SEC Filing | WESCO Distribution Inc.

1 =============================================================================== UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 or [ ] 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, 2000 Commission file number 001-14989 WESCO INTERNATIONAL, INC. (Exact name of registrant as specified in its charter) DELAWARE 25-1723342 (State or other jurisdiction of (IRS Employer Identification No.) incorporation or organization) COMMERCE COURT FOUR STATION SQUARE, SUITE 700 PITTSBURGH, PENNSYLVANIA 15219 (412) 454-2200 (Address of principal executive offices) (Registrant's telephone number, including area code) N/A (Former name or former address, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for at least the past 90 days. Yes __X__ No _____. As of July 31, 2000, WESCO International, Inc. had 40,421,503 shares and 4,653,131 shares of common stock and Class B common stock outstanding, respectively. ================================================================================

2 WESCO INTERNATIONAL, INC. AND SUBSIDIARIES QUARTERLY REPORT ON FORM 10-Q TABLE OF CONTENTS Page - --------------------------------------------------------------------------------------------------------------------------- PART I - FINANCIAL INFORMATION ITEM 1. Financial Statements Condensed Consolidated Balance Sheets as of June 30, 2000 (unaudited) and December 31, 1999......................................................................... 3 Condensed Consolidated Statements of Operations for the three months and six months ended June 30, 2000 and 1999 (unaudited) .......................................... 4 Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2000 and 1999 (unaudited) ....................................................... 5 Notes to Condensed Consolidated Financial Statements (unaudited) ............................ 6 ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations........... 10 ITEM 3. Quantitative and Qualitative Disclosures About Market Risk...................................... 14 PART II - OTHER INFORMATION ITEM 4. Submission of Matters to a Vote of Security Holders............................................. 15 ITEM 6. Exhibits and Reports on Form 8-K................................................................ 15 Signatures...................................................................................... 16 - --------------------------------------------------------------------------------------------------------------------------- 2

3 WESCO INTERNATIONAL, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS JUNE 30 DECEMBER 31 Dollars in thousands, except share data 2000 1999 - ---------------------------------------------------------------------------------------------------------------------------- (UNAUDITED) ASSETS CURRENT ASSETS: Cash and cash equivalents $ 17,239 $ 8,819 Trade accounts receivable, net of allowance for doubtful accounts of $6,955 and $7,023 in 2000 and 1999, respectively 265,358 188,307 Other accounts receivable 26,196 31,829 Inventories 435,907 397,669 Income taxes receivable 2,883 10,667 Prepaid expenses and other current assets 3,301 4,930 Deferred income taxes 11,938 11,580 ----------- ----------- Total current assets 762,822 653,801 Property, buildings and equipment, net 119,109 116,638 Goodwill and other intangibles, net of accumulated amortization of $23,852 and $18,956 in 2000 and 1999, respectively 261,868 249,240 Other assets 8,412 9,114 ----------- ----------- Total assets $ 1,152,211 $ 1,028,793 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable $ 487,586 $ 406,963 Accrued payroll and benefit costs 21,611 18,171 Current portion of long-term debt 4,417 3,831 Other current liabilities 36,597 25,820 ----------- ----------- Total current liabilities 550,211 454,785 Long-term debt 447,928 422,539 Other noncurrent liabilities 7,437 7,504 Deferred income taxes 26,962 26,660 ----------- ----------- Total liabilities 1,032,538 911,488 Commitments and contingencies STOCKHOLDERS' EQUITY: Preferred stock, $.01 par value; 20,000,000 shares authorized, no shares issued -- -- Common stock, $.01 par value; 210,000,000 shares authorized, 43,829,500 and 43,291,319 shares issued in 2000 and 1999, respectively 439 433 Class B nonvoting convertible common stock, $.01 par value; 20,000,000 shares authorized, 4,653,131 issued in 2000 and 1999 46 46 Additional capital 568,354 565,897 Retained earnings (deficit) (421,596) (443,582) Treasury stock, at cost; 3,193,603 and 637,259 shares in 2000 and 1999, respectively (26,487) (4,790) Accumulated other comprehensive income (loss) (1,083) (699) ----------- ----------- Total stockholders' equity 119,673 117,305 ----------- ----------- Total liabilities and stockholders' equity $ 1,152,211 $ 1,028,793 =========== =========== The accompanying notes are an integral part of the condensed consolidated financial statements 3

4 WESCO INTERNATIONAL, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited) THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30 JUNE 30 In thousands, except share data 2000 1999 2000 1999 - ----------------------------------------------------------------------------------------------------------------------------- Net sales $ 989,311 $ 864,151 $ 1,912,671 $ 1,641,566 Cost of goods sold 817,058 707,150 1,577,062 1,345,772 ------------------------------------------------------------ Gross profit 172,253 157,001 335,609 295,794 Selling, general and administrative expenses 128,190 115,245 254,647 225,625 Depreciation and amortization 5,986 5,229 11,511 9,728 ------------------------------------------------------------ Income from operations 38,077 36,527 69,451 60,441 Interest expense, net 10,741 12,332 21,619 26,791 Other expense 5,986 4,933 11,249 9,547 ------------------------------------------------------------ Income before income taxes and extraordinary item 21,350 19,262 36,583 24,103 Provision for income taxes 8,519 7,714 14,597 9,638 ------------------------------------------------------------ Income before extraordinary item 12,831 11,548 21,986 14,465 Extraordinary item, net of tax benefits of $6,711 (Note 4) -- (10,507) -- (10,507) ------------------------------------------------------------ Net income $ 12,831 $ 1,041 $ 21,986 $ 3,958 ============================================================ Basic earnings per share: Income before extraordinary item $ 0.28 $ 0.28 $ 0.48 $ 0.38 Extraordinary item -- (0.25) -- (0.27) ------------------------------------------------------------ Net income $ 0.28 $ 0.03 $ 0.48 $ 0.11 ============================================================ Diluted earnings per share: Income before extraordinary item $ 0.27 $ 0.25 $ 0.45 $ 0.34 Extraordinary item -- (0.22) -- (0.24) ------------------------------------------------------------ Net income $ 0.27 $ 0.03 $ 0.45 $ 0.10 ============================================================ The accompanying notes are an integral part of the condensed consolidated financial statements. 4

5 WESCO INTERNATIONAL, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) SIX MONTHS ENDED JUNE 30 In thousands 2000 1999 - ---------------------------------------------------------------------------------------------------------------------- OPERATING ACTIVITIES: Net income $ 21,986 $ 3,958 Adjustments to reconcile net income to net cash provided by operating activities: Extraordinary item, net of tax benefit -- 10,507 Depreciation and amortization 11,511 9,728 Accretion of original issue and amortization of purchase discounts 574 3,867 Amortization of debt issuance costs and interest rate caps 306 706 Loss (gain) on sale of property, buildings and equipment 15 (240) Deferred income taxes (56) 2,953 Changes in assets and liabilities, excluding the effects of acquisitions: Sale of trade accounts receivable 15,000 25,000 Trade and other receivables (78,950) (62,086) Inventories (33,953) (32,568) Other current and noncurrent assets 9,820 2,702 Accounts payable 73,892 64,834 Accrued payroll and benefit costs 3,207 (4,009) Other current and noncurrent liabilities 3,319 1,928 -------------------------- Net cash provided by operating activities 26,671 27,280 INVESTING ACTIVITIES: Capital expenditures (7,645) (9,641) Proceeds from the sale of property, buildings and equipment 17 320 Receipts from (advances to) affiliate 224 (1,196) Acquisitions, net of cash acquired (14,061) (58,489) -------------------------- Net cash used by investing activities (21,465) (69,006) FINANCING ACTIVITIES: Proceeds from issuance of long-term debt 378,719 453,966 Repayments of long-term debt (355,079) (564,512) Debt issuance costs -- (2,103) Repurchase of common stock (21,538) -- Proceeds from issuance of common stock, net of offering costs, and exercise of stock options 1,112 187,613 -------------------------- Net cash provided by financing activities 3,214 74,964 -------------------------- Net change in cash and cash equivalents 8,420 33,238 Cash and cash equivalents at the beginning of period 8,819 8,093 -------------------------- Cash and cash equivalents at the end of period $ 17,239 $ 41,331 ========================== The accompanying notes are an integral part of the condensed consolidated financial statements. 5

6 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 is engaged principally in one line of business - the sale of electrical products and maintenance, repair and operating supplies. WESCO currently operates over 340 branch locations and five distribution centers in the United States, Canada, Mexico, Puerto Rico, Guam, the United Kingdom, the Balkans 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 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 1999 Annual Report on Form 10-K filed with the Securities and Exchange Commission. The unaudited condensed consolidated balance sheet as of June 30, 2000, the unaudited condensed consolidated statements of operations for the three months and six months ended June 30, 2000 and 1999, and the unaudited condensed consolidated statements of cash flows for the six months ended June 30, 2000 and 1999, 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 condensed consolidated 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. Recent Accounting Pronouncements In June 1998, the Financial Accounting Standards Board issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." This statement, as amended, is required to be adopted by WESCO as of January 1, 2001, although early adoption is permitted. This statement requires the recognition of the fair value of any derivative financial instrument on the balance sheet. Changes in fair value of the derivative and, in certain instances, changes in the fair value of an underlying hedged asset or liability, are recognized through either income or as a component of other comprehensive income. Management does not expect this statement will have a material impact on the results of operations or financial position of WESCO. In December 1999, the staff of the SEC issued Staff Accounting Bulletin (SAB) 101, "Revenue Recognition in Financial Statements." SAB 101 outlines the basic criteria that must be met to recognize revenue, and provides guidelines for disclosure related to revenue recognition policies. This guidance is required to be implemented in the fourth quarter of 2000. The Company is currently reviewing this guidance in order to determine the impact of its provisions, if any, on the consolidated financial statements. 3. INITIAL PUBLIC OFFERING On May 17, 1999, WESCO completed its initial public offering of 11,183,750 shares of common stock ("Offering") at $18.00 per share. In connection with the Offering, certain employee rights to require WESCO to repurchase outstanding redeemable common stock were terminated and approximately $31.5 million of convertible notes were converted into 1,747,228 shares of common stock. Proceeds from the Offering (after deducting Offering costs of $14.5 million) totaling $186.8 million and borrowings of approximately $65 million were used to redeem 6

7 all of the 11 1/8% senior discount notes ($62.8 million) and to repay the existing revolving credit and term loan facilities ($188.8 million). In connection with the Offering, the Board of Directors approved a 57.8 to one stock split effected in the form of a stock dividend of WESCO's common stock. The Board of Directors also reclassified the Class A common stock into common stock, increased the authorized common stock to 210,000,000 shares and the authorized Class B common stock to 20,000,000 shares and authorized 20,000,000 shares of $.01 par value preferred stock, all effective May 11, 1999. In this report, all share and per share data have been restated to reflect the stock split. 4. EXTRAORDINARY ITEM In the second quarter of 1999, WESCO: (i) entered into a new $400 million revolving credit facility and retired its existing term loans and revolving facility; (ii) terminated its existing accounts receivable securitization program and entered into a new accounts receivable securitization program; and (iii) retired all of its outstanding 11 1/8% senior discount notes. In conjunction with these transactions, approximately $8.9 million of deferred financing charges were written off and redemption costs of $8.3 million were incurred to redeem the 11 1/8% senior discount notes. These transactions resulted in an extraordinary loss of $10.5 million, net of income tax benefits of $6.7 million. 5. ACQUISITIONS On February 29, 2000, WESCO acquired substantially all the assets and assumed substantially all liabilities and obligations relating to the operations of Control Corporation of America ("CCA"), a privately-owned company headquartered in Richmond, Virginia. CCA, an electrical distributor specializing in industrial automation solutions, had net sales of approximately $50 million in 1999. The CCA acquisition is being accounted for under the purchase method of accounting. Pro forma results of this acquisition, assuming it had occurred at the beginning of the periods presented, would not be materially different from the actual results reported. 6. EARNINGS PER SHARE The following tables set forth the details of basic and diluted earnings per share before extraordinary item: THREE MONTHS ENDED JUNE 30 Dollars in thousands, except per share amounts 2000 1999 ---------------------------------------------------------------------------------- Income before extraordinary item $ 12,831 $ 11,548 Interest on convertible debt -- 189 ----------------------------- Earnings used in diluted earnings per share before extraordinary item $ 12,831 $ 11,737 ============================= Weighted average common shares outstanding used in computing basic earnings per share 45,451,376 41,737,337 Common shares issuable upon exercise of dilutive stock options 2,537,751 4,072,623 Assumed conversion of convertible debt -- 928,205 ----------------------------- Weighted average common shares outstanding and common share equivalents used in computing diluted earnings per share 47,989,127 46,738,165 ============================= Earnings per share before extraordinary item: Basic $ 0.28 $ 0.28 Diluted $ 0.27 $ 0.25 ---------------------------------------------------------------------------------- 7

8 SIX MONTHS ENDED JUNE 30 Dollars in thousands, except per share amounts 2000 1999 ----------------------------------------------------------------------------------- Income before extraordinary item $ 21,986 $ 14,465 Interest on convertible debt -- 595 ----------------------------- Earnings used in diluted earnings per share before extraordinary item $ 21,986 $ 15,060 ============================= Weighted average common shares outstanding used in computing basic earnings per share 45,848,936 38,271,955 Common shares issuable upon exercise of dilutive stock options 2,518,123 3,948,807 Assumed conversion of convertible debt -- 1,754,090 ----------------------------- Weighted average common shares outstanding and common share equivalents used in computing diluted earnings per share 48,367,059 43,974,852 ============================= Earnings per share before extraordinary item: Basic $ 0.48 $ 0.38 Diluted $ 0.45 $ 0.34 ----------------------------------------------------------------------------------- 7. COMPREHENSIVE INCOME The following tables set forth comprehensive income and its components: THREE MONTHS ENDED JUNE 30 In thousands 2000 1999 ----------------------------------------------------------------------------------- Net income $12,831 $1,041 Foreign currency translation adjustment (364) 258 ---------------------------- Comprehensive income $12,467 $1,299 ----------------------------------------------------------------------------------- SIX MONTHS ENDED JUNE 30 In thousands 2000 1999 ----------------------------------------------------------------------------------- Net income $21,986 $3,958 Foreign currency translation adjustment (384) 517 ---------------------------- Comprehensive income $21,602 $4,475 ----------------------------------------------------------------------------------- 8

9 8. CASH FLOW STATEMENT Supplemental cash flow information with respect to acquisitions was as follows: SIX MONTHS ENDED JUNE 30 In thousands 2000 1999 ---------------------------------------------------------------------------------- Details of acquisitions: Fair value of assets acquired $28,787 $37,389 Deferred acquisition payment -- 30,000 Liabilities assumed (7,726) (6,600) Deferred acquisition payable (7,000) (2,300) --------------------------- Cash paid for acquisitions $14,061 $58,489 ---------------------------------------------------------------------------------- 9. OTHER FINANCIAL INFORMATION In June 1998, WESCO Distribution, Inc. issued $300 million of 9 1/8% senior subordinated notes. 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. Summarized financial information for WESCO Distribution, Inc. is as follows: BALANCE SHEET DATA JUNE 30 DECEMBER 31 In thousands 2000 1999 ----------------------------------------------------------------------------------- Current assets $762,822 $653,801 Noncurrent assets 389,389 374,992 Current liabilities 550,211 454,785 Long-term debt 447,928 422,539 Other noncurrent liabilities 34,399 34,164 Total liabilities and stockholders' equity 1,152,211 1,028,793 ----------------------------------------------------------------------------------- STATEMENT OF OPERATIONS DATA THREE MONTHS ENDED JUNE 30 In thousands 2000 1999 ---------------------------------------------------------------------------------- Net sales $989,311 $864,151 Gross profit 172,253 157,001 Income from operations 38,077 36,527 Net income 12,831 1,856 ---------------------------------------------------------------------------------- SIX MONTHS ENDED JUNE 30 In thousands 2000 1999 ---------------------------------------------------------------------------------- Net sales $1,912,671 $1,641,566 Gross profit 335,609 295,794 Income from operations 69,451 60,441 Net income 21,986 6,360 ---------------------------------------------------------------------------------- Prior to the June 1998 issuance of the senior discount notes and subsequent to the offering in May 1999, WESCO Distribution, Inc. financial information was identical to that of WESCO's presented herein. 9

10 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 1999 Annual Report on Form 10-K. GENERAL WESCO is a full-line distributor of electrical supplies and equipment and is a provider of integrated supply procurement services. WESCO currently operates more than 340 branch locations and five distribution centers in the United States, Canada, Mexico, Puerto Rico, Guam, the United Kingdom, the Balkans and Singapore. WESCO serves over 130,000 customers worldwide, offering over 1,000,000 products from over 23,000 suppliers. WESCO's 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 90% of WESCO's net sales are generated from operations in the U.S., 9% from Canada and the remainder from other countries. RECENT DEVELOPMENTS Recent developments affecting the results of operations and financial position of WESCO include the following: In May 2000, WESCO's board of directors authorized an additional $25 million to be added to its existing $25 million share repurchase program which was authorized in November 1999. As of July 20, 2000, WESCO has purchased $27.5 million of common stock pursuant to this program. Approximately $21.4 million was spent during the six month period ended June 30, 2000. During the first quarter, WESCO acquired substantially all the assets and assumed substantially all liabilities and obligations relating to the operations of Control Corporation of America ("CCA"), a privately-owned company headquartered in Richmond, Virginia. CCA, an electrical distributor specializing in industrial automation solutions, had net sales of approximately $50 million in 1999. The CCA acquisition is being accounted for under the purchase method of accounting. RESULTS OF OPERATIONS Second Quarter of 2000 versus Second Quarter of 1999 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: THREE MONTHS ENDED JUNE 30 2000 1999 ---------------------------------------------------------------------------------- Net sales 100.0% 100.0% Gross profit 17.4 18.2 Selling, general and administrative expenses 12.9 13.3 Depreciation and amortization 0.6 0.6 --------------------------- Income from operations 3.9 4.2 Interest expense 1.1 1.4 Other expense 0.6 0.6 --------------------------- Income before income taxes and extraordinary item 2.2 2.2 Provision for income taxes 0.9 0.9 --------------------------- Income before extraordinary item 1.3 1.3 Extraordinary item -- (1.2) --------------------------- Net income 1.3% 0.1% ---------------------------------------------------------------------------------- 10

11 Net Sales. Net sales in the second quarter of 2000 increased $125.2 million, or 14.5%, to $989.3 million compared with $864.1 million in the prior-year quarter, primarily due to sales growth attributable to the Company's core business and, to a lesser extent, sales of acquired companies. Core business sales increased 11% over the prior year quarter. The mix of direct shipment sales remained at approximately 47% in the second quarter of 2000 with no change from the prior year quarter. Gross Profit. Gross profit for the second quarter of 2000 increased $15.3 million to $172.3 million from $157.0 million in the second quarter of 1999. Gross profit margin declined to 17.4% in the current-year quarter from 18.2% in the second quarter of 1999. In the current quarter, the Company recorded lower than usual billing margins during April. This decrease was noted particularly on certain direct shipment sales to some large construction customers. The Company also experienced higher in-bound transportation costs and lower purchase rebates from suppliers in the second quarter of 2000. Additionally, in the prior year quarter, WESCO recorded a higher level of certain favorable inventory adjustments. Selling, General and Administrative Expenses. Selling, general and administrative ("SG&A") expenses increased $12.9 million, or 11.2%, to $128.2 million. Excluding SG&A expenses associated with companies acquired during the last three quarters of 1999 and all of 2000, SG&A expenses increased 6.8%. The increase was principally due to increased payroll related costs. The remainder of the increase was associated with certain expenses that are variable in nature and increase when sales increase. As a percent of sales, SG&A expenses declined to 12.9% compared with 13.3% in the prior year quarter reflecting enhanced operating leverage at this higher relative sales level. Depreciation and Amortization. Depreciation and amortization increased $0.8 million to $6.0 million reflecting higher amortization of goodwill from acquisitions and increases in property, buildings and equipment over the prior year. Income From Operations. Income from operations increased $1.6 million or 4.2% over the prior year quarter due to higher gross profit, partially offset by increased operating costs as described above. Interest and Other Expense. Interest expense totaled $10.7 million for the second quarter of 2000, a decrease of $1.6 million over the same period in 1999. The decrease was primarily due to the higher level of borrowings in 1999 before WESCO completed its initial public offering in the second quarter. Other expense totaled $6.0 million and $4.9 million in the second quarter of 2000 and 1999, respectively, reflecting costs associated with the accounts receivable securitization. The increase was due to an increase in the amount of securitized accounts receivable. Income Taxes. Income tax expense totaled $8.5 million in the second quarter of 2000 and the effective tax rate was 39.9%. In the second quarter of 1999, income tax expense totaled $7.7 million and the effective tax rate was 40.0%. The effective tax rates differ from the federal statutory rate primarily due to state income taxes and nondeductible expenses. Income Before Extraordinary Item and Net Income. For the second quarter of 2000, income before extraordinary item totaled $12.8 million, or $0.27 per diluted share, compared with $11.5 million and $0.25, respectively, in the second quarter of 1999. The increases in the comparison are primarily due to increased operating income and decreased interest expense, partially offset by increased other expense, net of taxes. Net income and diluted earnings per share totaled $12.8 million and $0.27, respectively, for the second quarter of 2000, compared with net income of $1.0 million, or $0.03 per diluted share, for the second quarter of 1999. 11

12 Six Months Ended June 30, 2000 versus Six Months Ended June 30, 1999 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 2000 1999 ---------------------------------------------------------------------------------- Net sales 100.0% 100.0% Gross profit 17.5 18.0 Selling, general and administrative expenses 13.3 13.7 Depreciation and amortization 0.6 0.6 --------------------------- Income from operations 3.6 3.7 Interest expense 1.1 1.6 Other expense 0.6 0.6 --------------------------- Income before income taxes and extraordinary item 1.9 1.5 Provision for income taxes 0.7 0.6 --------------------------- Income before extraordinary item 1.2 0.9 Extraordinary item -- (0.6) --------------------------- Net income 1.2% 0.3% ---------------------------------------------------------------------------------- Net Sales. Net sales in the first six months of 2000 increased $271.1 million, or 16.5%, to $1.9 billion compared with $1.6 billion in the prior-year period due to sales growth attributable to the Company's core business and, to a lesser extent, sales of acquired businesses. Core business sales increased 13.5% over the prior year period. The mix of direct shipment sales remained constant at 47% Gross Profit. Gross profit for the first six months of 2000 increased $39.8 million or 13.5% to $335.6 million from $295.8 million in 1999. Gross profit margin decreased to 17.5% in the current year compared to 18.0% in 1999. The decrease was primarily due to the items described above in the second quarter discussion. Selling, General and Administrative Expenses. SG&A expenses increased $29.0 million, or 12.9%, to $254.6 million. Excluding SG&A expenses associated with companies acquired during 1999 and 2000, SG&A expenses increased 9.0%. The increase was principally due to increased payroll-related costs. The remainder of the increase was associated with certain expenses that are variable in nature and increase when sales increase. As a percentage of net sales, SG&A expenses declined to 13.3% compared with 13.7% in the prior year period reflecting enhanced operating leverage at this higher relative sales level. Depreciation and Amortization. Depreciation and amortization increased $1.8 million to $11.5 million reflecting higher amortization of goodwill from acquisitions and increases in property, buildings and equipment over the prior year. Interest and Other Expense. Interest expense totaled $21.6 million for the first six months of 2000, a decrease of $5.2 million from the same period in 1999. The decrease was primarily due to the higher level of borrowings in 1999 before WESCO completed its initial public offering in the second quarter. Other expense totaled $11.2 million and $9.5 million for the first six months of 2000 and 1999, respectively, reflecting costs associated with the accounts receivable securitization. The $1.7 million increase was principally due to the increased level of securitized accounts receivable. Income Taxes. Income tax expense totaled $14.6 million and $9.6 million in the first six months of 2000 and 1999, respectively. The effective tax rates for 2000 and 1999 were 39.9% and 40.0%, respectively. The effective tax rates differ from the federal statutory rate primarily due to state income taxes and nondeductible expenses. 12

13 Income Before Extraordinary Item and Net Income. For the first six months of 2000, income before extraordinary item totaled $22.0 million, or $0.45 per diluted share, compared with $14.5 million, or $0.34 per diluted share, in the first six months of 1999. The increases are due primarily to increased operating income and decreased interest costs, net of taxes. Net income and diluted earnings per share totaled $22.0 million and $0.45, respectively, for the first six months of 2000, compared with $4.0 million, or $0.10 per diluted share, for the first six months of 1999. LIQUIDITY AND CAPITAL RESOURCES Total assets were $1.15 billion and $1.03 billion at June 30, 2000 and December 31, 1999, respectively. In addition, stockholders' equity was $119.7 million at June 30, 2000 compared to $117.3 million at December 31, 1999. Debt was $452.3 million at June 30, 2000 as compared to $426.4 million at December 31, 1999, an increase of $25.9 million. On May 17, 1999, WESCO completed its initial public offering of 11,183,750 shares of common stock ("Offering") at $18.00 per share. In connection with the Offering, certain employee rights to require WESCO to repurchase outstanding redeemable common stock were terminated and approximately $31.5 million of convertible notes were converted into 1,747,228 shares of common stock. Proceeds from the Offering (after deducting Offering costs of $14.5 million) totaled $186.8. An analysis of cash flows for the first six months of 2000 and 1999 follows: Operating Activities. Cash provided by operating activities totaled $26.7 million in the first six months of 2000, compared to $27.3 million in the prior year. In connection with WESCO's asset securitization program, cash provided by operations in 2000 and 1999 included proceeds of $15.0 million and $25.0 million, respectively, from the sale of accounts receivable. Excluding these transactions, cash from operating activities provided $11.7 million in 2000 compared to $2.3 million in 1999. On this basis, the $9.4 million increase in operating cash flow was primarily due to increased income adjusted for noncash charges and a net decrease in the change in certain components of working capital compared to 1999. Investing Activities. Net cash used in investing activities was $21.5 million in the first six months of 2000, compared to $69.0 million in 1999. Cash used for investing activities was lower in 2000 primarily due to a $44.4 million decrease in cash paid for acquisitions and to lower spending in 2000 for capital expenditures. WESCO's capital expenditures for the six months of 2000 were for computer equipment and software and branch and distribution center facility improvements. The decrease from the prior year was primarily due to 1999 expenditures for computer equipment and software, branch and distribution facility improvements and a land purchase. Financing Activities. Cash provided by financing activities totaled $3.2 million for the first six months of 2000 primarily reflecting WESCO's ongoing common stock purchase program being offset by increased borrowings. In the first six months of 1999, cash provided by financing activities totaled $75.0 million, principally related to the Company's initial public offering, partially offset by debt repayments. WESCO's liquidity needs arise from seasonal working capital requirements, capital expenditures, debt service obligations and acquisitions. In addition, certain of the Company's acquisition agreements contain earn-out provisions usually based on future earnings targets. The most significant of these agreements relates to the Bruckner acquisition where there is an earn-out potential of $100 million during the next four years. In addition to cash generated from operations and amounts available under the credit facilities, WESCO uses a receivables facility to provide liquidity and may sell trade accounts receivables, on a revolving basis. In July, the maximum amount of trade receivables the Company can sell was raised to $375 million from $350 million. In May 2000, WESCO's board of directors authorized an additional $25 million to be added to its existing $25 million share repurchase program which was authorized in November 1999. As of July 20, 2000, WESCO has purchased $27.5 million of common stock pursuant to this program, since its inception. 13

14 Management believes that cash generated from operations, together with amounts available under the credit agreement and the receivables facility, will be sufficient to meet WESCO's working capital, capital expenditures and other cash requirements for the foreseeable future. There can be no assurance, however, that this will be the case. Financing of acquisitions can be funded under the existing credit agreement and may, depending on the number and size of acquisitions, require the issuance of additional debt and equity securities. YEAR 2000 ISSUE WESCO made substantial preparations for the Year 2000 issue, which concerns the ability of computer programs and software applications to process date-dependent calculations, processes and other information by properly identifying the year. Based on information available to date, WESCO has not experienced any significant events attributable to the Year 2000 issue. We will continue to monitor operations and our customers and suppliers in order to mitigate any negative impact should an issue arise. WESCO believes that if any Year 2000 issue were to surface, there would not be a significant impact on its operations. In 1999 and 1998, WESCO incurred costs of $3.3 million specifically associated with modifying its systems for Year 2000 compliance. WESCO expects to incur little or no costs in 2000 related to this issue. 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 WESCO'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 early part of the year due to the cold and unpredictable weather. Sales increase during the warmer months beginning in March and continuing through November due to favorable conditions for construction and the tendency of companies to schedule maintenance and capital improvement spending during the middle and latter part of the year. Sales drop again slightly in December as the weather cools and also as a result of reduced level of activity during the holiday season. As a result, WESCO reports sales and earnings in the first quarter that are generally lower than that of the remaining quarters. FORWARD-LOOKING STATEMENTS From time to time in this report and in other written reports and oral statements, references are made to expectations regarding the future performance of WESCO. When used in this context, the words "anticipates," "plans," "believes," "estimates," "intends," "expects," "projects" and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain such words. Such statements including, but not limited to, WESCO's statements regarding its 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 WESCO's control. WESCO's actual results could differ materially from those expressed in any forward-looking statement made by or on behalf of WESCO. 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, Year 2000 readiness, international operating environments and other risks that are described in WESCO's Annual Report on Form 10-K for the year ended December 31, 1999 which are incorporated by reference herein. WESCO has undertaken no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS The Company's revolving credit agreement borrowings bear rates of interest that fluctuate with various indices, at WESCO's option, such as LIBOR, Prime Rate or the Federal Funds Rate. Additionally other expense related to WESCO's accounts receivable securitization can fluctuate as the costs are based on commercial paper rates. While management does not consider this risk to be material, increases in the aforementioned indices can negatively impact WESCO's results. 14

15 PART II - OTHER INFORMATION ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS At the annual meeting of WESCO shareholders held on May 23, 2000, James A. Stern and Michael J. Cheshire were reelected as directors of WESCO to serve for three-year terms. Votes cast for Mr. Stern were 37,542,830 and votes withheld were 47,937; votes cast for Mr. Cheshire were 37,357,209 and votes withheld were 53,558. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) EXHIBITS The following exhibits are incorporated by reference or filed herewith. 27 Financial Data Schedule A copy of this exhibit may be retrieved electronically at the Securities and Exchange Commission's home page at www.sec.gov. Exhibits will also be furnished without charge by writing to Steven A. Burleson, Vice President, Chief Financial Officer, Commerce Court, Four Station Square, Suite 700, Pittsburgh, Pennsylvania 15219. Requests may also be directed to (412) 454-2200. (b) REPORTS ON FORM 8-K None 15

16 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on August 14, 2000 on its behalf by the undersigned thereunto duly authorized. WESCO International, Inc. and Subsidiaries By: /s/ Steven A. Burleson ------------------------------------------ Steven A. Burleson Vice President, Chief Financial Officer 16

5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM WESCO INTERNATIONAL, INC. AND SUBSIDIARIES' UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 6-MOS DEC-31-2000 JAN-01-2000 JUN-30-2000 17,239 0 272,313 6,955 435,907 762,822 119,109 0 1,152,211 550,211 447,928 0 0 485 119,188 1,152,211 1,912,671 1,912,671 1,577,062 1,843,220 11,249 0 21,619 36,583 14,597 21,986 0 0 0 21,986 .048 .045