SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K/A

(Amendment No. 1)

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934

WESCO INTERNATIONAL, INC.

(Exact name of registrant as specified in its charter)

Delaware		001-14989		25-1723342
(State or other jurisdiction of incorporation)		(Commission File Number)		(IRS Employer Identification No.)
225 West Station Square Drive, Suite 700 Pittsburgh, Pennsylvania				15219
(Address of principal executive offices)				(Zip code)

Registrant’s telephone number, including area code (412) 454-2200

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

 

     WESCO International, Inc. filed a Current Report on Form 8-K on October 4, 2005 to report (i) the amendment and restatement of WESCO Distribution, Inc.’s revolving credit facility on September 28, 2005, (ii) the completion of WESCO International, Inc.’s acquisition of Carlton-Bates Company on September 29, 2005 and (iii) an amendment to WESCO Distribution, Inc.’s accounts receivable securitization facility on October 4, 2005. Pursuant to Item 9.01(a)(4), this Amendment No. 1 to Form 8-K is being filed in order to include the required historical financial statements of Carlton-Bates Company and the related pro forma financial information not later than 71 calendar days after October 5, 2005, the date that the initial Current Report on Form 8-K was required to have been filed to report the completion of the acquisition of Carlton-Bates Company. In accordance with Securities Exchange Act Rule 12b-15, Items 2.01 and 9.01 are amended and restated in their entirety.

Item 2.01 Completion of Acquisition or Disposition of Assets.

     On September 29, 2005, WESCO International, Inc. (the “Company”) completed its acquisition of Carlton-Bates Company (“Carlton-Bates”) from the shareholders of Carlton-Bates, pursuant to which a wholly-owned subsidiary of WESCO Distribution, Inc. (“WESCO Distribution”) merged with and into Carlton-Bates, which became a wholly-owned subsidiary of WESCO Distribution. The Company paid at closing a cash merger price of approximately $250 million, of which $25 million is held in escrow to address up to $5 million of post-closing adjustments relating to working capital and up to $20 million of potential indemnification claims, with all distributions from the escrow to be made within 30 months. To fund the merger price paid at closing, WESCO Distribution used the net proceeds of the previously announced private offering of $150 million aggregate principal amount of senior subordinated notes by WESCO Distribution and funds available under the revolving credit facility. The acquisition was completed pursuant to the terms and conditions of the Agreement and Plan of Merger, dated August 16, 2005 (the “Merger Agreement”), by and among Carlton-Bates, the shareholders of Carlton-Bates signatory thereto, the Company Representative (as defined therein), WESCO Distribution and C-B WESCO, Inc. The Merger Agreement was attached as Exhibit 10.3 to the Current Report on Form 8-K filed by the Company on October 4, 2005.

     On September 29, 2005, the Company issued a press release regarding the completion of its acquisition of Carlton-Bates. A copy of that press release was filed as Exhibit 99.1 to the Current Report on Form 8-K filed by the Company on October 4, 2005.

     The required historical financial statements of Carlton-Bates and the related pro forma financial information are contained herein under Item 9.01 of this report.

Item 9.01. Financial Statements and Exhibits

     (a) Financial statements of business acquired

     The following historical financial information of Carlton-Bates is attached to this Current Report and is incorporated by reference in this Item 9.01.

Financial Statements of Business Acquired			F-1
Independent Auditors’ Report			F-2
Consolidated Balance Sheet as of September 30, 2004			F-3
Consolidated Statement of Loss and Comprehensive Loss for the year ended September 30, 2004			F-5
Consolidated Statement of Stockholders’ Equity (Deficiency) for the year ended September 30, 2004			F-6
Consolidated Statement of Cash Flows for the year ended September 30, 2004			F-7
Notes to Consolidated Financial Statements			F-8
Condensed Consolidated Balance Sheet as of June 30, 2005 (unaudited)			F-17
Condensed Consolidated Statements of Income and Comprehensive Income for the nine month periods ended June 30, 2005 and 2004 (unaudited)			F-19
Condensed Consolidated Statements of Cash Flows for the nine month periods ended June 30, 2005 and 2004 (unaudited)			F-20
Notes to Unaudited Condensed Consolidated Financial Statements			F-21

     (b) Pro forma financial information

     The following pro forma financial information is attached to this Current Report and is incorporated by reference in this Item 9.01.

Unaudited Pro Forma Condensed Combined Financial Information			P-1
Unaudited Pro Forma Condensed Combined Balance Sheet as of June 30, 2005			P-2
Unaudited Pro Forma Condensed Combined Statement of Income for the six months ended June 30, 2005			P-3
Unaudited Pro Forma Condensed Combined Statement of Income for the year ended December 31, 2005			P-4
Notes to Unaudited Pro Forma Condensed Combined Financial Information			P-5

     (c) Exhibits

Exhibit 10.1		Amended and Restated Credit Agreement, dated as of September 28, 2005, by and among WESCO Distribution, Inc., the other credit parties signatory thereto, the lenders signatory thereto from time to time, General Electric Capital Corporation, as Agent and U.S. Lender, GECC Capital Markets Group, Inc., as Lead Arranger, GE Canada Finance Holding Company, as Canadian Agent and a Canadian Lender, Bank of America, N.A., as Syndication Agent, and The CIT Group/Business Credit, Inc. and Citizens Bank of Pennsylvania, as Co-Documentation Agents (incorporated herein by reference to Exhibit 10.1 to the Current Report on Form 8-K of WESCO International, Inc. filed on October 4, 2005).

Exhibit 10.2		Sixth Amendment to Second Amended and Restated Receivables Purchase Agreement, dated as of September 30, 2005, by and among WESCO Receivables Corp., WESCO Distribution, Inc., the Purchasers and Purchaser Agents party thereto and Wachovia Capital Markets, LLC (as successor to Wachovia Securities, Inc.) (incorporated herein by reference to Exhibit 10.2 to the Current Report on Form 8-K of WESCO International, Inc. filed on October 4, 2005).

Exhibit 10.3		Agreement and Plan of Merger, dated August 16, 2005, by and among Carlton-Bates Company, the shareholders of Carlton-Bates Company signatory thereto, the Company Representative (as defined therein), WESCO Distribution, Inc. and C-B WESCO, Inc. (incorporated herein by reference to Exhibit 10.3 to the Current Report on Form 8-K of WESCO International, Inc. filed on October 4, 2005).

Exhibit 23.1		Consent of Deloitte & Touche LLP (filed herewith).

Exhibit 99.1		Press Release dated September 29, 2005 (incorporated herein by reference to Exhibit 99.1 to the Current Report on Form 8-K of WESCO International, Inc. filed on October 4, 2005).

SIGNATURE

     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 hereunto duly authorized.

		WESCO INTERNATIONAL, INC.
		By:		/s/ Stephen A. Van Oss
				Stephen A. Van Oss Senior Vice President and Chief Financial and Administrative Officer

Dated: December 15, 2005

Financial Statements of Business Acquired

     The following financial statements are presented in accordance with the requirements of Regulation S-X, Rule 3-05(b). Carlton-Bates Company has a fiscal year end of September 30. WESCO International, Inc. acquired Carlton-Bates Company on September 29, 2005 and, accordingly, financial statements of Carlton-Bates Company for the year ended September 30, 2004 and the nine months ended June 30, 2005 are presented.

INDEPENDENT AUDITORS’ REPORT

To the Board of Directors
Carlton-Bates Company and Subsidiaries:

We have audited the accompanying consolidated balance sheet of Carlton-Bates Company and Subsidiaries (the “Company”) as of September 30, 2004, and the related consolidated statements of loss and comprehensive loss, stockholders’ deficiency, and cash flows for the year then ended. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit.

We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Carlton-Bates Company and Subsidiaries as of September 30, 2004, and the results of its operations and its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America.

As discussed in Note 16, the accompanying financial statements have been restated.

/s/ DELOITTE & TOUCHE LLP

Little Rock, Arkansas
January 12, 2005
(December 14, 2005, as to Note 15 and 16)

CARLTON-BATES COMPANY AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEET
AS OF SEPTEMBER 30, 2004, AS RESTATED

ASSETS
CURRENT ASSETS:
Cash and cash equivalents		$	495,665
Trade receivables, net of allowance for doubtful accounts of $1,253,228			34,383,472
Inventories			44,202,046
Deferred Income Taxes			1,541,986
Prepaid expenses			575,688
Other receivables			392,500
Total current assets			81,591,357
PROPERTY AND EQUIPMENT – at cost:
Furniture, fixtures and equipment			6,300,773
Transportation equipment			4,811,793
Leasehold improvements			1,971,845
			13,084,411
Less accumulated depreciation			8,413,780
Net property and equipment			4,670,631
GOODWILL			17,271,035
INTANGIBLE ASSETS, NET OF ACCUMULATED AMORTIZATION OF $4,037,782			25,665,218
OTHER ASSETS – at cost			841,927
TOTAL		$	130,040,168

(Continued)

CARLTON-BATES COMPANY AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEET
AS OF SEPTEMBER 30, 2004, AS RESTATED

LIABILITIES AND STOCKHOLDERS’ DEFICIENCY
CURRENT LIABILITIES:
Current installments of long-term debt		$	4,178,448
Trade accounts payable			17,581,929
Accrued expenses and other			2,773,910
Uncleared disbursement checks			5,265,681
Accrued payroll and incentive compensation			2,524,359
Accrued income taxes			1,846,041
Total current liabilities			34,170,368
LONG-TERM DEBT – excluding current installments			29,664,554
DEFERRED INCOME TAXES			917,584
DEFERRED COMPENSATION PAYABLE			518,050
CALL OPTIONS AND OTHER LIABILITIES (Note 9)			54,143,559
COMMITMENTS AND CONTINGENCIES (Notes 6 and 10)
PREFERRED STOCK – mandatorily redeemable, convertible – 8% Series A cumulative preferred stock, $.01 par value — authorized, 70,000 shares; issued and outstanding, 36,019 shares; preference in liquidation at $1,000 per share plus accrued and unpaid dividends of $40.11 per share			19,165,372
COMMON STOCKHOLDERS’ DEFICIENCY
Common stock, Class A of $.10 par value — authorized 250,000 shares; issued 78,912 shares; outstanding 44,216 shares			7,891
Additional paid-in capital			11,938,696
Accumulated other comprehensive gain, net of income tax effect of $(14,414)			21,355
Accumulated deficit			(17,832,712	)
			(5,864,770	)
Less treasury stock of 34,696 shares – at cost			(2,674,549	)
Total common stockholders’ deficiency			(8,539,319	)
TOTAL		$	130,040,168

See notes to consolidated financial statements.		(Concluded)

CARLTON-BATES COMPANY AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF LOSS AND COMPREHENSIVE LOSS
FOR THE YEAR ENDED SEPTEMBER 30, 2004, AS RESTATED

NET SALES		$	276,442,725
COST OF SALES			198,321,608
GROSS PROFIT			78,121,117
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES			55,598,201
OPERATING INCOME			22,522,916
OTHER INCOME (EXPENSE):
Interest and finance charge income			12,548
Increase in fair value of call options			(18,743,192	)
Miscellaneous expense			(192,144	)
Interest expense			(2,872,911	)
Total other expense—net			(21,795,699	)
INCOME BEFORE INCOME TAXES			727,217
FEDERAL AND STATE INCOME TAXES			7,019,434
NET LOSS			(6,292,217	)
OTHER COMPREHENSIVE INCOME—
Net gain on derivative instruments designated and qualifying as cash flow hedging instruments, net of tax effect of $97,990			146,719
Total other comprehensive income—net of tax			146,719
COMPREHENSIVE LOSS			(6,145,498	)

See notes to consolidated financial statements.

CARLTON-BATES COMPANY AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY (DEFICIENCY)
FOR THE YEAR ENDED SEPTEMBER 30, 2004, AS RESTATED

										Common Stockholders’ Equity (Deficiency)
																						Accumulated				Retained
										Common Stock								Additional				Other				Earnings
		Preferred Stock								Class A				Class A				Paid-in				Comprehensive				(Accumulated)				Treasury Stock
		Shares				Amount				Shares				Amount				Capital				Income (Loss)				(Deficit)				Shares				Amount				Total
Preferred Stock
BALANCE—
October 1, 2003			33,294			$	16,720,590																															$	16,720,590
Preferred stock issued			2,725				419,846																																419,846
Preferred stock accretion							2,024,936																																2,024,936
BALANCE—
September 30, 2004			36,019			$	19,165,372																															$	19,165,372
Common Stock
BALANCE—October 1, 2003, as reported											71,372			$	7,137			$	—			$	(125,364	)		$	7,909,703				34,696			$	(2,674,549	)		$	5,116,927
Prior period adjustment (see Note 16)																											(17,005,416	)											(17,005,416	)
BALANCE—October 1, 2003, as restated											71,372				7,137								(125,364	)			(9,095,713	)			34,696				(2,674,549	)			(11,888,489	)
Net loss																											(6,292,217	)											(6,292,217	)
Net gain on derivative instruments designated and qualifying as cash flow hedging instruments—net of tax																							146,719																146,719
Preferred stock issued																											(419,846	)											(419,846	)
Preferred stock accretion																											(2,024,936	)											(2,024,936	)
Common stock issued											7,540				754				11,925,189																				11,925,943
Stock compensation plan																			13,507																				13,507
BALANCE—
September 30, 2004											78,912			$	7,891			$	11,938,696			$	21,355			$	(17,832,712	)			34,696			$	(2,674,549	)		$	(8,539,319	)

See notes to consolidated financial statements.

CARLTON-BATES COMPANY AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED SEPTEMBER 30, 2004, AS RESTATED

CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss		$	(6,292,217	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation			1,691,448
Increase in fair value of call options			18,743,192
Stock compensation expense			13,507
Amortization			3,331,303
Provision for losses on accounts receivable			450,000
Increase in cash surrender value of life insurance			(186	)
Deferred income tax benefit			(956,221	)
Deferred compensation expense			(6,957	)
Gain on sale of marketable securities			(31,508	)
Losses on sales of property and equipment			246,781
Changes in current assets and liabilities:
Trade receivables			(8,978,818	)
Inventories			(9,946,119	)
Prepaids and other current receivables			(536,633	)
Other assets			242,368
Trade accounts payable			4,564,338
Accrued expenses and other			5,553,918
Net cash provided by operating activities			8,088,196
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of marketable securities			32,648
Proceeds from release of restricted cash			2,000,545
Proceeds from sales of property and equipment			88,412
Purchases of property and equipment			(1,373,751	)
Additional purchase price consideration paid			(1,782,000	)
Payment of fees related to acquisition of business			(58,327	)
Payment on note receivable			51,328
Net cash used in investing activities			(1,041,145	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net payments under line of credit agreement			(3,823,768	)
Proceeds from long-term debt			1,250,000
Repayment of long-term debt			(5,052,581	)
Net cash used in financing activities			(7,626,349	)
DECREASE IN CASH AND CASH EQUIVALENTS			(579,298	)
CASH AND CASH EQUIVALENTS—beginning of year			1,074,963
CASH AND CASH EQUIVALENTS—end of year		$	495,665

See notes to consolidated financial statements.

CARLTON-BATES COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF AND FOR THE YEAR ENDED SEPTEMBER 30, 2004, AS RESTATED

1.		SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
		Basis of Presentation — The consolidated financial statements for the year ended September 30, 2004, present the financial statements of Carlton-Bates Company and Subsidiaries (the “Company”). All significant intercompany balances and transactions have been eliminated in consolidation.
		Description of Business— The Company is engaged in the sale of electronic, electrical and industrial parts and supplies, primarily to industrial businesses, and presently operates facilities in 17 states within the United States and in Mexico.
		Basis of Accounting — The Company prepares its consolidated financial statements using the accrual basis of accounting and in accordance with accounting principles generally accepted in the United States of America.
		Use of Estimates — The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.
		Cash Equivalents — The Company considers all highly liquid debt instruments with maturity at acquisition of three months or less to be cash equivalents.
		Derivative Financial Instrument Policy-Interest Rate Swaps — The Company has entered into an interest rate swap agreement to manage its interest rate exposure on variable rate debt. Interest rate swaps are agreements to exchange interest payment streams based on a notional principal amount. Net interest differentials to be paid or received are recorded currently as adjustments to interest expense and the swap is carried on the balance sheet at its fair value based on available pricing information at the reporting date. Adjustments to the fair value of the swap are recognized net of tax in other comprehensive income.
		Call Options — Call options result from the terms of the Company’s preferred stock agreement. Each share of preferred stock includes a call option that permits the holder to convert that share of preferred stock into shares of common stock or, at the redemption date, a cash payment equivalent to the underlying common shares as if the preferred shares had been converted. The terms of the call option represent a financial derivative embedded into the preferred share agreement. Due to the holder’s choice of receiving a cash payment based on the Company’s common shares, fair value accounting is used. This right of the preferred shareholders to have a call on the Company’s common stock is referred to in these consolidated financial statements as the “call option”. Call options are stated at fair value at the date of issuance. Subsequent changes in fair values are reported within increase in fair values of call options in the consolidated statement of loss and comprehensive loss and represents a permanent difference for tax purposes.
		Inventories — Merchandise inventories are stated at the lower of cost or market value. Cost is determined using the first-in, first-out method while market value is based on management estimates of the net realizable value of the goods. Inventories are reduced to net realizable values by charges to cost of sales, in the period that such excess costs are identified.
		Debt Issuance Cost — Debt issuance cost is being amortized using the interest method over the life of the related debt.
		Depreciation — Depreciation is calculated, using both accelerated and straight-line methods, over the estimated useful lives of the assets. Estimated useful lives for the major asset categories are five to seven years

		for furniture, fixtures, and equipment and three to five years for transportation equipment. Leasehold improvements are amortized over the shorter of the estimated useful life of the leased asset or the lease term.
		Goodwill — Goodwill is reviewed for impairment at least annually and whenever events or changes in circumstances indicate that the carrying value may not be recoverable. If this evaluation indicates that an asset is impaired, the Company records a charge to operations to reduce the asset’s carrying value to fair value.
		Intangible Assets — Intangible assets which are separately identifiable from goodwill are recorded at their fair values at the time of acquisition. If an estimated life can be assigned to an intangible asset, the assets are amortized over their estimated useful lives. The intangible is reviewed annually for impairment when it is not possible to estimate its useful life. Intangible assets are tested for recoverability when events or changes in circumstances indicate that the carrying value may not be recoverable.
		Uncleared Disbursement Checks —Outstanding checks representing book overdrafts are reflected as uncleared disbursement checks in the consolidated balance sheet. Changes in this account are reflected as an operating activity in the statement of cash flows.
		Stock Compensation Plans — The Company applies the provisions of APB Opinion No. 25 to account for its employer stock options (“SOP”). Had compensation cost for these plans been determined based on the fair value at the grant dates for awards under the SOP, net loss for the year ended September 30, 2004, would have been as follows:

Net Loss

As reported		$	(6,292,217	)
Stock compensation, as reported—net of tax			13,507
Stock compensation, at fair value—net of tax			(175,689	)
Pro forma		$	(6,454,399	)

		In determining the above pro forma disclosure, the fair value of options granted during the year ended September 30, 2004, was estimated on the date of grant using the Black-Scholes pricing model with the following weighted average assumptions: expected life of options—seven years, risk-free interest rate—3.77% to 4.00%, no volatility and no expected dividends.
		Revenue Recognition — Revenue is recognized from the sale of merchandise at the time of shipment (“FOB Shipping Point”) and when all other revenue recognition criteria have been met.
		Preferred Stock Dividends — Dividends on preferred shares are generally settled by periodic issuance of preferred shares. The accrual of such dividends prior to the issuance of shares is accounted for as an increase in the carrying value of preferred stock.
		Shipping and Handling Costs — Amounts billed to customers for shipping and handling are included in sales. Costs incurred for shipping and handling are included in selling, general and administrative expenses. Costs for shipping and handling were approximately $3,059,000 for the year ended September 30, 2004.
		Reclassification — The Company has reclassified the placement of preferred stock on the balance sheet in accordance with the presentation rules of the U.S. Securities and Exchange Commission.
2.		ACQUISITION
		Effective July 17, 2003, the Company acquired certain assets of LADD Industries, Inc. (“LADD”), in exchange for (1) $41,000,000 in cash, (2) a deposit of $2,000,000 in a holdback account, of which $1,782,000 was paid during fiscal year 2004, (3) the assumption of certain liabilities and (4) an agreement to issue up to 37,333.33 shares of Company stock, valued at approximately $59,050,000 at September 30, 2004, subject to certain limitations, terms and conditions as set forth in an earn-out agreement between the sellers of LADD’s assets and the Company. Any additional consideration in the form of such stock is

		to be issued over a five-year period. This additional consideration, if any, will be recorded upon resolution of the earn-out contingency as an addition to goodwill. During 2004, 7,540 shares of company stock, valued at approximately $11,926,000, were issued in accordance with the earn-out agreement, and cash owed to LADD was fully remitted. See additional goodwill recorded in Note 3.
		LADD was involved, as is the Company, in the sale of electronic, electrical and industrial parts and supplies. The Company believes that the addition of LADD’s service territory and customer base will broaden the Company’s overall sales capability and enhance its market position. The operating results from the acquisition are included in the Company’s results of operations since July 17, 2003.
3.		GOODWILL AND INTANGIBLE ASSETS
		The Company performed an annual impairment test as of September 30, 2004, and concluded there was no impairment to the carrying value of the Company’s goodwill. Absent any impairment indicators, the Company expects to perform its next impairment test as of September 30, 2005.
		Changes in the carrying amount of goodwill for the years ended September 30, 2004 and 2003, were as follows:

Balance—September 30, 2003		$	5,286,765
Addition related to the earn-out agreement related to acquisition of LADD			11,925,943
Addition related to fees relative to acquisition of LADD			58,327
Balance—September 30, 2004		$	17,271,035

The carrying values of the Company’s acquired intangible assets are as follows:

						As of
						September 30, 2004
		Estimated				Gross Carrying				Accumulated
		Life (Years)				Amount				Amortization
Amortized intangible assets:
Customer relationships			9			$	12,224,000			$	(1,641,185	)
Distribution agreements			9				14,638,000				(1,965,287	)
Noncompete agreements			7				836,000				(144,310	)
Employment contracts			1				287,000				(287,000	)
Total						$	27,985,000			$	(4,037,782	)
Unamortized intangible assets:
Tradename			N/A			$	1,718,000

Total amortization expense for the intangible assets was $3,331,303 for the year ended September 30, 2004. Amortization expense for the net carrying amount of the intangible assets for the five years following September 30, 2004 and thereafter, is estimated to be as follows:

Year Ending
September 30
2005		$	3,104,095
2006			3,104,095
2007			3,104,095
2008			3,104,095
2009			3,104,095
After September 30, 2009			8,426,743
Total		$	23,947,218

4.		LONG-TERM DEBT
		At September 30, 2004, long-term debt consists of the following:

$34,000,000 bank line of credit; due July 16, 2008; interest payable quarterly; variable interest rate equal to (1) the greater of the Prime Rate and the Federal Funds Rate plus .5% or (2) if selected, the London InterBank Offered Rate (“LIBOR”) plus 2.5%; 3.96% to 5.25% at September 30, 2004 collateralized by substantially all assets		$	11,729,869
Bank term loan; due quarterly through December 31, 2007, in installments of $1,000,000 plus interest; variable interest rate based on the LIBOR plus 3%; 4.36% to 4.46% at September 30, 2004, collateralized by substantially all assets			13,000,000
Senior subordinated note bearing interest at 15% due June 30, 2009; interest payable quarterly based on a stated rate of 11%; 4% interest deferred and payable in the amount of $1,750,000 on September 30, 2008 and remainder at maturity; collateralized by substantially all assets			8,000,000
Bank note due by December 19, 2006; payable in monthly installments of $18,250, including interest with balloon payment due at maturity; variable interest rate based on LIBOR plus 1.75%; 3.64% at September 30, 2004; collateralized by transportation equipment			1,113,133
			33,843,002
Less current installments			4,178,448
Total		$	29,664,554

Aggregate future long-term annual maturities as of September 30, 2004 are as follows:

Year Ending
September 30
2005		$	4,178,448
2006			4,178,448
2007			4,756,237
2008			12,729,869
2009			8,000,000
Total		$	33,843,002

		The line of credit and term loan agreements contain various financial covenants with which the Company must comply. The Company was in compliance with such covenants at September 30, 2004.
5.		INTEREST RATE SWAP
		The Company is party to an interest rate swap agreement through December 31, 2007 with notional amounts of

		$13,000,000 at September 30, 2004. The agreement provides that the Company would pay a fixed interest rate of 2.78% and receive a variable rate. The variable rate was 1.975% September 30, 2004, calculated on the notional amount. The variable rate is based on LIBOR, as determined at quarterly intervals. Net receipts or payments are accounted for as part of interest expense.
		The Company is exposed to credit loss in the event of counterparty nonperformance, but, at September 30, 2004, does not anticipate any such loss.
6.		LEASE AGREEMENTS
		The Company leases real property at the various locations from which it conducts its operations. Several of the lease agreements are with a related company. Minimum payments due under non-cancelable operating lease agreements with all lessors as of September 30, 2004 are as follows:

Year Ending		Related				Unrelated
September 30		Lessor				Lessor				Total
2005		$	836,205			$	2,449,021			$	3,285,226
2006			304,062				1,994,546				2,298,608
2007			223,323				1,518,352				1,741,675
2008			223,323				1,040,045				1,263,368
2009			197,768				441,078				638,846
Thereafter			1,462,012				2,021,265				3,483,277
Total		$	3,246,693			$	9,464,307			$	12,711,000

		Rental expense amounted to $3,238,348 for the year ended September 30, 2004.
7.		EMPLOYEE BENEFIT PLANS
		The Company contributes to an employee profit-sharing plan covering substantially all employees. Company contributions are at the discretion of the Board of Directors, subject to limitations contained in the plan. There were no contributions made by the Company for the years ended September 30, 2004.
		The Company also has a qualified plan under section 401(k) of the Internal Revenue Code. Under this plan, eligible employees may elect to contribute from 2% up to 20% of their compensation to the plan, subject to a maximum dollar limitation set each year by the IRS. The Company, at its discretion, may make matching contributions equal to a percentage of elective contributions made by participants and also may make additional discretionary contributions, subject to certain limitations. Company contribution expense related to the plan was approximately $412,000 for the year ended September 30, 2004.
		Additionally, the Company has deferred compensation plans with certain employees providing for payments after the employees’ retirement dates. The Company has recorded a liability in the amount of $518,050 at September 30, 2004.
		The Company has entered into employment agreements with certain senior officers which commit the Company to compensate these individuals as specified in the agreements.
		The Company maintains a Stock Option Plan (“SOP”) that provides for a committee of the Company’s Board of Directors to grant stock options representing up to 10,000 shares of Company common stock. The options granted vest over a five year period from the grant date. Stock options granted expire in ten years.
		Under the SOP, options have been granted to directors and key employees to purchase common stock of the Company. Options granted are summarized as follows:

Fiscal						Weighted Average
Year		Exercise				Remaining
Granted		Price				Contract Life
2001		$	750				6.89
2003			750				8.08
2004			750				9.08

A summary of the status of the Company’s SOP as of September 30, 2004 and changes during the years ended on those dates are presented below:

						Weighted Average
						Exercise
		Shares				Price
Outstanding—September 30, 2003			6,500			$	750
Granted			500				750
Forfeited			(1,600	)			750
Outstanding—September 30, 2004			5,400			$	750
Options exercisable—September 30, 2004			2,700			$	750

8.		INCOME TAXES
		Carlton-Bates Company and Subsidiaries file a consolidated federal income tax return. Income taxes for the year ended September 30, 2004, have been calculated using the statutory rate in effect for corporations, adjusted as follows:

Federal income tax at the statutory rate		$	247,254
Increase (decrease) in tax resulting from:
State income taxes—net of federal tax benefit			599,985
Permanent differences from increase in fair value of call options			6,372,685
Other—net			(220,490	)
Total		$	7,019,434

For the year ended September 30, 2004, income tax expense (benefit) consists of the following:

Current		$	7,975,655
Deferred			(956,221	)
Total		$	7,019,434

As of September 30, 2004, the components of the deferred tax asset and deferred tax liability are as follows:

Current deferred tax assets (liabilities):
Inventory capitalization		$	578,307
Accrued vacation and sick pay			308,262
Allowance for doubtful accounts			507,537
Reserve for obsolete inventory			262,475
Discounts on purchases			(78,557	)

State taxes			(36,038	)
Net current deferred tax asset		$	1,541,986
Non-current deferred tax liabilities (assets):
Depreciation		$	967,891
Deferred compensation accrual			(209,810	)
Amortization of intangible assets			145,089
Net loss on derivative instrument			14,414
Net non-current deferred tax liability		$	917,584

9.		MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED STOCK
		The Company’s articles of incorporation authorize 250,000 share of preferred stock, including 70,000 shares of Series A preferred stock (the “preferred stock”). Other than the Series A preferred shares issued as noted above, there are no other preferred shares outstanding as of September 30, 2004. Dividends are to be paid by issuance of preferred stock with the number of shares computed by applying the 8% rate to the sum of the initial proceeds of $29,350,000 and $1,000 per share for shares subsequently issued as dividends.
		In August 2001, the Company issued 29,350 shares of 8% Series A cumulative preferred stock (the “preferred stock”). Dividends are to be paid by issuance of preferred stock with the number of shares computed by applying the 8% rate to the sum of the initial proceeds of $29,350,000 and $1,000 per share for shares subsequently issued as dividends. The preferred stock is convertible substantially at 1.33 common shares for each preferred share with modifications for dilutive effects of subsequent issuances of preferred stock, if any. Preferred shareholders are entitled to the number of votes equal to the number of common shares that would result upon conversion. If not converted, the Company is obligated to redeem the outstanding preferred shares in August 2008 at the greater of $1,000 per share or upon a formula as provided for in the Company’s articles of incorporation. If the Company fails to comply with the provisions of the preferred stock, the preferred shareholders may be entitled to increase the number of common shares that may be obtained in conversion, earlier redemption of the preferred may be required or other remedies may be available.
		This conversion feature qualifies as a derivative financial instrument as defined by Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activities, and has been bifurcated from the host contract and recorded on the consolidated balance sheet as call options, at fair value. The call options are valued annually and any change in fair value is recognized as increase (decrease) in fair values of call options in the consolidated statement of loss and comprehensive loss.
		At September 30, 2004, there were 36,019 call options outstanding with a fair value of $53,656,868, which is recorded as call options and other liabilities on the consolidated balance sheet. The increase in fair value of call options for the year ended September 30, 2004, was $18,743,192 and is reported as part of other expense on the consolidated statement of loss and comprehensive loss.
		The carrying value of the preferred stock is accreted to the redemption value through August 2008 using the interest method. Total redemption value of preferred stock outstanding at September 30, 2004 is $36,019,000.
		No dividends may be paid with respect to the Class A Common Stock so long as any shares of Series A preferred stock are issued and outstanding.
10.		LITIGATION
		The Company is engaged in various legal proceedings in the ordinary course of business. The resolution of these matters is not expected to have a material adverse effect on the Company’s financial position, cash flows or

		results of operations.
11.		RELATED PARTY TRANSACTIONS
		The Company leases real property at Little Rock and six other locations from a company controlled by a Company stockholder. Rentals paid under these operating lease agreements amounted to $836,566 for the year ended September 30. Future rentals are subject to annual adjustment, based on changes in the consumer price index (also see Note 6).
		For the year ended September 30, 2004, the Company purchased certain assets and paid for repair services from a vendor owned by a Company stockholder in the amount of $110,703. The Company also sold real property to a Company stockholder for approximately $64,000 which was its carrying value during the year ended September 30, 2003.
		The Company has an agreement to retain the services of a company affiliated with its preferred shareholder to provide financial advisory and management consulting services to the Company. The agreement expires in August 2008. The Company is required to pay $10,000 per month for such services. The monthly fee can be increased to $20,000 in the event certain financial benchmarks are met. Fees for such services amounted to $120,000 for the year ended September 30, 2004. The same company was also paid approximately $43,000 for reimbursement of various expenses for the year ended September 30, 2004, and $900,000 for consulting services provided in conjunction with the acquisition of LADD (see Note 2).
12.		CONCENTRATION RISK
		In addition to the interest rate swap agreements discussed in Note 5, other financial instruments, which potentially subject the Company to concentration of credit risk, consist principally of trade accounts receivable. The Company performs ongoing credit evaluations of its customers but, generally, does not require collateral.
		Also, the Company is the exclusive distributor for a product which provided approximately $63,268,000 of total sales revenue during the year ended September 30, 2004.
13.		SUPPLEMENTAL CASH FLOW DISCLOSURES
		Interest paid totaled $2,434,509 during the year ended September 30, 2004. Income taxes paid during the year ended September 30, 2004, totaled approximately $6,954,039.
		During the year ended September 30, 2004, the Company engaged in noncash financing activities as follows:

Preferred stock issued as dividends		$	419,846
Issuance of common stock recorded as goodwill			11,925,943
Preferred stock accretion			2,024,936

14.		FAIR VALUE OF FINANCIAL INSTRUMENTS
		The following financial instruments have a fair value approximately equal to their carrying value because of their short term nature as of September 30, 2004: cash and cash equivalents, trade receivables, and trade accounts payable. Debt related financial instruments have a fair value approximately equal to their carrying value as the interest rates are variable. The call options are stated at estimated fair value based on current conversion factors, common stock price, volatility factors, discount rate, dividend rate, expected life, etc., using the Black-Scholes method.
15.		SUBSEQUENT EVENT
		Effective December 1, 2004, the Company acquired certain assets of Motion Control Systems, Inc. (“MCS”). MCS also sells electronic, electric, and industrial parts and supplies. In exchange for the assets, the Company paid (1) $1,600,000 in cash and (2) assumed all trade accounts payable of MCS. The cash paid upon closing was

		reduced by a holdback amount of approximately $46,000 (“Holdback Amount”) as a reserve for potentially uncollectible accounts receivable. On the first day of the month following the month in which 90% of the accounts receivable acquired are collected, the Company intends to release from the Holdback Amount collections in excess of 90%. As of June 30, 2005, substantially all of the Holdback had been settled with MCS.
		On September 29, 2005, the common stock of the Company was purchased by WESCO Distribution, Inc. (“WESCO”), a subsidiary of WESCO International, Inc. WESCO is a full-line distributor of electrical supplies and equipment and is a provider of integrated supply procurement services with domestic and foreign operations.
16.		RESTATEMENT
		Subsequent to issuing its consolidated financial statements for the year ended September 30, 2004, the Company determined that the preferred stock agreement included an embedded derivative (the call options) that had not been bifurcated and stated at fair value. Preferred stock, other liabilities, deferred income taxes were misstated at September 30, 2004 and increase in fair values of call options, net income and comprehensive income were misstated for the year ended September 30, 2004, all due to the call options not being stated at fair value. The Company also determined that it should restate its statement of cash flows for the year ended September 30, 2004, to correct for an error in the presentation of restricted cash. The impact of the corrections is as follows:

		As Previously
		Reported				As Restated
As of October 1, 2003:
Consolidated balance sheet:
Retained earnings (deficit)		$	7,909,703			$	(9,095,713	)
Total common stockholders’ equity (deficiency)			5,116,927				(11,888,489	)
As of September 30, 2004:
Consolidated balance sheet:
Call options and other liabilities		$	486,691			$	54,143,559
Preferred stock			37,462,457				19,165,372
Retained earnings (deficit)			17,527,071				(17,832,712	)
Common stockholders’ equity (deficiency)			26,820,464				(8,539,319	)
Consolidated statement of income and comprehensive income:
Increase in fair value of call options		$	—			$	(18,743,192	)
Net income (loss)			12,450,977				(6,292,217	)
Comprehensive income (loss)			12,597,696				(6,145,498	)
Consolidated statement of cash flow:
Net income (loss)		$	12,450,977			$	(6,292,217	)
Accrued expenses and other			3,771,918				5,553,918
Net cash provided by operating activities			6,306,196				8,088,196
Proceeds from release of restricted cash			—				2,000,545
Additional purchase price consideration paid			—				(1,782,000	)
Net cash used in investing activities			(1,259,690	)			(1,041,145	)

CARLTON-BATES COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEET (Unaudited)
AS OF JUNE 30, 2005

ASSETS
CURRENT ASSETS:
Cash and cash equivalents		$	289,569
Trade receivables, net of allowance for doubtful accounts of $1,335,985			36,467,423
Inventories, net			43,394,342
Deferred Income Taxes			1,914,439
Prepaid expenses			728,161
Other receivables			492,317
Total current assets			83,286,251
PROPERTY AND EQUIPMENT – at cost:
Furniture, fixtures and equipment			6,968,398
Transportation equipment			2,796,120
Leasehold improvements			2,153,191
			11,917,709
Less accumulated depreciation			8,100,465
Net property and equipment			3,817,244
GOODWILL			29,395,600
INTANGIBLE ASSETS, NET OF ACCUMULATED AMORTIZATION OF $6,414,293			24,108,508
OTHER ASSETS – at cost			1,402,524
TOTAL		$	142,010,127

(Continued)

CARLTON-BATES COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEET (Unaudited)
AS OF JUNE 30, 2005

LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Current installments of long-term debt		$	4,000,000
Trade accounts payable			18,292,609
Accrued expenses and other			2,408,877
Uncleared disbursement checks			2,886,069
Accrued payroll and incentive compensation			1,863,399
Accrued income taxes			640,426
Total current liabilities			30,091,380
LONG-TERM DEBT – excluding current installments			24,392,607
DEFERRED INCOME TAXES			677,339
DEFERRED COMPENSATION PAYABLE			544,106
CALL OPTIONS AND OTHER LIABILITIES			52,258,225
COMMITMENTS AND CONTINGENCIES (Note 10)
PREFERRED STOCK, mandatorily redeemable, convertible – 8% Series A cumulative preferred stock, $.01 par value – authorized, 70,000 shares; issued and outstanding, 38,958 shares; preference in liquidation at $1,000 per share plus accrued and unpaid dividends of $40.11 per share			21,359,088
COMMON STOCKHOLDERS’ DEFICIENCY:
Common stock, Class A of $.10 par value – authorized 250,000 shares; issued 78,912 shares; outstanding 44,207 shares			7,891
Additional paid-in capital			23,892,916
Accumulated other comprehensive gain, net of income tax effect of $59,327			88,991
Accumulated deficit			(8,614,275	)
			15,375,523
Less treasury stock of 34,705 shares – at cost			(2,688,141	)
Total common stockholders’ equity			12,687,382
TOTAL		$	142,010,127

See notes to unaudited condensed consolidated financial statements.		(Concluded)

CARLTON-BATES COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF INCOME (LOSS) AND COMPREHENSIVE INCOME (LOSS) (Unaudited)
FOR THE NINE MONTHS ENDED JUNE 30,

		2005				2004
NET SALES		$	219,824,921			$	204,201,907
COST OF SALES			158,486,929				145,975,264
GROSS PROFIT			61,337,992				58,226,643
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES			43,632,567				40,945,411
OPERATING INCOME			17,705,425				17,281,232
OTHER INCOME (EXPENSE):
Interest and finance charge income			5,989				8,984
(Increase) decrease in fair value of call options			1,554,853				(14,960,614	)
Miscellaneous income (expense)			160,976				(167,126	)
Interest expense			(2,359,937	)			(2,253,189	)
Total other expense—net			(638,119	)			(17,371,945	)
INCOME (LOSS) BEFORE INCOME TAXES			17,067,306				(90,713	)
FEDERAL AND STATE INCOME TAXES			5,655,153				5,373,475
NET INCOME (LOSS)			11,412,153				(5,464,188	)
OTHER COMPREHENSIVE INCOME—
Net gain on derivative instruments designated and qualifying as cash flow hedging instruments, net of tax effect of $45,091 in 2005 and $127,032 in 2004			67,636				190,548
Total other comprehensive income—net of tax			67,636				190,548
COMPREHENSIVE INCOME (LOSS)		$	11,479,789			$	(5,273,640	)

See notes to unaudited condensed consolidated financial statements.

CARLTON-BATES COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited)
FOR THE NINE MONTHS ENDED JUNE 30,

		2005				2004
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)		$	11,412,153			$	(5,464,188	)
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation			1,285,831				1,265,094
Increase (decrease) in fair value of call options			(1,554,863	)			14,960,615
Stock compensation expense			33,480				9,821
Amortization			2,610,392				2,666,081
Provision for losses on accounts receivable			225,000				393,006
Provision for inventory obsolescence			1,420,578				1,823,332
Deferred income tax benefit			(612,699	)			(934,309	)
Deferred compensation expense			26,056				(15,615	)
Gain on sale of property and equipment			(130,814	)			190,526
Changes in current assets and liabilities—net of effects of acquisition:
Trade receivables			(1,810,675	)			(9,433,590	)
Inventories			(449,881	)			(8,021,013	)
Prepaids and other current receivables			(280,278	)			(110,186	)
Other assets			(806,849	)			(668,921	)
Trade accounts payable			565,901				6,278,984
Accrued expenses and other			(4,874,066	)			3,311,709
Net cash provided by operating activities			7,059,277				6,251,346
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of property and equipment			1,116,416				79,372
Proceeds from sale of investments			—				1,140
Purchases of property and equipment – net of effects of acquisition			(1,392,469	)			(957,594	)
Acquisition of business			(1,565,694	)			(58,327	)
Payment on note receivable			40,360				38,214
Net cash used in investing activities			(1,801,387	)			(897,195	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (payments) under line of credit agreement			6,662,739				(4,060,495	)
Proceeds from long-term borrowings			—				1,250,000
Purchase of treasury stock			(13,592	)			—
Repayment of long-term debt			(12,113,133	)			(4,032,450	)
Net cash used in financing activities			(5,463,986	)			(6,842,945	)
DECREASE IN CASH AND CASH EQUIVALENTS			(206,096	)			(1,488,794	)
CASH AND CASH EQUIVALENTS—beginning of period			495,665				3,075,508
CASH AND CASH EQUIVALENTS—end of period		$	289,569			$	1,586,714

See notes to unaudited condensed consolidated financial statements.

CARLTON-BATES COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
JUNE 30, 2005

1.		GENERAL INFORMATION
		The condensed consolidated financial information of Carlton-Bates Company and Subsidiaries (the “Company”), included herein is unaudited; however the information reflects all adjustments (consisting of normal recurring adjustments) that are, in the opinion of management, necessary for the fair presentation of the consolidated financial position, results of operations and cash flows for the interim periods. The consolidated financial statements should be read in conjunction with the consolidated financial statements for the year ended September 30, 2004. The results of operations for the nine months ended June 30, 2005 and 2004 are not necessarily indicative of the results to be expected for the full year.
2.		TRADE RECEIVABLES
		Trade receivables are carried at original invoice amount less an estimate made for doubtful receivables based on a review of all outstanding amounts on a monthly basis. Management determines the allowance for doubtful accounts by evaluating individual customer receivables and considering a customer’s financial condition, credit history, and current economic conditions. Trade receivables are written off when deemed uncollectible. Recoveries of trade receivables previously written off are recorded when received. A trade receivable is considered to be past due if any portion of the receivable balance is outstanding for more than 30 days.
3.		DEFERRED TAXES
		Deferred taxes are provided on the liability method whereby deferred tax assets are recognized for deductible temporary differences and operating loss and tax credit carryforwards, and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax basis. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.
4.		RECENT ACCOUNTING PRONOUNCEMENTS
		The Financial Accounting Standards Board had issued Statement of Financial Accounting Standard (“SFAS”) No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity. SFAS No. 150 requires that certain freestanding financial instruments be reported as liabilities in the balance sheet.
		The Company’s preferred stock must be redeemed in August 2008 if the stockholders have not exercised their conversion option. The Company has reported the preferred stock outside of total common stockholders’ equity. The carrying value of the preferred stock has been increased at each reporting date for accretion and dividends earned to that date with a corresponding charge to accumulated deficit.
		Upon adoption of SFAS 150 for the period beginning October 1, 2005, the Company will transfer the carrying value of the preferred stock to long-term liabilities. This change will have no affect on previously reported results of operation.
5.		ACQUISTION
		Effective December 1, 2004, the Company acquired certain assets of Motion Control Systems, Inc. (“MCS”). MCS also sells electronic, electric, and industrial parts and supplies. In exchange for the assets, the Company paid (1) $1,600,000 in cash and (2) assumed all trade accounts payable of MCS. The cash paid upon closing was reduced by a holdback amount of approximately $46,000 (“Holdback Amount”) as a reserve for potentially uncollectible accounts receivable. On the first day of the month in which 90% of the accounts receivable are collected, the Company intends

to release from the Holdback Amount collections in excess of 90%. As of June 30, 2005, substantially all of the Holdback Amount has been settled with MCS. The operating results from the acquisition are included in the Company’s results of operations since December 1, 2004, the date of acquisition.

6.		GOODWILL AND INTANGIBLE ASSETS
		Changes in carrying amount of goodwill for the nine months ended June 30, 2005, were as follows:

Balance, October 1, 2004		$	17,271,035
Addition related to the stock earn-out agreement related to LADD			11,920,740
Addition related to the acquisition of MCS			203,825
Balance, June 30, 2005		$	29,395,600

7.		LONG-TERM DEBT
		Long-term debt consists of the following at June 30, 2005:

$34,000,000 bank line of credit; due July 16, 2008; interest payable quarterly; variable interest rate equal to (1) the greater of the Prime Rate and the Federal Funds Rate plus ..50% or (2) if selected, the London Interbank Offered Rate (“LIBOR”) plus 1.50%; 4.43% to 6.00% at June 30, 2005, collarteralized by substantially all assets.		$	18,392,607
Bank term loan; due quarterly through December 31, 2007, in installments of $1,000,000. plus interest; variable interest rate based on the LIBOR plus 2%; 4.93% June 30, 2005, collateralized by substantially all assets			10,000,000
			28,392,607
Less current installments			(4,000,000	)
Total		$	24,392,607

Aggregate future long-term annual maturities for the period ended June 30 are as follows:

2006		$	4,000,000
2007			4,000,000
2008			2,000,000
2009			18,392,607
Total		$	28,392,607

8.		EMPLOYEE BENEFIT PLANS
		On October 1, 2004, the Carlton-Bates Company Profit Sharing Plan was merged with the Carlton-Bates Company 401(k) Plan. Under the merged Plan, eligible employees may elect to contribute from 1% up to 75% of their compensation on a pre-tax basis, subject to maximum dollar limitation set each year by the IRS.

9.		INCOME TAXES
		Carlton-Bates Company and Subsidiaries file a consolidated federal income tax return. Income taxes have been calculated using the statutory rate in effect for corporations, adjusted as follows for the nine months ended June 30, 2005:
						Federal income tax at the statutory rate												$	5,973,557
						Increase (decrease) in tax resulting from:
										State income taxes, net of federal tax benefit									813,196
										Permanent difference from decrease in fair value of call options									(544,199	)
										Other-net									(587,401	)
														Total				$	5,655,153
		Income tax expense consists of the following components for the nine months ended June 30, 2005:
						Current												$	6,267,852
						Deferred													(612,699	)
														Total				$	5,655,153
		The components of the deferred tax asset and deferred tax liability are as follows as of June 30, 2005:
						Current deferred tax assets (liabilities):
										Inventory capitalization								$	674,317
										Accrued vacation and sick pay									313,789
										Allowance for doubtful accounts									520,031
										Reserve for obsolete inventory									398,227
										Allowance for sales returns									113,610
										Discounts on purchases									(60,280	)
										State taxes									(45,255	)
														Net current deferred tax asset				$	1,914,439
		Non-current deferred tax liabilities (assets):
										Depreciation								$	483,745
										Deferred compensation accrual									(211,793	)
										Amortization of intangible assets									212,204
										Net gain on derivative instrument									57,733
										Leases of transportation equipment									135,450
														Net non-current tax liability				$	677,339