1 - -------------------------------------------------------------------------------- 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 SEPTEMBER 11, 1998 Date of Report (Date of earliest event reported) WESCO INTERNATIONAL, INC. (Exact name of registrant as specified in its charter) DELAWARE (State or other jurisdiction of incorporation or organization) 333-43225 25-1723345 (Commission file number) (IRS Employer Identification No.) COMMERCE COURT FOUR STATION SQUARE, SUITE 700 PITTSBURGH, PENNSYLVANIA 15219 (412) 454-2254 (Address of principal executive offices) (Registrant's telephone number, including area code) N/A (Former name or former address, if changed since last report) - --------------------------------------------------------------------------------
2 The following amends and restates, in its entirety, Item 7 of WESCO International, Inc.'s (the "Company" or "WESCO") Form 8-K dated September 11, 1998 and filed on September 24, 1998 (the "Form 8-K") pursuant to which the Company announced the acquisition of substantially all assets and assumption of substantially all liabilities and obligations relating to the operations of Bruckner Supply Company, Inc. ("Bruckner" or "Bruckner Acquisition"). ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS (a) Financial statements of businesses acquired Audited financial statements of Bruckner as of and for the year ended December 31, 1997 and the independent auditors' report thereon, are attached hereto as Exhibit 99.1. Unaudited condensed interim financial statements of Bruckner as of June 30, 1998 and for the six months ended June 30, 1998 and 1997, are attached hereto as Exhibit 99.2. (b) Pro forma financial information Pro forma consolidated financial information giving effect to the Bruckner Acquisition and a leveraged recapitalization completed in June 1998, which is more fully discussed in the Company's Registration Statement on Form S-4 (File No. 333-43225), is attached hereto as Exhibit 99.3. (c) Exhibits The exhibits listed below are filed herewith except as indicated. 2.01 Asset Purchase Agreement among Bruckner Supply Company, Inc. and WESCO Distribution, Inc. dated September 11, 1998, previously filed. 99.1 Audited financial statements of Bruckner as of and for the year ended December 31, 1997, and the independent auditors' report thereon, filed herewith. 99.2 Unaudited condensed interim financial statements of Bruckner as of June 30, 1998 and for the six months ended June 30, 1998 and 1997, filed herewith. 99.3 Pro forma financial information filed herewith. 1
3 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. WESCO International, Inc. (Registrant) Date: November 13, 1998 By: /s/ Steven A. Burleson ------------------------------------ Steven A. Burleson Vice President, Chief Financial Officer and Treasurer 2
4 EXHIBIT INDEX 2.01 Asset Purchase Agreement among Bruckner Supply Company, Inc. and WESCO Distribution, Inc. dated September 11, 1998, previously filed. Omitted schedules and exhibits will be provided supplementally to the Commission upon request. 99.1 Audited financial statements of Bruckner as of and for the year ended December 31, 1997, and the independent auditors' report thereon, filed herewith. 99.2 Unaudited condensed interim financial statements for Bruckner as of June 30, 1998 and for the six months ended June 30, 1998 and 1997, filed herewith. 99.3 Pro forma financial information filed herewith. 3
1 Exhibit 99.1 BRUCKNER SUPPLY COMPANY, INC. ------------------ FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 1997
2 BRUCKNER SUPPLY COMPANY, INC. REPORT INDEX FOR THE YEAR ENDED DECEMBER 31, 1997 PAGE ---- INDEPENDENT AUDITORS' REPORT 1 FINANCIAL STATEMENTS: Balance Sheet 2 Statement of Income and Retained Earnings 3 Statement of Cash Flows 4 Notes to the Financial Statements 5
3 INDEPENDENT AUDITORS' REPORT TO THE STOCKHOLDERS AND DIRECTORS OF BRUCKNER SUPPLY COMPANY, INC. We have audited the accompanying balance sheet of Bruckner Supply Company, Inc. as of December 31, 1997, and the related statements of income and retained earnings and cash flows for the year then ended. These financial statements are the responsibility of the company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. 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 provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Bruckner Supply Company, Inc. at December 31, 1997, and the results of its operations and its cash flows for the year then ended in conformity with generally accepted accounting principles. New York, New York /s/ ANCHIN, BLOCK & ANCHIN LLP February 23, 1998 ------------------------------ 1.
4 BRUCKNER SUPPLY COMPANY, INC. BALANCE SHEET DECEMBER 31, 1997 ASSETS CURRENT ASSETS: Cash $ 175,760 Debt securities - Notes 1 and 2 8,428,780 Accounts receivable 22,044,715 Inventories - Note 1 2,195,277 Prepaid expenses and other current assets 126,624 ------------ Total Current Assets $ 32,971,156 PROPERTY AND EQUIPMENT, NET- NOTES 1 AND 3 357,705 DUE FROM AFFILIATES - NOTE 4 4,586 ------------ TOTAL ASSETS $ 33,333,447 ============ LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable $ 18,539,018 Bank Overdraft 3,536,448 Other current liabilities 618,476 ------------ Total Current Liabilities $ 22,693,942 STOCKHOLDERS' EQUITY: Common stock, no stated value: Authorized - 200 shares Issued and outstanding - 25 shares 7,500 Additional paid-in capital 2,022,843 Retained earnings 8,536,014 ------------ 10,566,357 Net unrealized holding gains on available-for-sale securities - Notes 1 and 2 73,148 ------------ Total Stockholders' Equity 10,639,505 ------------ TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 33,333,447 ============ See the accompanying Notes to the Financial Statements. 2.
5 BRUCKNER SUPPLY COMPANY, INC. STATEMENT OF INCOME AND RETAINED EARNINGS FOR THE YEAR ENDED DECEMBER 31, 1997 NET SALES - NOTE 7 $222,406,503 COST OF SALES 203,417,417 ------------ GROSS PROFIT 18,989,086 % to Net Sales 8.5% OPERATING EXPENSES 8,852,762 ------------ OPERATING INCOME 10,136,324 INVESTMENT AND OTHER INCOME: Investment income, net - Note 2 $647,067 Other income 170,863 -------- 817,930 ------------ INCOME BEFORE INCOME TAXES 10,954,254 PROVISION FOR INCOME TAXES - NOTE 1 215,000 ------------ NET INCOME 10,739,254 RETAINED EARNINGS: Balance, beginning of year 9,220,700 Distributions to stockholders (11,423,940) ------------ Balance, end of year $ 8,536,014 ============ See the accompanying Notes to the Financial Statements. 3.
6 BRUCKNER SUPPLY COMPANY, INC. STATEMENT OF CASH FLOWS FOR THE YEAR ENDED DECEMBER 31, 1997 CASH FLOWS FROM OPERATING ACTIVITIES: Net income $10,739,254 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization $ 111,429 Amortization of bond interest 2,733 Net realized gain on sale of debt and marketable equity securities (96,088) Gain on sale of property and equipment (750) Increase in: Accounts receivable (10,718,009) Inventories (1,540,402) Prepaid expenses and other current assets (29,538) Increase in: Accounts payable and accrued expenses 7,009,628 ------------ Total adjustments (5,260,997) ----------- Net Cash Provided by Operating Activities 5,478,257 CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property and equipment (82,980) Proceeds from sale of property and equipment 750 Purchases of debt and marketable equity securities (22,997,355) Proceeds from sales and maturities of debt and marketable equity securities 23,446,815 Decrease in due from affiliate 1,992,732 ------------ Net cash Provided by Investing Activities 2,359,962 CASH FLOWS FROM FINANCING ACTIVITIES: Distributions to stockholders (11,423,940) Increase in bank overdraft 3,536,448 ------------ Net Cash Used in Financing Activities (7,887,492) ----------- NET DECREASE IN CASH (49,273) CASH: Beginning of year 225,033 ----------- End of year $ 175,760 =========== SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Income taxes - paid $ 165,780 - refunded 9,134 SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING ACTIVITIES: Net unrealized holding losses on available-for-sale securities $ (41,824) See the accompanying Notes to the Financial Statements. 4.
7 BRUCKNER SUPPLY COMPANY, INC. NOTES TO THE FINANCIAL STATEMENTS NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: Description of Business: ------------------------ Bruckner Supply Company, Inc. (the "Company") is an integrated supply company whose customers are major corporations located throughout the United States. The Company's revenues include total amounts billed to customers for products sold and all other aspects of handling customers' purchasing operations. Revenue Recognition: -------------------- The Company generally sells merchandise which is shipped directly by its vendors to customers. Revenue is recognized upon shipment. Debt Securities: ---------------- Debt securities available for sale are measured at fair value, with net unrealized gains and losses reported in equity. The Company uses the specific identification method to determine the cost of securities sold. Use of Estimates: ----------------- The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the 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 revenues and expenses during the reporting period. Actual results could differ from those estimates. Inventories: ------------ Inventories, which consist of finished goods, are valued at the lower of cost, first-in, first-out method, or market. Property and Equipment: ----------------------- Property and equipment are stated at cost less accumulated depreciation and amortization. Depreciation is computed by straight-line and accelerated methods over the estimated useful lives of the assets. Leasehold improvements are amortized by the straight-line method over the estimated useful lives of the assets. 5.
8 BRUCKNER SUPPLY COMPANY, INC. NOTES TO THE FINANCIAL STATEMENTS NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED:) Income Taxes: ------------- The Company is taxed as an S corporation for Federal and New York State tax purposes, whereby the company's income is reported by the stockholders. Accordingly, no provision has been made for Federal income taxes. The Company continues to be liable for certain states' corporate taxes. NOTE 2 - DEBT SECURITIES: The following is a summary of investments at December 31, 1997: Gross Unrealized Amortized ---------------- Fair Cost Gains Losses Value ---- ----- ------ ----- Available-For-Sale Debt Securities: U.S. Government Bonds $8,355,632 $73,148 -- $8,428,780 The following table summarizes the maturities of all debt securities at fair value held at December 31, 1997: More Than More Than Within 1 1 to 5 5 to 10 Year Years Years Total ---- ----- ----- ----- Available-For-Sale Securities: $2,656,195 $4,016,570 $1,756,015 $8,428,780 Proceeds from sales and maturities of securities classified as available-for-sale were $23,446,815. Gains of $133,493 and losses of $37,405 were realized on these sales. The net unrealized holding gains on available-for-sale securities decreased by $41,824 in 1997. 6.
9 BRUCKNER SUPPLY COMPANY, INC. NOTES TO THE FINANCIAL STATEMENTS NOTE 2 - DEBT SECURITIES (CONTINUED): Investment income for 1997 is comprised of: Interest income $ 583,861 Net realized gains on sales of securities 96,088 ---------- 679,949 Less: Investment expenses 32,882 ---------- $ 647,067 ========== NOTE 3 - PROPERTY AND EQUIPMENT: Property and equipment consist of the following: Leasehold improvements $ 91,139 Machinery and equipment 476,238 Furniture and fixtures 244,586 Transportation and delivery equipment 233,799 ---------- 1,045,762 Less: Accumulated depreciation and amortization 688,057 ---------- $ 357,705 ========== NOTE 4 - DUE FROM AFFILIATES: The amounts due from affiliates are non-interest bearing and have no specified repayment terms. NOTE 5 - RETIREMENT PLAN: The Company maintains a defined-contribution 401(k) savings plan covering substantially all employees. Company contributions to the plan are at the discretion of the Board of Directors. During 1997 no company contribution was made to the plan. 7.
10 BRUCKNER SUPPLY COMPANY, INC. NOTES TO THE FINANCIAL STATEMENTS NOTE 6 - COMMITMENTS AND CONTINGENCIES: Leases: ------- The Company leases office space from an affiliate under an operating lease, which expires December 31, 2002, at an annual rent of $150,000. The lease requires the Company to pay real estate taxes. In February 1998, the Company entered into an operating lease for additional office space, which expires February 6, 1999, at an annual rent of $80,000. The Company also leases certain computer equipment under an operating lease, which expires August 31, 1999, at an annual rent of $155,820. Rent expense was $305,909 for 1997. Future minimum rental commitments are as follows: Years Ending December 31, ------------------------- 1998 $ 379,153 1999 260,547 2000 150,000 2001 150,000 2002 150,000 ---------- Total $1,089,700 ========== Stockholders' Agreement: ----------------------- Under the terms of a stockholders' agreement, upon their death, Bruckner Supply Company, Inc. is required to purchase the shares owned by its stockholders at a value determined annually by the stockholders, and may be paid out over a period of ten years. NOTE 7 - MAJOR CUSTOMER: For the year ended December 31, 1997, one customer, through multiple operating divisions located throughout the United States, accounted for approximately 68% of net sales and approximately 37% of the December 31, 1997 accounts receivable balance. NOTE 8 - SUBSEQUENT EVENT (unaudited): On September 11, 1998, the Company sold to WESCO Distribution, Inc., substantially all of its assets and liabilities, other than cash, debt securities, amounts due from affiliates, certain equipment and prepaid expenses and bank overdraft. 8.
1 EXHIBIT 99.2 BRUCKNER SUPPLY COMPANY, INC. Unaudited Condensed Balance Sheet JUNE 30 1998 ----------------------------------------------------------------------------------------------------------------------- ASSETS CURRENT ASSETS Cash $539,327 Debt securities 753,554 Accounts receivable 33,441,794 Inventories 3,335,230 Prepaid expenses and other current assets 826,587 -------------- Total current assets 38,896,492 Property and equipment, net 358,994 Due from affiliates 4,911 -------------- Total assets $39,260,397 ============== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable $23,400,522 Bank overdraft 3,476,490 Other current liabilities 923,587 -------------- Total current liabilities 27,800,599 STOCKHOLDERS' EQUITY Common stock 7,500 Additional paid-in capital 2,022,843 Retained earnings 9,417,697 Net unrealized holding gains on available-for-sale securities 11,758 -------------- Total stockholders' equity 11,459,798 -------------- Total liabilities and stockholders' equity $39,260,397 ============== See the accompanying Notes to Condensed Financial Statements. 1
2 BRUCKNER SUPPLY COMPANY, INC. Unaudited Condensed Statement of Income SIX MONTHS ENDED JUNE 30 1998 1997 - --------------------------------------------------------------------------------------------------------------- Net sales $132,014,762 $113,140,125 Cost of sales 118,414,945 104,822,756 -------------- ------------- Gross profit 13,599,817 8,317,369 Operating expenses 6,045,525 4,125,700 -------------- ------------- Operating income 7,554,292 4,191,669 Investment and other income Investment income, net 214,000 390,000 Other income 18,456 10,101 -------------- ------------- 232,456 400,101 Income before income taxes 7,786,748 4,591,770 Provision for income taxes 6,766 197 -------------- ------------- Net income $7,779,982 $4,591,573 ============== ============= See the accompanying Notes to Condensed Financial Statements. 2
3 BRUCKNER SUPPLY COMPANY, INC. Unaudited Condensed Statement of Cash Flow SIX MONTHS ENDED JUNE 30 1998 1997 - ---------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $7,779,982 $4,591,573 Adjustment to reconcile net income to cash from operating activities Depreciation and amortization 50,913 57,733 Net realized gain on sale of debt securities (81,665) (86,165) Increase in: Accounts receivable (11,397,079) (10,832,178) Inventories (1,139,953) (760,604) Prepaid and other current assets (699,963) 2,749 Increase in: Accounts payable and accrued expenses 5,166,615 6,575,233 --------------------------- Net Cash Used in Operating Activities (321,150) (451,659) CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property and equipment (56,289) (82,980) Purchases of debt securities (3,298,652) (11,427,935) Proceeds from sales and maturities of debt securities 10,998,240 16,699,995 Increase in due from affiliate (325) - --------------------------- Net Cash Provided By Financing Activities 7,642,974 5,189,080 CASH FLOWS FROM FINANCING ACTIVITIES: Increase (decrease) in bank overdrafts (59,958) 4,579,429 Distributions to stockholders (6,898,299) (9,430,000) --------------------------- Net Cash Used in Financing Activities (6,958,257) (4,850,571) --------------------------- Net increase (decrease) in cash 363,567 (113,150) CASH: Beginning of year 175,760 225,033 --------------------------- End of year $539,327 $111,883 =========================== See the accompanying Notes to Condensed Financial Statements 3
4 BRUCKNER SUPPLY COMPANY, INC. Notes to the Condensed Financial Statements Description of Business Bruckner Supply Company, Inc. (the "Company") is an integrated supply company whose customers are major corporations located throughout the United States. The Company's revenues include total amounts billed to customers for products sold and all other aspects of handling customers' purchasing operations. Basis of Presentation The unaudited condensed financial statements have been prepared in accordance with generally accepted accounting principles. The notes included herein should be read in conjunction with the audited financial statements of Bruckner (included as Exhibit 99.1 to WESCO International, Inc.'s Current Report on Form 8-K/A dated September 11, 1998). The unaudited condensed balance sheet as of June 30, 1998, and the unaudited condensed statement of income and the unaudited condensed statement of cash flows for the six months ended June 30, 1998 and 1997, in the opinion of management, have been prepared on the same basis as the audited financial statements and include all adjustments necessary for the fair presentation of the results of the interim periods. All adjustments reflected in the condensed financial statements are of a normal recurring nature. Results for the interim periods presented are not necessarily indicative of the results to be expected for the full year. Subsequent Event On September 11, 1998, the Company sold to WESCO Distribution, Inc., substantially all of its assets and liabilities, other than cash, debt securities, amounts due from affiliates, certain equipment and prepaid expenses and bank overdraft. 4
1 EXHIBIT 99.3 UNAUDITED PRO FORMA FINANCIAL INFORMATION The following unaudited pro forma financial information of WESCO International, Inc. and subsidiaries (collectively, "WESCO") has been prepared to give effect to (i) the acquisition of substantially all assets and assumption of substantially all liabilities and obligations relating to the Bruckner Supply Company, Inc. ("Bruckner"); and (ii) the recapitalization of WESCO completed in June 1998 as discussed more fully below. The Bruckner Acquisition was accounted for using the purchase method of accounting pursuant to which the purchase price at closing was allocated to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values. The purchase price allocations are preliminary. Final allocations will be made based upon valuations and other studies that have not been completed but are not expected to differ significantly from those presented herein. See Notes to Unaudited Pro Forma Condensed Consolidated Balance Sheet. On June 5, 1998, (i) WESCO (x) repurchased and retired all of its common stock held by the then existing non-management shareholders for $595.2 million in the aggregate, (y) cashed-out all of the stock options held by non-management optionholders for $57.5 million in the aggregate and (z) cashed-out a portion of the stock options held by certain members of management for $0.9 million in the aggregate (the aggregate funds necessary to effect such purchase of shares and cash-out of options is herein referred to as the "Equity Consideration"); (ii) WESCO sold shares of common stock to an investor group for $318.1 million in the aggregate (the "Cash Equity Contribution"); (iii) the investor group purchased shares of common stock from certain members of management for $1.9 million in the aggregate; and (iv) management continued to retain the remainder of their shares of common stock and stock options with an implied aggregate value of approximately $97.7 million. In addition to the proceeds of the Cash Equity Contribution, WESCO funded the Equity Consideration, the repayment of approximately $379.1 million of then outstanding indebtedness and the payment of transaction fees and expenses from: (i) the initial borrowings of $170.0 million under a new credit agreement; (ii) the proceeds of $250.0 million from a sale of accounts receivable pursuant to a receivables facility; and (iii) the proceeds from the issuance of $300 million of Senior Subordinated Notes and $87 million of Senior Discount Notes. The foregoing transactions are collectively referred to herein as the "Recapitalization." As a result of the Recapitalization, management owns approximately 11.3% of the outstanding shares of common stock (which, together with existing stock options and new stock options granted in connection with the Recapitalization, represents over 30% of the common equity of WESCO on a fully diluted basis). The Investor Group owns the remaining 88.7% of the outstanding shares of Common Stock. WESCO treated the Recapitalization as a recapitalization for financial reporting purposes; accordingly, the historical basis of WESCO' assets and liabilities were not affected by the transaction. The pro forma adjustments presented are based upon available information and include certain assumptions and adjustments that WESCO believes are reasonable under the circumstances. These adjustments are directly attributable to the transactions referenced above and are expected to have a continuing impact on WESCO's business, results of operations and financial condition. The historical condensed consolidated balance sheet of WESCO as of June 30, 1998 and the historical condensed consolidated statement of income of WESCO for the six months ended June 30, 1998 were derived from the unaudited interim condensed consolidated financial statements of WESCO included in its Quarterly Report on Form 10-Q for the quarterly period ended June 30, 1998. The historical condensed consolidated statement of income of WESCO for the year ended December 31, 1997 was derived from the audited consolidated financial statements of WESCO included in its Registration Statement on Form S-4 filed with the 1
2 Securities and Exchange Commission (File No. 333-43225) ("Registration Statement"). The historical financial data of Bruckner for the year ended December 31, 1997 was derived from its audited financial statements filed herewith as Exhibit 99.1. The historical financial information of Bruckner as of June 30, 1998 and the six months then ended was derived from unaudited interim financial statements prepared by Bruckner's management and filed herewith as Exhibit 99.2. The unaudited pro forma condensed consolidated balance sheet of WESCO as of June 30, 1998 gives effect to the Bruckner Acquisition as if it occurred on June 30, 1998. The unaudited pro forma condensed consolidated statement of income of WESCO for the six month period ended June 30, 1998 and for the year ended December 31, 1997 gives effect to the Recapitalization and the Bruckner Acquisition as if they occurred on January 1, 1997. The unaudited pro forma financial information and related notes are provided for informational purposes only and do not necessarily reflect (i) the results of operations or financial condition of WESCO that would have actually resulted had the events referred to above or in the notes to the unaudited pro forma financial information been consummated as of the dates indicated and are not intended to project WESCO's financial condition or results of operations for any future period; or (ii) with respect to the unaudited pro forma condensed consolidated statement of income for the year ended December 31, 1997, (a) the effect of certain non-recurring income statement charges resulting from the Recapitalization, including non-capitalized transaction fees and expenses of approximately $25.1 million, compensation charges of approximately $11.0 million associated with one-time bonuses paid to certain members of management, compensation charges of approximately $6.3 million associated with the cash settlement relating to certain stock options, compensation charges of approximately $4.1 million associated with the acceleration of vesting of one recently hired executive's stock options issued at a discount, and a charge of approximately $0.5 million related to the write-off of existing deferred financing costs; and (b) losses totaling $2.6 million on the sale of trade accounts receivable in connection with the Recapitalization. WESCO's historical financial information as of and for the six months ended June 30, 1998 reflects such amounts. The unaudited pro forma financial information should be read in conjunction with the sections of the Registration Statement entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "The Recapitalization", the audited consolidated financial statements and notes thereto as of December 31, 1997 and 1996, and for each of the three years in the period ended December 31, 1997 included in the Registration Statement, and with WESCO's Quarterly Report on Form 10-Q for the quarterly period ended June 30, 1998. 2
3 WESCO INTERNATIONAL, INC. UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET AS OF JUNE 30, 1998 WESCO Bruckner Pro WESCO International, Bruckner Forma International, Dollars in thousands Inc. Historical Historical (a) Adjustments Inc. Pro Forma - --------------------------------------------------------------------------------------------------------------------- ASSETS Cash and cash equivalents $58,929 $539 $(539)(b) (60,500)(c) $(1,571) Debt securities 754 (754)(b) Trade accounts receivable 179,200 33,442 212,642 Other accounts receivable 16,414 16,414 Inventories 335,271 3,335 267 (c) 338,873 Other current assets 44,114 827 44,941 -------------- ------------ -------------- -------------- Total current assets 633,928 38,897 (61,526) 611,299 Property, buildings and equipment, net 101,803 359 102,162 Goodwill, net of accumulated amortization 101,635 96,854 (c) 198,489 Other assets 19,020 5 (5)(b) 19,020 -------------- ------------ -------------- -------------- Total assets $856,386 $39,261 $35,323 $930,970 ============== ============ ============== ============== LIABILITIES AND STOCKHOLDERS' EQUITY Accounts payable $392,408 $26,877 $(3,476)(b) $415,809 Accrued payroll and benefit costs 13,810 13,810 Restructuring reserve 4,533 4,533 Other current liabilities 26,042 924 11,638 (d) 38,604 -------------- ------------ -------------- -------------- Total current liabilities 436,793 27,801 8,162 472,756 Long-term debt 526,962 38,621 (e) 565,583 Other noncurrent liabilities 7,466 7,466 Deferred income taxes 18,211 18,211 -------------- ------------ -------------- -------------- Total liabilities 989,432 27,801 46,783 1,064,016 Redeemable common stock 12,872 12,872 Stockholders' equity (145,918) 11,460 (11,460)(b) (145,918) -------------- ------------ -------------- -------------- Total liabilities and stockholders' equity $856,386 $39,261 $35,323 $930,970 ============== ============ ============== ============== See notes to unaudited pro forma condensed consolidated balance sheet 3
4 WESCO INTERNATIONAL, INC. NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET (a) Certain reclassifications have been made to the Bruckner historical financial statements to conform to the presentation used by WESCO upon completion of the acquisition. (b) Reflects the cash paid at closing, the elimination of certain assets and liabilities not acquired and the elimination of historical stockholders' equity in connection with the Bruckner Acquisition as follows: Assets and liabilities not acquired or assumed: Cash $ 539 Securities available for sale 754 Amounts due from affiliates of Bruckner 5 Bank overdraft 3,476 Stockholders' equity 11,460 (c) The Bruckner Acquisition is to be accounted for as a purchase business combination. The purchase price at closing totaled approximately $99.1 million, consisting of $60.5 million in cash and $38.6 million of new indebtedness. The new indebtedness consisted of $12.0 million borrowed under WESCO's existing credit agreement and a noninterest-bearing convertible note due March 31, 2000 and discounted to a value of $26.6 million for financial reporting purposes. The note is automatically convertible into common stock of WESCO in the event of a public offering of common stock of WESCO ("Public Offering") prior to March 31, 2000. For purposes of this pro forma condensed consolidated financial information, the purchase price allocation was as follows: Consideration: Cash $60,500 Increase in credit facility 12,000 Discounted seller note 26,621 Book value of assets acquired, net of liabilities assumed and other obligations to seller (2,000) ----------- Increase in basis 97,121 Allocation of increase in basis: Increase in inventory value 267 Increase in goodwill and other intangible assets 96,854 ----------- $97,121 =========== No assumptions were made regarding restructuring costs or recurring benefits from synergies associated with the consummation of the acquisition. The asset purchase agreement provides for certain possible post-closing purchase price adjustments based on Bruckner's net assets at closing of the acquisition. WESCO has also agreed to pay additional contingent consideration based on a multiple of increases in annual earnings before interest, taxes, depreciation and amortization achieved by the Bruckner division with respect to calendar year 1998 and future years through 2004, up to a maximum additional contingent consideration of $130 million. Such additional contingent consideration, if paid, is expected to be recorded as an adjustment to the purchase price and increase goodwill and, accordingly, would be amortized as a charge to earnings over the estimated remaining life of the intangible asset. Bruckner may elect to receive up to 50% of any additional contingent consideration in the form of common stock of WESCO following a Public Offering. Some or all of the additional contingent consideration is subject to earlier payment in the event of a "change of control" of WESCO other than as a result of a Public Offering. 4
5 (d) Reflects estimated additional other obligations due to seller based on estimated post-closing adjustments. (e) Reflects additional debt incurred in connection with the Bruckner Acquisition consisting of (i) $12.0 million borrowed under WESCO's existing credit agreement bearing interest at LIBOR (5.69% at June 30, 1998) plus 2.25%; and (ii) a noninterest-bearing convertible seller note due March 31, 2000 with a face value of $30 million and discounted to a value of $26.6 million for financial reporting purposes. For purposes of this pro forma financial information, the discount of $3.4 million is being accreted to interest expense on a straight-line basis (which approximates the effective-interest method) over the term of the note. 5
6 WESCO INTERNATIONAL, INC. UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME FOR THE SIX MONTHS ENDED JUNE 30, 1998 WESCO Bruckner Pro WESCO International, Bruckner Forma Recapitalization International, In thousands Inc. Historical Historical(a) Adjustments Adjustments Inc. Pro Forma - -------------------------------------------------------------------------------------------------------------------------------- Sales, net $1,441,755 $132,015 $1,573,770 Cost of goods sold (exclusive of depreciation and amortization) 1,181,769 118,415 1,300,184 -------------- ------------ ------------- --------------- ------------- Gross profit 259,986 13,600 273,586 Selling, general and administrative expenses 205,107 5,991 $(170)(e) 210,928 Depreciation and amortization 6,328 55 $1,387 (b) 7,770 Recapitalization costs 51,800 51,800 -------------- ------------ ------------- --------------- ------------- Income (loss) from operations (3,249) 7,554 (1,387) 170 3,088 Interest expense, net 16,480 1,549 (c) 9,049 (f) 27,078 Other income (232) (232) Other expenses, net 2,570 5,168 (g) 7,738 -------------- ------------ ------------- --------------- ------------- Income (loss) before income taxes (22,299) 7,786 (2,936) (14,046) (31,495) Provision (benefit) for income taxes (12,693) 7 1,885 (d) (5,478)(d) (16,279) -------------- ------------ ------------- --------------- ------------- Net income (loss) $(9,606) $7,779 $(4,821) $(8,568) $(15,216) ============== ============ ============= =============== ============= See notes to unaudited pro forma condensed consolidated statement of income 6
7 WESCO INTERNATIONAL, INC. UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME FOR THE YEAR ENDED DECEMBER 31, 1997 WESCO Bruckner Pro WESCO International, Bruckner Forma Recapitalization International, In thousands Inc. Historical Historical(a) Adjustments Adjustments Inc. Pro Forma - -------------------------------------------------------------------------------------------------------------------------------- Sales, net $2,594,819 $222,406 $2,817,225 Cost of goods sold (exclusive of depreciation and amortization) 2,130,900 203,417 2,334,317 -------------- ------------ ------------- -------------- ------------ Gross profit 463,919 18,989 482,908 Selling, general and administrative expenses 372,532 8,742 $(400)(e) 380,874 Depreciation and amortization 11,331 111 $2,775 (b) 14,217 -------------- ------------ ------------- -------------- ------------ Income (loss) from operations 80,056 10,136 (2,775) 400 87,817 Interest expense, net 20,109 3,116 (c) 29,957 (f) 53,182 Other income (818) (818) Other expenses, net 15,475 (g) 15,475 -------------- ------------ ------------- -------------- ------------ Income (loss) before income taxes 59,947 10,954 (5,891) (45,032) 19,978 Provision (benefit) for income taxes 23,710 215 1,760 (d) (17,562)(d) 8,123 -------------- ------------ ------------- -------------- ------------ Income (loss) from continuing operations before non-recurring charges directly attributable to the Recapitalization $36,237 $10,739 $(7,651) $(27,469) $11,855 ============== ============ ============= ============== ============ See notes to unaudited pro forma condensed consolidated statement of income 7
8 WESCO INTERNATIONAL, INC. NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME (a) Certain reclassifications have been made to Bruckner's historical financial statements to conform to the presentation used by WESCO upon completion of the acquisition. (b) Reflects amortization of goodwill and other intangible resulting from the Bruckner Acquisition over an estimated period of 35 years. (c) Reflects incremental interest expense on new obligations related to the Bruckner Acquisition. The obligations consist of $12 million of new borrowings and a noninterest-bearing convertible note due March 31, 2000 and discounted to a value of $26.6 million for financial reporting purposes (face value $30.0 million). The assumed interest rate on the $12 million of new borrowings under WESCO's existing credit agreement was 7.84%. For purposes of this pro forma financial information, the original issue discount is accreted on a straight-line basis (which approximates the effective-interest method) over the period ending March 31, 2000. Assuming a 0.125 percentage point change in interest rates, interest expense would change by $8 thousand and $15 thousand for the six months ended June 30, 1998 and year ended December 31, 1997, respectively. (d) Reflects the income tax effect of converting Bruckner from a Subchapter S corporation to a C corporation and the income tax effects of the pro forma adjustments at an assumed rate of 39%. (e) Reflects the elimination of non-recurring advisory, management consulting and monitoring fees paid to WESCO's investors prior to the Recapitalization during the periods presented. Historical revenue and expenses would not have been materially changed without these services. (f) Reflects the incremental interest expense relating to the Recapitalization assuming interest rates of 9.125% for the Senior Subordinated Notes, 8.05% for the Tranche A Term Loan and 8.3% for the Tranche B Term Loan borrowings under a new credit agreement, and amortization of original issue and purchase discounts, as well as the incremental amortization expense resulting from the capitalization of transaction fees and expenses of $10.5 million related to the Recapitalization. The amortization of debt issuance costs were $677 thousand and $1.4 million for the six months ended June 30, 1998 and the year ended December 31, 1997, respectively. The Senior Discount Notes were issued with an original issue discount of $36.5 million. The original issue discount is being accreted over the period ending June 1, 2003. Beginning June 1, 2003, interest accrues at 11 1/8%. Assuming a 0.125 percentage point change in interest rates, interest expense would change by $106 thousand and $213 thousand for the six months ended June 30, 1998 and year ended December 31, 1997, respectively. (g) Reflects the costs related to the sale of certain accounts receivable in connection with the Recapitalization at an assumed discount rate of 6.19%. 8