
|
|
|
(1,416,155 |
) |
|
|
1,880,005 |
|
|
|
(463,850 |
) |
|
|
|
|
Property, buildings and equipment, net |
|
|
|
|
|
|
33,564 |
|
|
|
76,941 |
|
|
|
|
|
|
|
110,505 |
|
Intangible assets, net |
|
|
|
|
|
|
10,163 |
|
|
|
84,108 |
|
|
|
|
|
|
|
94,271 |
|
Goodwill and other intangibles, net |
|
|
|
|
|
|
393,571 |
|
|
|
462,262 |
|
|
|
|
|
|
|
855,833 |
|
Investments in affiliates and other
noncurrent assets |
|
|
1,542,509 |
|
|
|
2,963,961 |
|
|
|
16,414 |
|
|
|
(4,430,506 |
) |
|
|
92,378 |
|
|
|
|
Total assets |
|
$ |
1,542,489 |
|
|
$ |
2,458,267 |
|
|
$ |
3,683,742 |
|
|
$ |
(4,894,356 |
) |
|
$ |
2,790,142 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
|
|
|
$ |
478,619 |
|
|
$ |
160,202 |
|
|
$ |
|
|
|
$ |
638,821 |
|
Short-term debt |
|
|
|
|
|
|
3,000 |
|
|
|
483,000 |
|
|
|
|
|
|
|
486,000 |
|
Other current liabilities |
|
|
|
|
|
|
95,061 |
|
|
|
54,678 |
|
|
|
|
|
|
|
149,739 |
|
|
|
|
Total current liabilities |
|
|
|
|
|
|
576,680 |
|
|
|
697,880 |
|
|
|
|
|
|
|
1,274,560 |
|
Intercompany payables, net |
|
|
463,850 |
|
|
|
|
|
|
|
|
|
|
|
(463,850 |
) |
|
|
|
|
Long-term debt |
|
|
450,000 |
|
|
|
255,708 |
|
|
|
42,314 |
|
|
|
|
|
|
|
748,022 |
|
Other noncurrent liabilities |
|
|
|
|
|
|
91,657 |
|
|
|
47,264 |
|
|
|
|
|
|
|
138,921 |
|
Stockholders equity |
|
|
628,639 |
|
|
|
1,534,222 |
|
|
|
2,896,284 |
|
|
|
(4,430,506 |
) |
|
|
628,639 |
|
|
|
|
Total liabilities and stockholders equity |
|
$ |
1,542,489 |
|
|
$ |
2,458,267 |
|
|
$ |
3,683,742 |
|
|
$ |
(4,894,356 |
) |
|
$ |
2,790,142 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2007 |
|
|
(In thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidating |
|
|
|
|
WESCO |
|
WESCO |
|
Non-Guarantor |
|
and Eliminating |
|
|
|
|
International, Inc. |
|
Distribution, Inc. |
|
Subsidiaries |
|
Entries |
|
Consolidated |
Cash and cash equivalents |
|
$ |
(7 |
) |
|
$ |
32,140 |
|
|
$ |
40,164 |
|
|
$ |
|
|
|
$ |
72,297 |
|
Trade accounts receivable |
|
|
|
|
|
|
|
|
|
|
844,514 |
|
|
|
|
|
|
|
844,514 |
|
Inventories |
|
|
|
|
|
|
433,641 |
|
|
|
232,386 |
|
|
|
|
|
|
|
666,027 |
|
Other current assets |
|
|
(16 |
) |
|
|
35,956 |
|
|
|
61,721 |
|
|
|
|
|
|
|
97,661 |
|
|
|
|
Total current assets |
|
|
(23 |
) |
|
|
501,737 |
|
|
|
1,178,785 |
|
|
|
|
|
|
|
1,680,499 |
|
Intercompany receivables, net |
|
|
|
|
|
|
(1,352,902 |
) |
|
|
1,806,458 |
|
|
|
(453,556 |
) |
|
|
|
|
Property, buildings and equipment, net |
|
|
|
|
|
|
33,642 |
|
|
|
70,477 |
|
|
|
|
|
|
|
104,119 |
|
Intangible assets, net |
|
|
|
|
|
|
10,368 |
|
|
|
123,423 |
|
|
|
|
|
|
|
133,791 |
|
Goodwill and other intangibles, net |
|
|
|
|
|
|
393,263 |
|
|
|
531,095 |
|
|
|
|
|
|
|
924,358 |
|
Investments in affiliates and other
noncurrent assets |
|
|
1,512,055 |
|
|
|
2,912,423 |
|
|
|
2,822 |
|
|
|
(4,410,180 |
) |
|
|
17,120 |
|
|
|
|
Total assets |
|
$ |
1,512,032 |
|
|
$ |
2,498,531 |
|
|
$ |
3,713,060 |
|
|
$ |
(4,863,736 |
) |
|
$ |
2,859,887 |
|
|
|
|
Accounts payable |
|
|
|
|
|
|
467,859 |
|
|
|
158,434 |
|
|
|
|
|
|
|
626,293 |
|
Short-term debt |
|
|
|
|
|
|
22,300 |
|
|
|
480,000 |
|
|
|
|
|
|
|
502,300 |
|
Other current liabilities |
|
|
|
|
|
|
96,180 |
|
|
|
67,152 |
|
|
|
|
|
|
|
163,332 |
|
|
|
|
Total current liabilities |
|
|
|
|
|
|
586,339 |
|
|
|
705,586 |
|
|
|
|
|
|
|
1,291,925 |
|
Intercompany payables, net |
|
|
453,556 |
|
|
|
|
|
|
|
|
|
|
|
(453,556 |
) |
|
|
|
|
Long-term debt |
|
|
450,000 |
|
|
|
318,608 |
|
|
|
42,703 |
|
|
|
|
|
|
|
811,311 |
|
Other noncurrent liabilities |
|
|
|
|
|
|
90,468 |
|
|
|
57,707 |
|
|
|
|
|
|
|
148,175 |
|
Stockholders equity |
|
|
608,476 |
|
|
|
1,503,116 |
|
|
|
2,907,064 |
|
|
|
(4,410,180 |
) |
|
|
608,476 |
|
|
|
|
Total liabilities and
stockholders equity |
|
$ |
1,512,032 |
|
|
$ |
2,498,531 |
|
|
$ |
3,713,060 |
|
|
$ |
(4,863,736 |
) |
|
$ |
2,859,887 |
|
|
|
|
11
WESCO INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENTS OF INCOME
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2008 |
|
|
(In thousands) |
|
|
WESCO |
|
WESCO Distribution, |
|
Non-Guarantor |
|
Consolidating and |
|
|
|
|
International, Inc. |
|
Inc. |
|
Subsidiaries |
|
Eliminating Entries |
|
Consolidated |
Net sales |
|
$ |
|
|
|
$ |
1,035,513 |
|
|
$ |
429,693 |
|
|
$ |
|
|
|
$ |
1,465,206 |
|
Cost of goods sold |
|
|
|
|
|
|
836,481 |
|
|
|
333,080 |
|
|
|
|
|
|
|
1,169,561 |
|
Selling, general and
administrative expenses |
|
|
2 |
|
|
|
169,643 |
|
|
|
41,994 |
|
|
|
|
|
|
|
211,639 |
|
Depreciation and amortization |
|
|
|
|
|
|
3,775 |
|
|
|
3,158 |
|
|
|
|
|
|
|
6,933 |
|
Results of affiliates operations |
|
|
37,861 |
|
|
|
35,407 |
|
|
|
|
|
|
|
(73,268 |
) |
|
|
|
|
Interest (income) expense, net |
|
|
(6,971 |
) |
|
|
9,808 |
|
|
|
11,726 |
|
|
|
|
|
|
|
14,563 |
|
Other income |
|
|
|
|
|
|
(2,744 |
) |
|
|
|
|
|
|
|
|
|
|
(2,744 |
) |
Provision for income taxes |
|
|
|
|
|
|
16,096 |
|
|
|
4,328 |
|
|
|
|
|
|
|
20,424 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
44,830 |
|
|
$ |
37,861 |
|
|
$ |
35,407 |
|
|
$ |
(73,268 |
) |
|
$ |
44,830 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2007 |
|
|
(In thousands) |
|
|
WESCO |
|
WESCO Distribution, |
|
Non-Guarantor |
|
Consolidating and |
|
|
|
|
International, Inc. |
|
Inc. |
|
Subsidiaries |
|
Eliminating Entries |
|
Consolidated |
Net sales |
|
$ |
|
|
|
$ |
1,011,575 |
|
|
$ |
438,981 |
|
|
$ |
|
|
|
$ |
1,450,556 |
|
Cost of goods sold |
|
|
|
|
|
|
816,537 |
|
|
|
334,996 |
|
|
|
|
|
|
|
1,151,533 |
|
Selling, general and
administrative expenses |
|
|
2 |
|
|
|
144,885 |
|
|
|
62,671 |
|
|
|
|
|
|
|
207,558 |
|
Depreciation and amortization |
|
|
|
|
|
|
4,121 |
|
|
|
4,809 |
|
|
|
|
|
|
|
8,930 |
|
Results of affiliates operations |
|
|
43,288 |
|
|
|
26,423 |
|
|
|
|
|
|
|
(69,711 |
) |
|
|
|
|
Interest (income) expense, net |
|
|
(9,077 |
) |
|
|
12,835 |
|
|
|
8,462 |
|
|
|
|
|
|
|
12,220 |
|
Other (income) expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income taxes |
|
|
4,205 |
|
|
|
16,332 |
|
|
|
1,620 |
|
|
|
|
|
|
|
22,157 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
48,158 |
|
|
$ |
43,288 |
|
|
$ |
26,423 |
|
|
$ |
(69,711 |
) |
|
$ |
48,158 |
|
|
|
|
12
WESCO INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2008 |
|
|
(In thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidating |
|
|
|
|
WESCO |
|
WESCO |
|
Non-Guarantor |
|
and Eliminating |
|
|
|
|
International, Inc. |
|
Distribution, Inc. |
|
Subsidiaries |
|
Entries |
|
Consolidated |
|
|
|
Net cash provided by operating activities |
|
$ |
10,840 |
|
|
$ |
56,856 |
|
|
$ |
24,265 |
|
|
$ |
|
|
|
$ |
91,961 |
|
Investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures |
|
|
|
|
|
|
(11,034 |
) |
|
|
(285 |
) |
|
|
|
|
|
|
(11,319 |
) |
Acquisition payments |
|
|
|
|
|
|
(96 |
) |
|
|
|
|
|
|
|
|
|
|
(96 |
) |
Sale of subsidiary |
|
|
|
|
|
|
60,000 |
|
|
|
|
|
|
|
|
|
|
|
60,000 |
|
Other |
|
|
|
|
|
|
13 |
|
|
|
|
|
|
|
|
|
|
|
13 |
|
|
|
|
Net cash provided (used) by investing activities |
|
|
|
|
|
|
48,883 |
|
|
|
(285 |
) |
|
|
|
|
|
|
48,598 |
|
Financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net borrowings (repayments) |
|
|
10,295 |
|
|
|
(89,590 |
) |
|
|
(338 |
) |
|
|
|
|
|
|
(79,633 |
) |
Equity transactions |
|
|
(21,132 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(21,132 |
) |
Other |
|
|
|
|
|
|
(15,361 |
) |
|
|
|
|
|
|
|
|
|
|
(15,361 |
) |
|
|
|
Net cash used by financing activities |
|
|
(10,837 |
) |
|
|
(104,951 |
) |
|
|
(338 |
) |
|
|
|
|
|
|
(116,126 |
) |
|
|
|
Effect of exchange rate changes on cash and cash
equivalents |
|
|
|
|
|
|
|
|
|
|
(2,298 |
) |
|
|
|
|
|
|
(2,298 |
) |
|
|
|
Net change in cash and cash equivalents |
|
|
3 |
|
|
|
788 |
|
|
|
21,344 |
|
|
|
|
|
|
|
22,135 |
|
Cash and cash equivalents at the beginning of year |
|
|
(7 |
) |
|
|
32,140 |
|
|
|
40,164 |
|
|
|
|
|
|
|
72,297 |
|
|
|
|
Cash and cash equivalents at the end of period |
|
$ |
(4 |
) |
|
$ |
32,928 |
|
|
$ |
61,508 |
|
|
$ |
|
|
|
$ |
94,432 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2007 |
|
|
(In thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidating |
|
|
|
|
WESCO |
|
WESCO |
|
Non-Guarantor |
|
and Eliminating |
|
|
|
|
International, Inc. |
|
Distribution, Inc. |
|
Subsidiaries |
|
Entries |
|
Consolidated |
|
|
|
|
Net cash provided (used) by operating activities |
|
$ |
8,311 |
|
|
$ |
78,911 |
|
|
$ |
(11,421 |
) |
|
$ |
|
|
|
$ |
75,801 |
|
Investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures |
|
|
|
|
|
|
(2,473 |
) |
|
|
(375 |
) |
|
|
|
|
|
|
(2,848 |
) |
Acquisition payments |
|
|
|
|
|
|
(3,553 |
) |
|
|
|
|
|
|
|
|
|
|
(3,553 |
) |
|
|
|
Net cash used by investing activities |
|
|
|
|
|
|
(6,026 |
) |
|
|
(375 |
) |
|
|
|
|
|
|
(6,401 |
) |
Financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net borrowings (repayments) |
|
|
178,737 |
|
|
|
(74,069 |
) |
|
|
(324 |
) |
|
|
|
|
|
|
104,344 |
|
Equity transactions |
|
|
(186,817 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(186,817 |
) |
Other |
|
|
(233 |
) |
|
|
(4,547 |
) |
|
|
(3 |
) |
|
|
|
|
|
|
(4,783 |
) |
|
|
|
Net cash used by financing activities |
|
|
(8,313 |
) |
|
|
(78,616 |
) |
|
|
(327 |
) |
|
|
|
|
|
|
(87,256 |
) |
|
|
|
Effect of exchange rate changes on cash and
cash equivalents |
|
|
|
|
|
|
|
|
|
|
(170 |
) |
|
|
|
|
|
|
(170 |
) |
|
|
|
Net change in cash and cash equivalents |
|
|
(2 |
) |
|
|
(5,731 |
) |
|
|
(12,293 |
) |
|
|
|
|
|
|
(18,026 |
) |
Cash and cash equivalents at the beginning of
year |
|
|
(2 |
) |
|
|
27,622 |
|
|
|
45,775 |
|
|
|
|
|
|
|
73,395 |
|
|
|
|
Cash and cash equivalents at the end of period |
|
$ |
(4 |
) |
|
$ |
21,891 |
|
|
$ |
33,482 |
|
|
$ |
|
|
|
$ |
55,369 |
|
|
|
|
13
13. SUBSEQUENT EVENT
During
the month of May, WESCO repurchased approximately 0.9 million
shares for $36.1 million
under its share repurchase program.
14
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
The following discussion should be read in conjunction with the information in the unaudited
condensed consolidated financial statements and notes thereto included herein and WESCO
International Inc.s Financial Statements and Managements Discussion and Analysis of Financial
Condition and Results of Operations included in its 2007 Annual Report on Form 10-K.
Company Overview
We are a full-line distributor of electrical supplies and equipment and a provider of
integrated supply procurement services. We have more than 400 full service branches and seven
distribution centers located in the United States, Canada, Mexico, the United Kingdom, Nigeria,
United Arab Emirates and Singapore. We serve over 110,000 customers worldwide, offering over
1,000,000 products from over 24,000 suppliers. Our diverse customer base includes a wide variety
of industrial companies; contractors for industrial, commercial and residential projects; utility
companies, and commercial, institutional and governmental customers. Approximately 87% of our net
sales are generated from operations in the United States., 11% from Canada and the remainder from
other countries.
Our financial results for the first three months of 2008 reflect sales growth in our markets
served, along with the positive impact of higher commodity prices, favorable exchange rates and the
acquisitions completed in the latter half of 2007. Sales increased $14.7 million, or 1.0%, over
the same period last year. Last years comparable period included sales of $26.2 million related
to the LADD operations. Cost of goods sold as a percentage of net sales was 79.8% and 79.4% for
the first three months of 2008 and 2007, respectively. Operating income decreased by $5.5 million,
or 6.6%, primarily from the partial divestiture of our LADD operations. Net income for the three
months ended March 31, 2008 and 2007 was $44.8 million and $48.2 million, respectively.
Cash Flow
We generated $91.4 million in operating cash flow for the first three months of 2008.
Included in this amount was net income of $44.8 million. Investing activities included proceeds of
$60 million from our recent divestiture, and capital expenditures of $11.3 million. Financing
activities consisted of borrowings and repayments of $241.5 million and $323.8 million,
respectively, related to our revolving credit facility, $24.9 million related to stock repurchases,
and net borrowings of $3.0 million related to our accounts receivable securitization facility (the
Receivables Facility), whereby we sell, on a continuous basis, an undivided interest in all
domestic accounts receivable to WESCO Receivables Corp., a wholly owned, special purpose entity
(SPE).
Financing Availability
As of March 31, 2008, we had $228.7 million in available borrowing capacity under our
revolving credit facility, of which $164.0 million is the U.S. sub-facility borrowing limit and
$64.7 million is the Canadian sub-facility borrowing limit.
Outlook
We believe that acquisitions and improvements in operations and our capital structure made in
2006 and 2007 have positioned us well for 2008. We continue to see macroeconomic data and input
from internal sales management, customers and suppliers that suggest activity levels in our major
end markets will be somewhat softer than that experienced in 2007. We believe that there are
opportunities in the industrial and commercial construction end markets, and that we are well
positioned to participate in these large fragmented markets. Our strong market position, combined
with our continued focus on margin, productivity improvement, and selling and marketing
initiatives, should enable us to perform well in comparison to the market throughout the remainder
of 2008.
15
Critical Accounting Policies and Estimates
During the three month period ended March 31, 2008, there were no significant changes to our
Critical Accounting Policies and Estimates referenced in the 2007 Annual Report on Form 10-K.
Results of Operations
First Quarter of 2008 versus First Quarter of 2007
The following table sets forth the percentage relationship to net sales of certain items in
our condensed consolidated statements of income for the periods presented:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
March 31, |
|
|
2008 |
|
2007 |
Net sales |
|
|
100.0 |
% |
|
|
100.0 |
% |
Cost of goods sold |
|
|
79.8 |
|
|
|
79.4 |
|
Selling, general and administrative expenses |
|
|
14.4 |
|
|
|
14.3 |
|
Depreciation and amortization |
|
|
0.5 |
|
|
|
0.6 |
|
|
|
|
|
|
|
|
|
|
Income from operations |
|
|
5.3 |
|
|
|
5.7 |
|
Interest expense |
|
|
1.0 |
|
|
|
0.9 |
|
Other income |
|
|
(0.2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes |
|
|
4.5 |
|
|
|
4.8 |
|
Provision for income taxes |
|
|
1.4 |
|
|
|
1.5 |
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
3.1 |
% |
|
|
3.3 |
% |
|
|
|
|
|
|
|
|
|
Net sales in the first quarter of 2008 totaled $1,465.2 million versus $1,450.6 million in the
comparable period for 2007, an increase of $14.7 million, or 1.0%, over the same period last year.
Sales were positively impacted by higher commodity prices, favorable exchange rates and the
acquisitions completed in the second half of 2007. These increases were partially offset by $26.2
million of sales recognized in last years comparable period for the LADD operations.
Cost of goods sold for the first quarter of 2008 was $1,169.6 million versus $1,151.5 million
for the comparable period in 2007, and cost of goods sold as a percentage of net sales was 79.8% in
2008 versus 79.4% in 2007. The cost of goods sold was negatively impacted by the divestiture of
the LADD operations, which was partially offset by a favorable sales mix.
Selling, general and administrative (SG&A) expenses in the first quarter of 2008 totaled
$211.6 million versus $207.6 million in last years comparable quarter. As a percentage of net
sales, SG&A expenses were 14.4% in the first quarter of 2008 compared to 14.3% in the first quarter
of 2007, reflecting an increase in sales personnel, the impact from the recent acquisitions and the
transaction loss on the LADD divestiture.
SG&A payroll expenses for the first quarter of 2008 of $145.1 million increased by $4.2
million compared to the same quarter in 2007. The increase in payroll expenses was primarily due
to an increase in salaries and wages of $5.1 million and an increase in incentive compensation
costs of $1.3 million, offset by a decrease in benefit costs of $1.8 million. Other SG&A related
payroll expenses decreased $0.4 million.
The remaining SG&A expenses for the first quarter of 2008 of $66.5 million decreased by
approximately $0.2 million compared to same quarter in 2007. Contributing to the change was a
charge of $6.8 million recognized in last years comparable period for a legal settlement. Included
in this years SG&A expenses was a charge of $3.0 million for the partial sale of the LADD
operations, an increase in bad debt expense of $1.5 million primarily related to a customer
bankruptcy filing, an increase in travel expenses of $0.7 million and an increase in other SG&A
expenses of $1.4 million.
Depreciation and amortization for the first quarter of 2008 was $6.9 million versus $8.9
million in last years comparable quarter. Of the $2.0 million decrease, $1.6 million is related
to the recent divestiture.
Interest expense totaled $14.6 million for the first quarter of 2008 versus $12.2 million in
last years comparable quarter, an increase of approximately 19.2%. Last years comparable period
included a pre-tax gain of $2.4 million related to the change in the accounting treatment of the
Receivables Facility. Overall, interest expense for the first quarter of 2008 was impacted by the
reduction in interest rates offset by the increase in debt.
16
Other income totaled $2.7 million for the first quarter of 2008. As a result of selling a
majority interest, the investment in LADD is now accounted for on an equity basis, and earnings are
reported as other income in the consolidated statement of income. There was no other income
recorded for the first quarter of 2007.
Income tax expense totaled $20.4 million in the first quarter of 2008, and the effective tax
rate was 31.3% compared to 31.5% in the same quarter in 2007. The current quarters effective tax
rate differed from the statutory rate primarily as a result of a lower tax rate from foreign
operations.
For the first quarter of 2008, net income decreased by $3.3 million to $44.8 million, or $1.02
per diluted share, compared with $48.2 million, or $0.93 per diluted share, for the first quarter
of 2007. The decrease in net income was primarily due to the increase in SG&A costs and the partial
divestiture of the LADD operations.
Liquidity and Capital Resources
Total assets were approximately $2.8 billion at March 31, 2008, compared to $2.9 billion at
December 31, 2007. The decrease in total assets was principally attributable to the LADD
divestiture. Total liabilities at March 31, 2008 compared to
December 31, 2007 decreased by $89.9
million to $2.2 billion. Contributing to the decrease in total liabilities was a decrease in
short-term and long-term debt of $79.6 million; decrease in bank overdrafts of $14.9 million; decrease in accrued
payroll and benefit costs of $14.6 million due to the payment in 2008 of the 2007 management
incentive compensation; and a decrease in deferred income taxes of $8.9 million
due to the LADD divestiture. This decrease was offset by an increase in other current liabilities of
$15.8 million related to an increase in accrued income taxes and an increase in accounts payable of
$12.5 million due to the increase in the cost of sales. Stockholders equity increased 3.3% to
$628.6 million at March 31, 2008, compared with $608.5 million at December 31, 2007, primarily as a
result of net earnings of $44.8 million offset by stock repurchases, which totaled $24.9 million
for the three months ended March 31, 2008. Also contributing to the change in stockholders equity
was a loss of $6.8 million from foreign currency translation adjustments offset by benefits of $3.7
million from the exercise of stock options and $3.2 million from stock-based compensation expense.
Our liquidity needs arise from working capital requirements, capital expenditures,
acquisitions and debt service obligations. As of March 31, 2008, we had $228.7 million in
available borrowing capacity under our revolving credit facility.
We finance our operating and investing needs, as follows:
Accounts Receivable Securitization Facility
We maintain a $500 million accounts receivable securitization program that has a three year
term and is subject to renewal in May 2010. Under the Receivables Facility, we sell, on a
continuous basis, an undivided interest in all domestic accounts receivable to WESCO Receivables
Corporation, a wholly owned, SPE. The SPE sells, without recourse, a senior undivided interest in
the receivables to third-party conduits and financial institutions for cash while maintaining a
subordinated undivided interest in a portion of the receivables, in the form of
overcollateralization. We have agreed to continue servicing the sold receivables for the
third-party conduits and financial institutions at market rates; accordingly, no servicing asset or
liability has been recorded.
Prior to December 2006, we accounted for transfers of receivables pursuant to the Receivables
Facility as a sale and removed them from the consolidated balance sheet. In December 2006, the
Receivables Facility was amended and restated such that we effectively maintain control of
receivables transferred pursuant to the Receivables Facility; therefore the transfers no longer
qualify for sale treatment under SFAS No. 140. As a result, all transfers are accounted for as
secured borrowings and the receivables sold pursuant to the Receivables Facility are included on
the balance sheet as trade receivables, along with our retained subordinated undivided interest in
those receivables.
As of March 31, 2008 and December 31, 2007, accounts receivable eligible for securitization
totaled approximately $602.7 million and $604.0 million, respectively. The consolidated balance
sheets as of March 31, 2008 and December 31, 2007 reflect $483.0 million and $480.0 million,
respectively, of account receivable balances legally sold to third parties, as well as the related
borrowings for equal amounts.
Mortgage Financing Facility
In February 2003, we finalized a $51 million mortgage financing facility, $43.3 million of
which was outstanding as of March 31, 2008. Borrowings under the mortgage financing are
collateralized by 75 domestic properties and are subject to a 22-year amortization schedule with a
balloon payment due at the end of the 10-year term. Interest rates on borrowings under this
facility are fixed at 6.5%.
17
Revolving Credit Facility
The revolving credit facility provides for an aggregate borrowing limit of up to $375 million
and matures on November 1, 2013. During the first three months of 2008, we borrowed $241.5 million
and made repayments of $323.8 million in the aggregate. At March 31, 2008, we had $105.0 million
outstanding under the facility, of which $3.0 million is classified as short-term debt. We were in
compliance with all covenants and restrictions as of March 31, 2008.
7.50% Senior Subordinated Notes due 2017
At March 31, 2008, $150 million in aggregate principal amount of the 7.50% Senior Subordinated
Notes due 2017 (the 2017 Notes) was outstanding. The 2017 Notes were issued by WESCO
Distribution, Inc. under an indenture dated as of September 27, 2005 with The Bank of New York, as
successor to J.P. Morgan Trust Company, National Association, as trustee, and are unconditionally
guaranteed on an unsecured basis by WESCO International, Inc. The 2017 Notes accrue interest at
the rate of 7.50% per annum and are payable in cash semi-annually in arrears on each April 15 and
October 15.
2.625% Convertible Senior Debentures due 2025
At March 31, 2008, $150 million in aggregate principal amount of the 2.625% Convertible Senior
Debentures due 2025 (the 2025 Debentures) was outstanding. The 2025 Debentures were issued by
WESCO International Inc. under an indenture dated as of September 27, 2005 with The Bank of New
York, as successor to J.P. Morgan Trust Company, National Association, as trustee, and are
unconditionally guaranteed on an unsecured senior subordinated basis by WESCO Distribution, Inc.
The 2025 Debentures accrue interest at the rate of 2.625% per annum and are payable in cash
semi-annually in arrears on each April 15 and October 15. Beginning with the six-month interest
period commencing October 15, 2010, we also will pay contingent interest in cash during any
six-month interest period in which the trading price of the 2025 Debentures for each of the five
trading days ending on the second trading day immediately preceding the first day of the applicable
six-month interest period equals or exceeds 120% of the principal amount of the 2025 Debentures.
During any interest period when contingent interest shall be payable, the contingent interest
payable per $1,000 principal amount of 2025 Debentures will equal 0.25% of the average trading
price of $1,000 principal amount of the 2025 Debentures during the five trading days immediately
preceding the first day of the applicable six-month interest period. As defined in SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities (SFAS 133), the contingent interest
feature of the 2025 Debentures is an embedded derivate that is not considered clearly and closely
related to the host contract. The contingent interest component had no significant value at March
31, 2008 or at December 31, 2007.
The 2025 Debentures are convertible into cash and, in certain circumstances, shares of WESCO
International, Inc.s common stock, $0.01 par value, at any time on or after October 15, 2023, or
prior to October 15, 2023 in certain circumstances. The 2025 Debentures will be convertible based
on an initial conversion rate of 23.8872 shares of common stock per $1,000 principal amount of the
2025 Debentures (equivalent to an initial conversion price of approximately $41.86 per share). The
conversion rate and the conversion price may be adjusted under certain circumstances.
At any time on or after October 15, 2010, we may redeem all or a part of the 2025 Debentures
at a redemption price equal to 100% of the principal amount of the 2025 Debentures plus accrued and
unpaid interest (including contingent interest and additional interest, if any) to, but not
including, the redemption date. Holders of 2025 Debentures may require us to repurchase all or a
portion of their 2025 Debentures on October 15, 2010, October 15, 2015 and October 15, 2020 at a
cash repurchase price equal to 100% of the principal amount of the 2025 Debentures, plus accrued
and unpaid interest (including contingent interest and additional interest, if any) to, but not
including, the repurchase date. If we undergo certain fundamental changes prior to maturity,
holders of 2025 Debentures will have the right, at their option, to require us to repurchase for
cash some or all of their 2025 Debentures at a repurchase price equal to 100% of the principal
amount of the 2025 Debentures being repurchased, plus accrued and unpaid interest (including
contingent interest and additional interest, if any) to, but not including, the repurchase date.
1.75% Convertible Senior Debentures due 2026
At March 31, 2008, $300 million in aggregate principal amount of the 2026 Debentures was
outstanding. The 2026 Debentures were issued by WESCO International, Inc. under an indenture dated
as of November 2, 2006, with The Bank of New York, as Trustee, and are unconditionally guaranteed
on an unsecured senior subordinated basis by WESCO Distribution, Inc. The 2026 Debentures accrue
interest at the rate of 1.75% per annum and are payable in cash semi-annually in arrears on each
May 15 and November 15. Beginning with the six-month interest period commencing November 15, 2011,
we also will pay contingent interest in cash during any six-month interest period in which the
trading price of the 2026 Debentures for each of the five trading days ending on the second trading
day immediately preceding the first day of
18
the applicable six-month interest period equals or
exceeds 120% of the principal amount of the 2026 Debentures. During any interest period when contingent interest shall
be payable, the contingent interest payable per $1,000 principal amount of 2026 Debentures will
equal 0.25% of the average trading price of $1,000 principal amount of the 2026 Debentures during
the five trading days immediately preceding the first day of the applicable six-month interest
period. As defined in SFAS 133, the contingent interest feature of the 2026 Debentures is an
embedded derivate that is not considered clearly and closely related to the host contract. The
contingent interest component had no significant value at March 31, 2008 or at December 31, 2007.
The 2026 Debentures are convertible into cash and, in certain circumstances, shares of WESCO
International, Inc.s common stock, $0.01 par value, at any time on or after November 15, 2024, or
prior to November 15, 2024 in certain circumstances. The 2026 Debentures will be convertible based
on an initial conversion rate of 11.3437 shares of common stock per $1,000 principal amount of the
2026 Debentures (equivalent to an initial conversion price of approximately $88.15 per share). The
conversion rate and the conversion price may be adjusted under certain circumstances.
At any time on or after November 15, 2011, we may redeem all or a part of the 2026 Debentures
at a redemption price equal to 100% of the principal amount of the 2026 Debentures plus accrued and
unpaid interest (including contingent interest and additional interest, if any) to, but not
including, the redemption date. Holders of 2026 Debentures may require us to repurchase all or a
portion of their 2026 Debentures on November 15, 2011, November 15, 2016 and November 15, 2021 at a
cash repurchase price equal to 100% of the principal amount of the 2026 Debentures, plus accrued
and unpaid interest (including contingent interest and additional interest, if any) to, but not
including, the repurchase date. If we undergo certain fundamental changes, as defined in the
indenture governing the 2026 Debentures, prior to maturity, holders of 2026 Debentures will have
the right, at their option, to require us to repurchase for cash some or all of their 2026
Debentures at a repurchase price equal to 100% of the principal amount of the 2026 Debentures being
repurchased, plus accrued and unpaid interest (including contingent interest and additional
interest, if any) to, but not including, the repurchase date.
Cash Flow
Operating Activities. Cash provided by operating activities for the first three months of
2008 totaled $92.0 million compared with $75.8 million of cash generated for the first three months
of 2007. The increase in cash flow is primarily attributable to net income of $44.8 million, an
inventory reduction of $26.9 million, and an accounts payable increase of $23.4 million, resulting
from the increase in the cost of sales. Additional items generating cash flow in the first three
months of 2008 were an increase in other current and noncurrent liabilities of $9.9 million and a
reduction in prepaid expenses and other current assets of $8.2 million. The cash inflow generated
from these items was primarily due to the increase in accrued taxes. Cash used by operating
activities in the first three months of 2008 included: $16.9 million for the increase in trade and
other receivables, resulting from the increase in sales; and $14.5 million for the decrease in
accrued payroll and benefit costs, resulting from the payment of the 2007 management incentive
compensation. In the first three months of 2007, primary sources of cash were net income of $48.2
million; an increase in accounts payable of $55.9 million, resulting from the increase in the cost
of sales; a reduction in prepaid and other current assets of $27.7 million; and a reduction in
inventory of $7.8 million. Cash used by operating activities in the first three months of 2007
included $34.6 million for the increase in trade and other receivables reflecting the impact of the
increase in sales, and $28.8 million for the decrease in accrued payroll and benefit costs
resulting from the payment of the 2006 management incentive compensation.
Investing Activities. Net cash provided by investing activities for the first three months of
2008 was $48.6 million, compared with $6.4 million of net cash used during the first three months
of 2007. Included in 2008 were proceeds of $60.0 million from the partial divestiture of LADD.
Capital expenditures were $11.3 million and $2.8 million in the first three months of 2008 and
2007, respectively.
Financing Activities. Net cash used by financing activities for the first three months of
2008 and 2007 was $116.1 million and $87.3 million, respectively. During the first three months of
2008, borrowings and repayments of long-term debt of $241.5 million and $323.8 million,
respectively, were made to our revolving credit facility. Borrowings and repayments of $83.0
million and $80.0 million, respectively, were applied to our Receivables Facility, and there were
repayments of $0.3 million to our mortgage financing facility. During the first three months of
2007, borrowings and repayments of long-term debt of $272.0 million and $213.5 million,
respectively, were made to our revolving credit facility. Borrowings and repayments of $60.0
million and $10.5 million, respectively, were applied to our Receivables Facility, and there were
repayments of $0.3 million to our mortgage financing facility. In addition, during the first three
months of 2008 and 2007, we purchased shares of our stock under our share repurchase plan for
approximately $24.8 and $197.9 million, respectively. The exercise of stock-based compensation
arrangements resulted in proceeds of $2.2 million and $5.5 million during the first three months of
2008 and 2007, respectively.
19
Contractual Cash Obligations and Other Commercial Commitments
There were no material changes in our contractual obligations and other commercial commitments
that would require an update to the disclosure provided in our 2007 Annual Report on Form 10-K.
Management believes that cash generated from operations, together with amounts available under our
revolving credit facility and the Receivables Facility, will be sufficient to meet our working
capital, capital expenditures and other cash requirements for the foreseeable future. There can be
no assurances, however, that this will be or will continue to be the case.
Inflation
The rate of inflation affects different commodities, the cost of products purchased and
ultimately the pricing of our different products and product classes to our customers. On an
overall basis, our pricing related to inflation comprised an estimated $16 million of our sales
growth for the three months ended March 31, 2008.
Seasonality
Our operating results are not significantly affected by certain seasonal factors. Sales
during the first quarter are generally less than 2% below the sales of the remaining three quarters
due to reduced level of activity during the winter months of January and February. Sales typically
increase beginning in March with slight fluctuations per month through December.
Impact of Recently Issued Accounting Standards
In September 2006, the Financial Accounting Standards Board (the FASB) issued Statement of
Financial Accounting Standards (SFAS) No. 157, Fair Value Measurements (SFAS 157) which defines
fair value, establishes a framework for measuring fair value in generally accepted accounting
principles, and expands disclosures about fair value measurements. This statement applies whenever other accounting standards require or
permit assets or liabilities to be measured at fair value but does
not expand the use of fair value to new accounting transactions and
does not apply to pronouncements that address share-based payment
transactions. On February 12, 2008, the FASB
issued FASB Staff Position (FSP) SFAS No. 157-2, Effective Date of SFAS No. 157. The FSP amends
SFAS 157 to delay the effective date of SFAS 157 for all nonfinancial assets and liabilities,
except those that are recognized or disclosed at fair value in the financial statements on a
recurring basis (that is, at least annually) to fiscal years beginning after November 15, 2008.
Except for the delay for nonfinancial assets and liabilities, SFAS 157 was effective for fiscal
years beginning after November 15, 2007. Consistent with its requirements, we adopted SFAS 157 for
our financial assets and liabilities on January 1, 2008. Our
financial instruments consist of cash and cash equivalents, accounts
receivable, accounts payable, bank overdrafts and debt. We believe
that the recorded values of our financial instruments, except for
long-term debt, approximate fair value because of their nature and
respective duration. The adoption of SFAS 157 did not
impact our financial position, results of operations, or cash flows. Nonfinancial assets and
liabilities for which we have not applied the provisions of FAS 157 include those measured at fair
value in goodwill and indefinite lived intangible asset impairment testing, and assets acquired and
liabilities assumed in a business combination. We are currently evaluating the effect that the
implementation of FSP 157-2 will have on our financial position, results of operations and cash
flows.
In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and
Liabilities (SFAS 159) which provides companies with an option to report certain financial assets
and liabilities at fair value, with changes in value recognized in earnings each reporting period.
SFAS 159 establishes presentation and disclosure requirements designed to facilitate comparisons
between companies that choose different measurement attributes for similar types of assets and
liabilities. SFAS 159 was effective for fiscal years beginning after November 15, 2007.
Consistent with its requirements, we adopted SFAS 159 on
January 1, 2008. We did not elect to value our debt with the
fair value option in accordance with SFAS 159, Therefore, the adoption of SFAS 159
did not impact our financial position, results of operations, or cash flows.
In December 2007, the FASB issued SFAS No. 141 (revised 2007), Business Combinations (SFAS
141R) which establishes additional principles and requirements for how the acquirer in a business
combination recognizes and measures in its financial statements the identifiable assets acquired,
the liabilities assumed and any noncontrolling interest in the acquiree at the acquisition date
fair value. SFAS 141R is designed to improve the relevance, representational faithfulness and
comparability of the financial information that a reporting entity provides in its financial
reports about a business combination and its effects. SFAS 141R applies prospectively to business
combinations for which the acquisition date is in or after the beginning of the first annual
reporting period beginning after December 15, 2008. We are currently evaluating the effect that
the implementation of SFAS 141R will have on our financial position, results of operations and cash
flows.
20
In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated
Financial Statements an Amendment of ARB No. 51 (SFAS 160). This statement amends Accounting
Research Bulletin No. 51, Consolidated Financial Statements (ARB 51) to establish accounting and
reporting standards for a noncontrolling interest in a subsidiary and for the deconsolidation of a
subsidiary. It clarifies that a noncontrolling interest in a subsidiary is an ownership interest
in the consolidated entity that should be reported as equity in the consolidated financial
statements. SFAS 160 is effective for fiscal years beginning after December 15, 2008. We are
currently evaluating the effect that the implementation of SFAS 160 will have on our financial
position, results of operations and cash flows.
Forward-Looking Statements
From time to time in this report and in other written reports and oral statements, references
are made to expectations regarding our future performance. When used in this context, the words
anticipates, plans, believes, estimates, intends, expects, projects, will 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 our business strategy, growth strategy, productivity and profitability enhancement, new
product and service introductions and liquidity and capital resources are based on managements
beliefs, as well as on assumptions made by, and information currently available to, management, and
involve various risks and uncertainties, certain 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. Factors that might cause actual
results to differ from such forward-looking statements include, but are not limited to, an increase
in competition, the amount of outstanding indebtedness, the availability of appropriate acquisition
opportunities, availability of key products, functionality of information systems, international
operating environments and other risks that are described in our Annual Report on Form 10-K for our
fiscal year ended December 31, 2007, or other documents subsequently filed with the Securities and
Exchange Commission. 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.
21
Item 3. Quantitative and Qualitative Disclosures about Market Risks
There have not been any material changes to our exposures to market risk during the quarter
ended March 31, 2008 that would require an update to the disclosures provided in our 2007 Annual
Report on Form 10-K.
Item 4. Controls and Procedures
Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including our principal
executive officer and principal financial officer, we conducted an evaluation of our disclosure
controls and procedures as such term is defined under Rule 13a-15(e) promulgated under the Exchange
Act. Based on this evaluation, our principal executive officer and our principal financial officer
concluded that our disclosure controls and procedures were effective as of the end of the period
covered by this report.
Changes in Internal Control Over Financial Reporting
During the first quarter of 2008, there were no changes in our internal control over financial
reporting identified in connection with managements evaluation of the effectiveness of our
internal control over financial reporting that have materially affected, or are reasonably likely
to materially affect, our internal control over financial reporting.
22
Part II Other Information
Item 1. Legal Proceedings
From time to time, a number of lawsuits and claims have been or may be asserted against us
relating to the conduct of our business, including routine litigation relating to commercial and
employment matters. The outcome of any litigation cannot be predicted with certainty, and some
lawsuits, may be determined adversely to us. However, management does not believe, based on
information presently available, that the ultimate outcome of any such pending matters is likely to
have a material adverse effect on our financial condition or liquidity, although the resolution in
any quarter of one or more of these matters may have a material adverse effect on our results of
operations for that period.
As previously reported in our Annual Report on Form 10-K , we are a co-defendant in a lawsuit
filed in a state court in Indiana in which a customer alleges that we sold defective products
manufactured or remanufactured by others and is seeking monetary damages in the amount of $52
million. We have denied any liability, continue to believe that we have meritorious defenses and
intend to vigorously defend ourselves against these allegations.
Information relating to legal proceedings is included in Note 8, Commitments and Contingencies
of the Notes to the Condensed Consolidated Financial Statements and is incorporated herein by
reference.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
The following table provides a summary of all repurchases by us of our common stock during the
three months ended March 31, 2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Number of Shares |
|
Approximate Dollar Value of |
|
|
Total Number of |
|
Average |
|
Purchased as Part of |
|
Shares That May Yet Be |
|
|
Shares Purchased |
|
Price |
|
Publicly Announced Plans or |
|
Purchased Under the Plans |
|
|
(In Thousands) |
|
Paid Per |
|
Programs |
|
or Programs |
Period |
|
(3) |
|
Share |
|
(In Thousands)(1) |
|
(In Millions) (1),(2) |
|
|
|
January 2008 |
|
|
341.9 |
|
|
$ |
39.05 |
|
|
|
339.2 |
|
|
$ |
356.2 |
|
February 2008 |
|
|
290.3 |
|
|
$ |
39.82 |
|
|
|
289.4 |
|
|
$ |
344.7 |
|
March 2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
344.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
632.2 |
|
|
$ |
39.41 |
|
|
|
628.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
On September 28, 2007, we announced that our Board of Directors authorized a stock
repurchase program in the amount of up to $400 million with an expiration date of September
30, 2009. |
|
(2) |
|
Excludes commission fees of $10.2 thousand and $8.7 thousand for the months of January and
February, respectively. |
|
(3) |
|
Of the 0.6 million shares acquired, 3,637 shares were purchased from employees for
approximately $0.1 million in connection with the settlement of tax withholding obligations
arising from the exercise of common stock options and stock-settled stock appreciation rights. |
Item 6. Exhibits
(a) Exhibits
|
31.1 |
|
Certification of Chief Executive Officer pursuant to Rules 13a-14(a) promulgated under the
Exchange Act. |
|
|
31.2 |
|
Certification of Chief Financial Officer pursuant to Rules 13a-14(a) promulgated under the
Exchange Act. |
|
|
32.1 |
|
Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002. |
|
|
32.2 |
|
Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002. |
23
Signatures
Pursuant to the requirements 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.
|
|
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|
WESCO International, Inc.
|
|
Date: May 12, 2008 |
/s/ Stephen A. Van Oss
|
|
|
Stephen A. Van Oss |
|
|
Senior Vice President, Chief Financial and
Administrative Officer |
|
24