Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
| þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
or
| o | TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD from ______ to ______ | |
| For the quarterly period ended June 30, 2005 |
Commission file number 001-14989
WESCO International, Inc.
(Exact name of registrant as specified in its charter)
| Delaware (State or other jurisdiction of incorporation or organization) |
25-1723342 (IRS Employer Identification No.) |
|
| 225 West Station Square Drive Suite 700 Pittsburgh, Pennsylvania 15219 (Address of principal executive offices) |
(412) 454-2200 (Registrant’s telephone number, including area code) |
N/A
(Former name or former address, if changed since last report)
(Former name or former address, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing requirements
for at least the past 90 days. Yes þ No o.
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule
12b-2 of the Act).
Yes þ No o.
As of July 29, 2005, WESCO International, Inc. had 47,099,617 shares of common stock
outstanding.
WESCO INTERNATIONAL, INC. AND SUBSIDIARIES
QUARTERLY REPORT ON FORM 10-Q
Table of Contents
| Page | ||||||||
PART I
— FINANCIAL INFORMATION |
||||||||
Item 1. Financial Statements |
||||||||
| 2 | ||||||||
| 3 | ||||||||
| 4 | ||||||||
| 5 | ||||||||
| 15 | ||||||||
| 22 | ||||||||
| 22 | ||||||||
| 23 | ||||||||
| 23 | ||||||||
| 23 | ||||||||
| 24 | ||||||||
| EX-31.1 | ||||||||
| EX-31.2 | ||||||||
| EX-32.1 | ||||||||
| EX-32.2 | ||||||||
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WESCO INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
| June 30 | December 31 | |||||||
| Dollars in thousands, except share data | 2005 | 2004 | ||||||
Assets
|
||||||||
Current Assets: |
||||||||
Cash and cash equivalents |
$ | 15,021 | $ | 34,523 | ||||
Trade accounts receivable, net of allowance for
doubtful accounts of $11,992 and $12,481 in 2005
and 2004, respectively (Note 4) |
335,428 | 383,364 | ||||||
Other accounts receivable |
19,599 | 30,237 | ||||||
Inventories, net |
390,099 | 387,339 | ||||||
Current deferred income taxes |
5,299 | 3,920 | ||||||
Income taxes receivable |
2,692 | 6,082 | ||||||
Prepaid expenses and other current assets |
9,383 | 9,451 | ||||||
Total current assets |
777,521 | 854,916 | ||||||
Property, buildings and equipment, net |
94,963 | 94,742 | ||||||
Goodwill |
401,575 | 401,610 | ||||||
Other assets |
5,484 | 5,587 | ||||||
Total assets |
$ | 1,279,543 | $ | 1,356,855 | ||||
Liabilities and Stockholders’ Equity |
||||||||
Current Liabilities: |
||||||||
Accounts payable |
$ | 494,156 | $ | 455,821 | ||||
Accrued payroll and benefit costs |
26,707 | 43,350 | ||||||
Current portion of long-term debt (Note 5) |
21,452 | 31,413 | ||||||
Deferred acquisition payable |
1,013 | 1,014 | ||||||
Other current liabilities |
30,144 | 32,647 | ||||||
Total current liabilities |
573,472 | 564,245 | ||||||
Long-term debt (Note 5) |
247,748 | 386,173 | ||||||
Long-term deferred acquisition payable |
1,013 | 2,026 | ||||||
Other noncurrent liabilities |
8,828 | 7,904 | ||||||
Deferred income taxes |
42,739 | 42,954 | ||||||
Total liabilities |
873,800 | 1,003,302 | ||||||
Commitments and contingencies |
||||||||
Stockholders’ Equity: |
||||||||
Preferred stock, $.01 par value; 20,000,000 shares authorized, no shares issued or outstanding |
— | — | ||||||
Common stock, $.01 par value; 210,000,000 shares
authorized, 51,145,889 and 50,483,970 shares
issued in 2005 and 2004, respectively |
511 | 505 | ||||||
Class B nonvoting convertible common stock, $.01
par value; 20,000,000 shares authorized, 4,339,431
issued in 2005 and 2004; no shares outstanding |
43 | 43 | ||||||
Additional capital |
690,852 | 676,465 | ||||||
Retained earnings (deficit) |
(233,075 | ) | (271,858 | ) | ||||
Treasury stock, at cost; 8,413,853 and 8,407,790
shares in 2005 and 2004, respectively |
(61,630 | ) | (61,449 | ) | ||||
Accumulated other comprehensive income |
9,042 | 9,847 | ||||||
Total stockholders’ equity |
405,743 | 353,553 | ||||||
Total liabilities and stockholders’ equity |
$ | 1,279,543 | $ | 1,356,855 | ||||
The accompanying notes are an integral part of the condensed consolidated financial statements.
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WESCO INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
| Three Months Ended June 30 | Six Months Ended June 30 | |||||||||||||||
| In thousands, except share data | 2005 | 2004 | 2005 | 2004 | ||||||||||||
Net sales |
$ | 1,062,060 | $ | 931,020 | $ | 2,052,931 | $ | 1,778,814 | ||||||||
Cost of goods sold (excluding depreciation and
amortization below) |
867,474 | 747,313 | 1,673,163 | 1,434,255 | ||||||||||||
Gross profit |
194,586 | 183,707 | 379,768 | 344,559 | ||||||||||||
Selling, general and administrative expenses |
141,987 | 136,181 | 284,668 | 265,768 | ||||||||||||
Depreciation and amortization |
3,684 | 4,655 | 7,623 | 9,661 | ||||||||||||
Income from operations |
48,915 | 42,871 | 87,477 | 69,130 | ||||||||||||
Interest expense |
6,849 | 10,148 | 15,974 | 19,988 | ||||||||||||
Loss on debt extinguishment (Note 5) |
— | 1,625 | 10,051 | 1,625 | ||||||||||||
Other expenses (Note 4) |
3,004 | 1,292 | 5,019 | 2,507 | ||||||||||||
Income before income taxes |
39,062 | 29,806 | 56,433 | 45,010 | ||||||||||||
Provision for income taxes |
11,623 | 10,720 | 17,650 | 16,203 | ||||||||||||
Net income |
$ | 27,439 | $ | 19,086 | $ | 38,783 | $ | 28,807 | ||||||||
Earnings per share: |
||||||||||||||||
Basis: |
$ | 0.58 | $ | 0.46 | $ | 0.83 | $ | 0.70 | ||||||||
Diluted |
$ | 0.56 | $ | 0.44 | $ | 0.79 | $ | 0.67 | ||||||||
The accompanying notes are an integral part of the condensed consolidated financial statements.
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WESCO INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
| Six Months Ended June 30 | ||||||||
| In thousands | 2005 | 2004 | ||||||
Operating Activities: |
||||||||
Net income |
$ | 38,783 | $ | 28,807 | ||||
Adjustments to reconcile net income to net cash provided by operating activities: |
||||||||
Loss on debt extinguishment (excluding premium in 2005 of
$8,168) |
1,883 | 1,625 | ||||||
Depreciation and amortization |
7,623 | 9,661 | ||||||
Accretion of original issue and amortization of purchase discounts |
683 | 1,402 | ||||||
Amortization of debt issuance costs |
539 | 774 | ||||||
Deferred income taxes |
(1,594 | ) | (214 | ) | ||||
Amortization of gain on interest rate swap |
(456 | ) | (456 | ) | ||||
Stock option expense |
3,128 | 726 | ||||||
(Gain) loss on the sale of property, buildings and equipment |
(32 | ) | 15 | |||||
Changes in assets and liabilities |
||||||||
Change in receivables facility |
122,000 | 75,000 | ||||||
Trade and other receivables |
(64,582 | ) | (78,751 | ) | ||||
Inventories |
(3,594 | ) | (59,920 | ) | ||||
Prepaid expenses and other current assets |
9,285 | 14,924 | ||||||
Accounts payable |
39,428 | 79,367 | ||||||
Accrued payroll and benefit costs |
(16,643 | ) | (2,918 | ) | ||||
Other current and noncurrent liabilities |
(1,204 | ) | 2,118 | |||||
Net cash provided by operating activities |
135,247 | 72,160 | ||||||
Investing Activities: |
||||||||
Capital expenditures |
(7,887 | ) | (5,219 | ) | ||||
Acquisition payments |
(1,014 | ) | (30,703 | ) | ||||
Net cash used by investing activities |
(8,901 | ) | (35,922 | ) | ||||
Financing Activities: |
||||||||
Proceeds from issuance of long-term debt |
147,400 | 165,800 | ||||||
Repayments of long-term debt |
(297,331 | ) | (203,439 | ) | ||||
Redemption of stock options |
— | (20,144 | ) | |||||
Proceeds from the exercise of stock options |
5,259 | 3,800 | ||||||
Debt issuance costs |
(894 | ) | — | |||||
Net cash used by financing activities |
(145,566 | ) | (53,983 | ) | ||||
Effect of exchange rate changes on cash and cash equivalents |
(282 | ) | (331 | ) | ||||
Net change in cash and cash equivalents |
(19,502 | ) | (18,076 | ) | ||||
Cash and cash equivalents at the beginning of period |
34,523 | 27,495 | ||||||
Cash and cash equivalents at the end of period |
$ | 15,021 | $ | 9,419 | ||||
Supplemental disclosures: |
||||||||
Non-cash financing activities: |
||||||||
Decrease in fair value of outstanding interest rate swaps |
$ | 228 | $ | 1,498 | ||||
The accompanying notes are an integral part of the condensed consolidated financial statements.
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WESCO INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. ORGANIZATION
WESCO International, Inc. and its subsidiaries (collectively, “WESCO”), headquartered in
Pittsburgh, Pennsylvania, is a full-line distributor of electrical supplies and equipment and is a
provider of integrated supply procurement services. WESCO currently operates approximately 350
branch locations and five distribution centers located in the United States, Canada, Mexico, Puerto
Rico, Guam, the United Kingdom, Nigeria, United Arab Emirates and Singapore.
2. ACCOUNTING POLICIES
Basis of Presentation
The unaudited condensed consolidated financial statements include the accounts of WESCO and
all of its subsidiaries and have been prepared in accordance with Rule 10-01 of Regulation S-X of
the Securities and Exchange Commission. The unaudited condensed consolidated financial statements
should be read in conjunction with the audited consolidated financial statements and notes thereto
included in WESCO’s 2004 Annual Report on Form 10-K filed with the Securities and Exchange
Commission (“SEC”).
The unaudited condensed consolidated balance sheet as of June 30, 2005, the unaudited
condensed consolidated statements of income for the three months and six months ended June 30, 2005
and June 30, 2004, respectively, and the unaudited condensed consolidated statements of cash flows
for the six months ended June 30, 2005 and June 30, 2004, respectively, in the opinion of
management, have been prepared on the same basis as the audited consolidated financial statements
and include all adjustments necessary for the fair presentation of the results of the interim
periods. All adjustments reflected in the unaudited condensed consolidated financial statements
are of a normal recurring nature unless indicated. Results for the interim periods presented are
not necessarily indicative of the results to be expected for the full year.
Gross Profit
Our calculation of gross profit is net sales less cost of goods sold. Cost of goods sold
include our cost of the products sold and excludes cost for selling, general and administrative
expenses and depreciation and amortization, which are reported separately in the statement of
income.
Stock-Based Compensation
During the year ended December 31, 2003, WESCO adopted the measurement provisions of Statement
of Financial Accounting Standards (“SFAS”) No. 123, Accounting for Stock-Based Compensation. This
change in accounting method was applied on a prospective basis in accordance with SFAS No. 148,
Accounting for Stock-Based Compensation — Transition and
Disclosure — an amendment of SFAS No. 123.
Stock options awarded prior to 2003 are accounted for under the intrinsic value method under
Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees. The Company
recognized $1.5 million and $3.1 million of compensation expense for the three months and six
months ended June 30, 2005, respectively. The Company recognized $0.4 million and $0.7 million of
compensation expense for the three months and six months ended June 30, 2004, respectively. There
were no options granted during the six months ended June 30, 2005 and June 30, 2004.
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The following table presents the pro forma results as if the fair-value based method of
accounting for stock-based awards had been applied to all outstanding options:
| Three months | Six months | |||||||||||||||
| Ended June 30 | Ended June 30 | |||||||||||||||
| Dollars in thousands, except share data | 2005 | 2004 | 2005 | 2004 | ||||||||||||
Net income, as reported |
$ | 27,439 | $ | 19,086 | $ | 38,783 | $ | 28,807 | ||||||||
Add: Stock-based employee compensation
expense included in reported net
income,
net of related tax |
1,002 | 236 | 2,045 | 472 | ||||||||||||
Deduct: Stock-based employee
compensation expense determined under
SFAS No. 123 for
all awards, net of related
tax |
1,093 | 429 | 2,262 | 858 | ||||||||||||
Pro forma net income |
$ | 27,348 | $ | 18,893 | $ | 38,566 | $ | 28,421 | ||||||||
Earnings per share: |
||||||||||||||||
Basic as reported |
$ | 0.58 | $ | 0.46 | $ | 0.83 | $ | 0.70 | ||||||||
Basic pro forma |
$ | 0.58 | $ | 0.45 | $ | 0.82 | $ | 0.69 | ||||||||
Diluted as reported |
$ | 0.56 | $ | 0.44 | $ | 0.79 | $ | 0.67 | ||||||||
Diluted pro forma |
$ | 0.56 | $ | 0.43 | $ | 0.79 | $ | 0.66 | ||||||||
Recent Accounting Pronouncements
In May 2005, the Financial Accounting Standards Board issued SFAS No. 154, Accounting Changes
and Error Corrections, which changes the requirements for the accounting and reporting of a change
in accounting principle. SFAS No. 154 applies to all voluntary changes in accounting principle as
well as to changes required by an accounting pronouncement that does not include specific
transition provisions. SFAS No. 154 eliminates the requirement to include the cumulative effect of
changes in accounting principle in the income statement and instead requires that changes in
accounting principle be retroactively applied. A change in accounting estimate continues to be
accounted for in the period of change and future periods if necessary. A correction of an error
continues to be reported by restating prior period financial statements. SFAS No. 154 is effective
for WESCO for accounting changes and correction of errors made on or after January 1, 2006.
In
December 2004, the FASB issued SFAS No. 123R, Share— Based Payment. This statement is a
revision of SFAS Statement No. 123, Accounting for Stock-Based Compensation and supersedes APB
Opinion No. 25, Accounting for Stock Issued to Employees, and its related implementation guidance.
SFAS No. 123R addresses all forms of share based payment (“SBP”) awards, including shares issued
under employee stock purchase plans, stock options, restricted stock and stock appreciation rights.
Under SFAS No.123R, SBP awards result in a cost that will be measured at fair value on the awards’
grant date, based on the estimated number of awards that are expected to vest and will be reflected
as compensation expense in the financial statements. In addition, this statement will apply to
unvested options granted prior to the effective date. In March 2005, the SEC issued Staff
Accounting Bulletin No. 107 (SAB 107) regarding the SEC Staff’s interpretation of SFAS No. 123R and
provides the Staff’s view regarding interaction between SFAS No. 123R and certain SEC rules and
regulations and provides interpretation of the valuation of SBP for public companies. In April
2005, the SEC approved a rule that delays the effective date of SFAS No. 123R for annual, rather
than interim, reporting periods that begin after June 15, 2005. WESCO is currently evaluating the
effect that implementation of SFAS 123R and SAB 107 will have on its financial position, results of
operations, and cash flows.
In November 2004, the FASB issued SFAS No. 151, Inventory Costs — an amendment of Accounting
Research Bulletin (ARB) No. 43, Chapter 4. This Statement amends the guidance in ARB No. 43,
Chapter 4, Inventory Pricing, to clarify the accounting for normal amounts of idle facility
expense, freight, handling costs, and wasted material (spoilage). This statement becomes effective
for fiscal years beginning after June 15, 2005. It is expected that this statement will not have a
material effect on our financial statements.
In May 2004, the FASB issued FASB Staff Position (FSP) No. FAS 109-2, Accounting and
Disclosure Guidance for the Foreign Earnings Repatriation Provision within the American Jobs
Creation Act of 2004 (FSP 109-2) which provides guidance under SFAS No. 109, Accounting for Income
Taxes, with respect to recording the potential impact of the repatriation provisions of the
American Jobs Creation Act of 2004 (the Jobs Act) on enterprises’ income tax expense and deferred
tax liability. The Jobs Act was enacted on October 22, 2004. FSP 109-2 states that an enterprise
is allowed time beyond the financial reporting period of enactment to evaluate the effect of the
Jobs Act on its plan for reinvestment or repatriation of foreign earnings for purposes of applying
SFAS No. 109. We have no plans to make an election under this act to repatriate foreign earnings.
Accordingly, as provided for in FSP 109-2, we have not adjusted our tax expense or deferred tax
liability to reflect the repatriation provisions of the Jobs Act.
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3. EARNINGS PER SHARE
The following table sets forth the details of basic and diluted earnings per share:
| Three Months Ended June 30 | ||||||||
| Dollars in thousands, except per share amounts | 2005 | 2004 | ||||||
Net income, as reported |
$ | 27,439 | $ | 19,086 | ||||
Weighted average common shares outstanding
used in computing basic earnings per share |
46,982,017 | 41,562,343 | ||||||
Common shares issuable upon exercise of
dilutive stock options |
2,192,608 | 2,158,108 | ||||||
Weighted average common shares outstanding
and common share equivalents used in
computing diluted earnings per share |
49,174,625 | 43,720,451 | ||||||
Earnings per share: |
||||||||
Basic |
$ | 0.58 | $ | 0.46 | ||||
Diluted |
$ | 0.56 | $ | 0.44 | ||||
| Six Months Ended June 30 | ||||||||
| Dollars in thousands, except per share amounts | 2005 | 2004 | ||||||
Net income, as reported |
$ | 38,783 | $ | 28,807 | ||||
Weighted average common shares outstanding
used in computing basic earnings per share |
46,839,115 | 41,354,040 | ||||||
Common shares issuable upon exercise of
dilutive stock options |
2,254,776 | 1,950,382 | ||||||
Weighted average common shares outstanding
and common share equivalents used in
computing diluted earnings per share |
49,093,891 | 43,304,422 | ||||||
Earnings per share: |
||||||||
Basic |
$ | 0.83 | $ | 0.70 | ||||
Diluted |
$ | 0.79 | $ | 0.67 | ||||
Equity awards to purchase 0.8 million shares of common stock at an exercise price of $24.02
per share that were outstanding as of June 30, 2005 were not included in the computation of diluted
earnings per share because to do so would have been antidilutive for the three and six month
periods ending June 30, 2005.
4. ACCOUNTS RECEIVABLE SECURITIZATION
WESCO maintains an accounts receivable securitization program (“Receivables Facility”) that
had a total purchase commitment of $350 million and $325 million as of June 30, 2005 and December
31, 2004, respectively. On May 11, 2005, the facility was amended to increase the total purchase
commitment from $325 million to $350 million with a term of three years. Under the Receivables
Facility, WESCO sells, on a continuous basis, an undivided interest in all domestic accounts
receivable to WESCO Receivables Corporation, a wholly owned, special purpose entity (“SPC”). The
SPC sells without recourse to a third-party conduit all the eligible receivables while maintaining
a subordinated interest, in the form of overcollateralization, in a portion of the receivables.
WESCO has agreed to continue servicing the sold receivables for the financial institution at market
rates; accordingly, no servicing asset or liability has been recorded.
As of June 30, 2005 and December 31, 2004, accounts receivable eligible for securitization
totaled approximately $456 million and $420 million, respectively, of which the subordinated
retained interest was approximately $126 million and $212 million, respectively. Accordingly,
$330.0 million and $208.0 million of accounts receivable balances were removed from the
consolidated balance sheets at June 30, 2005 and December 31, 2004, respectively. Costs associated
with the Receivables Facility totaled $3.0 million and $1.3 million for the three months ended June
30, 2005 and June 30, 2004, respectively. Costs associated with the Receivables Facility totaled
$5.0 million and $2.5 million for the six months ended June 30, 2005 and June 30, 2004,
respectively. These amounts are recorded as other expenses in the consolidated statements of
income and are primarily related to the discount and loss on the sale of accounts receivables,
partially offset by related servicing revenue.
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The key economic assumptions used to measure the retained interest at the date of the
securitization for securitizations completed in 2005 were a discount rate of 3.0% and an estimated
life of 1.5 months. At June 30, 2005, an immediate adverse change in the discount rate or
estimated life of 10% and 20% would result in a reduction in the fair value of the retained
interest of $0.2 million and $0.3 million, respectively. These sensitivities are hypothetical and
should be used with caution. Changes in fair value based on a 10% variation in assumptions
generally cannot be extrapolated because the relationship of the change in assumption to the change
in fair value may not be linear. Also, in this example, the effect of a variation in a particular
assumption on the fair value of the retained interest is calculated without changing any other
assumption. In reality, changes in one factor may result in changes in another.
5. LONG-TERM DEBT
On March 1, 2005, we redeemed $123.8 million in aggregate principal amount of our senior
subordinated notes at a loss of $10.1 million resulting from the payment of the call premium and
the write-off of the unamortized original issue discount and debt
issuance costs. As of June 30,
2005, we had remaining $199.7 million in principal amount of the 9 1/8% Senior Subordinated Notes
due 2008 that were issued June 1998.
In June 2005, we increased the size of the revolving credit facility to $250 million and
amended the maturity date to June 17, 2010. During the six months ended June 30, 2005 borrowings
and repayments were each $147.4 million.
In June 2005, we paid $30 million pursuant to the Bruckner note payable.
6. COMPREHENSIVE INCOME
The following table sets forth comprehensive income and its components:
| Three Months Ended | ||||||||
| June 30 | ||||||||
| In thousands | 2005 | 2004 | ||||||
Net income |
$ | 27,439 | $ | 19,086 | ||||
Foreign currency translation adjustment |
(249 | ) | (1,658 | ) | ||||
Comprehensive income |
$ | 27,190 | $ | 17,428 | ||||
| Six Months Ended | ||||||||
| June 30 | ||||||||
| In thousands | 2005 | 2004 | ||||||
Net income |
$ | 38,783 | $ | 28,807 | ||||
Foreign currency translation adjustment |
(805 | ) | (2,018 | ) | ||||
Comprehensive income |
$ | 37,978 | $ | 26,789 | ||||
7. INCOME TAXES
The following table sets forth the reconciliation between the federal statutory income tax
rate and the effective rate:
| Three Months Ended | ||||||||
| June 30 | ||||||||
| 2005 | 2004 | |||||||
Federal statutory rate |
35.0 | % | 35.0 | % | ||||
State taxes, net of federal tax benefit |
1.3 | 1.5 | ||||||
Nondeductible expenses |
0.7 | 1.0 | ||||||
Domestic tax benefit from foreign operations |
(1.9 | ) | (1.2 | ) | ||||
Foreign tax rate differences(1) |
(2.8 | ) | (0.4 | ) | ||||
Federal tax credits(2) |
(2.5 | ) | — | |||||
Other |
— | 0.1 | ||||||
| 29.8 | % | 36.0 | % | |||||
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| Six Months Ended | ||||||||
| June 30 | ||||||||
| 2005 | 2004 | |||||||
Federal statutory rate |
35.0 | % | 35.0 | % | ||||
State taxes, net of federal tax benefit |
1.5 | 1.2 | ||||||
Nondeductible expenses |
0.7 | 1.2 | ||||||
Domestic tax benefit from foreign operations |
(1.4 | ) | (0.8 | ) | ||||
Foreign tax rate differences(1) |
(2.8 | ) | (0.6 | ) | ||||
Federal tax credits(2) |
(1.7 | ) | — | |||||
| 31.3 | % | 36.0 | % | |||||
| (1) | Includes a benefit of $1.1 million for the three months ended June 30, 2005 and $1.6 million for the six months ended June 30, 2005, from the recapitalization of our Canadian operations. | |
| (2) | Represents a benefit of $1 million for the three and six months ended June 30, 2005 from research and development credits. |
8 . OTHER FINANCIAL INFORMATION (Unaudited)
WESCO Distribution, Inc. has issued $400 million of 9 1/8% Senior Subordinated Notes due 2008.
As of June 30, 2005, $200.3 million of the aggregate principal amount has been redeemed by WESCO.
The senior subordinated notes are fully and unconditionally guaranteed by WESCO International, Inc.
on a subordinated basis to all existing and future senior indebtedness of WESCO International, Inc.
Condensed consolidating financial information for WESCO International, Inc., WESCO Distribution,
Inc. and the non-guarantor subsidiaries are as follows:
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WESCO INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEETS
| June 30, 2005 | ||||||||||||||||||||
| (In thousands) | ||||||||||||||||||||
| WESCO | Consolidating and | |||||||||||||||||||
| International, | WESCO | Non-Guarantor | Eliminating | |||||||||||||||||
| Inc. | Distribution, Inc. | Subsidiaries | Entries | Consolidated | ||||||||||||||||
Cash and cash equivalents |
$ | 3 | $ | 5,646 | $ | 9,372 | $ | — | $ | 15,021 | ||||||||||
Trade accounts receivable |
— | 17,673 | 317,755 | — | 335,428 | |||||||||||||||
Inventories |
— | 325,427 | 64,672 | — | 390,099 | |||||||||||||||
Other current assets |
— | 20,358 | 30,346 | (13,731 | ) | 36,973 | ||||||||||||||
Total current assets |
3 | 369,104 | 422,145 | (13,731 | ) | 777,521 | ||||||||||||||
Intercompany receivables, net |
— | 112,383 | 102,661 | (215,044 | ) | — | ||||||||||||||
Property, buildings and
equipment, net |
— | 27,777 | 67,186 | — | 94,963 | |||||||||||||||
Goodwill |
— | 363,045 | 38,530 | — | 401,575 | |||||||||||||||
Investments in affiliates
and other noncurrent assets |
620,784 | 484,361 | 3,109 | (1,102,770 | ) | 5,484 | ||||||||||||||
Total assets |
$ | 620,787 | $ | 1,356,670 | $ | 633,631 | $ | (1,331,545 | ) | $ | 1,279,543 | |||||||||
Accounts payable |
$ | — | $ | 413,008 | $ | 81,148 | $ | — | $ | 494,156 | ||||||||||
Other current liabilities |
— | 75,147 | 17,900 | (13,731 | ) | 79,316 | ||||||||||||||
Total current liabilities |
— | 488,155 | 99,048 | (13,731 | ) | 573,472 | ||||||||||||||
Intercompany payables, net |
215,044 | — | — | (215,044 | ) | — | ||||||||||||||
Long-term debt |
— | 198,949 | 48,799 | — | 247,748 | |||||||||||||||
Other noncurrent liabilities |
— | 48,782 | 3,798 | — | 52,580 | |||||||||||||||
Stockholders’ equity |
405,743 | 620,784 | 481,986 | (1,102,770 | ) | 405,743 | ||||||||||||||
Total liabilities and
stockholders’ equity |
$ | 620,787 | $ | 1,356,670 | $ | 633,631 | $ | (1,331,545 | ) | $ | 1,279,543 | |||||||||
| December 31, 2004 | ||||||||||||||||||||
| (In thousands) | ||||||||||||||||||||
| WESCO | Consolidating and | |||||||||||||||||||
| International, | WESCO | Non-Guarantor | Eliminating | |||||||||||||||||
| Inc. | Distribution, Inc. | Subsidiaries | Entries | Consolidated | ||||||||||||||||
Cash and cash equivalents |
$ | 1 | $ | 15,974 | $ | 18,548 | $ | — | $ | 34,523 | ||||||||||
Trade accounts receivable |
— | 18,077 | 365,287 | — | 383,364 | |||||||||||||||
Inventories |
— | 326,194 | 61,145 | — | 387,339 | |||||||||||||||
Other current assets |
— | 31,152 | 27,313 | (8,775 | ) | 49,690 | ||||||||||||||
Total current assets |
1 | 391,397 | 472,293 | (8,775 | ) | 854,916 | ||||||||||||||
Intercompany receivables, net |
— | 210,406 | 26,729 | (237,135 | ) | — | ||||||||||||||
Property, buildings and
equipment, net |
— | 26,403 | 68,339 | — | 94,742 | |||||||||||||||
Goodwill |
— | 363,045 | 38,565 | — | 401,610 | |||||||||||||||
Investments in affiliates
and other noncurrent assets |
590,687 | 463,489 | 2,971 | (1,051,560 | ) | 5,587 | ||||||||||||||
Total assets |
$ | 590,688 | $ | 1,454,740 | $ | 608,897 | $ | (1,297,470 | ) | $ | 1,356,855 | |||||||||
Accounts payable |
$ | — | $ | 376,932 | $ | 78,889 | $ | — | $ | 455,821 | ||||||||||
Other current liabilities |
— | 101,989 | 15,210 | (8,775 | ) | 108,424 | ||||||||||||||
Total current liabilities |
— | 478,921 | 94,099 | (8,775 | ) | 564,245 | ||||||||||||||
Intercompany payables, net |
237,135 | — | — | (237,135 | ) | — | ||||||||||||||
Long-term debt |
— | 336,782 | 49,391 | — | 386,173 | |||||||||||||||
Other noncurrent liabilities |
— | 48,350 | 4,534 | — | 52,884 | |||||||||||||||
Stockholders’ equity |
353,553 | 590,687 | 460,873 | (1,051,560 | ) | 353,553 | ||||||||||||||
Total liabilities and
stockholders’ equity |
$ | 590,688 | $ | 1,454,740 | $ | 608,897 | $ | (1,297,470 | ) | $ | 1,356,855 | |||||||||
10
Table of Contents
WESCO INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENTS OF INCOME
| Three Months Ended June 30, 2005 | ||||||||||||||||||||
| (In thousands) | ||||||||||||||||||||
| Consolidating | ||||||||||||||||||||
| WESCO | and | |||||||||||||||||||
| International, | WESCO | Non-Guarantor | Eliminating | |||||||||||||||||
| Inc. | Distribution, Inc. | Subsidiaries | Entries | Consolidated | ||||||||||||||||
Net sales |
$ | — | $ | 896,323 | $ | 165,737 | $ | — | $ | 1,062,060 | ||||||||||
Cost of goods sold |
— | 733,515 | 133,959 | — | 867,474 | |||||||||||||||
Selling, general and
administrative expenses |
2 | 122,648 | 19,337 | — | 141,987 | |||||||||||||||
Depreciation and amortization |
— | 3,006 | 678 | — | 3,684 | |||||||||||||||
Results of affiliates’ operations |
23,001 | 6,874 | — | (29,875 | ) | — | ||||||||||||||
Interest expense (income), net |
(5,699 | ) | 10,347 | 2,201 | — | 6,849 | ||||||||||||||
Other (income) expense |
— | 8,832 | (5,828 | ) | — | 3,004 | ||||||||||||||
Provision for income taxes |
1,259 | 1,848 | 8,516 | — | 11,623 | |||||||||||||||
Net income (loss) |
$ | 27,439 | $ | 23,001 | $ | 6,874 | $ | (29,875 | ) | $ | 27,439 | |||||||||
| Three Months Ended June 30, 2004 | ||||||||||||||||||||
| (In thousands) | ||||||||||||||||||||
| Consolidating | ||||||||||||||||||||
| WESCO | and | |||||||||||||||||||
| International, | WESCO | Non-Guarantor | Eliminating | |||||||||||||||||
| Inc. | Distribution, Inc. | Subsidiaries | Entries | Consolidated | ||||||||||||||||
Net sales |
$ | — | $ | 796,419 | $ | 134,601 | $ | — | $ | 931,020 | ||||||||||
Cost of goods sold |
— | 642,012 | 105,301 | — | 747,313 | |||||||||||||||
Selling, general and
administrative expenses |
— | 118,549 | 17,632 | — | 136,181 | |||||||||||||||
Depreciation and amortization |
— | 3,867 | 788 | — | 4,655 | |||||||||||||||
Results of affiliates’ operations |
17,227 | 11,297 | — | (28,524 | ) | — | ||||||||||||||
Interest expense (income), net |
(2,862 | ) | 14,114 | (1,104 | ) | — | 10,148 | |||||||||||||
Other (income) expense |
— | 6,714 | (3,797 | ) | — | 2,917 | ||||||||||||||
Provision for income taxes |
1,003 | 5,233 | 4,484 | — | 10,720 | |||||||||||||||
Net income (loss) |
$ | 19,086 | $ | 17,227 | $ | 11,297 | $ | (28,524 | ) | $ | 19,086 | |||||||||
11
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WESCO INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENTS OF INCOME
| Six Months Ended June 30, 2005 | ||||||||||||||||||||
| (In thousands) | ||||||||||||||||||||
| Consolidating | ||||||||||||||||||||
| WESCO | and | |||||||||||||||||||
| International, | WESCO | Non-Guarantor | Eliminating | |||||||||||||||||
| Inc. | Distribution, Inc. | Subsidiaries | Entries | Consolidated | ||||||||||||||||
Net sales |
$ | — | $ | 1,732,732 | $ | 320,199 | $ | — | $ | 2,052,931 | ||||||||||
Cost of goods sold |
— | 1,415,452 | 257,711 | — | 1,673,163 | |||||||||||||||
Selling, general and
administrative expenses |
3 | 245,848 | 38,817 | — | 284,668 | |||||||||||||||
Depreciation and amortization |
— | 6,257 | 1,366 | — | 7,623 | |||||||||||||||
Results of affiliates’ operations |
30,902 | 21,113 | — | (52,015 | ) | — | ||||||||||||||
Interest expense (income), net |
(10,998 | ) | 22,547 | 4,425 | — | 15,974 | ||||||||||||||
Loss on debt extinguishment |
— | 10,051 | — | — | 10,051 | |||||||||||||||
Other (income) expense |
— | 17,556 | (12,537 | ) | — | 5,019 | ||||||||||||||
Provision for income taxes |
3,114 | 5,232 | 9,304 | — | 17,650 | |||||||||||||||
Net income (loss) |
$ | 38,783 | $ | 30,902 | $ | 21,113 | $ | (52,015 | ) | $ | 38,783 | |||||||||
| Six Months Ended June 30, 2004 | ||||||||||||||||||||
| (In thousands) | ||||||||||||||||||||
| Consolidating | ||||||||||||||||||||
| WESCO | and | |||||||||||||||||||
| International, | WESCO | Non-Guarantor | Eliminating | |||||||||||||||||
| Inc. | Distribution, Inc. | Subsidiaries | Entries | Consolidated | ||||||||||||||||
Net sales |
$ | — | $ | 1,524,190 | $ | 254,624 | $ | — | $ | 1,778,814 | ||||||||||
Cost of goods sold |
— | 1,232,506 | 201,749 | — | 1,434,255 | |||||||||||||||
Selling, general and
administrative expenses |
— | 230,069 | 35,699 | — | 265,768 | |||||||||||||||
Depreciation and amortization |
— | 8,068 | 1,593 | — | 9,661 | |||||||||||||||
Results of affiliates’ operations |
25,066 | 18,451 | — | (43,517 | ) | — | ||||||||||||||
Interest expense (income), net |
(5,753 | ) | 27,928 | (2,187 | ) | — | 19,988 | |||||||||||||
Other (income) expense |
— | 12,790 | (8,658 | ) | — | 4,132 | ||||||||||||||
Provision for income taxes |
2,012 | 6,214 | 7,977 | — | 16,203 | |||||||||||||||
Net income (loss) |
$ | 28,807 | $ | 25,066 | $ | 18,451 | $ | (43,517 | ) | $ | 28,807 | |||||||||
12
Table of Contents
WESCO INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
| Six Months Ended June 30, 2005 | ||||||||||||||||||||
| (In thousands) | ||||||||||||||||||||
| Consolidating | ||||||||||||||||||||
| WESCO | and | |||||||||||||||||||
| International, | WESCO | Non-Guarantor | Eliminating | |||||||||||||||||
| Inc. | Distribution, Inc. | Subsidiaries | Entries | Consolidated | ||||||||||||||||
Net cash (used) provided by
operating activities |
$ | 16,834 | $ | 125,985 | $ | (7,572 | ) | $ | — | $ | 135,247 | |||||||||
Investing activities: |
||||||||||||||||||||
Capital expenditures |
— | (7,547 | ) | (340 | ) | (7,887 | ) | |||||||||||||
Acquisition payments |
— | (1,014 | ) | — | — | (1,014 | ) | |||||||||||||
Net cash used by investing
activities |
— | (8,561 | ) | (340 | ) | — | (8,901 | ) | ||||||||||||
Financing activities: |
||||||||||||||||||||
Net borrowings (repayments) |
(22,091 | ) | (127,246 | ) | (594 | ) | — | (149,931 | ) | |||||||||||
Equity transactions |
5,259 | — | — | — | 5,259 | |||||||||||||||
Debt issuance costs |
— | (506 | ) | (388 | ) | — | (894 | ) | ||||||||||||
Net cash provided (used) by
financing activities |
(16,832 | ) | (127,752 | ) | (982 | ) | — | (145,566 | ) | |||||||||||
Effect of exchange rate
changes on cash and cash
equivalents |
— | — | (282 | ) | — | (282 | ) | |||||||||||||
Net change in cash and cash
equivalents |
2 | (10,328 | ) | (9,176 | ) | — | (19,502 | ) | ||||||||||||
Cash and cash equivalents at
the beginning of year |
1 | 15,974 | 18,548 | — | 34,523 | |||||||||||||||
Cash and cash equivalents at
the end of period |
$ | 3 | $ | 5,646 | $ | 9,372 | $ | — | $ | 15,021 | ||||||||||
| Six Months Ended June 30, 2004 | ||||||||||||||||||||
| (In thousands) | ||||||||||||||||||||
| Consolidating | ||||||||||||||||||||
| WESCO | and | |||||||||||||||||||
| International, | WESCO | Non-Guarantor | Eliminating | |||||||||||||||||
| Inc. | Distribution, Inc. | Subsidiaries | Entries | Consolidated | ||||||||||||||||
Net cash provided (used) by
operating activities |
$ | 27,016 | $ | 49,719 | $ | (4,573 | ) | $ | (2 | ) | $ | 72,160 | ||||||||
Investing activities: |
||||||||||||||||||||
Capital expenditures |
— | (4,932 | ) | (287 | ) | — | (5,219 | ) | ||||||||||||
Acquisition payments |
— | (30,703 | ) | — | — | (30,703 | ) | |||||||||||||
Net cash used by investing
activities |
— | (35,635 | ) | (287 | ) | — | (35,922 | ) | ||||||||||||
Financing activities: |
— | — | ||||||||||||||||||
Net borrowings (repayments) |
(10,673 | ) | (26,417 | ) | (549 | ) | — | (37,639 | ) | |||||||||||
Redemption of stock options |
(20,144 | ) | — | — | — | (20,144 | ) | |||||||||||||
Equity transactions |
3,800 | — | — | — | 3,800 | |||||||||||||||
Net cash provided (used) by
financing activities |
(27,017 | ) | (26,417 | ) | (549 | ) | — | (53,983 | ) | |||||||||||
Effect of exchange rate
changes on cash and cash
equivalents |
— | — | (331 | ) | — | (331 | ) | |||||||||||||
Net change in cash and cash
equivalents |
(1 | ) | (12,333 | ) | (5,740 | ) | (2 | ) | (18,076 | ) | ||||||||||
Cash and cash equivalents at
the beginning of year |
1 | 16,421 | 11,073 | — | 27,495 | |||||||||||||||
Cash and cash equivalents at
the end of period |
$ | — | $ | 4,088 | $ | 5,333 | $ | (2 | ) | $ | 9,419 | |||||||||
13
Table of Contents
9 . SUBSEQUENT EVENTS
On July 1, 2005, WESCO granted 884,500 stock-settled stock appreciation rights at an exercise
price of $31.65.
On
July 29, WESCO acquired the assets and business of Fastec
Industrial Corp. (Fastec). Fastec is a nationwide importer and
distributor of industrial fasteners, cabinet hardware, and locking
and latching products and has annual sales of approximately $55
million and employs 145 people. The acquisition was funded under our
existing financing arrangements.
14
Table of Contents
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion should be read in conjunction with the information in the
unaudited condensed consolidated financial statements and notes thereto included herein and WESCO
International Inc.’s Financial Statements and Management’s Discussion and Analysis of Financial
Condition and Results of Operations included in its 2004 Annual Report on Form 10-K.
Company Overview
WESCO is a full-line distributor of electrical supplies and equipment and is a provider of
integrated supply procurement services. WESCO currently operates approximately 350 full service
branches and five distribution centers located in the United States, Canada, Mexico, Puerto Rico,
Guam, the United Kingdom, Nigeria, United Arab Emirates and Singapore. We serve over 100,000
customers worldwide, offering over 1,000,000 products from over 24,000 suppliers. Our diverse
customer base includes a wide variety of industrial companies; contractors for industrial,
commercial and residential projects; utility companies, and commercial, institutional and
governmental customers. Approximately 87% of our net sales are generated from operations in the
U.S., 11% from Canada and the remainder from other countries.
Sales growth, along with positive impact from our cost improvement initiatives contributed to
improved financial results for the first six months of 2005. Sales increased 15.4% over the same
period last year and the gross margin of 18.5% compares to 2004 gross margin of 19.4% with the
decline primarily due to favorable commodity pricing in 2004, which
increased the gross margin percentage in 2004, but was not as
significant in 2005 and contributed to a lower gross margin
percentage for the period and partially due to a mix shift to lower
gross margin sales in 2005. Operating income improved by 26.5% compared with last year’s comparable period and
the year to date net income was $38.8 million versus $28.8 million in last year’s comparable
period. Operating income improvement was driven by cost control and improved leverage on the sales
growth.
Cash Flow
We generated $135.2 million in operating cash flow for the first six months of 2005. Included
in this amount was a $122.0 million cash inflow from an increase in our Receivables Facility.
During the six month period ended June 30, 2005 we redeemed $123.8 million of our senior
subordinated notes at a pretax loss of $10.1 million, paid $30 million pursuant to the Bruckner
note payable and paid $1.0 million pursuant to the terms of an acquisition purchase agreement.
Financing Availability
As of June 30, 2005, we had approximately $204 million in available borrowing capacity under
our revolving credit facility.
Outlook
Improvements in operations and our capital structure made in 2004 have positioned us well for
2005. Though we continue to see improvements in the macroeconomic data that reflect activity
levels in our major end markets, capital spending in the manufacturing and construction markets we
serve are still somewhat below the levels experienced in 2000 and 2001. Although we are
seeing signs of improvement, we anticipate a lag before we see a broad-based increase in capital
spending. Accordingly, we continue to focus on selling and marketing initiatives to increase
market share, margin expansion and cost containment as we drive to improve our operating
performance for the rest of 2005.
Critical Accounting Policies and Estimates
During the six-month period ended June 30, 2005, there were no significant changes to our
Critical Accounting Policies and Estimates referenced in the 2004 Annual Report on Form 10-K.
Gross Profit
Our calculation of gross profit is net sales less cost of goods sold. Cost of goods sold
include our cost of the products sold and excludes cost for selling, general and administrative
expenses and depreciation and amortization which are reported separately in the statement of
income.
15
Table of Contents
Results of Operations
Second Quarter of 2005 versus Second Quarter of 2004
The following table sets forth the percentage relationship to net sales of certain items in
our condensed consolidated statements of income for the periods presented:
| Three Months Ended June 30 | ||||||||
| 2005 | 2004 | |||||||
Net sales |
100.0 | % | 100.0 | % | ||||
Gross profit |
18.3 | 19.7 | ||||||
Selling, general and administrative expenses |
13.4 | 14.6 | ||||||
Depreciation and amortization |
0.3 | 0.5 | ||||||
Income from operations |
4.6 | 4.6 | ||||||
Interest expense |
0.6 | 1.1 | ||||||
Loss on debt extinguishment |
— | 0.1 | ||||||
Other expense |
0.3 | 0.1 | ||||||
Income before income taxes |
3.7 | 3.3 | ||||||
Provision for income taxes |
1.1 | 1.2 | ||||||
Net income |
2.6 | % | 2.1 | % | ||||
Net sales in the second quarter of 2005 totaled $1,062.1 million versus $931.0 million in the
comparable period for 2004, a 14.1% increase. Approximately 12.8% of the increase in sales was
attributable to increased volume. The remaining portion of the increase was due to improved
pricing on commodity products of 0.4% and 0.9% from the strength of the Canadian dollar.
Gross profit for the second quarter of 2005 was $194.6 million versus $183.7 million for the
2004 second quarter, and gross margin percentage of net sales was 18.3% versus 19.7% last year.
The gross margin percentage decline was primarily due to a favorable
commodity pricing in 2004, which increased the gross margin
percentage in 2004, but was not as significant in 2005 and
contributed to a lower gross margin percentage for the period and partially due to a mix shift to lower
gross margin sales in 2005.
Selling, general and administrative (“SG&A”) expenses in the second quarter of 2005 totaled
$142.0 million versus $136.2 million in last year’s comparable quarter. Total payroll expense
increased approximately $2.3 million over last year’s second quarter principally from increased
salaries and commissions of $3.2 million, decreased health care and benefits costs of $0.7 million, decreased
variable incentive compensation costs of $1.2 million and increased stock option expense of $1.2
million. Shipping and handling expense included in SG&A was $11.2 million in the second quarter of
2005 compared with $9.2 million in last year’s second quarter. As a percentage of net sales, SG&A
expenses decreased to 13.4% from 14.6% in last year’s second quarter reflecting the leverage of
higher sales volume and the continuous improvements resulting from the implementation of our LEAN
initiatives.
Depreciation and amortization for the second quarter of 2005 was $3.7 million versus $4.7
million in last year’s second quarter. Depreciation in the second quarter decreased $1.0 million
in 2005 compared to 2004 as a result of a reduction in capital spending over each of the last four
years.
Interest expense totaled $6.8 million for the second quarter of 2005 versus $10.1 million in
last year’s second quarter, a decrease of 32.5%. The decline was due to a lower amount of average
indebtedness outstanding during the current quarter as compared to the first quarter of 2004 offset
somewhat by a slightly higher consolidated effective interest rate.
Other expense during the second quarter of 2005 increased to $3.0 million versus $1.3 million
in 2004, reflecting costs associated with the Receivables Facility. This increase is due to the
increase in the average of the accounts receivable sold for the second quarter of 2005 to $317.4
million versus $260.0 million in last year’s comparable quarter and an increase in the average
interest rate in 2005 of 3.8% versus 2004 of 1.8%.
Income
tax expense totaled $11.6 million and the effective tax rate was
29.8% for the second
quarter of 2005 compared to an income tax expense of $10.7 million and an effective tax rate 36.0%
for the comparable quarter of 2004. The current quarter’s effective tax rate differed from the
statutory rate primarily as a result of a decrease in foreign taxes resulting from the
recapitalization of the Canadian operations and a decrease in federal taxes due to research and
development (R&D) tax credits.
16
Table of Contents
For the second quarter of 2005, net income increased by $8.4 million to $27.4 million, or
$0.56 per diluted share, compared with $19.1 million and $0.44 per diluted share, in the second
quarter of 2004. The increase in net income
was primarily attributable to increased sales and decreases in selling, general and
administrative expenses as a percent of net sales, depreciation and amortization, and interest
expense offset by increases in other expense and income tax expense.
Six Months Ended June 30, 2005 versus Six Months Ended June 30, 2004
The following table sets forth the percentage relationship to net sales of certain items in
WESCO’s condensed consolidated statements of operations for the periods presented:
| Six Months Ended | ||||||||
| June 30 | ||||||||
| 2005 | 2004 | |||||||
Net sales |
100.0 | % | 100.0 | % | ||||
Gross profit |
18.5 | 19.4 | ||||||
Selling, general and administrative expenses |
13.9 | 14.9 | ||||||
Depreciation and amortization |
0.4 | 0.6 | ||||||
Income from operations |
4.2 | 3.9 | ||||||
Interest expense |
0.8 | 1.1 | ||||||
Loss on debt extinguishment |
0.5 | 0.1 | ||||||
Other expense |
0.2 | 0.1 | ||||||
Income before income taxes |
2.7 | 2.6 | ||||||
Provision for income taxes |
0.8 | 0.9 | ||||||
Net income |
1.9 | % | 1.7 | % | ||||
Net sales in the six months ended June 30, 2005 totaled $2,052.9 million versus $1,778.8
million in the comparable 2004 period, a 15.4% increase. Approximately 13.4% of the increase in
sales was attributable to increased volume. The remaining portion of the increase was split
between improved pricing on commodity products of approximately 1.1% and the strength of the
Canadian dollar of 0.9%.
Gross profit for the six months ended June 30, 2005 of $379.8 million versus $344.6 million
for last year’s comparable period, and gross margin percentage of net sales was 18.5% versus 19.4%
last year. The gross margin percentage decline was primarily due to a favorable
commodity pricing in 2004, which increased the gross margin
percentage in 2004, but was not as significant in 2005 and
contributed to a lower gross margin percentage for the period and partially due to a mix shift to lower
gross margin sales in 2005.
SG&A expenses during the six months ended June 30, 2005 totaled $284.7 million versus $265.8
million in last year’s comparable period. Total payroll expense increased approximately $13.1
million over last year’s first half principally from increased salaries and commissions of $8.6
million, increased variable incentive compensation costs of $0.7 million, increased health care and
benefits costs of $3.0 million and increased stock option
expense of $2.5 million offset by
decreases in other payroll related expenses of $1.7 million. Shipping and handling expense
included in SG&A was $21.0 million and $17.8 million for the six months ending June 30, 2005 and
2004, respectively. As a percentage of net sales, SG&A expenses decreased to 13.9% compared with
14.9% in last year’s six-month period reflecting the leverage of higher sales volume and the
continuous improvements resulting from the implementation of our LEAN initiatives.
Depreciation and amortization was $7.6 million in the first six months of 2005 versus $9.7
million in last year’s comparable period. The decrease of $2.1 million in 2005 compared to 2004 as
a result of a reduction in capital expenditures over each of the last four years.
Interest expense totaled $16.0 million for the six months ended June 30, 2005 versus $20.0
million in last year’s comparable period. The decline was due to a lower amount of indebtedness
outstanding during the current period offset somewhat by a slightly higher consolidated effective
interest rate.
Loss on debt extinguishments of $10.1 million and $1.6 million for the six months ended June
30, 2005 and 2004, respectively, represented the loss on the repurchase of our senior subordinated
notes during those periods.
Other expense for the six months ended June 30, 2005 increased to $5.0 million versus $2.5
million in 2004, reflecting costs associated with the Receivables Facility. This increase is due
to the increase in the average of the accounts receivable sold for this six month period of 2005 to
$289.2 million versus $243.6 million in last year’s comparable six month period and an increase in
the in the average interest rate in 2005 of 3.5% versus 2004 of 1.8%.
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For the six months ended June 30, 2005, income tax expense totaled $17.7 million and the
effective tax rate was 31.3%. Income tax expense totaled $16.2 million in last year’s comparable
period and the effective tax rate was 36.0%. The effective tax rate for the six months ended June
30, 2005 differed from the statutory rate primarily as a
result of a decrease in foreign taxes resulting from the recapitalization of the Canadian
operations and a decrease in federal taxes due to R&D tax credits.
For the six months ended June 30, 2005, net income totaled $38.8 million, or $0.79 per diluted
share, versus $28.8 million, or $0.67 per diluted share, in last year’s comparable period. The
increase in net income was primarily attributable to increased sales and decreases in selling,
general and administrative expenses as a percent of net sales, depreciation and amortization and
interest expense offset by increases in loss from debt extinguishment, other expense and income tax
expense.
Liquidity and Capital Resources
Total assets were $1.3 billion and $1.4 billion at June 30, 2005 and December 31, 2004,
respectively. During the first six months of 2005, total liabilities decreased $129.5 million to
$873.8 million. This net decrease was primarily due to a decrease in accrued payroll and benefit
costs of $16.6 million from the payment in 2005 related to 2004 management incentive compensation
and a decrease of $138.4 million in long-term debt primarily from the repurchase of $123.8 million
of the Company’s senior subordinated notes, partially offset by an increase of $38.3 million in
accounts payable due to higher sales volume.
Our liquidity needs arise from seasonal working capital requirements, capital expenditures,
acquisitions and debt service obligations. In addition, certain of our acquisition agreements
contain earn-out provisions based principally on future earnings targets, only one of which could
require a significant payment. Management estimates these payments could range up to $17 million
and could be made in multiple payments between 2006 and 2010.
We finance our operating and investing needs, as follows:
Revolving Credit Facility
In March 2002, WESCO Distribution, Inc. entered into a $290 million revolving credit agreement
that is collateralized by substantially all inventory owned by WESCO and also by the accounts
receivable of WESCO Distribution Canada LP. We reduced the size of this revolving credit facility
to $200 million in September 2003. In June 2005, we increased the size of the facility to $250
million and amended the maturity date to June 17, 2010. Availability under the facility is limited
to the amount of U.S. and Canadian eligible inventory and Canadian receivables applied against
certain advance rates. Depending upon the amount of excess availability under the facility,
interest is calculated at LIBOR plus a margin that ranges between 1.0% to 1.75% or at the Index
Rate (prime rate published by The Wall Street Journal) plus a margin that ranges between (0.25%) to
0.50%. As long as the average daily excess availability for both the preceding and projected
succeeding 90-day period is greater than $50 million, then we would be permitted to make
acquisitions and repurchase outstanding public stock and bonds.
The above permitted transactions would also be allowed if such excess availability is between
$25 million and $50 million and our fixed charge coverage ratio, as defined by the agreement, is at
least 1.25 to 1.0 after taking into consideration the permitted transaction. Additionally, if
excess availability under the agreement is less than $50 million, then we must maintain a fixed
charge coverage ratio of 1.1 to 1.0. At June 30, 2005, the interest rate was 4.3%. We were in
compliance with all such covenants as of June 30, 2005. During
the six months ending June 30, 2005, borrowings and repayments were each $147.4 million. At June 30, 2005 there was no outstanding balance and approximately $227 million in
availability.
Senior Notes
On March 1, 2005, we redeemed $123.8 million in aggregate principal amount of our senior
subordinated notes at a loss of $10.1 million resulting from the payment of the call premium and
the write-off of the unamortized original issue discount and debt issue costs. As of June 30,
2005, we had remaining $199.7 million in principal amount of the 9 1/8% Senior Subordinated Notes
due 2008 that were issued in June 1998.
Mortgage Financing Facility
In February 2003, WESCO finalized a $51 million mortgage financing facility, $48.8 million of
which was outstanding as of June 30, 2005. Borrowings under the mortgage financing are
collateralized by 75 domestic properties and are subject to a 22-year amortization schedule with a
balloon payment due at the end of the 10 year term. Interest rates on borrowings under this
facility are fixed at 6.5%.
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Bruckner Note Payable
In June 2005, we paid $30 million pursuant to the Bruckner note payable.
Interest Rate Swap Agreements
In September 2003, we entered into a $50 million interest rate swap agreement and in December
2003, we entered into two additional $25 million interest rate swap agreements. These agreements
have terms expiring concurrently with the maturity of our 9 1/8% senior subordinated notes and were
entered into with the intent of converting $100 million of the senior subordinated notes from a
fixed-to-floating rate. Pursuant to these agreements, we receive semi-annual fixed interest
payments at the rate of 9.125% commencing December 1, 2003 and make semi-annual variable interest
rate payments at six-month LIBOR rates plus a premium in arrears. The LIBOR rates in the
agreements reset every six months. Therefore, the effective interest
rate at June 30, 2005, ranged from 7.4% to 7.6%. The
agreements can be terminated by the counterparty in accordance with a redemption schedule that is
consistent with the redemption schedule for the senior subordinated notes.
We enter into interest rate swap agreements as a means to hedge our interest rate exposure and
maintain certain amounts of variable rate and fixed rate debt. Since the swaps have been
designated as hedging instruments, their fair values are reflected in our Consolidated Balance
Sheets. Net amounts to be received or paid under the swap agreements are reflected as adjustments
to interest expense.
Cash Flow
Operating Activities. Cash provided by operating activities during the first six months of
2005 totaled $135.2 million compared to $72.2 million in the prior year. Cash provided by
operating activities during the first six months of 2005 and for the same period in 2004, included
cash inflows of $122.0 million and $75.0 million, respectively, associated with changes related to
our Receivables Facility. Cash generated by net income of $38.8 million adjusted for non cash
items of $11.8 million for the six months ending June 30, 2005 totaled $50.6 million. Cash
generated by net income of $28.8 million and adjustments for non cash items of $13.5 million for
the comparable six months of 2004 totaled $42.3 million. During the six months ending June 30,
2005 and 2004, cash inflows from increases in accounts payable of $39.4 million and $79.4 million,
respectively, were offset by a use of cash for increased accounts receivable of $64.6 million and
$78.8 million, respectively. During the six months ending June 30, 2005 and 2004, the combined
changes in inventories, prepaid expenses, accrued payroll and benefits and other current and
noncurrent liabilities resulted in a use of cash of $12.2 million and cash inflows of $45.8
million, respectively.
Investing Activities. Net cash used in investing activities for the first six months of 2005
and 2004 was $8.9 million and $35.9 million respectively. Capital expenditures were $7.9 million
and $5.2 million for the six months ending June 30, 2005 and 2004, respectively. Expenditures made
pursuant to the terms of acquisition purchase agreements during the first six months of 2005 and
2004 were $1.0 million and $30.7 million, respectively.
Financing Activities. Net cash used by financing activities for the first six months of 2005
and 2004 was $145.6 million and $54.0 million, respectively. During the first six months of 2005,
the Company redeemed $123.8 million in aggregate principal amount of senior subordinated notes.
Proceeds and repayments from long-term debt, inclusive of the redemption of the senior subordinated
notes during the first six months of 2005, were $147.4 million
and $297.3 million, respectively,
and $165.8 million and $203.4 million during the first six months of 2004. During the first six
months of 2004, $20.1 million in cash payments were made to certain employees for the redemption of
stock options. During the first six months of 2005 and 2004, the proceeds from the redemption of
stock options were $5.3 million and $3.8 million, respectively. During the first six months of
2005, expenditures of $0.9 million were made in conjunction with the amendments to the revolving
credit facility and the receivables facility.
Contractual Cash Obligations and Other Commercial Commitments
There have not been any material changes in our contractual obligations and other commercial
commitments that would require an update to the disclosure provided in our Form 10-K for the
year-ended December 31, 2004.
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Off-Balance Sheet Arrangements
Accounts Receivable Securitization Program
Our accounts receivable securitization facility was amended on May 11, 2005 and provides for a
$350 million purchase commitment with a three year term expiring May 9, 2008. Under the
Receivables Facility, WESCO sells, on a continuous basis, to WESCO Receivables Corporation, a
wholly owned special purpose company (“SPC”), an undivided interest in all domestic accounts
receivable. The SPC sells without recourse to a third-party conduit, all the eligible receivables
while maintaining a subordinated interest, in the form of overcollateralization, in a portion of
the receivables. We have agreed to continue servicing the sold receivables for the financial
institution at market rates; accordingly, no servicing asset or liability has been recorded. As of
June 30, 2005, $330.0 million in funding was outstanding under the Receivables Facility with $20.0
million in availability.
Inflation
The rate of inflation, as measured by changes in the consumer price index, did not have a
material effect on the sales or operating results of the Company during the periods presented.
However, inflation in the future could affect the Company’s operating costs. Price changes from
suppliers have historically been consistent with inflation and have not had a material impact on
the Company’s results of operations.
Seasonality
The Company’s operating results are affected by certain seasonal factors. Sales are typically
at their lowest during the first quarter due to a reduced level of activity during the winter
months of January and February. Sales increase beginning in March with slight fluctuations per
month through December. As a result, the Company reports sales and earnings in the first quarter
that are generally lower than that of the remaining quarters.
Impact of Recently Issued Accounting Standards
In May 2005, the Financial Accounting Standards Board issued SFAS No. 154, Accounting Changes
and Error Corrections, which changes the requirements for the accounting and reporting of a change
in accounting principle. SFAS No. 154 applies to all voluntary changes in accounting principle as
well as to changes required by an accounting pronouncement that does not include specific
transition provisions. SFAS No. 154 eliminates the requirement to include the cumulative effect of
changes in accounting principle in the income statement and instead requires that changes in
accounting principle be retroactively applied. A change in accounting estimate continues to be
accounted for in the period of change and future periods if necessary. A correction of an error
continues to be reported by restating prior period financial statements. SFAS No. 154 is effective
for WESCO for accounting changes and correction of errors made on or after January 1, 2006.
In December 2004, the FASB issued Statement of Financial Accounting Standard (“SFAS”) No.
123R, Share- Based Payment. This statement is a revision of SFAS Statement No. 123, Accounting for
Stock-Based Compensation and supersedes APB Opinion No. 25, Accounting for Stock Issued to
Employees, and its related implementation guidance. SFAS No. 123R addresses all forms of share
based payment (“SBP”) awards including shares issued under employee stock purchase plans, stock
options, restricted stock and stock appreciation rights. Under SFAS No.123R, SBP awards result in
a cost that will be measured at fair value on the awards’ grant date, based on the estimated number
of awards that are expected to vest and will be reflected as compensation expense in the financial
statements. In addition, this statement will apply to unvested options granted prior to the
effective date. This new standard is effective for annual reporting periods that begin after June
15, 2005. WESCO is currently evaluating the effect that implementation of the new standard will
have on its financial position, results of operations, and cash flows.
In November 2004, the FASB issued SFAS No. 151, Inventory Costs — an amendment of Accounting
Research Bulletin (ARB) No. 43, Chapter 4. This Statement amends the guidance in ARB No. 43,
Chapter 4, Inventory Pricing , to clarify the accounting for normal amounts of idle facility
expense, freight, handling costs, and wasted material (spoilage). This statement becomes effective
for fiscal years beginning after June 15, 2005. It is expected that this statement will not have a
material effect on our financial statements.
In May 2004, the FASB issued FASB Staff Position (FSP) No. FAS 109-2, Accounting and
Disclosure Guidance for the Foreign Earnings Repatriation Provision within the American Jobs
Creation Act of 2004 (FSP 109-2) which provides guidance under SFAS No. 109, Accounting for Income
Taxes, with respect to recording the potential impact of the repatriation provisions of the
American Jobs Creation Act of 2004 (the Jobs Act) on enterprises’ income tax expense and deferred
tax liability. The Jobs Act was enacted on October 22, 2004. FSP 109-2 states that an enterprise
is allowed time beyond the financial reporting period of enactment to evaluate the effect of the
Jobs Act on its plan for reinvestment or repatriation of foreign earnings for purposes of applying
SFAS No. 109. We have no plans to make an election under this act to repatriate foreign earnings.
Accordingly, as provided for in FSP 109-2, we have not adjusted our tax expense or deferred tax
liability to reflect the repatriation provisions of the Jobs Act.
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Forward-Looking Statements
From time to time in this report and in other written reports and oral statements, references
are made to expectations regarding our future performance. When used in this context, the words
“anticipates,” “plans,” “believes,” “estimates,” “intends,” “expects,” “projects,” “will” and
similar expressions may identify forward-looking statements, although not all forward-looking
statements contain such words. Such statements including, but not limited to, our statements
regarding our business strategy, growth strategy, productivity and profitability enhancement, new
product and service introductions and liquidity and capital resources are based on management’s
beliefs, as well as on assumptions made by, and information currently available to, management, and
involve various risks and uncertainties, certain of which are beyond our control. Our actual
results could differ materially from those expressed in any forward-looking statement made by or on
our behalf. In light of these risks and uncertainties there can be no
assurance that the forward-looking information will in fact prove to be accurate. Factors
that might cause actual results to differ from such forward-looking statements include, but are not
limited to, an increase in competition, the amount of outstanding indebtedness, the availability of
appropriate acquisition opportunities, availability of key products, functionality of information
systems, international operating environments and other risks that are described in our Annual
Report on Form 10-K for the year ended December 31, 2004 which are incorporated by reference herein
or other documents subsequently filed with the Securities and Exchange Commission. We have
undertaken no obligation to publicly update or revise any forward-looking statements, whether as a
result of new information, future events or otherwise.
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Item 3. Quantitative and Qualitative Disclosures about Market Risks
There have not been any material changes to our exposures to market risk during the six months
ended June 30, 2005 that would require an update to the disclosures provided in our Form 10-K for
the year-ended December 31, 2004.
At June 30, 2005 the net fair value of interest-rate-related derivatives designated as fair
value hedges of debt was a liability of $0.7 million.
Item 4. Controls and Procedures
An evaluation was performed under the supervision and with the participation of our
management, including the Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), of
the effectiveness of the design and operation of our disclosure controls and procedures as of the
end of the period covered by this report. Based on that evaluation, management, including the CEO
and CFO, concluded that our disclosure controls and procedures were effective to ensure that
information required to be disclosed by WESCO in reports that it files under the Exchange Act are
recorded, processed, summarized and reported within the time periods specified in the Securities
and Exchange Commission rules and forms and to timely alert them to any material information
relating to the registrant and its consolidated subsidiaries that is required to be included in our
periodic reports. There have been no significant changes in internal control over financial
reporting that occurred during the second quarter, that have materially affected, or are reasonably
likely to materially affect, the Company’s internal control over financial reporting.
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Part II — Other Information
Item 1. Legal Proceedings
From time to time, a number of lawsuits and claims have been or may be asserted against WESCO
relating to the conduct of its business, including routine litigation relating to commercial and
employment matters. The outcomes of litigation cannot be predicted with certainty, and some
lawsuits, including the matters specified below, may be determined adversely to WESCO. However,
management does not believe that the ultimate outcome is likely to have a material adverse effect
on WESCO’s financial condition or liquidity, although the resolution in any fiscal quarter of one
or more of these matters may have a material adverse effect on WESCO’s results of operations for
that period.
WESCO is a defendant in a lawsuit in a state court in Florida in which a former supplier
alleges that WESCO failed to fulfill its commercial obligations to purchase product and seeks
substantial monetary damages. WESCO believes that it has meritorious defenses. Discovery is
ongoing. The court had scheduled the case for trial in August 2005, but has granted a motion for
continuance to a date to be determined.
WESCO is a defendant in a suit filed in federal district court in northern California alleging
antitrust, contract and other claims. Plaintiff, a contractor, alleges that WESCO has monopolized
the sale and distribution of certain electrical products in a regulated utility services market.
Plaintiff seeks economic and treble damages as well as punitive damages and injunctive relief.
WESCO believes that it has meritorious defenses and has asserted counterclaims for breach of
contract. Discovery has been extended until late 2005.
Item 5.
Other Information
As
discussed in our previous SEC Form 8-K filings on June 15, 2005 and
August 3, 2005, during the three month period ended June 30,
2005, Cypress Group LLC (Cypress) sold 4.0 million shares of
common stock of WESCO International and on August 3, 2005,
Cypress sold their remaining 9.1 million shares of common stock of
WESCO International. WESCO did not receive any proceeds from the sale
of these securities.
Item 6. Exhibits
(a) Exhibits
31.1 Certification of Chief Executive Officer pursuant to Rules 13a-14(a) promulgated under the
Exchange Act.
31.2 Certification of Chief Financial Officer pursuant to Rules 13a-14(a) promulgated under the
Exchange Act.
32.1 Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002.
32.2 Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002.
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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 hereunto duly authorized.
| WESCO International, Inc. | ||||
| Date: August 4, 2005 | /s/ Stephen A. Van Oss | |||
| Stephen A. Van Oss | ||||
| Senior Vice President, Chief Financial and Administrative Officer |
||||
24
Exhibit 31.1
CERTIFICATION
I, Roy W. Haley, Chairman and Chief Executive Officer of WESCO International, Inc. certify
that:
1. I have reviewed this quarterly report on Form 10-Q of WESCO International, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material
fact or omit to state a material fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading with respect to the period
covered by this report;
3. Based on my knowledge, the financial statements, and other financial information
included in this report, fairly present in all material respects the financial condition, results
of operations and cash flows of the registrant as of, and for, the periods presented in this
report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing
and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and
15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls
and procedures to be designed under our supervision, to ensure that material information relating
to the registrant, including its consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal
control over financial reporting to be designed under our supervision, to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures
and presented in this report our conclusions about the effectiveness of the disclosure controls and
procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over
financial reporting that occurred during the registrant’s most recent fiscal quarter (the
registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected,
or is reasonably likely to materially affect, the registrant’s internal control over financial
reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most
recent evaluation of internal control over financial reporting, to the registrant’s auditors and
the audit committee of the registrant’s board of directors (or persons performing the equivalent
functions):
(a) All significant deficiencies and material weaknesses in the design or operation of
internal control over financial reporting which are reasonably likely to adversely affect the
registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who
have a significant role in the registrant’s internal control over financial reporting.
| Date: August 4, 2005 | By: | /s/ Roy W. Haley | ||
| Roy W. Haley | ||||
| Chairman and Chief Executive Officer | ||||
25
Exhibit 31.2
CERTIFICATION
I, Stephen A. Van Oss, Senior Vice President and Chief Financial and Administrative Officer of
WESCO International, Inc. certify that:
1. I have reviewed this quarterly report on Form 10-Q of WESCO International, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material
fact or omit to state a material fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading with respect to the period
covered by this report;
3. Based on my knowledge, the financial statements, and other financial information
included in this report, fairly present in all material respects the financial condition, results
of operations and cash flows of the registrant as of, and for, the periods presented in this
report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing
and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and
15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls
and procedures to be designed under our supervision, to ensure that material information relating
to the registrant, including its consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal
control over financial reporting to be designed under our supervision, to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures
and presented in this report our conclusions about the effectiveness of the disclosure controls and
procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over
financial reporting that occurred during the registrant’s most recent fiscal quarter (the
registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected,
or is reasonably likely to materially affect, the registrant’s internal control over financial
reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most
recent evaluation of internal control over financial reporting, to the registrant’s auditors and
the audit committee of the registrant’s board of directors (or persons performing the equivalent
functions):
(a) All significant deficiencies and material weaknesses in the design or operation of
internal control over financial reporting which are reasonably likely to adversely affect the
registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who
have a significant role in the registrant’s internal control over financial reporting.
| Date: August 4, 2005 | By: | /s/ Stephen A. Van Oss | ||
| Stephen A. Van Oss | ||||
| Senior Vice President and Chief Financial and Administrative Officer |
||||
26
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of WESCO International, Inc. (the “Company”) on Form 10-Q
for the period ended June 30, 2005 as filed with the Securities and Exchange Commission on the date
hereof (the “Report”), the undersigned, in the capacity and on the date indicated below, hereby
certifies pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, that to his knowledge:
| 1. | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and | |
| 2. | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operation of the Company. |
Date:
August 4, 2005 |
By: | /s/ Roy W. Haley | ||
| Roy W. Haley | ||||
| Chairman and Chief Executive Officer | ||||
27
Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of WESCO International, Inc. (the “Company”) on Form 10-Q
for the period ended June 30, 2005 as filed with the Securities and Exchange Commission on the date
hereof (the “Report”), the undersigned, in the capacity and on the date indicated below, hereby
certifies pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, that to his knowledge:
| 1. | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and | |
| 2. | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operation of the Company. |
| Date: August 4, 2005 | By: | /s/ Stephen A. Van Oss | ||
| Stephen A. Van Oss | ||||
| Senior Vice President and Chief Financial and Administrative Officer |
||||
28