<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 3, 1999
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-------------------------
WESCO INTERNATIONAL, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 5063 25-1723345
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
COMMERCE COURT, SUITE 700
FOUR STATION SQUARE
PITTSBURGH, PENNSYLVANIA 15219
(412) 454-2200
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER OF REGISTRANT'S PRINCIPAL
EXECUTIVE OFFICES)
JEFFREY B. KRAMP, ESQ.
COMMERCE COURT, SUITE 700
FOUR STATION SQUARE
PITTSBURGH, PENNSYLVANIA 15219
(412) 454-2200
(NAME, ADDRESS, INCLUDING ZIP CODE AND TELEPHONE NUMBER OF AGENT FOR SERVICE)
-------------------------
COPIES TO:
<TABLE>
<S> <C>
MICHAEL C. MCLEAN VINCENT PAGANO, JR.
Kirkpatrick & Lockhart LLP Simpson Thacher & Bartlett
1500 Oliver Building 425 Lexington Avenue
Pittsburgh, Pennsylvania 15222-2312 New York, New York 10017
(412) 355-6500 (212) 455-2000
</TABLE>
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Approximate date of commencement of proposed sale to the public: AS SOON
AS PRACTICABLE AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
-------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED PER SHARE(1) OFFERING PRICE(1)(2) REGISTRATION FEE
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Common Stock, par value $0.01
per share................... $ $201,250,000 $55,948
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</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee; based
on a bona fide estimate of the maximum offering price of the securities
being registered in accordance with Rule 457(a).
(2) Includes shares subject to the Underwriter's over-allotment option.
-------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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<PAGE> 2
SUBJECT TO COMPLETION, DATED MARCH 3, 1999
PROSPECTUS
SHARES
WESCO INTL. LOGO
WESCO INTERNATIONAL, INC.
COMMON STOCK
- --------------------------------------------------------------------------------
THIS IS OUR INITIAL PUBLIC OFFERING (THE "OFFERING") OF SHARES OF COMMON STOCK
(OUR "COMMON STOCK"). WE ARE OFFERING SHARES.
SHARES ARE INITIALLY BEING OFFERED IN THE UNITED STATES AND SHARES
ARE INITIALLY BEING OFFERED IN CANADA AND OUTSIDE THE UNITED STATES. NO PUBLIC
MARKET CURRENTLY EXISTS FOR OUR SHARES.
WE PROPOSE TO LIST THE SHARES ON THE NEW YORK STOCK EXCHANGE UNDER THE SYMBOL
" ." ANTICIPATED PRICE RANGE $ TO $ PER SHARE.
INVESTING IN THE SHARES INVOLVES RISKS. RISK FACTORS BEGIN ON PAGE .
<TABLE>
<CAPTION>
PER SHARE TOTAL
--------- ------
<S> <C> <C>
Public Offering Price....................................... $ $
Underwriting Discount....................................... $ $
Proceeds to WESCO International, Inc........................ $ $
</TABLE>
We have granted the underwriters a 30-day option to purchase up to
additional shares of Common Stock on the same terms and conditions as set forth
above solely to cover over-allotments, if any.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
Lehman Brothers expects to deliver the shares on or about , 1999.
- --------------------------------------------------------------------------------
LEHMAN BROTHERS
BEAR, STEARNS & CO. INC.
DONALDSON, LUFKIN & JENRETTE
GOLDMAN, SACHS & CO.
ROBERT W. BAIRD & CO. ING BARING FURMAN SELZ LLC
INCORPORATED
, 1999
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................. 2
Risk Factors........................ 10
Use of Proceeds..................... 15
Dividend Policy..................... 15
Capitalization...................... 16
Dilution............................ 17
Unaudited Pro Forma Financial
Information....................... 18
Selected Historical Consolidated
Financial Data.................... 23
Management's Discussion and Analysis
of Financial Condition and Results
of Operations..................... 27
Our Business........................ 35
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Management.......................... 49
Certain Relationships and Related
Transactions...................... 59
Principal Stockholders.............. 62
Description of Capital Stock........ 63
Description of Certain
Indebtedness...................... 65
Shares Eligible For Future Sale..... 72
Certain United States Federal Tax
Considerations.................... 73
Underwriting........................ 75
Legal Matters....................... 78
Experts............................. 79
Additional Information.............. 79
Index to Financial Statements....... F-1
</TABLE>
-------------------------
ABOUT THIS PROSPECTUS
You should only rely on the information contained in this prospectus. We
have not authorized anyone to provide you with information different from that
contained in this prospectus. We are offering to sell, and seeking offers to
buy, shares of Common Stock only in jurisdictions where offers and sales are
permitted. The information contained in this prospectus is accurate only as of
the date of this prospectus, regardless of the time of delivery of this
prospectus or of any sale of Common Stock.
This preliminary prospectus is subject to completion prior to this
Offering. Among other things, this preliminary prospectus describes our Company
as we currently expect it to exist at the time of this Offering.
In this prospectus, "WESCO" refers to WESCO International, Inc., and its
subsidiaries and its predecessors unless the context otherwise requires.
References to "we," "us," "our" and the "Company" refer to WESCO and its
subsidiaries. Our subsidiaries include WESCO Distribution, Inc. ("WESCO
Distribution") and WESCO Distribution -- Canada, Inc. ("WESCO Canada"), both of
which are wholly-owned by WESCO. We acquired our business, formerly the
Westinghouse Electric Supply division (the "Predecessor"), from Westinghouse
Electric Corporation, now known as CBS Corporation ("Westinghouse") in February
1994. In June 1998, we completed a recapitalization (the "Recapitalization"), as
more fully described in "Management's Discussion and Analysis of Financial
Condition and Results of Operations." In September 1998, we acquired Bruckner
Supply Company, Inc. ("Bruckner"), our most significant acquisition in 1998.
Unless we otherwise indicate, all information appearing in this prospectus gives
effect to a to one stock split in the form of a stock dividend of our
Common Stock to occur prior to the Offering.
See the section of this prospectus entitled "Risk Factors" for a discussion
of certain factors that you should consider before investing in the Common Stock
offered in this prospectus. All trademarks and trade names appearing in this
prospectus are the property of their respective holders.
Certain persons participating in this Offering may engage in transactions
that stabilize, maintain or otherwise affect the price of the Common Stock,
including stabilizing bids, syndicate covering transactions or the imposition of
penalty bids. For a discussion of these activities, see "Underwriting."
1
<PAGE> 4
PROSPECTUS SUMMARY
This is only a summary and it does not contain all the information that may
be important to you. You should read the following summary together with the
more detailed information about our Company and the Common Stock being sold in
this Offering and our historical and pro forma financial statements and notes to
those statements appearing elsewhere in this prospectus.
OUR COMPANY
With sales of over $3 billion in 1998, we are a leading provider of
electrical products and other industrial maintenance, repair and operating
("MRO") supplies and related value-added services in North America. We are the
second largest distributor in the $72 billion U.S. electrical distribution
industry, which has grown at a compounded annual rate of 7% over the last 15
years. We have capitalized on our leadership position in electrical distribution
to become the largest provider of integrated supply services in the United
States. Our Integrated Supply solutions and outsourcing services fulfill all of
a customer's industrial MRO procurement needs through a highly automated,
proprietary electronic procurement and inventory replenishment system. Demand
for Integrated Supply services has increased approximately 90% annually since
1994, and the total U.S. market potential, measured as all purchases of
industrial MRO supplies and services, is estimated to be $250 billion.
We have over 330 branches and five distribution centers strategically
located in 48 states, nine Canadian provinces, Puerto Rico, Guam, Mexico, the
United Kingdom and Singapore. We serve over 130,000 customers worldwide,
offering over 1,000,000 products from over 23,000 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.
We are the leading consolidator in our industry, having acquired 18
companies since August 1995, representing annual sales of over $1.1 billion.
Combining strong internal growth with acquisitions, our sales and EBITDA
increased at a compounded annual growth rate ("CAGR") of over 16% and over 42%,
respectively, since 1994, as shown below:
<TABLE>
<CAPTION>
SALES ($MILLIONS) EBITDA ($MILLIONS)
<S> <C> <C> <C>
1994 $1,636.00 1994 $ 30.00
1995 $1,857.00 1995 $ 63.00
1996 $2,275.00 1996 $ 79.00
1997 $2,595.00 1997 $ 91.00
1998 $3,025.00 1998 $123.00
</TABLE>
- -------------------------
For information concerning sales and EBITDA for 1994, see Notes 1 and 7 to
"Selected Historical Consolidated Financial Data."
2
<PAGE> 5
To achieve this substantial growth in sales and profitability, our
management team has realigned operations and successfully implemented strategic
initiatives which:
- significantly expanded our national marketing programs;
- established us as the leader in providing Integrated Supply services;
- organized our operations to focus on key customer markets;
- positioned us as the industry's leading consolidator;
- significantly improved gross margins, reduced operating costs and
increased return on assets;
- utilized proprietary information technology to reduce costs, streamline
operations and better serve customers;
- established new performance-based incentive systems for branch managers
and sales personnel; and
- promoted broad-based employee participation in common stock ownership and
stock option programs.
We generate a significant amount of cash flow and require low capital
investment to maintain our business. This significant cash flow is available to
be used to enhance stockholder value by making acquisitions, reducing debt or
repurchasing Common Stock.
Our key management personnel are both operators and owners, many of whom
have purchased significant equity positions over the past five years. Prior to
the Offering, over 220 of our executives and managers collectively held over 32%
of our Common Stock on a fully diluted basis. None of our executives and
managers will sell any shares of Common Stock in the Offering. Our stock
ownership and other incentive programs have closely aligned the interests of our
managers with those of our stockholders.
INDUSTRY OVERVIEW
ELECTRICAL DISTRIBUTION
With 1998 sales estimated at $72 billion, the U.S. industry is large and
growing. The industry is also stable with compounded annual growth of 7% since
1982, and it is projected to grow another 7% in 1999. The U.S. electrical
distribution industry is also highly fragmented. In 1997, the latest year for
which data is available, the four national distributors, including WESCO,
accounted for less than 15% of estimated total industry sales.
INTEGRATED SUPPLY
Demand for Integrated Supply services is growing rapidly, as more companies
realize they can lower costs by outsourcing their MRO procurement and related
services. Since a customer's costs of procuring MRO supplies can be over 50% of
the cost of the products, the opportunity for savings is significant. The total
market for MRO industrial supplies is approximately $250 billion. Within that
market, Integrated Supply is projected to grow from approximately $5 billion in
sales in 1997 to $11 billion in 2000, or 30% per year.
OUR BUSINESS STRATEGY
Our objective is to be the leading provider of electrical products and
other MRO supplies and services to companies in North America and selected
international markets. In achieving this leadership position, our goal is to
grow earnings at a faster rate than sales by focusing on continuous
3
<PAGE> 6
productivity improvement. Our growth strategy leverages our existing strengths
and focuses on developing new initiatives and programs.
ENHANCE OUR LEADERSHIP POSITION IN ELECTRICAL DISTRIBUTION. We are the
second largest electrical distributor in the U.S. and, through our value-added
products and services, we believe we have become the industry leader in serving
several important and growing markets. We intend to leverage our extensive
market presence and brand equity in the WESCO name to further our leadership
position in electrical distribution.
GROW NATIONAL PROGRAMS. Since 1994, revenue from our National Accounts
program has increased in excess of 20% annually. We will continue to invest in
the expansion of this program. Through our National Accounts program, we
coordinate electrical MRO procurement and purchasing activities primarily for
large industrial companies across multiple locations. We have well established
relationships with over 300 of these companies, providing us with recurring
revenues through multi-year agreements.
EXTEND OUR LEADERSHIP POSITION IN INTEGRATED SUPPLY. We intend to build
upon our position as the largest provider of Integrated Supply services for MRO
goods and services in the United States. Our Integrated Supply and outsourcing
services replace the traditional multi-vendor, resource-intensive procurement
process with a single fully automated process capable of managing all MRO and
related service requirements. Our solutions range from just-in-time fulfillment
to taking over the entire procurement function. We believe we are advantaged as
an Integrated Supply provider due to our national branch system and low cost
structure. Our customers include some of the largest industrial companies in the
United States.
GAIN SHARE IN KEY LOCAL MARKETS. Significant opportunities exist to gain
local market share, since many local markets are highly fragmented. We intend to
increase our market share in key geographic markets through a combination of
increased sales and marketing efforts at existing branches, acquisitions to
expand our product and customer base and new branch openings.
ACTIVELY PURSUE STRATEGIC ACQUISITIONS. We are the industry's leading
consolidator, having completed 18 acquisitions since August 1995, which
represent annual sales of over $1.1 billion. We believe that the highly
fragmented nature of the electrical and industrial MRO distribution industry
will provide us with a significant number of acquisition opportunities. We
utilize a disciplined approach toward acquisitions which includes well-defined
strategic criteria and established targets for return on investment and earnings
accretion.
LEVERAGE OUR E-COMMERCE AND INFORMATION SYSTEM CAPABILITIES. We conduct a
significant amount of business electronically. For example, 95% of our
Integrated Supply transactions are completed through EDI. We will continue to
make significant investments in information technology in order to conduct more
business electronically. Our e-commerce applications, including EDI, the
internet, CD-ROM catalogs and direct customer access, create tighter linkages
with both customers and suppliers and provide low cost, highly functional
processing of a full range of business transactions.
CONTINUE TO IMPROVE PROFIT MARGINS. We have more than doubled our EBITDA
margins since 1994 and are committed to seeking continuous improvement in
productivity and profitability. We use innovative and disciplined techniques to
manage our business processes and to improve employee productivity and return on
capital. We operate with one of the lowest cost structures in our industry and
will utilize this low cost advantage to continue to offer our customers
competitive pricing while improving our overall profitability.
EXPAND OUR INTERNATIONAL OPERATIONS. Our international sales, the majority
of which are in Canada, accounted for 10% of sales in 1998. We believe there is
significant additional demand for our products and services outside the U.S. and
Canada. Many of our multinational domestic customers are seeking distribution,
Integrated Supply and construction project management solutions globally.
4
<PAGE> 7
OWNERSHIP
Upon completion of the Offering, management will own approximately % of
our Common Stock on a fully diluted basis. The Cypress Group L.L.C. ("Cypress")
will own approximately % of our Common Stock on a fully diluted basis. None of
management, Cypress or its affiliates will sell any shares in the Offering.
Cypress is a private equity firm which currently manages over $3 billion of
equity capital on behalf of major public and private pension funds, university
endowments, trusts and other leading financial institutions. Cypress seeks to
invest alongside experienced executives in growth businesses to achieve
long-term capital appreciation. The Cypress professionals have successfully
employed this strategy in numerous other investments such as Infinity
Broadcasting Corporation, Lear Corporation, R.P. Scherer Corporation, Cinemark
USA, Inc., Williams Scotsman, Inc. and Frank's Nursery & Crafts, Inc.
RISK FACTORS
See the section of this prospectus entitled "Risk Factors" for a discussion
of certain factors that you should consider before investing in the Common Stock
offered in this prospectus. These risk factors include factors related to
competition, our substantial debt and related restrictions, general economic
conditions, growth strategy, our product supply, the importance of our
information systems and our year 2000 compliance, environmental matters, the
significant influence of our controlling stockholders, the lack of a prior
public market for and possible volatility in the price of our Common Stock,
shares eligible for future sale and dilution.
5
<PAGE> 8
THE OFFERING
Common Stock Offered by WESCO............... shares
U.S. Offering..................... shares
International Offering............ shares
---------------
Total................
Common Stock Outstanding after the
Offering.................................... shares (1)
Use of Proceeds............................. We intend to use net proceeds of
$ from this Offering to
retire all of the outstanding
11 1/8% Senior Discount Notes
due 2008, $ to repay
all of the existing indebtedness
under our Revolving Credit
Facility, and the remaining
balance to repay a portion of
the Tranche B Term Loan. See
"Use of Proceeds."
Proposed NYSE Symbol........................
- -------------------------
(1) Based on shares outstanding as of , 1999, after giving effect
to the to one stock split in the form of a stock dividend and the
conversion of certain outstanding notes in an aggregate principal amount of
$37 million into shares of Common Stock at the Offering price.
Currently, the Company also has authorized and issued Class B (non-voting)
Common Stock, which is identical to the Common Stock except that it has no
voting rights other than as required by law. The Common Stock to be
outstanding after this Offering also reflects the possible future conversion
of outstanding shares of Class B Common Stock, at any time at the option of
the holders, on a share for share basis into Common Stock and the
termination concurrent with this Offering of the rights of certain employee
holders of Common Stock to require us under certain limited circumstances to
repurchase all of their shares. See "Description of Capital Stock."
6
<PAGE> 9
SUMMARY HISTORICAL AND PRO FORMA FINANCIAL DATA
The following table sets forth summary historical consolidated financial
data of WESCO as of and for the four years ended December 31, 1998, which have
been derived from WESCO's audited financial statements. For information
concerning the period ended December 31, 1994, see Note 1 to the "Selected
Historical Consolidated Financial Data."
The following table also presents certain summary unaudited pro forma
financial data of the Company as of and for the year ended December 31, 1998,
which have been derived from the "Unaudited Pro Forma Financial Information" and
related notes included elsewhere in this prospectus. The summary unaudited pro
forma income statement data give effect to the Recapitalization, the acquisition
of Bruckner and the Offering as if they had occurred as of January 1, 1998. The
summary unaudited pro forma balance sheet data give effect to the Offering as if
it occurred as of December 31, 1998. The summary unaudited pro forma financial
data are provided for informational purposes only and do not purport to be
indicative of the results that would have actually been obtained had the
Recapitalization, the acquisition of Bruckner and the Offering been completed on
the dates indicated or that may be expected to occur in the future. Pro forma
results of the other acquisitions completed in 1998 are not included as they
would not be materially different from the consolidated results presented.
The summary historical and pro forma financial data should be read in
conjunction with, and are qualified in their entirety by, the historical
consolidated financial statements of WESCO and the notes thereto, "Selected
Historical Consolidated Financial Data," "Management's Discussion and Analysis
of Financial Condition and Results of Operations," and "Unaudited Pro Forma
Financial Information," contained elsewhere in this prospectus.
7
<PAGE> 10
SUMMARY HISTORICAL AND PRO FORMA FINANCIAL DATA
(IN MILLIONS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------
1994(1) 1995 1996 1997 1998 1998
-------- --------- --------- --------- -------- -----------
(PRO FORMA)
<S> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Sales, net............................. $1,635.8 $ 1,857.0 $ 2,274.6 $ 2,594.8 $3,025.4 $3,205.3
Gross profit........................... 262.5 321.0 405.0 463.9 537.6 556.4
Selling, general and administrative
expenses............................. 232.6 258.0 326.0 372.5 415.0 421.8
Depreciation and amortization.......... 8.7 7.3 10.8 11.3 14.8 16.8
Recapitalization costs................. -- -- -- -- 51.8(2) 51.8(2)
-------- --------- --------- --------- -------- --------
Income from operations................. 21.2 55.7 68.2 80.1 56.0 66.0
Interest expense, net.................. 20.0 15.8 17.4 20.1 45.1 40.5
Other expense.......................... -- -- -- -- 10.1(3) 15.3(3)
-------- --------- --------- --------- -------- --------
Income before income taxes............. 1.2 39.9 50.8 60.0 0.8 10.2
Provision for income taxes............. 1.7 14.8 18.3 23.8 8.5(4) 12.2(4)
-------- --------- --------- --------- -------- --------
Income (loss) before extraordinary
charge, net of taxes................. (0.5) 25.1 32.5 36.2 (7.7) (2.0)
Extraordinary charge, net of applicable
taxes................................ -- 8.1(5) -- -- -- --
-------- --------- --------- --------- -------- --------
Net income (loss)...................... $ (0.5) $ 17.0 $ 32.5 $ 36.2 $ (7.7)(2) $ (2.0)(2)
======== ========= ========= ========= ======== ========
Earnings (loss) per common share
(2), (6)
Basic before extraordinary charge,
net of taxes.......................
Basic................................
Diluted before extraordinary charge,
net of taxes.......................
Diluted..............................
Weighted average common shares
outstanding
Basic................................
Diluted..............................
OTHER FINANCIAL DATA:
EBITDA (7)............................. $ 29.9 $ 63.0 $ 79.0 $ 91.4 $ 122.6 $ 134.6
Capital expenditures................... -- 6.5 9.3 11.6 10.7
Net cash provided by (used for)
operating activities................. -- 25.7 15.1 (12.0) 276.9
Net cash provided by (used for)
investing activities................. -- (12.0) (110.9) (21.5) (184.1)
Net cash provided by (used for)
financing activities................. -- (9.8) 87.2 41.1 (92.3)
BALANCE SHEET DATA:
Adjusted working capital (8)........... $ 196.5 $ 222.5 $ 291.6 $ 338.8 $ 146.7(9) $ 146.7(9)
Total assets........................... 533.7 581.3 773.5 870.9 950.5 952.3
Total long-term debt (including current
portion)............................. 180.6 177.9 262.2 295.2 595.8 406.7
Redeemable common stock (10)........... 5.5 7.7 8.9 9.0 21.5 --
Stockholders' equity (deficit)......... 99.5 116.4 148.7 184.5 (142.6) 70.4
OTHER DATA:
Sales growth........................... 13.5% 22.5% 14.1% 16.6% 23.5%
EBITDA growth (7)...................... 110.7% 25.4% 15.6% 34.1% 47.3%
</TABLE>
8
<PAGE> 11
- -------------------------
(1) Our business was part of Westinghouse for the first two months of 1994. The
results of operations and financial data for that period have been combined
with the results of the Company for the ten months ended December 31, 1994.
See "Selected Historical Consolidated Financial Data."
(2) Represents a one time charge primarily related to noncapitalized financing
expenses, professional and legal fees and management compensation costs.
Excluding the effects of this charge, net income would have been $30.6
million and diluted earnings per share would have been $ and pro forma
net income would have been $36.3 million and pro forma diluted earnings per
share would have been $ .
(3) Represents costs relating to the sale of accounts receivable pursuant to
the Receivables Facility (as defined).
(4) Certain nondeductible recapitalization costs and other permanent
differences significantly exceeded income before income taxes and resulted
in an unusually high provision for income taxes.
(5) Represents a charge, net of taxes, relating to the writeoff of unamortized
debt issuance and other costs associated with the early extinguishment of
debt.
(6) For a description of the calculation of basic and diluted earnings per
common share, see Notes 2 and 13 to the Consolidated Financial Statements
included elsewhere in this prospectus. For the year ended December 31,
1998, $1.3 million of the interest on convertible debt and common
share equivalents have not been included, since the impact was
anti-dilutive.
(7) EBITDA represents income from operations plus depreciation, amortization
and recapitalization costs. EBITDA is presented since management believes
that such information is considered by certain investors to be an
additional basis for evaluating the Company's ability to pay interest and
repay debt. EBITDA should not be considered an alternative to measures of
operating performance as determined in accordance with generally accepted
accounting principles or as a measure of the Company's operating results
and cash flows or as a measure of the Company's liquidity. Since EBITDA is
not calculated identically by all companies, the presentation herein may
not be comparable to other similarly titled measures of other companies.
(8) Defined as trade accounts receivable plus inventories less accounts
payable.
(9) Excludes $274.2 million of accounts receivable pursuant to the sale in 1998
of such receivables in connection with the Receivables Facility.
(10) Represents redeemable common stock as described in Note 11 to the
Consolidated Financial Statements. Under certain limited circumstances, the
holders thereof have the right to require us to repurchase all of the
redeemable shares and the exercisable portion of the options. These
repurchase rights terminate upon consummation of the Offering. The
redemption value of the shares and exercisable portion of the options at
December 31, 1996, 1997 and 1998 was approximately $24.5 million, $68.6
million and $130.3 million, respectively. See "Certain Relationships and
Related Transactions -- Management Stockholders."
9
<PAGE> 12
RISK FACTORS
You should carefully consider the following factors and other information
contained in this prospectus in evaluating our business before deciding to
invest in the shares of our Common Stock. This prospectus also contains certain
forward-looking statements regarding our business. When used in this prospectus,
the words "anticipates," "plans," "believes," "estimates," "intends," "expects,"
"projects" 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 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, those discussed in "Risk Factors." 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.
WE OPERATE IN A COMPETITIVE INDUSTRY
The distribution industry for electrical products and other industrial MRO
supplies and services is very competitive. We compete directly with national and
regional broad-based companies, niche companies carrying only specialized
products, and small, local companies with one or a few locations. Another source
of competition in this industry is buying groups formed by smaller distributors
to increase purchasing power and provide some cooperative marketing capability.
Outside this industry, manufacturers employ, and may increase the use of, direct
sales representatives. In addition, some manufacturers with sufficient size,
geographic scope and financial and marketing resources may be in a position to
offer customers their national accounts services. Finally, the development of
alternative distribution channels, such as internet-based catalogs,
do-it-yourself retail outlets, or a shift to direct sales and service by
manufacturers, could have a material adverse effect on our markets and, as a
result, our operating performance.
Some of our existing competitors have, and new market entrants may have,
greater financial and marketing resources than we do. To the extent existing or
future competitors seek to gain or retain market share by reducing prices, we
may be required to lower our prices, thereby adversely affecting financial
results. Existing or future competitors also may seek to compete with us for
acquisitions, which could have the effect of increasing the price and reducing
the number of suitable acquisitions. In addition, it is possible that
competitive pressures resulting from the industry trend toward consolidation
could affect growth and profit margins. See "Our Business -- Competition."
WE HAVE A SUBSTANTIAL AMOUNT OF DEBT WHICH IMPOSES CERTAIN RESTRICTIONS
We have a significant amount of debt as of December 31, 1998. Before giving
effect to the Offering, we had $595.8 million of indebtedness, and on a pro
forma basis after giving effect to the use of net proceeds in the Offering, we
would have had $406.7 million of indebtedness. See "Capitalization," "Use of
Proceeds" and "Unaudited Pro Forma Financial Information." Accordingly, we will
continue to have significant debt service obligations. We may incur additional
indebtedness in the future to fund our growth strategy and for general corporate
purposes, subject to certain limitations contained in the instruments governing
our indebtedness.
Our debt agreements contain numerous financial and operating covenants that
limit our discretion with respect to certain business matters. These covenants
place significant restrictions on, among other things, our ability to incur
additional indebtedness, to pay dividends and other
10
<PAGE> 13
distributions, to repay our obligations, to enter into sale and leaseback
transactions, to create liens or other encumbrances, to make certain payments
and investments, to engage in certain transactions with affiliates, to sell or
otherwise dispose of assets and to merge or consolidate with other entities and
will otherwise restrict corporate activities.
Our debt agreements also require that we meet certain financial ratios and
tests. Our ability to comply with these and other provisions may be affected by
changes in economic or business conditions or other events beyond our control. A
failure to comply with our debt obligations could result in an event of default
which could result in acceleration of the related debt and the acceleration of
debt under other instruments evidencing indebtedness that may contain cross-
acceleration or cross-default provisions. If outstanding debt were to be
accelerated, there can be no assurance that our assets would be sufficient to
repay in full such indebtedness. Our obligations under the bank credit
facilities are collateralized by a first priority pledge of and security
interest in substantially all of our assets, except for accounts receivable
which are subject to our Receivables Facility. See "Description of the Certain
Indebtedness."
WE ARE SUBJECT TO RISKS ASSOCIATED WITH GENERAL ECONOMIC CONDITIONS
Changes in economic conditions outside our control, including
international, national, regional and local declines in industrial and
construction activity, can affect projected growth rates and our operating
results may be adversely affected. Increases in interest rates may lead to a
decline in economic activity and may also result in higher interest payments
under our bank credit facilities. In addition, during periods of reduced
economic activity our credit losses could increase significantly. Adverse
economic conditions or cyclical trends in certain customer markets could have a
material adverse effect on our operating results and financial condition.
OUR GROWTH STRATEGY INVOLVES CERTAIN RISKS
A principal component of our strategy is to continue to expand through
additional acquisitions that complement our operations in new or existing
markets. Our acquisitions will involve risks, including the successful
integration and management of acquired operations and personnel. The integration
of acquired businesses may also lead to the loss of key employees of the
acquired companies and diversion of management attention from ongoing business
concerns. We cannot assure that we will be able to identify businesses that meet
our strategic criteria and acquire them on satisfactory price and other terms,
or that we will have sufficient capital resources to realize our acquisition
strategy. Future acquisitions may not prove advantageous and could have a
material adverse effect on our operating results. We are also building our
international presence. Significant expansion into international markets could
involve risks relating to operating in foreign countries, including those
relating to currency exchange rates, new and different legal, tax, accounting
and regulatory requirements. See "Our Business -- Acquisition and Integration
Programs" and "--International Operations."
Depending on the size and number of future acquisitions, we may require
additional funding. Future acquisitions could be financed by internally
generated cash flow or additional indebtedness, including increased borrowings
under our bank credit facilities or the issuance of debt or equity securities.
Our high degree of debt, among other things, could constrain our ability to
obtain financing. We cannot assure that adequate funding will be available, or
if available, will be on terms satisfactory to us. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources," and "Our Business -- Our Business Strategy," and
"-- Acquisition and Integration Programs."
MAINTENANCE OF OUR PRODUCT SUPPLY PRESENTS CERTAIN RISKS
Consistent with industry practice, most of our agreements with suppliers
(including both distribution agreements and preferred supplier agreements) are
generally terminable by either party
11
<PAGE> 14
on no more than 60 days notice. Our ten largest suppliers in 1998 accounted for
approximately 38% of our purchases for the period. The largest supplier was
Eaton Corporation, through its Cutler-Hammer division, accounting for
approximately 15% of our purchases. The loss of, or a substantial decrease in
the availability of, products from any of these suppliers, or the loss of key
preferred supplier agreements, could have a material adverse effect on our
business. In addition, supply interruptions could arise from shortages of raw
materials, labor disputes or weather conditions affecting products or shipments,
transportation disruptions or other reasons beyond our control. An interruption
of operations at any of our five distribution centers could have a material
adverse effect on the operations of branches served by the affected distribution
center. Furthermore, we cannot assure that particular products, or product
lines, will be available to us, or available in quantities sufficient to meet
customer demand. This limited product access could put us at a competitive
disadvantage. See "Our Business -- Products and Services" and "Our
Business -- Distribution Network."
OUR SUCCESS IS DEPENDENT ON OUR INFORMATION SYSTEMS AND OUR YEAR 2000 COMPLIANCE
We believe that our computer systems are an integral part of our business
and growth strategies. We depend on our information systems to process orders,
manage inventory and accounts receivable collections, purchase products, ship
products to our customers on a timely basis, maintain cost-effective operations
and provide superior service to our customers. Although we believe that we have
the appropriate disaster recovery plans in place, we cannot assure that a
serious disruption in the operation of our information systems will not occur.
Any such disruption could have a material adverse effect on our business and
results of operations. See "Our Business -- Management Information Systems."
The Year 2000 issue concerns the ability of automated applications to
process date-dependent processes, calculations, and information by properly
interpreting the year. With respect to WESCO, the Year 2000 issue may
potentially impact business-critical computerized applications related to, among
others, customer sales, service and invoicing, purchasing, inventory management,
payroll, financing, and financial accounting and reporting. In addition, other
non business-critical systems and services may also be affected.
Year 2000 compliance has already been achieved in certain systems. Other
systems and processes critical to our business which are not Year 2000 compliant
are either being replaced or corrected through program changes, application
upgrades or replacement. We expect to have substantially completed required
remediation efforts by July 1999. Our project team is also developing or
enhancing contingency plans to minimize the potential adverse effect the Year
2000 issue could have on WESCO in the event business-critical systems and
processes fail to be compliant.
Our expectations of the Year 2000 issue are subject to numerous risks and
uncertainties, including, among others, our ability to timely identify all
affected business-critical systems, and the readiness of service providers,
vendors and suppliers, our financial institutions, and significant customers. If
we are unsuccessful in identifying or correcting business-critical systems and
processes affected by the Year 2000 issue, or if our service providers, vendors
and suppliers, our financial institutions, and significant customers are
adversely affected by the Year 2000 issue, our results of operations or
financial condition could be materially impacted. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Year 2000."
OUR OPERATIONS ARE SUBJECT TO ENVIRONMENTAL RISKS
Our facilities and operations are subject to federal, state and local laws
and regulations relating to environmental protection ("Environmental Laws") and
human health and safety. Some of these laws and regulations may impose strict,
joint and several liability on certain persons for the cost of investigation or
remediation of contaminated properties. These persons may include present or
future
12
<PAGE> 15
owners and operators of properties, and persons that arranged for the disposal
of hazardous substances. In addition, the disposal of certain products
distributed by us, such as ballasts, fluorescent lighting and batteries, must
comply with Environmental Laws. Our owned and leased real property may carry
with it certain liabilities under Environmental Laws.
OUR CONTROLLING STOCKHOLDERS CAN EXERCISE SIGNIFICANT INFLUENCE OVER OUR AFFAIRS
After the Offering, approximately % of the issued and outstanding
shares of Common Stock will be held by Cypress and its affiliates. Accordingly,
Cypress and its affiliates can exercise significant influence over our affairs,
including the election of our directors, appointment of our management and
approval of actions requiring the approval of our stockholders, including the
adoption of amendments to our certificate of incorporation and approval of
mergers or sales of substantially all of our assets. See "Management,"
"Principal Stockholders" and "Certain Relationships and Related Transactions."
OUR COMMON STOCK HAS NEVER BEEN PUBLICLY TRADED AND ITS PRICE MAY BE VOLATILE
Prior to this Offering, there has not been a public market for our Common
Stock. We will make an application for listing the Common Stock on the New York
Stock Exchange, but we cannot predict the extent to which a trading market will
develop or how liquid that market might become. The initial public offering
price will be determined by negotiations between representatives of the
underwriters and us and may not be indicative of prices that will prevail in the
trading market. See "Underwriting."
The market price for shares of our Common Stock may be volatile and may
fluctuate based on a number of factors including: our operating performance and
the performance of other similar companies; news announcements relating to us,
our industry or our competitors; changes in earnings estimates or
recommendations by research analysts; changes in general economic conditions; or
other developments affecting us, our industry, or our competitors. In recent
years, the stock market has experienced significant price and volume
fluctuations, which are often unrelated to the operating performance of specific
companies.
A NUMBER OF SHARES ARE OR WILL BE ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering, our current stockholders and holders of
options to acquire Common Stock, including our executive officers and directors
and their affiliates, will own beneficially approximately % of
the outstanding shares of our Common Stock and the rights to purchase an
additional % of our outstanding Common Stock through the exercise
of currently exercisable options ( %, if the Underwriters' over-allotment
option is exercised in full). As a result, these stockholders, acting together,
would be able to exert substantial influence over us and matters requiring
approval by our stockholders, including the election of our directors. The
voting power of these stockholders under certain circumstances could have the
effect of delaying or preventing a change in control of the Company. After
expiration of a 180-day "lock-up" period to which substantially all of our
current stockholders and option holders are subject, these holders will in
general be entitled to dispose of their shares (including the shares underlying
such options), although the shares of Common Stock held by our affiliates will
continue to be subject to the volume and other restrictions of Rule 144 under
the Securities Act of 1933, as amended (the "Securities Act"). Sales of
substantial amounts of Common Stock, or the perception that such sales could
occur at the expiration of such 180 day period, may materially adversely affect
the prevailing market price of the Common Stock from time to time.
OUR INITIAL PUBLIC OFFERING WILL RESULT IN A DILUTION OF THE BOOK VALUE OF OUR
COMMON STOCK
The initial public offering price of our Common Stock is substantially more
than the net tangible book value per share of our Common Stock. Accordingly, the
purchasers of shares of Common Stock
13
<PAGE> 16
pursuant to the Offering will experience immediate and substantial dilution in
the net tangible book value per share of Common Stock from the initial public
offering price. The net tangible book value dilution to new investors in the
Offering will be $ per share at an assumed initial public offering price of
$ per share. See "Dilution."
14
<PAGE> 17
USE OF PROCEEDS
Based on an assumed initial public offering price of $ per share (the
midpoint of the estimated range of initial public offering prices), we will
receive approximately $ from the sale of shares of Common Stock in the
Offering after deduction of estimated underwriting discounts and commissions and
estimated expenses (approximately $ if the Underwriters' over-
allotment option is exercised in full). We intend to use net proceeds of
$ from the Offering to retire all of the outstanding 11 1/8% Senior
Discount Notes due 2008 (of which $ million will be applied to the
principal amount of such notes and $ will be applied to a prepayment
premium), $ to repay all of the existing indebtedness under the Revolving
Credit Facility, and the remaining balance to repay a portion of the Tranche B
Term Loan.
The Senior Discount Notes were sold at a discount resulting in a yield to
maturity of 11.175% per annum and will mature on June 1, 2008. As of December
31, 1998, the interest rate on the Tranche B Term Loan was 7.8% per annum, and
the interest rate on borrowings under the Revolving Credit Facility was 8.3% per
annum. The Revolving Credit Facility matures on June 5, 2004. The Tranche B Term
Loan matures on June 5, 2006. WESCO used the proceeds of the Revolving Credit
Facility for general corporate purposes. WESCO used the proceeds of the Tranche
B Term Loan and the proceeds of the issuance of Senior Discount Notes to pay
certain fees and expenses and to repay certain indebtedness in connection with
the Recapitalization. See Note 9 to Consolidated Financial Statements.
DIVIDEND POLICY
We have not paid or declared any dividends on our capital stock since our
inception. We anticipate that, following the completion of the Offering,
earnings will be retained to support the growth of our business and will not be
distributed to stockholders as dividends. The declaration and payment of any
future dividends and the amount thereof will be determined by our Board of
Directors and will depend upon our results of operations, financial condition,
cash requirements, future prospects, limitations imposed by credit and debt
agreements and other factors deemed relevant by our Board of Directors. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
Pursuant to our credit and debt agreements, we may not declare or make, or
agree to declare or make, directly or indirectly, any dividends, except that we
may declare and pay dividends with respect to our capital stock payable solely
in additional shares of our Common Stock or options, warrants or other rights to
purchase Common Stock. For further information concerning dividend restrictions,
see Note 9 to the Consolidated Financial Statements.
15
<PAGE> 18
CAPITALIZATION
The following table sets forth our consolidated capitalization as of
December 31, 1998. Our capitalization is presented on an actual basis and on a
pro forma basis to give effect to:
- our for one stock split effected in the form of a stock dividend and
our sale of shares of Common Stock in the Offering at an assumed
initial public offering price of $ per share (the midpoint of the
estimated range of initial public offering prices) after deducting
estimated underwriting discounts and commissions and estimated Offering
expenses and the anticipated application of the net proceeds from the
Offering; and
- the conversion of certain outstanding notes in the aggregate principal
amount of $37 million and the termination of certain employees' rights to
require the Company to repurchase outstanding redeemable Common Stock.
<TABLE>
<CAPTION>
DECEMBER 31, 1998
-------------------------
PRO FORMA
ACTUAL AS ADJUSTED(1)
------- --------------
(DOLLARS IN MILLIONS)
<S> <C> <C>
Cash and cash equivalents................................... $ 8.1 $ 8.1
======= =======
Total debt:
Credit facilities:
Revolving facility..................................... $ 42.4 $ --
Delayed draw term facility............................. -- --
Term loans............................................. 169.5 109.2
Senior subordinated notes................................. 289.2 289.2
Senior discount notes..................................... 52.1 --
Other debt................................................ 42.6 8.3
------- -------
Total debt........................................ 595.8 406.7
Redeemable Common Stock, 84,808 shares issued and
outstanding; as adjusted, none............................ 21.5 --
Stockholders' Equity:
Preferred Stock: none; as adjusted, 20,000,000 shares
authorized, no shares issued and outstanding........... -- --
Common Stock:
Common Stock, $.01 par value, 2,000,000 shares authorized,
436,156 shares issued and outstanding; as adjusted,
120,000,000 shares authorized, shares issued and
outstanding............................................ -- --
Class B Common Stock (non-voting), $.01 par value,
2,000,000 shares authorized, 80,504 shares issued and
outstanding; as adjusted, 10,000,000 shares authorized,
shares issued and outstanding..................... -- --
Additional capital........................................ 327.0 545.9
Retained earnings (deficit)............................... (468.2)(2) (474.1)(2)
Accumulated other comprehensive income (loss)............. (1.4) (1.4)
------- -------
Total stockholders' equity (deficit).............. (142.6) 70.4
------- -------
Total capitalization......................... $ 474.7 $ 477.1
======= =======
</TABLE>
- -------------------------
(1) See "Unaudited Pro Forma Financial Information."
(2) Reflects the effects of the Recapitalization. See Note 3 to the Consolidated
Financial Statements.
16
<PAGE> 19
DILUTION
Our pro forma consolidated net tangible book value as of December 31, 1998
was $ or $ per share of our Common Stock. After giving effect to
the sale of the shares of our Common Stock in the Offering (at an assumed
initial offering price of $ per share) and before deducting anticipated
offering expenses and underwriting discounts and commissions, our adjusted pro
forma net tangible book value as of December 31, 1998 would have been $ or
$ per share, representing an immediate $ per share dilution to new
investors purchasing shares at the initial public offering price. The following
table illustrates such per share dilution.
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $
-------
Pro forma net tangible book value per share as of December
31, 1998.................................................. $
-------
Increase per share attributable to new investors.......... $
-------
Net tangible book value per share after the Offering........ $
-------
Dilution per share to new investors......................... $
=======
</TABLE>
The following table sets forth, on a pro forma basis as of December 31,
1998, the number of shares of Common Stock purchased from the Company, the total
consideration paid and the average price per share paid by existing stockholders
and by new investors (assuming the sale by the Company of shares in the
Offering at an assumed initial public offering price of $ per share), before
deduction of underwriting discounts and commissions and offering expenses
(dollars and share amounts in thousands):
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
----------------- -------------------
PERCENT PERCENT AVERAGE
AFTER AFTER PRICE
NUMBER OFFERING AMOUNT OFFERING PER SHARE
------ -------- ------- --------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders................. % $ % $
----- ----- ------ ----- ------
New stockholders......................
----- ----- ------ ----- ------
Total............................ 100.0% $ 100.0%
===== ===== ====== =====
</TABLE>
17
<PAGE> 20
UNAUDITED PRO FORMA FINANCIAL INFORMATION
The following unaudited pro forma financial information of the Company has
been prepared to give effect to the acquisition of Bruckner, the
Recapitalization and the Offering. We treated the Recapitalization as a
leveraged recapitalization for financial reporting purposes; accordingly, the
historical basis of our assets and liabilities was not affected by the
transaction. For a discussion of the Recapitalization, see "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Recent Developments."
The pro forma adjustments presented are based upon available information
and include certain assumptions and adjustments that we believe are reasonable
under the circumstances. These adjustments are directly attributable to the
transactions referenced above and are expected to have a continuing impact on
our business, results of operations and financial condition. Our historical
condensed consolidated balance sheet as of December 31, 1998 and the statement
of operations for the year ended December 31, 1998 were derived from our
Consolidated Financial Statements included elsewhere herein.
Our unaudited pro forma condensed consolidated balance sheet gives effect
to the Offering as if it had occurred on December 31, 1998. Our unaudited pro
forma condensed consolidated statement of operations for the year ended December
31, 1998 gives effect to the acquisition of Bruckner, the Recapitalization and
the Offering as if they occurred on January 1, 1998.
The historical financial data of Bruckner for the period January 1, 1998 to
September 11, 1998 (the acquisition date) was derived from its unaudited
financial statements. The acquisition of Bruckner was accounted for using the
purchase method of accounting pursuant to which the total purchase price was
allocated to the tangible and intangible assets acquired and liabilities assumed
based on their estimated fair values. None of the acquisitions described in the
prospectus, excluding Bruckner, met the individual or aggregate criteria
outlined by the Commission's significant subsidiary test.
The unaudited pro forma financial information and related notes thereto are
provided for informational purposes only. They do not necessarily reflect our
results of operations or financial condition that would have actually resulted
had the events referred to above or in the notes to the unaudited pro forma
financial information been consummated. In addition, the unaudited pro forma
financial information is not intended to project our financial condition or
results of operations for any future period and does not necessarily reflect the
effect of an extraordinary charge of $9.6 million expected to result from the
Offering related to the early extinguishment of outstanding 11 1/8% Senior
Discount Notes and a portion of the Credit Facilities.
\
18
<PAGE> 21
WESCO INTERNATIONAL, INC.
UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED BALANCE SHEET
(DOLLARS IN THOUSANDS)
AS OF DECEMBER 31, 1998
<TABLE>
<CAPTION>
WESCO OFFERING WESCO
HISTORICAL ADJUSTMENTS AS ADJUSTED
---------- ----------- -----------
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents........................ $ 8,093 $ 8,093
Trade accounts receivable........................ 181,511 181,511
Other accounts receivable........................ 22,265 22,265
Inventories...................................... 343,764 343,764
Other current assets............................. 26,438 $ 3,759(1) 30,197
--------- ----------- --------
Total current assets........................ 582,071 3,759 585,830
Property, buildings and equipment, net........... 107,596 107,596
Goodwill, net of accumulated amortization........ 234,049 234,049
Other assets..................................... 26,806 (2,002)(2) 24,804
--------- ----------- --------
Total assets................................ $ 950,522 $ 1,757 $952,279
========= =========== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable................................. $ 378,590 $378,590
Accrued payroll and benefit costs................ 19,614 19,614
Current portion long-term debt................... 16,592 $ (6,950)(3) 9,642
Other current liabilities........................ 51,671 (539)(4) 51,132
--------- ----------- --------
Total current liabilities................... 466,467 (7,489) 458,978
Long-term debt................................... 579,238 (182,156)(3) 397,082
Other noncurrent liabilities..................... 7,040 7,040
Deferred income taxes............................ 18,832 18,832
--------- ----------- --------
Total liabilities........................... 1,071,577 (189,645) 881,932
Redeemable common stock.......................... 21,506 (21,506)(5) --
Stockholders' equity............................. (142,561) 212,908(6) 70,347
--------- ----------- --------
Total liabilities and stockholders'
equity.................................... $ 950,522 $ 1,757 $952,279
========= =========== ========
</TABLE>
See notes to unaudited pro forma condensed consolidated balance sheet
19
<PAGE> 22
WESCO INTERNATIONAL, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED BALANCE SHEET
(DOLLARS IN THOUSANDS)
(1) Reflects the tax benefit associated with an extraordinary loss on the early
extinguishment of debt discussed in footnote (3) below of $9,639 (before tax
benefit of $3,759) at an assumed rate of 39%.
(2) Reflects the write-off of deferred financing costs in connection with the
repayment of debt discussed in footnote (3) below.
(3) Reflects adjustments relating to long-term debt in connection with the
Offering as follows:
<TABLE>
<S> <C>
Repayment of Senior Discount Notes (net of unamortized
purchase discount of $1,659).............................. $ (52,071)
Repayment of Tranche B Term Loan (including $500 current
portion).................................................. (60,303)
Repayment of Revolving Credit Facility...................... (42,450)
Conversion of acquisition notes (including $6,450 current
portion).................................................. (34,282)
---------
$(189,106)
=========
</TABLE>
The assumed conversion of the acquisition notes results from requirements of
three notes for automatic conversion upon the Offering and anticipated firm
commitment from one noteholder as to their intent to convert at the assumed
Offering price.
(4) Reflects payment of accrued interest associated with extinguished
indebtedness.
(5) Reflects the termination of certain employees' rights to require the Company
to repurchase the redeemable Common Stock.
(6) Reflects adjustments relating to stockholders' equity as follows:
<TABLE>
<S> <C>
Net proceeds from the Offering.............................. $163,000
Termination of redemption feature........................... 21,506
Conversion of acquisition notes............................. 34,282
Extraordinary charge, net of tax benefit of $3,759.......... (5,880)
--------
$212,908
========
</TABLE>
The proceeds from the Offering have been assumed since the transaction
reflects an underwritten offering and the underwriters have a firm commitment
to purchase all of the offered securities.
20
<PAGE> 23
WESCO INTERNATIONAL, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
STATEMENT OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
BRUCKNER
WESCO BRUCKNER PRO FORMA RECAPITALIZATION WESCO OFFERING WESCO
HISTORICAL HISTORICAL(1) ADJUSTMENTS ADJUSTMENTS PRO FORMA ADJUSTMENTS AS ADJUSTED
---------- ------------- ----------- ---------------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Sales, net................. $3,025,439 $179,894 $3,205,333 $3,205,333
Cost of goods sold......... 2,487,780 161,218 2,648,998 2,648,998
---------- -------- ---------- ----------
Gross profit............. 537,659 18,676 556,335 556,335
Selling, general and
administrative expenses.. 415,028 6,792 $ (67)(5) 421,753 421,753
Depreciation and
amortization............. 14,805 77 $ 1,899(2) 16,781 16,781
Recapitalization costs
(9)...................... 51,800 51,800 51,800
---------- -------- ------- -------- ---------- -------- ----------
Income (loss) from
operations............. 56,026 11,807 (1,899) 67 66,001 66,001
Interest expense, net...... 45,121 2,575(3) 9,696(6) 57,392 $(16,620)(8) 40,772
Other income............... (264) (264) (264)
Other expenses............. 10,122 5,168(7) 15,290 15,290
---------- -------- ------- -------- ---------- -------- ----------
Income (loss) before
income taxes........... 783 12,071 (4,474) (14,797) (6,417) 16,620 10,203
Provision (benefit) for
income taxes............. 8,519 2,693(4) (5,771)(4) 5,711 6,482(4) 12,193
---------- -------- ------- -------- ---------- -------- ----------
Income (loss) from
continuing operations
before extraordinary
charge directly
attributable to the
Offering (9)............. $ (7,736) $ 12,071 $(7,437) $ (9,026) $ (12,128) $ 10,138 $ (1,990)
========== ======== ======= ======== ========== ======== ==========
Earnings (loss) per common
share
Basic...................... $ $
========== ==========
Diluted (9)(10)............ $ $
========== ==========
Weighted average common
shares used in computing
basic earnings (loss) per
share....................
========== ==========
Weighted average common
shares and common share
equivalents used in
computing diluted
earnings (loss) per
share....................
========== ==========
</TABLE>
See notes to unaudited pro forma condensed consolidated statement of operations
21
<PAGE> 24
WESCO INTERNATIONAL, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED STATEMENT OF OPERATIONS
(DOLLARS IN THOUSANDS)
(1) Reflects Bruckner historical financial data for the period January 1, 1998
to September 11, 1998 (the acquisition date). Certain reclassifications
have been made to Bruckner's historical financial statements to conform to
the presentation used by WESCO upon completion of the acquisition.
(2) Reflects incremental amortization of goodwill resulting from the
acquisition of Bruckner over an estimated period of 35 years.
(3) Reflects incremental interest expense on new obligations related to the
acquisition of Bruckner. The obligations consist of $19,000 of new
borrowings and a non-interest bearing convertible note due March 31, 2000
and discounted to a value of $26,621 for financial reporting purposes (face
value $30,000). The assumed interest rate on the $19,000 of new borrowings
under WESCO's existing credit agreement was 8.3%. For purposes of this pro
forma financial information, the original issue discount on the
non-interest bearing convertible note is accreted on a straight-line basis
(which approximates the effective interest method) over the period ending
March 31, 2000. Assuming a 0.125 percentage point change in interest rates,
interest expense would change by $24 for the year ended December 31, 1998.
(4) Reflects the income tax effect of converting Bruckner from a subchapter S
corporation to a C corporation and the income tax effects of the pro forma
adjustments at an assumed rate of 39%.
(5) Reflects the elimination of non-recurring advisory, management consulting
and monitoring fees paid to WESCO's investors prior to the Recapitalization
during the periods presented. Historical revenue and expenses would not
have been materially changed without these services.
(6) Reflects the incremental interest expense relating to the Recapitalization
assuming interest rates of 9 1/8% for the Senior Subordinated Notes, 7.60%
for the Tranche A Term Loan and 7.75% for the Tranche B Term Loan
borrowings under a new credit agreement, and amortization of original issue
and purchase discounts, as well as the incremental amortization expense
resulting from the capitalization of transaction fees and expenses of
$10,570 related to the Recapitalization. The amortization of debt issuance
costs was $1,355 for the year ended December 31, 1998. The Senior Discount
Notes were issued with an original issue discount of $36,522. The original
issue discount is being accreted over the period ending June 1, 2003.
Assuming a 0.125 percentage point change in interest rates, interest
expense would change by $213 for the year ended December 31, 1998.
(7) Reflects the incremental costs related to the sale of certain accounts
receivable in connection with the Recapitalization at an assumed discount
rate of 6.19%.
(8) Reflects the elimination of interest expense and the elimination of
amortization of original issue and purchase discounts with the repayment of
Senior Discount Notes, Revolving Credit Facility borrowings and a portion
of Tranche B Term Loan as follows:
<TABLE>
<CAPTION>
AMORTIZATION
ACCRETION OF INTEREST
DISCOUNTS EXPENSE TOTAL
------------- -------- -------
<S> <C> <C> <C>
Senior Discount Notes....................................... $5,801 $ 5,801
Revolving Credit Facility................................... $3,131 3,131
Tranche B Term Loan......................................... 4,674 4,674
Acquisition notes........................................... 2,175 561 2,736
------ ------ -------
$7,976 $8,366 $16,342
====== ====== =======
</TABLE>
In addition, amortization of debt issuance costs totaling $278 associated
with the above debt were eliminated.
(9) Includes a one-time charge primarily related to the noncapitalized
financing expenses, professional and legal expenses and management
compensation costs. Assuming such charges were not incurred, pro forma net
income would have been $36,310 and pro forma diluted earnings per share
would have been $ .
(10) Excludes interest on convertible debt of $1,266 for Historical and As
Adjusted and and common share equivalents for Historical and
As Adjusted, respectively, as the inclusion would be anti-dilutive.
22
<PAGE> 25
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
The following table sets forth selected historical consolidated financial
data of WESCO as of and for the four years ended December 31, 1998 which have
been derived from audited financial statements. The period ended December 31,
1994 represents the combined financial data of the Predecessor for the two
months ended February 28, 1994 and of the Company for the ten months ended
December 31, 1994. The combined selected data do not purport to represent what
the Company's consolidated results of operations would have been if the
acquisition had actually occurred on January 1, 1994. The selected historical
consolidated financial data of WESCO as of December 31, 1997 and 1998 and for
the three years ended December 31, 1998 have been derived from our consolidated
financial statements included elsewhere herein, which have been audited by
PricewaterhouseCoopers LLP. The selected historical consolidated financial data
should be read in conjunction with, and is qualified in its entirety by, our
historical consolidated financial statements and the accompanying notes thereto
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere in this prospectus.
23
<PAGE> 26
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
(DOLLARS IN MILLIONS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------
1994(1) 1995 1996 1997 1998
-------- ---------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Sales, net....................................... $1,635.8 $ 1,857.0 $ 2,274.6 $ 2,594.8 $3,025.4
Gross profit..................................... 262.5 321.0 405.0 463.9 537.6
Selling, general and administrative expenses..... 232.6 258.0 326.0 372.5 415.0
Depreciation and amortization.................... 8.7 7.3 10.8 11.3 14.8
Recapitalization costs........................... -- -- -- -- 51.8(2)
-------- ---------- ---------- ---------- --------
Income from operations........................... 21.2 55.7 68.2 80.1 56.0
Interest expense, net............................ 20.0 15.8 17.4 20.1 45.1
Other expense.................................... -- -- -- -- 10.1(3)
-------- ---------- ---------- ---------- --------
Income before income taxes....................... 1.2 39.9 50.8 60.0 0.8
Provision for income taxes....................... 1.7 14.8 18.3 23.8 8.5(4)
-------- ---------- ---------- ---------- --------
Income (loss) before and extraordinary charge,
net of taxes................................... (0.5) 25.1 32.5 36.2 (7.7)
Extraordinary charge, net of applicable taxes.... -- 8.1(5) -- -- --
-------- ---------- ---------- ---------- --------
Net income (loss)................................ $ (0.5) $ 17.0 $ 32.5 $ 36.2 $ (7.7)(2)
======== ========== ========== ========== ========
Earnings (loss) per common share (6)
Basic before extraordinary change, net of
taxes...................................... --
Basic........................................ --
Diluted before extraordinary charge, net of
taxes...................................... --
Diluted...................................... --
Weighted average common shares outstanding
Basic........................................ --
Diluted...................................... --
OTHER FINANCIAL DATA:
EBITDA (7)....................................... $ 29.9 $ 63.0 $ 79.0 $ 91.4 $ 122.6
Capital expenditures............................. -- 6.5 9.3 11.6 10.7
Net cash provided by (used for) operating
activities..................................... -- 25.7 15.1 (12.0) 276.9
Net cash provided by (used for) investing
activities..................................... -- (12.0) (110.9) (21.5) (184.1)
Net cash provided by (used for) financing
activities..................................... -- (9.8) 87.2 41.1 (92.3)
BALANCE SHEET DATA:
Adjusted working capital (8)..................... $ 196.5 $ 222.5 $ 291.6 $ 338.8 $ 146.7(9)
Total assets..................................... 533.7 581.3 773.5 870.9 950.5
Total long-term debt (including current
portion)....................................... 180.6 177.9 262.2 295.2 595.8
Redeemable common stock (10)..................... 5.5 7.7 8.9 9.0 21.5
Stockholders' equity (deficit)................... 99.5 116.4 148.7 184.5 (142.6)
</TABLE>
24
<PAGE> 27
- ---------------
(1) Our business was part of Westinghouse for the first two months of 1994. The
results of operations and financial data for that period are as follows:
<TABLE>
<CAPTION>
THE PREDECESSOR (i) THE COMPANY
-------------------- ------------
TWO MONTHS TEN MONTHS COMBINED
ENDED ENDED YEAR ENDED
FEBRUARY 28, DECEMBER 31, DECEMBER 31,
1994 1994 1994(ii)
-------------------- ------------ ------------
<S> <C> <C> <C>
Sales, net............................................ $237.3 $1,398.5 $1,635.8
Gross profit.......................................... 32.5 230.0 262.5
Selling, general and administrative expenses.......... 34.9 197.7 232.6
Depreciation and amortization......................... 1.2 7.5 8.7
------ -------- --------
Income (loss) from operations......................... (3.6) 24.8 21.2
Interest expense, net (iii)........................... 2.4 17.6 20.0
------ -------- --------
Income (loss) before income taxes..................... (6.0) 7.2 1.2
Provision (benefit) for income taxes (iv)............. (1.9) 3.6 1.7
------ -------- --------
Net income (loss)..................................... $ (4.1) $ 3.6 $ (0.5)
====== ======== ========
Other Financial Data:
EBITDA.............................................. $ (2.4) $ 32.3 $ 29.9
Net cash provided by operating activities........... (11.5) 63.7 --
Net cash used for investing activities.............. 0.1 (256.6) --
Net cash provided by financing activities........... 11.9 197.5 --
</TABLE>
(i) Presents consolidated financial data of the Predecessor for the periods
prior to the Company's acquisition of substantially all of the assets
and certain liabilities of the Predecessor, effective February 28,
1994. Consolidated financial data of the Predecessor have been derived
from the Predecessor's consolidated financial statements, which have
been audited by the Predecessor's accountants. The Commission, in Staff
Accounting Bulletin Number 55 (SAB 55), requires that historical
financial statements of a subsidiary, division or lesser business
component of another entity include certain expenses incurred by the
parent on its behalf. These expenses include officer and employee
salaries; rent; depreciation; advertising; accounting and legal
services; other selling, general and administrative expenses; and other
such expenses. The financial statements of the Predecessor include such
adjustments, estimates or allocations as the management of the
Predecessor's parent company believed necessary to reflect these
expenses. Because of such items, certain aspects of the consolidated
results of operations for periods prior to the period beginning
February 28, 1994 are not comparable with those for subsequent periods.
(ii) Presents combined results of operations of the Predecessor for the two
months ended February 28, 1994 and of the Company for ten months ended
December 31, 1994. The combined operations data does not purport to
represent what the Company's consolidated results of operations would
have been if the acquisition had actually occurred on January 1, 1994.
(iii) The Predecessor received a charge from its parent company in the form
of interest expense for the portion of the parent company investment
that, for internal reporting purposes, represented debt. For the two
months ended February 28, 1994, approximately 40% of the average
parent company investment was considered to be debt for internal
reporting purposes. The effective annual interest rates for all
periods was approximately 10%. This method of reporting interest
expense for internal reporting purposes is not necessarily indicative
of interest expense that would have been incurred had the Predecessor
operated as a separate stand-alone entity.
(iv) The Predecessor's results of domestic operations were included in the
consolidated U.S. federal income tax return of Westinghouse. The
income tax expense and other tax-related information in the
Predecessor's consolidated financial statements were calculated as if
the Predecessor had not been eligible to be included in the
consolidated tax returns of Westinghouse (i.e., on a "stand-alone"
basis). The calculation of tax provisions and deferred taxes
necessarily required certain assumptions,
25
<PAGE> 28
allocations and estimates that the Predecessor's management believed
were reasonable to accurately reflect the tax reporting for the
Predecessor as if a stand-alone taxpayer.
(2) Represents a one-time charge primarily related to noncapitalized financing
expenses, professional and legal fees and management compensation costs.
Reference is made to Note 2 to "Prospectus Summary -- Summary Historical
and Pro Forma Financial Data" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Results of
Operations -- 1998 compared to 1997."
(3) Represents costs relating to the sale of accounts receivable pursuant to
the Receivables Facility.
(4) Certain nondeductible recapitalization costs and other permanent
differences significantly exceeded income before income taxes and resulted
in an unusually high provision for income taxes.
(5) Represents a charge, net of taxes, relating to the write-off of unamortized
debt issuance and other costs associated with the early extinguishment of
debt.
(6) For a description of the calculation of basic and diluted earnings per
common share, see Notes 2 and 13 to Consolidated Financial Statements
included elsewhere in this prospectus. For the year ended December 31,
1998, $1.3 million of the interest on convertible debt and common
share equivalents have not been included, since the impact was
anti-dilutive.
(7) EBITDA represents income from operations plus depreciation, amortization
and recapitalization costs. EBITDA is presented since management believes
that such information is considered by certain investors to be an
additional basis for evaluating the Company's ability to pay interest and
repay debt. EBITDA should not be considered an alternative to measures of
operating performance as determined in accordance with generally accepted
accounting principles or as a measure of the Company's operating results
and cash flows or as a measure of the Company's liquidity. Since EBITDA is
not calculated identically by all companies, the presentation herein may
not be comparable to other similarly titled measures of other companies.
(8) Defined as trade accounts receivable plus inventories less accounts
payable.
(9) Excludes $274.2 million of accounts receivable pursuant to the sale in 1998
of such receivables in connection with the Receivables Facility.
(10) Represents redeemable common stock as described in Note 11 to Consolidated
Financial Statements. Under certain limited circumstances, the holders
thereof have the right to require us to repurchase all of the redeemable
shares and the exercisable portion of the options. These repurchase rights
terminate upon consummation of the Offering. The redemption value of the
shares and exercisable portion of the options at December 31, 1996, 1997
and 1998 was approximately $24.5 million, $68.6 million and $130.3 million,
respectively. See "Certain Relationships and Related
Transactions -- Management Stockholders."
26
<PAGE> 29
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the audited
consolidated financial statements and notes thereto included elsewhere in this
prospectus.
GENERAL
WESCO is a leading provider of electrical products and other industrial MRO
supplies and services in North America. WESCO has over 330 branches and five
distribution centers strategically located in 48 states, nine Canadian
provinces, Puerto Rico, Guam, Mexico, the United Kingdom 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.
WESCO's sales can be categorized as stock, direct ship and special orders.
Stock orders are filled directly from existing inventory and generally represent
40% to 50% of total sales. Approximately 35% to 45% of WESCO's total sales are
direct ship sales. Direct ship sales are typically custom-built products, large
orders or products that are too bulky to be easily handled and, as a result, are
shipped directly to the customer from the supplier. Special orders are for
products that are not ordinarily stocked in inventory and are ordered based on a
customer's specific request. Special orders represent the remainder of total
sales. Gross profit margins on stock and special order sales are approximately
50% higher than those on direct ship sales. Although direct ship gross margins
are lower, operating profit margins are often higher, since the product handling
and fulfillment costs associated with direct shipments are much lower.
WESCO continues to emphasize a number of initiatives designed to improve
its working capital performance, primarily in the area of inventory management.
Such initiatives include: coordinating purchasing and inventory investment
activities among groups of branches or "districts;" upgrading the automated
stock replenishment programs used to supply branches from the distribution
centers; negotiating improved inventory return and consignment arrangements with
suppliers; increasing the use of preferred suppliers; and shortening lead times
between order and delivery from suppliers.
WESCO has historically financed its acquisitions, new branch openings,
working capital needs and capital expenditures through internally generated cash
flow and borrowings under its credit facilities. During the initial phase of an
acquisition or new branch opening, WESCO typically incurs expenses related to
installing or converting information systems, training employees and other
initial operating activities. With some acquisitions, WESCO may incur expenses
in connection with the closure of any of its own redundant branches.
Historically, the costs associated with opening new branches, and closing
branches in connection with certain acquisitions, have not been material. WESCO
has accounted for its acquisitions under the purchase method of accounting.
WESCO is the leading consolidator in its industry, having acquired 18
companies since August 1995 representing annual sales of over $1.1 billion.
Management distinguishes sales attributable to core operations separate from
sales of acquired businesses. The distinction between sales from core operations
and from acquired businesses is based on the Company's internal records and on
management estimates where the integration of acquired businesses results in the
closing or consolidation of branches.
27
<PAGE> 30
RECENT DEVELOPMENTS
The recent results of operations and financial position of WESCO were
affected by the following:
Recapitalization. On June 5, 1998, WESCO repurchased and retired all of
its Common Stock, with the exception of certain shares held by members of
management, for an aggregate consideration of approximately $654 million and
repaid approximately $379 million of the then outstanding indebtedness. In
connection with the transaction, WESCO also sold 89% of its Common Stock to an
investor group led by affiliates of Cypress for an aggregate cash consideration
of $318 million, issued $300 million of Senior Subordinated Notes and
approximately $50 million of Senior Discount Notes, borrowed $170 million under
a new credit facility and sold approximately $250 million of accounts receivable
as part of an off-balance sheet securitization transaction. Following the
Recapitalization, management's retained ownership interest amounted to 11% of
the Common Stock.
Acquisitions. During 1998, WESCO completed six acquisitions with total
annual sales exceeding $600 million for an aggregate purchase price of $250
million. The most significant acquisition, Bruckner, a provider of Integrated
Supply procurement services for large industrial companies, was completed in
September 1998. Bruckner had annual sales of approximately $222 million in 1997.
The purchase price paid at closing was $99.1 million, consisting of $72.5
million in cash and a convertible note discounted to a value of $26.6 million.
RESULTS OF OPERATIONS
The following table sets forth the percentage relationship to net sales of
certain items in the Company's Consolidated Statements of Operations for the
periods presented:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1996 1997 1998
----- ----- -----
<S> <C> <C> <C>
Sales, net.................................................. 100.0% 100.0% 100.0%
Gross profit................................................ 17.8 17.9 17.8
Selling, general and administrative expenses................ 14.3 14.3 13.7
Depreciation and amortization............................... 0.5 0.5 0.5
Recapitalization costs...................................... -- -- 1.7
----- ----- -----
Income from operations................................. 3.0 3.1 1.9
Interest expense............................................ 0.8 0.8 1.6
Other expense............................................... -- -- 0.3
----- ----- -----
Income before income taxes............................. 2.2 2.3 --
Income taxes................................................ 0.8 0.9 0.3
----- ----- -----
Net income (loss)...................................... 1.4% 1.4% (0.3)%
===== ===== =====
</TABLE>
1998 Compared to 1997
Net Sales. Sales in 1998 increased $430.6 million, or 16.6%, to $3,025.4
million compared with $2,594.8 million for 1997. Sales from core operations
increased approximately 4% with the balance of the sales increase coming from
eight acquisitions since the beginning of 1997. The mix of direct shipment sales
increased to approximately 42% in 1998 from 39% in 1997 primarily as a result of
the Bruckner acquisition. Substantially all of Bruckner's sales are direct
shipment. Consistent with recent trends, branches with a high volume of sales to
utility customers experienced somewhat higher levels of sales growth. Also, the
Canadian branches recorded sales growth of 4% in 1998 in Canadian currency and
when translated to U.S. dollars, those sales declined 3%.
Gross Profit. Gross profit for the year ended December 31, 1998 increased
$73.7 million to $537.6 million from $463.9 million for 1997. Gross profit
margin declined slightly to 17.8% in 1998 from 17.9% in 1997. This decrease
resulted from a higher proportion of direct ship sales attributable
28
<PAGE> 31
to the Bruckner acquisition. Direct ship gross margins are lower than those of
other sales; however, operating profit margins are often higher, since the
product handling and fulfillment costs associated with direct shipments are much
lower. Excluding the effects of the Bruckner acquisition, the 1998 gross profit
margin increased to 18.1%. The Company believes that this increase in gross
margin is the result of numerous gross margin improvement initiatives.
Selling, General and Administrative Expenses. Selling, general and
administrative ("SG&A") expenses increased $42.5 million, or 11.4%, to $415.0
million. The majority of this increase was associated with companies acquired
during 1998; 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 13.7% compared with 14.3% a year ago,
reflecting cost containment initiatives and the effects of a lower cost
structure associated with the Bruckner acquisition.
Depreciation and Amortization. Depreciation and amortization increased
$3.5 million to $14.8 million primarily reflecting higher amortization of
goodwill from acquisitions.
Recapitalization Costs. During 1998, WESCO completed the Recapitalization
and incurred one-time costs associated with this transaction amounting to $51.8
million. These costs are primarily related to noncapitalized financing expenses,
professional and legal fees and management compensation costs.
Interest and Other Expense. Interest expense totaled $45.1 million, an
increase of $25.0 million over 1997. The increase was primarily due to the
higher levels of borrowings associated with acquisitions and the
Recapitalization. Other expense totaled $10.1 million in 1998 reflecting costs
associated with the accounts receivable securitization.
Income Taxes. Income tax expense totaled $8.5 million in 1998 compared
with $23.8 million in 1997. In 1998 WESCO recorded $51.8 million of costs
associated with the Recapitalization which contributed to income before taxes of
$0.8 million. Certain nondeductible recapitalization costs and other permanent
differences significantly exceeded the $0.8 million of income before taxes and
resulted in an unusually high effective tax rate. The effective tax rate in 1997
was 39.6%.
Net Income (Loss). Net loss and diluted loss per share totaled $7.7
million and $9.93, respectively, for 1998, compared with net income and diluted
earnings per share of $36.2 million and $31.52, respectively, for 1997. The
comparability of the results was primarily affected by the one-time charge of
$51.8 million related to the Recapitalization, the impact of the
nondeductibility of a portion of these costs on taxes and an increase in
interest expense associated with higher debt levels, as a result of the
Recapitalization and acquisitions. Excluding the Recapitalization costs of $51.8
million, net income for 1998 would have been approximately $30.6 million.
1997 Compared to 1996
Net Sales. Sales in 1997 increased $320.2 million, or 14.1%, to $2,594.8
million, compared with $2,274.6 million for 1996. Sales from core operations
increased approximately 7%. Within the U.S., the branches with a high volume of
sales to utility customers experienced a somewhat higher level of sales growth.
In addition to growth from core operations, the remaining sales increase
resulted primarily from the nine companies acquired since the beginning of 1996.
Sales of product from stock rose 21%, as compared to the prior period,
increasing the mix of stock sales three percentage points to 48% of total sales.
This was a result of several ongoing initiatives designed to increase stock
sales, such as the continued emphasis on growing National Accounts sales, and,
to a lesser extent, the impact of acquired company sales, which have tended to
have a higher mix of stock sales. Direct ship sales rose 4% over the prior
period. This sales increase was below that experienced by the Company in other
areas and was primarily due to the slower growth in the non-residential
construction market for commercial and industrial projects, which constitutes
the majority of direct ship sales.
29
<PAGE> 32
Gross Profit. Gross profit in 1997 totaled $463.9 million compared with
$405.0 million in 1996. The increase of $58.9 million, or 14.5%, was primarily
due to higher sales volume in 1997 from both acquisitions and existing
operations. Gross profit margin increased in the comparison to 17.9% from 17.8%.
In 1996, gross profit of approximately $9.3 million was recorded in connection
with a one-time international construction project with a gross profit margin
that was higher than WESCO's usual margins on similar projects due to the
service requirements and risk considerations associated with the order.
Excluding this project, gross profit margins would have been 17.9% and 17.6% in
1997 and 1996, respectively. The increase in gross profit margin was primarily
due to the increase in the mix of higher margin stock sales including sales
associated with acquired companies.
Selling, General and Administrative Expenses. SG&A expenses increased
$46.5 million, or 14.3%, to $372.5 million and was primarily attributable to
companies acquired since the beginning of 1996. As a percent of net sales, SG&A
expenses remained unchanged at 14.3%. Acquisitions with higher SG&A expense
rates were partially offset by cost containment in WESCO's core business, as
well as cost reductions in acquired companies.
Interest and Other Expenses. Interest expense increased by $2.7 million in
1997 to $20.1 million from $17.4 million in the prior year. This increase is
primarily due to the higher levels of borrowings associated with acquisitions,
partially offset by lower interest rates during 1997.
Income Taxes. The effective tax rate was 39.6% for 1997 compared to 36.1%
for 1996. The increase in the effective tax rate was primarily due to the
reduction of a valuation allowance for deferred tax assets in 1995 and 1996,
which had the effect of reducing the income tax rate during those periods. The
Company began its operations as a stand-alone entity in early 1994 with no
history of generating taxable income. Accordingly, a valuation allowance was
established for the net deferred tax assets that were generated during 1994. In
1995 and 1996, as the Company subsequently demonstrated an ability to utilize
such deferred tax assets, the valuation allowance was reduced and had the effect
of reducing the effective tax rate for both 1995 and 1996. Since the valuation
allowance was eliminated during 1996, there was no similar effect on the 1997
tax rate.
Net Income. Net income and diluted earnings per share totaled $36.2
million and $31.52, respectively, for 1997, compared with $32.5 million and
$29.47 in 1996. The earnings increase was primarily due to an increase in gross
profit partially offset by higher operating expenses and a higher effective tax
rate in the comparison.
LIQUIDITY AND CAPITAL RESOURCES
Total assets were $950.5 million at December 31, 1998 and $870.9 million a
year earlier. In addition, stockholders' equity was a deficit of $142.6 million
at December 31, 1998 compared with total stockholders' equity of $184.5 million
at December 31, 1997. The changes in these categories, as well as long-term debt
discussed below, reflect the effects of the sale and repurchase of Common Stock,
debt refinancing and sale of accounts receivable completed in connection with
the Recapitalization.
30
<PAGE> 33
Primarily as a result of the Recapitalization completed in June 1998, WESCO
has increased its debt as set forth below:
<TABLE>
<CAPTION>
DECEMBER 31
----------------
1997 1998
------ ------
(IN MILLIONS)
<S> <C> <C>
Term loans.................................................. $ -- $169.5
Revolving Credit Facility................................... -- 42.4
Old revolving credit facility............................... 226.2 --
Senior subordinated notes (1)............................... -- 289.2
Senior discount notes (2)................................... -- 52.1
Mortgage notes (3).......................................... 65.3 --
Other....................................................... 3.7 42.6
------ ------
295.2 595.8
Less current portion........................................ (1.0) (16.6)
------ ------
$294.2 $579.2
====== ======
</TABLE>
- -------------------------
(1) Net of original issue discount of $0.9 million and purchase discount of $9.9
million.
(2) Net of original issue discount of $33.2 million and purchase discount of
$1.7 million.
(3) Net of original issue discount of $16.6 million.
The term loans and revolving facility borrowings are made pursuant to a
credit agreement (the "Credit Agreement"). The Credit Agreement provides for
three term loan facilities consisting of Tranche A Term Loan, Tranche B Term
Loan and a Delayed Draw Facility, as well as a $100 million Revolving Credit
Facility (the "Revolving Credit Facility"). Tranche A Term Loan provides for
borrowings of $80 million, Tranche B Term Loan provides for borrowings of $90
million and the Delayed Draw Facility provides for borrowings of up to $100
million. Borrowings under the Credit Agreement bear rates of interest equal to
various indices, at WESCO's option, such as an adjusted London inter-bank
offered rate ("LIBOR"), prime rate or the Federal Funds rate, plus a borrowing
margin. The Revolving Credit Facility and the Tranche A Term Loan matures in
2004. The Delayed Draw Term Facility matures in 2005 and the Tranche B Term Loan
matures in 2006. All term loans provide for amortizations of principal payments
prior to maturity.
The Senior Subordinated Notes issued by WESCO Distribution have an
aggregate principal amount of $300 million. The Senior Subordinated Notes bear
interest at 9 1/8%, payable semiannually on June 1 and December 1 of each year.
The notes are due June 1, 2008 and are redeemable at the option of WESCO, in
whole or in part, at any time after June 1, 2003 at certain specified prices.
Prior to June 1, 2001, up to $105 million of the notes may be redeemed at
109.125% in connection with any offering of the Company's equity securities.
The Senior Discount Notes have an aggregate principal amount of $87
million. The notes were issued with an original issue discount of $36.5 million
that is being accreted over the period ending June 1, 2003. Beginning June 1,
2003, interest accrues at 11 1/8% payable semiannually on June 1 and December 1.
Approximately $30.9 million of the notes must be redeemed on June 1, 2003. The
remaining notes are due June 1, 2008 and are redeemable at the option of WESCO,
in whole or in part, at any time after June 1, 2003 at certain specified prices.
Prior to June 1, 2001, the notes may be redeemed in certain specified instances
at 111.125%.
The debt agreements contain various restrictive covenants that, among other
things, impose limitations on (i) dividend payments or certain other restricted
payments or investments; (ii) the incurrence of additional indebtedness and
guarantees or issuance of additional stock; (iii) creation of liens; (iv)
mergers, consolidation or sales of substantially all of WESCO's assets; (v)
certain transactions among affiliates; (vi) payments by certain subsidiaries to
WESCO; and (vii) capital
31
<PAGE> 34
expenditures. In addition, the agreements require WESCO to meet certain
leverage, working capital and interest coverage ratios. See "Description of
Certain Indebtedness."
Aggregate principal repayment requirements for all indebtedness as of
December 31, 1998 are $16.9 million, $40.7 million, $13.1 million, $16.5 million
and $51.4 million in each of the next five years.
An analysis of cash flows for 1998 and 1997 follows:
Operating Activities. For the year ended December 31, 1998, cash provided
by operating activities totaled $276.9 million compared to cash used by
operating activities of $12.0 million for 1997. In connection with the Company's
asset securitization program, cash provided by operations in 1998 included
proceeds of $274.2 million from the sale of accounts receivable. Excluding this
transaction, operating activities provided $2.7 million. On this basis, the
year-to-year variance in operating cash flow was primarily due to a net loss of
$7.7 million, the $16.9 million increase in certain components of net working
capital offset by increases in non-cash costs associated with the
Recapitalization, depreciation, amortization and accretion.
Investing Activities. Net cash used in investing activities was $184.1
million in 1998, compared to $21.5 million in 1997, primarily reflecting an
increase in investments in businesses acquired in the current period. The
Company's capital expenditures for the year ended December 31, 1998 were $10.7
million as compared to $11.6 million for the year ended December 31, 1997. Such
capital expenditures were primarily for computer equipment and software,
telecommunications equipment, branch and distribution center facility
improvements, forklifts and delivery vehicles.
Financing Activities. Cash used for financing activities totaled $92.3
million for year ended December 31, 1998 compared to $41.1 million provided by
financing activities in 1997, primarily reflecting the Recapitalization
completed in June 1998 and borrowings for acquisitions and other general
business purposes.
WESCO's liquidity needs arise from seasonal working capital requirements,
capital expenditures, debt service obligations and acquisitions. In addition,
with the acquisition of Bruckner, WESCO agreed to pay additional contingent
consideration based on a multiple of annual increases in Bruckner's EBITDA
through 2004. Additional contingent payments will not exceed an aggregate of
$130 million, including $30 million which is payable in July, 1999. After the
Offering, at the election of Bruckner, up to 50% of any additional contingent
payment is convertible into Common Stock at its then market value.
In addition to cash generated from operations and amounts available under
the credit facilities, WESCO entered into a receivables facility which provides
liquidity. Pursuant to the Receivables Facility, WESCO through its wholly-owned
special purpose, bankruptcy-remote subsidiary may sell trade accounts
receivables, on a revolving basis up to $300 million. WESCO may, under certain
circumstances, increase the size of the Receivables Facility when the amount of
eligible trade accounts receivables exceeds $300 million. See Note 4 to
Consolidated Financial Statements.
After the Offering. WESCO intends to use the net proceeds of the Offering
to retire all of the outstanding 11 1/8% Senior Discount Notes Due 2008 (of
which $ million will be applied to the principal amount of such notes
and $ will be applied to a prepayment premium), $ to repay all
of the existing indebtedness under the Revolving Credit Facility, and
$ to repay a portion of the Tranche B Term Loan. See "Capitalization"
and "Use of Proceeds." Following the Offering, the Company will have $100
million available under the Revolving Credit Facility, under its current
provisions, for working capital and other corporate purposes and up to $100
million available under the Delayed Draw Term Loan Facility to fund
acquisitions. In addition, the Company intends to seek modifications of its
Credit Agreement to increase the amounts available to borrow on more favorable
terms and conditions. The Company can give no assurance that it will be able to
negotiate acceptable modifications to the Credit Agreement.
32
<PAGE> 35
Management believes that cash generated from operations, together with
amounts available under the Credit Agreement after the Offering and the
Receivables Facility, will be sufficient to meet WESCO's working capital,
capital expenditure and other cash needs, including financing for acquisitions,
in the foreseeable future. There can be no assurance, however, that this will be
the case. Management may consider other options available to them in connection
with future liquidity needs, including the issuance of additional debt and
equity securities. The Company has no outstanding commitments to acquire any
businesses, although it constantly evaluates potential acquisitions.
YEAR 2000
The Year 2000 issue concerns the ability of automated applications to
process date-dependent processes, calculations and information by properly
interpreting the year. The Year 2000 issue may potentially impact the Company's
business-critical computerized applications related to, among others, customer
sales, service and invoicing, purchasing, inventory management, payroll,
financing and financial accounting and reporting. In addition, other non
business-critical systems and services may also be affected. The Company has
assembled an internal project team composed of information systems, operations,
finance and executive personnel to:
- assess the readiness of our systems, vendors and suppliers, third-party
service providers, customers and financial institutions;
- replace or correct through program changes all non-compliant
applications;
- develop remediation action plans for systems that may not be Year 2000
compliant; and
- develop contingency plans in the event systems and services are not
compliant.
The readiness assessment phase of the project is complete and consisted of
a detailed assessment and testing of substantially all internal computer
systems, surveys of significant vendors and suppliers, service providers and
customers. The Company has received, or is seeking, documentation from many
external parties indicating their Year 2000 readiness. Over the past three
years, WESCO has invested approximately $5.5 million in new information systems
to support the growth and diversity of its business. In addition to meeting this
objective, Year 2000 compliance was also achieved in many systems. Systems and
processes critical to our business that remain non-compliant are either being
replaced or corrected through program changes and application upgrades.
As of the date of this prospectus, many of WESCO's systems are Year 2000
compliant, and management expects to have substantially completed the required
remediation efforts by July 1999. The project team is also developing or
enhancing contingency plans to minimize the potential adverse effect the Year
2000 issue could have on WESCO in the event business-critical systems and
processes fail to be compliant. Costs specifically associated with modifying
systems for Year 2000 compliance are expensed as incurred. Through December 31,
1998, such costs totaled approximately $1.1 million. Costs to be incurred in
1999 to address Year 2000 problems are estimated to be $2.3 million. Such costs
do not include normal system upgrades and replacements.
Our expectations of the Year 2000 issue are subject to certain risks and
uncertainties including, among others, our ability to timely identify all
affected business-critical systems, and the readiness of service providers,
vendors and suppliers, our financial institutions, and significant customers. If
we are unsuccessful in correcting business-critical systems and processes
affected by the Year 2000 issue, or if our service providers, vendors and
suppliers, our financial institutions, and significant customers are adversely
affected by the Year 2000 issue, our results of operations or financial
condition could be materially impacted.
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
33
<PAGE> 36
Company's results of operations. However, during 1998 the Company experienced
price reductions on certain of its products, particularly wire and cable. These
price declines did not have a material effect 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. Sales increase during the warmer
months beginning in March and continuing through November. 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, the Company reports sales
and earnings in the first quarter that are generally lower than that of the
remaining quarters.
The following table presents unaudited quarterly operating results for each
of the Company's last eight quarters as well as the percentage of the Company's
sales represented by each item. This information has been prepared by WESCO on a
basis consistent with WESCO's audited financial statements and includes all
adjustments (consisting only of normal recurring adjustments) that management
considers necessary for a fair presentation of the data. These quarterly results
are not necessarily indicative of future results of operations. This information
should be read in conjunction with WESCO's consolidated financial statements and
notes thereto included elsewhere in this prospectus.
<TABLE>
<CAPTION>
QUARTER ENDED
--------------------------------------------------------------------
MARCH 31 JUNE 30(1) SEPTEMBER 30 DECEMBER 31
-------------- -------------- -------------- --------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1997:
Sales, net.................. $576.7 100.0% $659.4 100.0% $680.0 100.0% $678.7 100.0%
Gross profit................ 104.4 18.1 114.7 17.4 120.9 17.8 123.9 18.3
Income from operations...... 14.9 2.6 20.8 3.2 23.4 3.4 21.0 3.1
1998:
Sales, net.................. $693.4 100.0% $748.3 100.0% $777.7 100.0% $806.0 100.0%
Gross profit................ 126.7 18.3 133.3 17.8 137.8 17.7 139.8 17.3
Income (loss) from
operations................ 20.2 2.9 (23.4) (3.1) 28.2 3.6 31.0 3.8
</TABLE>
- -------------------------
(1) Includes a one time charge of $51.8 million related to the Recapitalization
in 1998. See Note 3 to the Consolidated Financial Statements.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In April 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-5, "Reporting on the Costs of Start-Up
Activities." This Statement, which is effective for fiscal years beginning after
December 15, 1998, requires costs incurred to open a new facility, introduce a
new product, commence a new operation or other similar activities to be expensed
as incurred. Management does not expect this Statement will have a material
impact on the results of operations or financial position of WESCO.
In June 1998, The Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." This Statement
is effective in fiscal years beginning after June 15, 1999, 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 operation or financial
position of WESCO.
34
<PAGE> 37
OUR BUSINESS
OVERVIEW
With sales of over $3 billion in 1998, we are a leading provider of
electrical products and other industrial MRO supplies and services in North
America. We are the second largest distributor in the $72 billion U.S.
electrical distribution industry, which has grown at a compounded annual rate of
7% over the last 15 years. We have capitalized on our leadership position in
electrical distribution to become the largest provider of Integrated Supply
services in the United States. Our Integrated Supply solutions and outsourcing
services fulfill all of a customer's industrial MRO procurement needs through a
highly automated, proprietary electronic procurement and inventory replenishment
system. Demand for Integrated Supply services has increased approximately 90%
annually since 1994, and the total U.S. market potential, measured as all
purchases of industrial MRO supplies and services, is estimated to be $250
billion.
We have over 330 branches and five distribution centers strategically
located in 48 states, nine Canadian provinces, Puerto Rico, Guam, Mexico, the
United Kingdom and Singapore. We serve over 130,000 customers worldwide,
offering over 1,000,000 products from over 23,000 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.
We are the leading consolidator in our industry, having acquired 18
companies since August 1995, representing annual sales of over $1.1 billion.
Combining strong internal growth with acquisitions, our sales and EBITDA
increased at a compounded annual growth rate ("CAGR") of over 16% and over 42%,
respectively, since 1994, as shown below:
<TABLE>
<CAPTION>
SALES ($MILLIONS) EBITDA ($MILLIONS)
<S> <C> <C> <C>
94 $1,636.00 94 $ 30.00
95 $1,857.00 95 $ 63.00
96 $2,275.00 96 $ 79.00
97 $2,595.00 97 $ 91.00
98 $3,025.00 98 $123.00
</TABLE>
- -------------------------
For information concerning sales and EBITDA for 1994, see Notes 1 and 7 to
"Selected Historical Consolidated Financial Data."
35
<PAGE> 38
To achieve this substantial growth in sales and profitability, our
management team has realigned operations and successfully implemented strategic
initiatives which:
- significantly expanded our national marketing programs;
- established us as the leader in providing Integrated Supply services;
- organized our operations to focus on key customer markets;
- positioned us as the industry's leading consolidator;
- significantly improved gross margins, reduced operating costs and
increased return on assets;
- utilized proprietary information technology to reduce costs, streamline
operations and better serve customers;
- established new performance-based incentive systems for branch managers
and sales personnel; and
- promoted broad-based employee participation in common stock ownership and
stock option programs.
We generate a significant amount of cash flow and require low capital
investment to maintain our business. This significant cash flow is available to
be used to enhance stockholder value by making acquisitions, reducing debt or
repurchasing Common Stock.
Our customers choose WESCO because of our ability to manage large, complex
multi-site plant maintenance programs and procurement for projects that require
special sourcing, technical advice, logistical support and locally based
service. Our national programs - including Integrated Supply, National Accounts
and Major Projects - meet our customers' growing needs to reduce costs
throughout their supply chain. These needs include value-added procurement
solutions and uniformity of service throughout many locations, a single point of
contact and coordinated pricing and project management. Our national programs
enable customers to reduce material and labor costs, working capital
investments, administration and redundant processes while increasing
reliability, quality, productivity and other efficiencies. Since a customer's
costs of procuring MRO supplies can be over 50% of the cost of the products, the
opportunity for savings is significant.
Our key management personnel are both operators and owners, many of whom
have purchased significant equity positions over the past five years. Prior to
the Offering, over 220 of our executives and managers collectively held over 32%
of our Common Stock on a fully diluted basis. None of our executives and
managers will sell any shares of Common Stock in this Offering. Our stock
ownership and other incentive programs have closely aligned the interests of our
managers with those of our stockholders.
INDUSTRY OVERVIEW
Electrical Distribution
With 1998 sales estimated at $72 billion, the U.S. industry is large and
growing. The industry is also stable with compounded annual growth of 7% since
1982, and it is projected to grow another 7%
36
<PAGE> 39
in 1999. The following chart illustrates the historical growth and relative
stability of the electrical distribution industry:
<TABLE>
<CAPTION>
U.S. ELECTRICAL DISTRIBUTION INDUSTRY SALES ($BILLIONS)
<S> <C>
1982 24.6
1983 26.6
1984 29.5
1985 32.7
1986 34.0
1987 36.1
1988 35.9
1989 39.0
1990 39.6
1991 38.1
1992 39.7
1993 45.6
1994 51.1
1995 56.7
1996 61.4
1997 67.3
1998E 72.9
1999P 77.6
</TABLE>
Source: Electrical Wholesaling Magazine
The U.S. electrical distribution industry is also highly fragmented. In
1997, the latest year for which data is available, the four national
distributors, including WESCO, accounted for less than 15% of estimated total
industry sales.
<TABLE>
<CAPTION>
BALANCE OF TOP 250
4 NATIONAL DISTRIBUTORS 10 MULTI-REGIONAL DISTRIBUTORS FULL-LINE DISTRIBUTORS 4,000+ ALL OTHER DISTRIBUTORS
- ----------------------- ------------------------------ ---------------------- -----------------------------
<S> <C> <C> <C>
14.7% 5.8% 23.9% 55.6%
</TABLE>
Source: Electrical Wholesaling Magazine
The electrical distribution industry serves customers in the industrial,
commercial, construction and utility markets. The distribution channel enables
customers to more efficiently purchase a broad range of products and services
from a single point of contact and eliminates the costs and complexity of
purchasing directly from many manufacturers. As a result, distributors have
approximately doubled their share of total electrical products sold in the U.S.
from 1972 to 1998, with sales by distributors representing approximately 60% of
the U.S. electrical market in 1997. In addition to sourcing electrical products,
many customers also seek logistical and technical services from those
distributors
37
<PAGE> 40
able to package a wide range of products and services. Increasingly, customers
are seeking distributors that provide an even broader and more complex package
of products and services, such as Integrated Supply, as customers outsource
non-core functions and strive to reduce their cost of purchasing, inventory and
supply chain management.
Integrated Supply
Demand for Integrated Supply services is growing rapidly, as more companies
realize they can lower costs by outsourcing their MRO procurement and related
services. The total market for MRO industrial supplies is approximately $250
billion, based on published industry sources. The following chart reflects the
historical and projected annual growth of Integrated Supply services within that
market:
<TABLE>
<CAPTION>
SALES OF INTEGRATED SUPPLY SERVICES IN THE U.S. ($BILLIONS)
<S> <C>
1994 $ 0.7
1995 $ 2.0
1996 $ 3.3
1997 $ 5.0
2000P $11.0
</TABLE>
Source: Frank Lynn & Associates, Inc. 1998 Study
Companies with Integrated Supply capabilities seek to consolidate all of a
customer's MRO procurement requirements into a single automated process.
Features of an Integrated Supply arrangement usually include a combination of
one or more of the following: consolidated billing across multiple locations;
product standardization; SKU reductions; order entry systems simplification;
vendor managed inventory and storeroom management. Integrated Supply services
enable customers to reduce labor costs, working capital investments,
administration and redundant processes while increasing reliability, quality,
productivity and other efficiencies. Since the customers' costs of procuring MRO
supplies can be over 50% of the cost of the products, such improvements can be
significant.
OUR BUSINESS STRATEGY
Our objective is to be the leading provider of electrical products and
other MRO supplies and services to companies in North America and selected
international markets. In achieving this leadership position, our goal is to
grow earnings at a faster rate than sales by focusing on continuous productivity
improvement. Our growth strategy leverages our existing strengths and focuses on
developing new initiatives and programs.
ENHANCE OUR LEADERSHIP POSITION IN ELECTRICAL DISTRIBUTION. We intend to
leverage our extensive market presence and brand equity in the WESCO name to
further our leadership position
38
<PAGE> 41
in electrical distribution. We are the second largest electrical distributor in
the U.S. and, through our value-added products and services, we believe we have
become the industry leader in serving several important and growing markets
including:
- industrial customers with large, complex plant maintenance operations,
some of which require a national multi-site service solution for their
electrical distribution product needs;
- large contractors for major industrial and commercial construction
projects;
- the electric utility industry; and
- manufacturers of factory-built homes, recreational vehicles and other
modular structures.
GROW NATIONAL PROGRAMS. Since 1994, revenue from our National Accounts
program has increased in excess of 20% annually. Through our National Accounts
program, we coordinate electrical MRO procurement and purchasing activities
primarily for large industrial companies across multiple locations. We have well
established relationships with over 300 companies, providing us with a recurring
base of revenue through multi-year agreements. We believe that we can continue
to increase revenue generated through our National Accounts program by:
- increasing sales to existing National Account customers through new
products, more services and additional locations;
- extending established National Account relationships to include
Integrated Supply;
- expanding our customer base by leveraging our existing expertise and
presence within the automotive, petrochemical, pulp and paper and metals
and mining industries; and
- entering new industries such as multi-site retail, financial, commercial
and telecommunications.
In addition, through our Major Projects Group, we plan to intensify our
focus on large projects such as industrial sites, water treatment plants,
airport expansions, healthcare facilities, correctional institutions and new
sports stadiums. We intend to secure new Major Projects contracts through:
- aggressive national marketing of our demonstrated project management
capabilities;
- further development of relationships with leading contractors and
engineering firms;
- close coordination with National Accounts customers on their renovation
and new plant improvement projects; and
- comprehensive materials management services, involving a multi-commodity
Integrated Supply approach to large projects.
EXTEND OUR LEADERSHIP POSITION IN INTEGRATED SUPPLY. We are the largest
provider of Integrated Supply services for MRO goods and services in the United
States. We provide a full complement of outsourcing solutions, focusing on
improving the supply chain management process for our customers' indirect
purchases. Our Integrated Supply programs replace the traditional multi-vendor,
resource-intensive procurement process with a single, outsourced, fully
automated process capable of managing all MRO and related service requirements.
Our solutions range from just-in-time fulfillment to taking over the entire
procurement function. Our customers include some of the largest industrial
companies in the United States. Competitive strengths of our Integrated Supply
business include:
- a proven and profitable business model highly adaptable to the scale of
our customers' operations;
- low operating costs;
- highly automated proprietary information systems; and
- established relationships with a large industrial customer base.
We intend to utilize these competitive strengths to increase our Integrated
Supply sales to both new and existing customers, including our existing National
Account customers.
39
<PAGE> 42
GAIN SHARE IN KEY LOCAL MARKETS. Significant opportunities exist to gain
local market share, since many local markets are highly fragmented. We intend to
increase our market share in key geographic markets through a combination of
increased sales and marketing efforts at existing branches, acquisitions to
expand our product and customer base and new branch openings. Furthermore, we
intend to leverage our existing relationships with preferred suppliers to
increase sales of their products in local markets through various initiatives,
including sales promotions, cooperative marketing efforts, direct participation
by suppliers in National Accounts implementation, dedicated sales forces and
product exclusivity. To promote growth, we have instituted a compensation system
for branch managers based on profit increases and efficient working capital
management at the branch level. Our compensation system encourages our branch
managers to optimize business activities in their local markets, including
managing the sales force, configuring inventories, targeting potential customers
for marketing efforts and tailoring local service options.
ACTIVELY PURSUE STRATEGIC ACQUISITIONS. We are the industry's leading
consolidator, having completed 18 acquisitions since August 1995, which
represent annual sales of over $1.1 billion. We believe that the highly
fragmented nature of the electrical and industrial MRO distribution industry
will provide us with a significant number of acquisition opportunities. We
utilize a disciplined approach toward acquisitions which includes well defined
strategic criteria and established targets for return on investment and earnings
accretion.
EXPAND PRODUCT AND SERVICE OFFERINGS. We intend to build on our
demonstrated ability to introduce new products and services to meet customer
demands and capitalize on market opportunities. For example, we will continue
expanding our presence in the fast-growing data communications market. We have
significantly increased our focus on this market, generating sales of almost
$100 million in 1998, up from $52 million in 1995. By utilizing a dedicated data
communications sales team and training our existing sales force to sell data
communications products, we intend to increase sales to new and existing
customers. In addition, through a recent acquisition, we now have a platform to
sell integrated lighting control and power distribution equipment in a single
package for multi-site specialty retailers, restaurant chains and department
stores. This is a well defined and attractive growth market where our marketing
programs and logistics infrastructure provide measurable benefits for
renovation, new construction and ongoing maintenance activities.
LEVERAGE OUR E-COMMERCE AND INFORMATION SYSTEM CAPABILITIES. We continue
to invest in information technology to lower costs and shorten cycle time in the
supply chain process for our customers and ourselves by:
- conducting business transactions electronically; we routinely process
customer orders, shipping notices, supplier purchase orders, and funds
transfer via EDI transactions with our trading partners; in our
Integrated Supply business, 95% of all transactions are electronic;
- creating tighter linkages to both customers and suppliers through the use
of technological advances, including Internet and CD-ROM catalogs,
bar-coding, and electronic funds transfer;
- providing low cost, highly functional processing of a full-range of our
business operations such as customer service, inventory, logistics
management, accounting and administrative support; and
- analyzing market potential, sales performance and cost of doing business
by branch, customer, product, sales representative and shipment type
enabling us to work with customers to streamline activities and reduce
costs.
CONTINUE TO IMPROVE PROFIT MARGINS. We have more than doubled our EBITDA
margins since 1994 and are committed to seeking continuous improvement in
productivity and profitability. We use
40
<PAGE> 43
innovative and disciplined techniques to manage our business processes, employee
productivity and return on capital. These initiatives include:
- using performance-based, branch level incentive programs to promote
profitable growth;
- employing more disciplined and sophisticated pricing strategies;
- expanding use of information technology to continuously monitor
operations and enhance decision making in order to streamline activities
and reduce costs;
- utilizing activity-based costing to accurately measure profitability by
branch, salesperson and customer;
- improving inventory management among suppliers, branches and regional
distribution centers; and
- improving sales productivity through sales management and training
programs.
LOWER OPERATING COSTS. Through our national scale, use of technology,
quality of our information management capabilities, strategically located
distribution centers and over 100 separate ISO 9002 quality certifications, we
operate with one of the lowest cost structures in our industry. We will utilize
our low cost advantage to continue to offer our customers competitive pricing
while improving our overall profitability. Our low operating costs make it
possible to fund strategic marketing initiatives and also make it difficult for
less efficient competitors to match our combination of pricing and ability to
service a wide range of customers on a profitable basis.
EXPAND OUR INTERNATIONAL OPERATIONS. Our international sales, the majority
of which are in Canada, accounted for 10% of sales in 1998. We believe that
there is significant additional demand for our products and services outside the
U.S. and Canada. Many of our multinational domestic customers are seeking
distribution, Integrated Supply and project management solutions globally. Our
approach to international operations is consistent with our domestic philosophy.
We follow our established customers and will only pursue business that we
believe utilizes and extends our existing capabilities. This strategy of working
through well-developed customer and supplier relationships reduces risks and
provides the opportunity to establish a profitable business. In 1998 we opened
two branch locations in Mexico, which are growing and profitable, and we
recently opened sales offices in London, Scotland and Singapore.
PROMOTE PERFORMANCE-ORIENTED CULTURE. All named executives, as well as
many other managers purchased significant equity positions over the past five
years. These investments represent a significant portion of their personal net
worth. Prior to the Offering, over 220 of our executives and managers
collectively held approximately 32% of our Common Stock on a fully diluted
basis. None of our executives and managers will sell any shares of Common Stock
in the Offering. Our stock ownership programs and other incentive systems have
closely aligned the interests of the managers with those of our stockholders.
Our performance based stock option programs are directly linked to margin
expansion and operating profit growth objectives.
ACQUISITION AND INTEGRATION PROGRAM
Our strategic acquisition program is an important element in our objective
to be the leader in the markets we serve. Our philosophy towards growth includes
a continuous evaluation to determine whether a particular opportunity,
capability, or customer need is best developed internally or purchased through a
strategic acquisition. We believe that the highly fragmented nature of the
electrical distribution industry will continue to provide us with a significant
number of acquisition opportunities. We continue to evaluate potential
acquisitions, including those in the electrical distribution industry, the
Integrated Supply market and other non-electrical distributors that would
complement our customers' overall supply needs. We have completed 18
acquisitions representing total annual sales of over $1.1 billion.
41
<PAGE> 44
WESCO ACQUISITION HISTORY
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
YEAR ACQUISITIONS BRANCH LOCATIONS ANNUAL SALES(1)
- ---- ------------ ---------------- ----------------
<S> <C> <C> <C>
1995...................... 2 2 $ 47
1996...................... 7 67 418
1997...................... 2 9 52
1998...................... 6 21 608
1999 to date.............. 1 3 25
-- --- ------
Total:............... 18 102 $1,150
</TABLE>
---------------------------------
(1) Represents our estimate of annual sales of acquired businesses at
the time of acquisition, based on our review of internal and/or
audited statements of the acquired business.
Our business development department consists of a dedicated team of
professionals who locate, evaluate, and negotiate all aspects of any
acquisition, with particular emphasis on compatibility of management philosophy
and strategic fit. Since 1995 we have considered over 250 potential
acquisitions. We initially evaluate potential acquisitions based on their
ability to:
- better serve our existing customers;
- offer expansion into key growth markets;
- add new product or service capabilities;
- support new National Account customers; and
- strengthen relationships with important manufacturers.
If a potential acquisition meets our strategic objectives, we then perform
a rigorous financial and operational evaluation of the candidate. We adhere
strictly to our acquisition criteria, which include targeted returns on
investment, net income accretion and first year cash flow objectives. Retention
of key management has always been an important element in our transaction
structure.
Upon completing an acquisition, we strive to rapidly integrate the acquired
business into our existing operations. Our focus is to fully understand the
capabilities, strategic opportunities and needs of our new business partners,
shorten the transition period to the extent feasible, maintain the acquired
organization's stability, bolster the organization to better serve the defined
market, adjust incentive programs, assure profitability and closely monitor
sales and customer service. We believe that our disciplined integration process
offers a number of opportunities to improve productivity and customer service,
consolidate purchasing power and reduce operating costs.
PRODUCTS AND SERVICES
PRODUCTS. Our network of branches and distribution centers stock over
215,000 product stock keeping units ("SKUs"). Each branch tailors its inventory
to meet the needs of the customers in its local market, typically stocking
approximately 4,000 to 8,000 SKUs. Our Integrated Supply business allows our
customers to access over 1,000,000 products for direct shipment.
Representative products that we sell include:
- Supplies: Fuses, terminals, connectors, boxes, fittings, tools, lugs,
tape and other MRO supplies
- Distribution Equipment: Circuit breakers, transformers, switchboards,
panelboards and busway
- Lighting: Lamps (light bulbs), fixtures and ballasts
- Wire and Conduit: Wire, cable, metallic and non-metallic conduit
- Control, Automation and Motors: Motor control devices, drives,
programmable logic controllers, pushbuttons and operator interfaces
- Data Communications: Premise wiring, patch panels, terminals, connectors
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<PAGE> 45
We purchase products from a diverse group of over 23,000 suppliers. In
1998, the ten largest suppliers accounted for approximately 38% of our
purchases. The largest of these was Eaton Corporation, through its Cutler-Hammer
division, accounting for approximately 15% of total purchases. No other supplier
accounted for more than 6%.
Our supplier relationships are strategically important to us, providing
access to a wide range of products, technical training and sales and marketing
support. We have preferred supplier agreements with approximately 150 of our
suppliers and purchase approximately 60% of our stock inventory pursuant to
these agreements. Consistent with industry practice, most of our agreements with
suppliers, including both distribution agreements and preferred supplier
agreements, are terminable by either party on no more than 60 days notice. See
"Risk Factors -- Maintenance of Our Product Supply Present Certain Risks."
SERVICES. In conjunction with product sales, we offer customers a wide
range of services and procurement solutions that draw on our product and supply
management expertise and systems capabilities. These services include National
Accounts programs, Integrated Supply programs and Major Project programs. We are
responding aggressively to the needs of our customers, particularly those in
processing and manufacturing industries. To more efficiently manage the MRO
process on behalf of our customers, we offer a range of supply management
services, including:
- outsourcing of the entire MRO purchasing process;
- providing manufacturing process improvements using state-of-the-art
automated solutions;
- implementing inventory optimization programs;
- participating in joint cost savings teams;
- assigning our employees as on-site support personnel;
- recommending energy-efficient product upgrades; and
- offering safety and product training for customer employees.
NATIONAL ACCOUNTS PROGRAMS. The typical National Accounts customer is a
Fortune 500 industrial company, a large utility or other major customer, in each
case with multiple locations. Recently, through rigorous selection processes,
these customers have been seeking to substantially reduce their electrical
supply base -- in some cases from several hundred suppliers to just one -- with
expectations for documented cost reductions, high levels of service and
consistent product and pricing across all locations. Our national platform,
strong branch network and product breadth give us the capacity to offer
multi-site agreements with the scope required by these customers.
Our National Accounts programs provide customers with total supply chain
cost reductions by coordinating purchasing activity for MRO supplies across
multiple locations. We typically are able to demonstrate documented savings of
over 10% within the first year of program launch. Comprehensive implementation
plans establish jointly-managed teams at the local and national level to
prioritize activities, identify key performance measures and track progress
against objectives. We involve our preferred suppliers early in the
implementation process, where they can contribute expertise and product
knowledge to accelerate program implementation and the achievement of cost
savings and process improvements.
INTEGRATED SUPPLY PROGRAMS. Our Integrated Supply programs offer customers
a variety of services to support their objectives for improved supply chain
management. We integrate our personnel, product and distribution expertise,
electronic technologies and service capabilities with the customer's own
internal resources to meet particular service requirements. Each Integrated
Supply program is uniquely configured to deliver a significant reduction in the
number of MRO suppliers, reduce total procurement costs, improve operating
controls and lower administrative expenses. Our solutions range from
just-in-time fulfillment to taking over the entire procurement function for all
indirect purchases. We believe that customers will increasingly seek to utilize
us as an "integrator," responsible for selecting and managing the supply of a
wide range of MRO and OEM products.
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<PAGE> 46
MAJOR PROJECTS. We are one of the industry leaders in serving the complex
needs of large commercial and industrial contractors. We have established a
Major Projects Group, comprised of our most experienced personnel, which focuses
on the top 50 U.S. electrical contractors on a multi-regional basis. These
contractors typically specialize in building industrial sites, water treatment
plants, airport expansions, healthcare facilities, correctional institutions and
new sports stadiums.
MARKETS AND CUSTOMERS
We have a large base of approximately 130,000 customers diversified across
our principal markets. With no customer accounting for more than 3% of 1998
sales, we are not dependent on any single customer.
INDUSTRIAL CUSTOMERS. Sales to industrial customers, which include
numerous manufacturing and process industries, and original equipment
manufacturers ("OEMs") accounted for approximately 40% of our sales in 1998,
while representing approximately 32% of the electrical distribution market in
1997.
MRO products are needed to maintain and upgrade the electrical and
communications networks at all industrial sites. Expenditures are greatest in
the heavy process industries, such as pulp and paper and petrochemical.
Typically, electrical MRO is the first or second ranked product category by
purchase value for total MRO requirements for an industrial site. Other MRO
product categories include, among other things, lubricants; pipe, valves and
fittings; fasteners; and power transmission products. MRO activity has been
difficult and costly for industrial users to manage, as it is characterized by a
fragmented supplier base, a high volume of low dollar transactions, poor usage
and cost information and relatively high inventory levels. For example, it is
not unusual for a customer to inventory as many as 10,000 MRO SKUs. Furthermore,
customers are sensitive to supply reliability, since a lack of critical spares
could cause an entire manufacturing process to shut down.
OEM customers incorporate electrical components and assemblies into their
own products. OEMs typically require a reliable, high volume supply of a narrow
range of electrical items. Customers in this segment are particularly service
and price sensitive due to the volume and the critical nature of the product
used, and they also expect value-added services such as design and technical
support, just-in-time supply and electronic commerce. Long term customer
relationships are common and lead to an efficient supply process and stable,
recurring revenues.
ELECTRICAL CONTRACTORS. Sales to electrical contractors accounted for
approximately 39% of our sales in 1998, while representing approximately 41% of
the electrical distribution market in 1997. These customers range from large
contractors for major industrial and commercial projects, the customer types we
principally serve, to small residential contractors which represent a small
portion of our sales. Electrical products purchased by contractors typically
account for approximately 40% to 50% of the total installed project cost, and,
therefore, accurate cost estimates and competitive material costs are critical
to a contractor's success in obtaining profitable projects. Contractors choose a
distributor on the basis of price, various support services such as design
assistance, bill of material development, project management capabilities,
credit policies and inventory availability.
UTILITIES. Sales to utilities accounted for approximately 15% of our sales
in 1998, while representing approximately 8% of the electrical distribution
market in 1997. This market includes large investor-owned utilities, rural
electric cooperatives and municipal power authorities. We provide our utility
customers with an extensive range of supplies to meet their MRO and capital
projects needs. Integrated Supply arrangements are also important in this market
as cost pressures and deregulation cause utility customers to streamline
procurement practices.
Recent trends in the utility industry favor utility-oriented electrical
distributors like us. The most important trend is the deregulation of utility
power generation, which has forced large utilities to seek better asset
utilization and cost savings in all aspects of their operations, including
purchasing and
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<PAGE> 47
supply management. In focusing on their core business, some have outsourced
supply functions in order to reduce costs and enhance cash flow.
COMMERCIAL, INSTITUTIONAL AND GOVERNMENTAL CUSTOMERS. Sales to CIG
customers accounted for approximately 5% of our sales in 1998, while
representing approximately 13% of the electrical distribution market in 1997.
This fragmented market includes schools, hospitals, property management firms,
retailers and government agencies of all types. Through a recent acquisition, we
now have a platform to sell integrated lighting control and distribution
equipment in a single package for multi-site specialty retailers, restaurant
chains and department stores.
DISTRIBUTION NETWORK
BRANCH NETWORK. We have over 330 branches, of which approximately 275 are
located in the U.S., approximately 50 are located in Canada and the remainder
are located in Puerto Rico, Mexico, Guam, Singapore and the United Kingdom. Over
the last three years we have opened approximately 15 branches per year,
principally to service National Accounts customers. In addition to
consolidations in connection with acquisitions, we occasionally close or
consolidate existing branch locations to improve operating efficiency.
DISTRIBUTION CENTERS. To support our branch network, we have five
distribution centers located near Pittsburgh, Pennsylvania, serving the
Northeast and Midwest U.S.; near Reno, Nevada, serving the Western U.S.; near
Memphis, Tennessee, serving the Southeast and Central U.S.; near Montreal,
Quebec, serving Eastern and Central Canada; and near Vancouver, British
Columbia, serving Western Canada.
Our distribution centers add value for our branches and customers through
the combination of a broad and deep selection of inventory, on-line ordering,
same day shipment and central order handling and fulfillment. Our distribution
center network reduces the lead-time and improves the reliability of our supply
chain, giving us a distinct competitive advantage in customer service.
Additionally, the distribution centers reduce the time and cost of supply chain
activities through automated replenishment and warehouse management systems, and
economies of scale in purchasing, inventory management, administration and
transportation.
SALES ORGANIZATION
GENERAL SALES FORCE. Our general sales force is based at the local
branches and comprises approximately 2,200 of our employees, almost half of whom
are outside sales representatives and the remainder are inside sales personnel.
Outside sales representatives, who have an average of more than eight years of
experience with us, are paid under a compensation structure which is heavily
weighted towards commissions. They are responsible for making direct customer
calls, performing on-site technical support, generating new customer relations
and developing existing territories. The inside sales force is a key point of
contact for responding to routine customer inquiries such as price and
availability requests and for entering and tracking orders.
NATIONAL ACCOUNTS. We believe that we have the largest National Accounts
sales force in the industry, led by an experienced group of sales executives who
negotiate and administer contracts, coordinate branch participation and identify
sales and service opportunities. National Accounts managers' efforts are aligned
by targeted customer industries, including automotive, pulp and paper,
petrochemical, steel, mining and food processing.
DATA COMMUNICATIONS. Sales of data communications products are supported
by a dedicated group of outside and inside sales representatives who focus
primarily on the premise wiring systems market. This team is supported by
additional resources in the purchasing, inventory management, product training,
product management and regional sales areas. We also operate a training facility
where customers and the general sales force can receive industry-recognized
certification in data communications product installation.
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<PAGE> 48
MAJOR PROJECTS. Since 1995 a group of highly experienced sales managers
target, on a national basis, the market for large construction projects with
electrical material valued in excess of $1 million. Our approach distinguishes
us from almost all of our competitors, which typically handle even the largest
construction projects on a local basis. Through the Major Projects Group, we can
meet the needs of contractors for complex construction projects such as new
sports stadiums, industrial sites, water treatment plants, airport expansions,
healthcare facilities and correctional institutions.
E-COMMERCE. We have recently entered into a strategic alliance with
Datastream Systems, Inc. to unite their customer base, the largest in the
maintenance software market, with our nationwide distribution network. The
initiative is part of Datastream's overall electronic commerce effort, called
e-MRO(SM), which enables customers to search, select and purchase from a broad
selection of MRO supplies through the Internet.
INTERNATIONAL OPERATIONS
To serve the Canadian market, we operate a network of approximately 50
branches in nine provinces. Branch operations are supported by two distribution
centers located near Montreal and Vancouver. With sales of approximately US$272
million, Canada represented 9% of our total sales in 1998. The Canadian market
for electrical distribution is considerably smaller than the U.S. market, with
roughly US$2.4 billion in total sales in 1997, according to industry sources.
We are continuing to build our international presence outside of the U.S.
and Canada, principally by following our National Accounts customers and key
suppliers into their high growth markets, thereby limiting start-up risk and
enhancing profit. We sell internationally through domestic export sales offices
located within North America and sales offices in international locations. We
have recently opened offices in Aberdeen, Scotland and London, England to
support our sales efforts in Europe, Africa and the former Soviet Union, and an
office in Singapore to support our sales in Asia. We also recently opened two
branches in the Mexico City area.
MANAGEMENT INFORMATION SYSTEMS
Our corporate information system, WESCOM, provides low cost, highly
functional processing of a full range of our business operations, such as
customer service, inventory and logistics management, accounting and
administrative support. The system has been upgraded with decision support,
executive information system analysis and retrieval capabilities to provide
detailed income statement and balance sheet variance and trend reporting at the
branch level. The system also provides activity-based costing capabilities for
analyzing profitability by customer, sales representative and shipment type.
Sales and margin trends and variances can be analyzed by branch, customer,
product category, supplier or account representative.
The WESCOM system is fully distributed within WESCO, and every branch
(other than EESCO and certain newly acquired branches) utilizes its own computer
system to support local business activities. Telecommunication links through a
central system give each branch access to information on inventory status in our
distribution centers as well as other branches and an increasing number of
on-line suppliers. We are developing an upgraded version of the WESCOM system to
be released in 1999. This new version, WESNET, will link all branch operations
through an intranet technology. EESCO operates its own system which is linked to
our central system. We intend to integrate EESCO into the WESNET system over the
next 12 months which is expected to reduce costs associated with operating dual
systems.
We routinely process customer orders, shipping notices, suppliers purchase
orders, and funds transfer via EDI transactions with our trading partners. Our
electronic commerce strategy calls for tighter linkages to both customers and
suppliers through greater use of technological advances,
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<PAGE> 49
including Internet and CD-ROM catalogs, bar-coding, enhanced EDI and other
innovative improvements.
Our Integrated Supply services are supported by our proprietary procurement
and inventory management systems. These systems provide a fully integrated,
flexible supply chain platform that currently handles over 95% of our Integrated
Supply customers' transactions electronically. Our configuration options for a
customer range from on-line linkages to the customer's business and purchasing
systems, to total replacement of a customer's procurement and inventory
management system for MRO supplies.
COMPETITION
We compete directly with national, regional and local providers of
electrical and other industrial MRO supplies. Competition is primarily focused
on the local service area, and is generally based on product line breadth,
product availability, service capabilities and price. We believe that we have
certain competitive advantages over many of our local competitors, which are not
able to carry the range of products stocked by us, offer our depth of
value-added services or achieve our level of purchasing economies of scale.
Another source of competition is buying groups formed by smaller distributors to
increase purchasing power and provide some cooperative marketing capability.
While increased buying power may improve the competitive position of buying
groups locally, we believe these groups have not been able to compete
effectively with us for National Accounts customers due to the difficulty in
coordinating a diverse ownership group.
EMPLOYEES
As of December 31, 1998, we had approximately 5,450 employees worldwide, of
which approximately 4,700 were located in the U.S. and approximately 750 in
Canada and our other foreign locations. Less than 5% of our employees are
represented by unions. We believe our labor relations are generally good.
PROPERTIES
We have over 330 branches, of which approximately 275 are located in the
U.S., approximately 50 are located in Canada and the remainder are located in
Puerto Rico, Mexico, Guam, Singapore and the United Kingdom. Approximately 30%
of branches are owned facilities, and the remainder are leased.
The following table summarizes our distribution centers:
<TABLE>
<CAPTION>
LOCATION SQUARE FEET LEASED/OWNED
- -------- ----------- ----------------
<S> <C> <C>
Warrendale, PA.................................... 252,700 Owned and Leased
Sparks, NV........................................ 195,800 Leased
Byhalia, MS....................................... 148,000 Owned
Dorval, QE........................................ 97,000 Leased
Burnaby, BC....................................... 34,300 Owned
</TABLE>
We also lease our 60,400 square foot headquarters in Pittsburgh,
Pennsylvania. We do not regard the real property associated with any single
branch location as material to our operations. We believe our facilities are in
good operating condition.
INTELLECTUAL PROPERTY
Our trade and service mark, composed of the words "WESCO the extra effort
people(R)," together with the running man design, is registered in the United
States Patent and Trademark Office, the Canadian Trademark Office and the
Mexican Instituto de la Propriedad Industrial.
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<PAGE> 50
ENVIRONMENTAL MATTERS
We believe that we are in compliance in all material respects with
applicable environmental laws. There are no significant capital expenditures for
environmental control matters either estimated in the current year or expected
in the near future. See "Risk Factors -- Our Operations Are Subject to Certain
Environmental Risks."
LEGAL PROCEEDINGS
We are party to routine litigation incidental to our business. We do not
believe that any legal proceedings to which we are a party or to which any of
our property is subject will have a material adverse effect on our financial
position or results of operations.
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<PAGE> 51
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
Our directors and executive officers and their respective ages and
positions are set forth below.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Roy W. Haley................................. 52 Chairman, President and Chief Executive
Officer
Steven A. Burleson........................... 39 Vice President, Chief Financial Officer and
Treasurer
William M. Goodwin........................... 53 Vice President, Operations
James H. Mehta............................... 43 Vice President, Business Development
James V. Piraino............................. 39 Vice President, Marketing
Robert B. Rosenbaum.......................... 41 Vice President, Operations
Patrick M. Swed.............................. 56 Vice President, Operations
Donald H. Thimjon............................ 55 Vice President, Operations
Ronald P. Van, Jr............................ 38 Vice President, Operations
Robert E. Vanderhoff......................... 43 Vice President, Operations and Supplier
Business Development
Jeffrey B. Kramp............................. 39 Corporate Secretary and General Counsel
James L. Singleton........................... 43 Director
James A. Stern............................... 48 Director
Anthony D. Tutrone........................... 34 Director
Michael J. Cheshire.......................... 50 Director
Robert J. Tarr, Jr........................... 55 Director
Kenneth L. Way............................... 59 Director
</TABLE>
Set forth below is biographical information for our executive officers and
directors listed above.
ROY W. HALEY became Chairman of the Board upon the Recapitalization. Mr.
Haley has been President and Chief Executive Officer and a Director of WESCO
since February 1994. From 1988 to 1993, Mr. Haley was an executive at American
General Corporation, a diversified financial services company, where he served
as Chief Operating Officer and as President and Director. Mr. Haley is also a
director of United Stationers, Inc. and Cambrex Corporation.
STEVEN A. BURLESON joined WESCO in January 1995 as Corporate Controller and
became Vice President and Corporate Controller in 1997. In 1998, Mr. Burleson
became Chief Financial Officer and Treasurer. From 1990 to 1995, Mr. Burleson
was Vice President and Treasurer of The Bon-Ton Stores, Inc.
WILLIAM M. GOODWIN has been Vice President, Operations of WESCO since March
1984. Since 1977, Mr. Goodwin has served as a branch, district and region
manager for WESCO in various locations and also served as Managing Director of
WESCOSA, a former Westinghouse affiliated manufacturing and distribution
business in Saudi Arabia.
JAMES H. MEHTA has been Vice President, Business Development of WESCO since
November 1995. From 1993 to 1995, Mr. Mehta was a principal with Schroder
Ventures, a private equity investment firm based in London, England.
JAMES V. PIRAINO has been Vice President, Marketing since joining WESCO in
August 1996. From 1995 to 1996, Mr. Piraino was a Vice President of AlliedSignal
Corp. From 1989 to 1995, Mr. Piraino occupied marketing and sales management
positions with W.W. Grainger, Inc.
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<PAGE> 52
ROBERT B. ROSENBAUM has been Vice President, Operations of WESCO since
September 1998. Mr. Rosenbaum was the President of Bruckner Supply Company,
Inc., an Integrated Supply company we acquired in September 1998.
PATRICK M. SWED has been Vice President, Operations of WESCO since March
1994. Mr. Swed had been Vice President of Branch Operations for WESCO from 1991
to 1994.
DONALD H. THIMJON has been Vice President, Operations of WESCO since March
1994. Mr. Thimjon served as Vice President, Utility Group for WESCO from 1991 to
1994 and as Regional Manager from 1980 to 1991.
RONALD P. VAN, JR. has been Vice President, Operations of WESCO since
October 1998. Mr. Van was a Vice President and Controller of EESCO, an
electrical distributor we acquired in 1996.
ROBERT E. VANDERHOFF has been Vice President, Operations and Supplier
Business Development since April 1998, and Vice President, Manufactured
Structures Group since March 1994. Mr. Vanderhoff had been Vice President of
WESCO since April 1993.
JEFFREY B. KRAMP has been our Corporate Secretary and General Counsel since
March 1994. From 1987 to February 1994, Mr. Kramp served as Assistant General
Counsel at Westinghouse, with WESCO as his primary legal responsibility during
this time period.
JAMES L. SINGLETON became a Director of WESCO upon the Recapitalization.
Mr. Singleton has been a Vice Chairman of Cypress since its formation in April
1994. Prior to joining Cypress, he was a Managing Director in the Merchant
Banking Group at Lehman Brothers Inc. ("Lehman Brothers"). Mr. Singleton is also
a director of Able Body Corporation, Cinemark USA, Inc., Genesis ElderCare
Corp., L.P. Thebault Company and Williams Scotsman, Inc.
JAMES A. STERN became a Director of WESCO upon the Recapitalization. Mr.
Stern has been Chairman of Cypress since its formation in April 1994. Prior to
joining Cypress, Mr. Stern was a Managing Director with Lehman Brothers, and
served as head of the Merchant Banking Group. During his career at Lehman
Brothers, he also served as head of that firm's Investment Banking, High Yield
and Primary Capital Markets Groups. Mr. Stern is also a director of AMTROL Inc.,
Cinemark USA, Inc., Frank's Nursery & Crafts, Inc., Lear Corporation, Noel
Group, Inc., Genesis ElderCare Corp. and a trustee of Tufts University.
ANTHONY D. TUTRONE became a Director of WESCO upon the Recapitalization.
Mr. Tutrone has been a Managing Director of Cypress since 1998 and has been a
member of Cypress since its formation in April 1994. Prior to joining Cypress,
he was a member of the Merchant Banking Group of Lehman Brothers. Mr. Tutrone is
also a director of AMTROL Inc.
MICHAEL J. CHESHIRE became a Director of WESCO in 1998. Mr. Cheshire is
Chairman and Chief Executive Officer of Gerber Scientific. Prior to joining
Gerber Scientific in 1997, Mr. Cheshire spent 21 years with General Signal
Corporation and was most recently President of their electrical group. Mr.
Cheshire is also a Director of the Connecticut Business and Industry
Association.
ROBERT J. TARR, JR. became a Director of WESCO in 1998. Mr. Tarr worked for
more than 20 years in senior executive roles for Harcourt General, including six
years as President, Chief Executive Officer and Chief Operating Officer of
Harcourt General, Inc. (formerly General Cinema Corporation) and the Neiman
Marcus Group, Inc. Mr. Tarr is also a Director of the John Hancock Mutual Life
Insurance Company, Houghton Mifflin & Co., Hannaford Bros., Inc., and Barneys
Inc.
KENNETH L. WAY became a Director of WESCO in 1998. Mr. Way has been
Chairman and Chief Executive Officer of Lear Corporation since 1988 and has been
affiliated with Lear Corporation and its predecessor companies for 33 years in
engineering, manufacturing, and general management capacities. Mr. Way is also a
Director of Comerica, Inc. and CMS Energy Corporation.
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<PAGE> 53
COMPOSITION OF OUR BOARD AND COMMITTEES
Our Board of Directors (the "Board") has three standing committees: an
Executive Committee, an Audit Committee and a Compensation Committee.
The Executive Committee consists of Messrs. Singleton, Cheshire, Haley and
Stern, with Mr. Singleton serving as Chairman. It is responsible for overseeing
the management of the affairs and business of WESCO and has been delegated
authority to exercise the powers of the Board during intervals between Board
meetings.
The Audit Committee consists of Messrs. Singleton, Tarr and Tutrone, with
Mr. Singleton serving as Chairman. It is responsible for recommending the firm
to be appointed as independent accountants to audit the Company's financial
statements and to perform services related to the audit; reviewing the scope and
results of the audit with the independent accountants; reviewing with the
management and the independent accountants the Company's year end operating
results; considering the adequacy of the internal accounting and control
procedures of the Company; reviewing the non-audit services to be performed by
the independent accountants, if any, and considering the effect of such
performance on the accountants' independence.
The Compensation Committee consists of Messrs. Stern, Singleton, Tutrone
and Way, with Mr. Stern serving as Chairman. It is responsible for the review,
recommendation and approval of compensation arrangements for directors and
executive officers, for the approval of such arrangements for other senior level
employees, and for the administration of certain benefit and compensation plans
and arrangements of the Company.
OUTSIDE DIRECTOR COMPENSATION
Each director of the Company who is not an employee of the Company or any
of its subsidiaries or Cypress is entitled to receive an annual director's fee
of $25,000. Effective January 1, 1999, the Company established the 1999 Deferred
Compensation Plan for Non-Employee Directors under which non-employee directors
can elect to defer 25% or more of the annual director's fee. Amounts deferred
under this arrangement will, on the deferral date, be converted into stock units
(Common Stock equivalents) which will be credited to a bookkeeping account in
the director's name. For purposes of determining the number of stock units to be
credited to a director for a particular year, the average of the high and low
trading prices of the Common Stock on the first trading day in January of that
year will be used. Distribution of deferred stock units will be made in a lump
sum or installments, in the form of shares of Common Stock, in accordance with
the distribution schedule selected by the director at the time the deferral
election is made.
EXECUTIVE COMPENSATION
The information set forth below describes the components of the total
compensation of our Chief Executive Officer and our four other most highly
compensated executive officers, based on 1998 salary and bonuses (the "Named
Executives"). The principal components of these individuals' current cash
compensation are the annual base salary and bonus included in the Summary
Compensation Table. Also described below is other compensation these individuals
can receive under employment agreements and our stock and option programs.
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<PAGE> 54
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
----------------------
AWARDS
ANNUAL ----------------------
COMPENSATION SECURITIES ALL OTHER
-------------------- UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) OPTIONS/SARS(#) ($)(1)(2)(3)
- --------------------------- ---- --------- -------- ---------------------- ------------
<S> <C> <C> <C> <C> <C>
Roy W. Haley, Chairman, President &
CEO............................... 1998 500,000 425,000 1,074,000
1997 466,667 425,000 -- 52,300
James H. Mehta, Vice President,
Business Development.............. 1998 275,000 115,000 564,637
1997 258,339 115,000 -- 13,325
Patrick M. Swed, Vice President,
Operations........................ 1998 200,000 130,000 473,000
1997 200,000 130,000 -- 33,000
James V. Piraino, Vice President,
Marketing......................... 1998 175,840 110,000 374,920
1997 165,000 110,000 -- 14,463
Stanley C. Weiss, Executive Vice
President, Industry Affairs(4).... 1998 300,000 150,000 -- 62,160(5)
1997 300,000 150,000 -- 62,010(5)
</TABLE>
- -------------------------
(1) Includes contributions by us under the WESCO Distribution, Inc. Retirement
Savings Plan in the amounts of (a) $12,800, $7,737, $16,100, $8,562 and
$13,950, for Messrs. Haley, Mehta, Swed, Piraino and Weiss, respectively, in
1998 and (b) $9,550, $7,675, $15,950, $7,543 and $13,700, for Messrs. Haley,
Mehta, Swed, Piraino and Weiss, respectively, in 1997.
(2) Includes contributions by us under the WESCO Distribution, Inc. Deferred
Compensation Plan in the amounts of (a) $61,200, $6,900, $16,900, $10,350
and $31,800, for Messrs. Haley, Mehta, Swed, Piraino and Weiss,
respectively, in 1998 and (b) $42,750, $5,650, $17,050, $6,920 and $31,900,
for Messrs. Haley, Mehta, Swed, Piraino and Weiss, respectively, in 1997.
(3) Includes special retention bonus payment in 1998 in the amounts of
$1,000,000, $550,000, $440,000 and $356,008 for Messrs. Haley, Mehta, Swed
and Piraino, respectively.
(4) Mr. Weiss retired from the Company effective December 31, 1998.
(5) Includes life insurance premiums in the amount of $16,410.
EMPLOYMENT AGREEMENTS
In connection with the Recapitalization, we entered into an employment
agreement with Mr. Haley (the "Haley Agreement") providing for a rolling
employment term of three years. Pursuant to the Haley Agreement, Mr. Haley is
entitled to an annual base salary of $500,000 and an annual incentive bonus
equal to a percentage of his annual base salary ranging from 0% to 200%. The
actual amount of Mr. Haley's annual incentive bonus will be determined based
upon our financial performance as compared to the annual performance objectives
established for the relevant fiscal year. Under the proposed terms of the Haley
Agreement, if Mr. Haley's employment with us is terminated by us without "cause"
(as defined in the Haley Agreement), by Mr. Haley for "good reason" (as so
defined) or as a result of Mr. Haley's death or disability (any such
termination, a "Qualifying Termination"), Mr. Haley (or, in the event of his
death, Mr. Haley's spouse) is entitled to continued payments of his average
annual base salary and his average annual incentive bonus (reduced by any
disability payments, if applicable) for the three-year period, or in the case of
a termination due to Mr. Haley's death or disability, the two-year period,
following such termination,
52
<PAGE> 55
and continued welfare benefit coverage for the two-year period following such
termination. In addition, in the event of any such Qualifying Termination, all
outstanding options held by Mr. Haley will become fully vested. The Haley
Agreement further provides that, in the event of the termination of Mr. Haley's
employment by us without cause or by Mr. Haley for good reason, in either such
case, within the two-year period following a "change in control" of WESCO (as
defined in such agreement) (such termination, a "Qualifying CIC Termination"),
in addition to the termination benefits described above, Mr. Haley is entitled
to receive continued welfare benefit coverage and payments in lieu of additional
contributions to our Retirement Savings Plan and Deferred Compensation Plan for
the three year period following such Qualifying CIC Termination. We have agreed
to provide Mr. Haley with an excise tax gross up with respect to any excise
taxes Mr. Haley may be obligated to pay pursuant to Section 4999 of the United
States Internal Revenue Code of 1986, as amended, on any excess parachute
payments. In addition, following a change in control, Mr. Haley is entitled to a
minimum annual bonus equal to 50% of his base salary and the definition of "good
reason" is modified to include certain additional events. The Haley Agreement
also contains customary covenants regarding nondisclosure of confidential
information and non-competition and non-solicitation restrictions.
In connection with our acquisition of EESCO, we entered into an employment
agreement with Mr. Weiss (the "Weiss Agreement"), pursuant to which we agreed to
employ Mr. Weiss during the period commencing on the date of the acquisition and
ending on December 31, 1998. During the employment term under the Weiss
Agreement, Mr. Weiss was entitled to an annual base salary of $300,000 and an
annual performance-based incentive bonus equal to a percentage of his annual
base salary, not to exceed 75%. The Weiss Agreement also contained customary
covenants regarding nondisclosure of confidential information and
non-competition and non-solicitation restrictions. Mr. Weiss retired from the
Company effective December 31, 1998.
1998 STOCK OPTION PLAN
In connection with the Recapitalization, we established a stock option plan
(the "1998 Stock Option Plan") to provide certain of the Company's executive and
key employees options to purchase shares of Common Stock ("1998 Options"). The
1998 Stock Option Plan is administered by the Compensation Committee, which is
constituted in such a way that, to the extent practicable, awards under the 1998
Stock Option Plan qualify, or will qualify when granted, for exemption under
Rule 16b-3 of the Securities Exchange Act of 1934, as amended, and as
performance-based compensation under Section 162(m) of the Internal Revenue Code
of 1986. The Compensation Committee has the authority to select employees to
whom awards are granted and to set the terms, conditions and provisions of such
awards. In addition, the Compensation Committee is authorized, by majority
action, to prescribe, amend and rescind rules and regulations relating to the
administration of the 1998 Stock Option Plan, to make determinations with
respect to the vesting and exercisability of the Options, and to make all other
determinations necessary or advisable for the administration and interpretation
of the 1998 Stock Option Plan. The 1998 Stock Option Plan provides that the
Board may adjust the number and class of shares available for issuance under the
Plan and the number and class of shares subject to and exercise price of any
outstanding 1998 Options as necessary or appropriate to reflect any Common Stock
dividend, stock split or share combination or any recapitalization, merger,
consolidation, exchange of shares, liquidation or dissolution of the Company.
A total of shares of Common Stock were authorized for issuance under
the 1998 Stock Option Plan.
The exercise price per share of Common Stock to be purchased upon exercise
of the 1998 Options is determined by the Compensation Committee's evaluation of
the fair market value per share of the Common Stock on the date of the grant of
the Option. At the discretion of the Compensation Committee, the exercise price
of any 1998 Plan Options exercised after the Offering
53
<PAGE> 56
may be paid in full or in part in the form of shares of Common Stock already
owned and held for at least six months by the participant, based on the fair
market value of such Common Stock on the date of exercise, as determined by the
Board. As of , 1999, Options to purchase shares of Common Stock
had been granted under the 1998 Stock Option Plan, of which (1) none had been
exercised, (2) with a weighted exercise price of $ per share
remained outstanding, and (3) none were exercisable. We expect to file a
Registration Statement on Form S-8 with respect to the 1998 Stock Option Plan
after the Offering. No additional grants of 1998 Plan Options will be made under
the 1998 Stock Option Plan after the Offering.
Change in Control Provisions
In the event of a "change in control" (as defined in the 1998 Stock Option
Plan), outstanding 1998 Plan Options, whether or not exercisable, will be
cancelled in exchange for a cash payment with respect to each share of Common
Stock subject to such 1998 Plan Options equal to the excess of (1) the value per
share of the Common Stock in the transaction giving rise to the change in
control over (2) the per share exercise price, unless the Compensation Committee
determines in good faith, prior to the change in control, that the outstanding
1998 Plan Options will be honored or assumed by the successor in a manner that
provides the 1998 Stock Option Plan participants with rights at least as
favorable as those prevailing immediately prior to the change in control. The
Offering has not resulted in a "change in control."
Management Stock Option Agreements
Each participant under the 1998 Stock Option Plan is required to enter into
a stock option agreement (a "Management Stock Option Agreement") specifying the
exercise price and duration of the 1998 Plan Options being granted and such
other terms consistent with the 1998 Stock Option Plan as the Compensation
Committee determines. Certain other terms of the Management Stock Option
Agreements are summarized below.
Transferability of Options; Repurchase of Options
The 1998 Stock Option Plan provides that no award granted under the 1998
Stock Option Plan may be disposed of in any way, other than by will or by the
laws of descent and distribution. All 1998 Plan Options granted pursuant to the
1998 Stock Option Plan are exercisable only by the participant to whom such 1998
Plan Options were granted during his or her lifetime. Following the death of a
participant, all rights with respect to 1998 Plan Options that were exercisable
by the participant at the time of his or her death may be exercised by the
participant's beneficiary or estate provided that the deceased participant's
beneficiary agrees in writing to be bound by the provisions of the 1998 Stock
Option Plan and the Management Stock Option Agreement. The Management Stock
Option Agreements also contain certain repurchase rights and obligations of the
Company, which will terminate upon consummation of the Offering.
Exercise of Options
Outstanding 1998 Plan Options granted under the 1998 Stock Option Plan
consist of two parts: a portion which is subject to time-based vesting and a
portion which is subject to performance-based vesting. The time-based 1998 Plan
Options will vest at a rate of 25% on each June 5 beginning in 1999 and ending
in 2002. Performance-based 1998 Plan Options will become fully vested and
exercisable on the earlier of January 1, 2008 or the grantee's sixty-fifth
birthday, but may vest earlier (25% per year from 1998 through 2001), if the
Company meets certain annual performance goals.
Termination of Options
All 1998 Plan Options terminate on the tenth anniversary of the date of
grant, unless terminated earlier as described below. Upon termination of a
participant's employment with the Company, unless otherwise determined by the
Compensation Committee, (1) any unexercisable 1998 Plan Option will
54
<PAGE> 57
terminate and will not be exercisable, and (2) then exercisable 1998 Plan
Options will terminate within certain specified periods depending upon the
circumstances of the termination of employment.
Federal Income Tax Aspects of the 1998 Stock Option Plan
The 1998 Plan Options are non-qualified stock options, i.e., they do not
qualify as "incentive stock options" under Section 422 of the U.S. Internal
Revenue Code. The grant of a 1998 Plan Option has no tax consequences to the
Company or to the participant. Upon exercise of a 1998 Plan Option, however, the
participant will recognize taxable ordinary income equal to the excess of the
fair market value on the date of the exercise of the shares of the Common Stock
acquired over the exercise price of the 1998 Plan Option, and that amount will
be deductible for federal income tax purposes by the Company. The holder of the
option shares will, upon a later disposition of such shares, recognize short
term or long term capital gain or loss, depending on the holding period of the
shares but the Company will not be entitled to an additional tax deduction.
1994 STOCK OPTION PLAN
Under our 1994 Stock Option Plan (the "1994 Stock Option Plan"), the
Compensation Committee, which is responsible for administering the 1994 Stock
Option Plan, may grant to certain executives, officers, and other key employees
options ("1994 Plan Options") to purchase up to an aggregate of shares of
Common Stock (as adjusted for the to one stock dividend declared and paid
prior to the Offering). In connection with the Recapitalization, future
issuances of options under the 1994 Stock Option Plan were terminated and all
options granted under the 1994 Stock Option Plan became fully vested. The
outstanding 1994 Plan Options were granted with an exercise price per share
equal to the fair market value (as defined in the related stock option
agreements described below) per share on the date of grant as determined by the
Compensation Committee.
As of , 1999, 1994 Plan Options to purchase shares of
Common Stock with a weighted average exercise price of $ were exercisable.
Change in Control Provisions
In the event of a change in control (as defined in the 1994 Stock Option
Plan), outstanding 1994 Plan Options will be canceled in exchange for a cash
payment with respect to each share of Common Stock subject to such 1994 Plan
Options equal to the excess of (1) the value per share of the Common Stock in
the transaction giving rise to the change in control over (2) the per share
exercise price, unless the Compensation Committee determines in good faith,
prior to the change in control, that the outstanding 1994 Plan Options will be
honored or assumed by the successor in a manner that provides the Option
participants with rights at least as favorable as those prevailing immediately
prior to the change in control. The Offering will not result in a change in
control.
Termination of Options
All 1994 Plan Options terminate on the tenth anniversary of the date of
grant, unless terminated earlier as described below. Upon termination of a
participant's employment with the Company, unless otherwise determined by the
Compensation Committee, in the case of termination other than for Cause (as
defined in the 1994 Stock Option Plan), then exercisable 1994 Plan Options will
terminate within certain specified periods depending upon the circumstances of
the termination of employment.
Transferability of Options; Repurchase of Options
The 1994 Plan Options will not be transferable or assignable other than by
will or by the laws of descent, and a 1994 Plan Option can be exercised only by
the participant to whom it is granted or by the participant's estate or
designated beneficiary upon such participant's death. Unless the Compensation
Committee otherwise determines, each 1994 Plan Option Agreement provides that
the participant, in respect of shares purchased upon the exercise of any 1994
Plan Option, is entitled to
55
<PAGE> 58
the benefits of, and bound by the obligations in, the Registration and
Participation Agreement, including certain demand and "piggyback" registration
rights thereunder. The 1994 Stock Option Plan also contains certain repurchase
rights and obligations of the Company, which will terminate upon the
consummation of the Offering.
Federal Income Tax Aspects of the 1994 Stock Option Plan
The grant and exercise of 1994 Plan Options will have the same tax
consequences as the grant and exercise of 1998 Plan Options. See "1998 Stock
Option Plan -- Federal Income Tax Aspects."
STOCK OPTION PLAN FOR BRANCH EMPLOYEES
A total of shares of Common Stock may be issued under our Stock
Option Plan for Branch Employees (the "Branch Option Plan"). The Compensation
Committee, which is responsible for administering the Branch Option Plan, may
grant to our branch managers and other key employees employed at a branch or
contributing significantly to growth and profitability of a branch options to
purchase shares of Common Stock (the "Branch Options"). Options that are
canceled, terminated or forfeited without exercise will again be available for
grant. The Board may at any time amend or terminate the Branch Option Plan, but
may not adversely affect the rights of any participant with respect to Branch
Options granted prior to such action, unless the participant consents. As of
, 1999, options had been granted, of which (1) Branch
Options had been cancelled without exercise, (2) Branch Options granted
with a weighted average exercise price of $ per share were outstanding,
and (3) Branch Options with an exercise price of $ were exercisable.
After giving effect to the foregoing, Branch Options remained available
for grant under the Branch Option Plan. The outstanding Branch Options were
granted with an exercise price per share determined by the Board to represent
the estimated fair market value (as defined in the related stock option
agreements described below) per share on the date of grant. At the discretion of
the Compensation Committee, the exercise price of any Branch Option exercised
after the Offering may be paid in full or in part in the form of shares of
Common Stock already owned and held for at least six months by the participant,
based on the fair market value of such Common Stock on the date of exercise, as
determined by the Board. None of the Named Executives currently participate in
the Branch Option Plan.
Options are granted to participants as soon as practicable following the
end of each performance period under the Branch Option Plan. The first such
performance period commenced on February 28, 1994 and ended on December 31,
1996, and the second such performance period commenced on January 1, 1997 and is
scheduled to end on December 31, 1999. Branch Options are allocated to branch or
division employees by the Compensation Committee based primarily on the
achievement of branch or division performance objectives during each performance
period.
Under the terms of the Recapitalization Agreement, the Compensation
Committee adopted a resolution causing 100% of all Branch Options to be rolled
over and remain outstanding without any acceleration of the vesting schedule. We
expect to file a Registration Statement on Form S-8 with respect to the Branch
Option Plan after the Offering. No additional grants of Branch Options will be
made under the Branch Option Plan after the Offering.
Change in Control Provisions
In the event of a change in control (as defined in the Branch Option Plan),
outstanding Branch Options, whether or not exercisable, will be canceled in
exchange for a cash payment with respect to each share of Common Stock subject
to such Branch Options equal to the excess of (1) the value per share of the
Common Stock in the transaction giving rise to the change in control over (2)
the per share exercise price, unless the Compensation Committee determines in
good faith, prior to the change in control, that the outstanding Branch Options
will be honored or assumed by the successor
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<PAGE> 59
in a manner that provides the participants with rights at least as favorable as
those prevailing immediately prior to the change in control. The Offering will
not result in a change in control.
Branch Option Agreements
Each participant is required to enter into a stock option agreement (a
"Branch Option Agreement") specifying the exercise price and duration of the
Branch Options being granted and such other terms consistent with the Branch
Option Plan as the Compensation Committee determines. Certain other terms of the
Branch Option Agreement are summarized below.
Exercise of Branch Options; Exercise Price
Except as otherwise determined by the Compensation Committee or in
connection with a change in control, Branch Options become exercisable in
one-third installments on each of the first, third, and fifth anniversaries of
the date of grant. Upon exercise of a Branch Option, the participant is required
to enter into a stock subscription agreement. The per share exercise price of
any Branch Option may not be less than the greatest of (1) the fair market value
(as defined in the Branch Option Plan) per share of Common Stock as of the end
of the related performance period, (2) such fair market value as of the date of
grant, and (3) $100.
Termination of Branch Options
All Branch Options terminate on the tenth anniversary of the date of grant,
unless terminated earlier as described below. Upon termination of a
participant's employment with the Company, unless otherwise determined by the
Compensation Committee, (1) any unexercisable Branch Options held by such
participant will terminate and will not be exercisable, (2) in the case of
termination other than for Cause (as defined in the Branch Option Plan), then
exercisable Branch Options will terminate within certain specified periods
depending upon the circumstances of the termination of employment, and (3) in
the case of termination for Cause (as defined in Branch Option Plan), all Branch
Options held by such participant, whether or not then exercisable, will
terminate immediately.
Transferability of Branch Options; Repurchase of Branch Options
The Branch Options will not be transferable or assignable other than by
will or by the laws of descent, and a Branch Option can be exercised only by the
participant to whom it is granted or by the participant's estate or designated
beneficiary upon such participant's death. Unless the Compensation Committee
otherwise determines, each Branch Option Agreement provides that the Branch Plan
participant, in respect of shares purchased upon the exercise of any Branch
Option, is entitled to the benefits of, and bound by the obligations in, the
Registration and Participation Agreement, including certain demand and
"piggyback" registration rights thereunder. The Branch Option Agreements also
contain certain repurchase rights and obligations of the Company, which will
terminate upon the consummation of the Offering.
Federal Income Tax Aspects of the Branch Options
The grant and exercise of Branch Options will have the same federal income
tax consequences as the grant and exercise of the 1998 Options. See "1998 Stock
Option Plan -- Federal Income Tax Aspects."
LONG-TERM INCENTIVE PLAN
In , 1999 we established the 1999 Long-Term Incentive Plan (the
"LTIP") to assist us in attracting and retaining key employees and to act as an
incentive for such employees to achieve corporate objectives. The LTIP provides
for awards of up to 120,000 shares (without adjusting for the stock split
effected in the form of the stock dividend to be declared and paid prior to the
Offering) of Common Stock that may be granted in the form of stock options,
accelerated ownership options, restricted stock awards and performance awards.
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<PAGE> 60
The LTIP is administered by the Compensation Committee of the Board of
Directors. Employees of the Company or any subsidiary who meet eligibility
requirements as determined by the Compensation Committee will be eligible to
participate in the LTIP. The terms and conditions of all awards made pursuant to
the LTIP are determined by the Compensation Committee. Under this program,
designated employees will receive awards based on the attainment of performance
goals or other such criteria as the Compensation Committee may determine. The
performance targets, if designated, may include specified levels of sales
performance, EBITDA, operating margin, earnings per share, return on investment
and/or return on stockholders' equity. No participant can receive awards under
the LTIP in any calendar year for more than shares of Common Stock. In
the event of a change in control (as defined in the LTIP), stock options
immediately become exercisable, the restrictions on all restricted shares lapse
and all performance awards immediately become payable. The shares to be offered
under the LTIP will be either authorized and unissued shares or issued shares
which have been reacquired by the Company.
The Compensation Committee initially intends to establish two option grant
programs under the LTIP: a "Management Incentive Program" for key management and
an "Employee Performance Program." Under these programs, designated employees
will receive option grants subject to attainment of performance goals and such
other criteria as the Compensation Committee may determine.
OPTION GRANTS
The following table sets forth as to persons named in the Summary
Compensation Table additional information with respect to stock options granted
during 1998:
<TABLE>
<CAPTION>
% OF
TOTAL
OPTIONS POTENTIAL REALIZABLE VALUE AT
NUMBER OF GRANTED ASSUMED RATES OF STOCK
SECURITIES TO PRICE APPRECIATION FOR OPTION
UNDERLYING EMPLOYEES TERM(2)
OPTIONS IN FISCAL EXERCISE EXPIRATION ------------------------------
NAME GRANTED(1) YEAR PRICE ($/SH) DATE 5% 10%
---- ---------- ---------- ------------ ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Roy W. Haley................. 15,000 20.8% 621.08 8/6/2008
James H. Mehta............... 3,300 4.6 621.08 8/6/2008
Patrick M. Swed.............. 3,300 4.6 621.08 8/6/2008
James V. Piraino............. 2,200 3.1 621.08 8/6/2008
Stanley C. Weiss............. -- -- -- -- -- --
</TABLE>
- -------------------------
(1) A portion of these options will vest on the basis of time ratably over four
years and the remainder will vest in full on January 1, 2008, or if earlier,
on the grantee's 65th birthday or the attainment of pre-established
performance goals.
(2) Amounts represent hypothetical gains that could be achieved for the
respective options if exercised at the end of the option term. These gains
are based on assumed rates of stock price appreciation of 5% and 10%
compounded annually from the date the respective options were granted to
their expiration date based upon an assumed initial public offering price of
$ per share. These assumptions are not intended to forecast future
appreciation of our stock price. The potential realizable value computation
does not take into account federal or state income tax consequences of
option exercises or sales of appreciated stock.
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<PAGE> 61
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
The following table sets forth information for each Named Executive with
regard to the aggregate stock options held at December 31, 1998. No stock
options were exercised by any of the Named Executives during 1998.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS AT FY-END(#) AT FY-END($)(1)
NAME (EXERCISABLE/UNEXERCISABLE) (EXERCISABLE/UNEXERCISABLE)
- ---- --------------------------- ---------------------------
<S> <C> <C>
Roy W. Haley................................ 22,280/15,000 /
James H. Mehta.............................. 8,570/3,300 /
Patrick M. Swed............................. 5,710/3,300 /
James V. Piraino............................ 1,430/2,200 /
Stanley C. Weiss............................ --/-- /
</TABLE>
- -------------------------
(1) Based on the Offering price of $ per share of Common Stock.
The foregoing options were issued under our existing stock option plan. In
connection with the Recapitalization, the Board caused all unvested options
(including those held by the Named Executives) under this plan to vest (and
become exercisable) upon the closing of the Recapitalization.
RETENTION BONUS PAYMENT
We paid an aggregate amount of approximately $11 million to a group of
approximately 45 managers (including the Named Executives) upon the closing of
the Recapitalization. With respect to each of these managers, payment was equal
to approximately one to two times base salary. Immediately prior to the closing
of the Recapitalization, Clayton, Dubilier & Rice ("CD&R"), which was the
majority shareholder of the Company prior to the Recapitalization, made an
equity contribution to the Company equal to approximately one-half of this
aggregate amount.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During 1998 prior to the Recapitalization, a former outside director and
three former directors affiliated with CD&R served on the Compensation
Committee. We had agreed to indemnify certain former members of the Board
affiliated with CD&R and such CD&R affiliates against liabilities incurred under
securities laws or with respect to their previous services for us.
At December 31, 1998, three directors affiliated with Cypress served on the
Compensation Committee.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
AMENDED AND RESTATED REGISTRATION AND PARTICIPATION AGREEMENT
In connection with the Recapitalization, an investor group led by Cypress
which included, among others, Chase Capital Partners and Co-Investment Partners,
L.P. (the "Investor Group"), CD&R, Westinghouse and WESCO entered into an
Amended and Restated Registration and Participation Agreement (the "Registration
and Participation Agreement"), which amended and restated the previous agreement
among CD&R, Westinghouse and WESCO, to reflect, among other things, the
succession of the Investor Group to CD&R's and Westinghouse's rights and
obligations thereunder. Pursuant to the Registration and Participation
Agreement, the Investor Group and the Management Stockholders (as defined) have
the right, under certain circumstances and subject to certain conditions, to
request that we register under the Securities Act shares of Common Stock held by
them. Subject to certain conditions and exceptions, the Investor Group and the
Management
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<PAGE> 62
Stockholders also have the right to require that shares of Common Stock held by
them be included in any registration under the Securities Act commenced by us.
Neither the Investor Group nor any of the Management Stockholders have requested
that shares of Common Stock held by them be included in this Offering. The
Registration and Participation Agreement provides that we will pay all expenses
in connection with the first three registrations requested by the Investor Group
and the Management Stockholders. The Registration and Participation Agreement
also provides that we will indemnify the Investors and the Management
Stockholders and their affiliates for certain liabilities they may incur under
the securities laws.
The Registration and Participation Agreement also contains certain
restrictions which prohibit the sale of Common Stock by Cypress unless Cypress
provides each holder of Common Stock entitled to the benefits of the
Registration and Participation Agreement (including the other members of the
Investor Group and the Management Stockholders) with a 30-day prior notice
pursuant to which such holders may agree to participate in such sale on a pro
rata basis with Cypress. The Registration and Participation Agreement provides
that, if Cypress sells all of its shares of Common Stock to a third party,
Cypress may require such other holders of Common Stock to sell all of their
shares to such third party pursuant to such sale at the same price and on the
same terms as Cypress. In addition, the Registration and Participation Agreement
provides that if prior to any public equity offering by us, we issue additional
shares of Common Stock to Cypress (subject to certain exceptions), we will offer
to all holders of registrable securities that are "accredited investors" the
right to purchase a pro rata share of the newly-issued shares (based on each
holder's equity interest in us) at the same price and on the same terms as
Cypress.
In addition, the Registration and Participation Agreement provides that so
long as Cypress owns any of our securities, Cypress shall have the right to
designate one director to our board of directors and the board of directors of
WESCO Canada.
MANAGEMENT STOCKHOLDERS
Each member of management who holds Common Stock (a "Management
Stockholder") is a party to a stock subscription agreement with us which
provides that each Management Stockholder is entitled to certain benefits of,
and bound by certain obligations in, the Registration and Participation
Agreement, including certain registration rights thereunder. These stock
subscription agreements also provide the Management Stockholder with the right
under certain limited circumstances to require us to purchase all of the
Management Stockholder's shares of Common Stock at the then fair market value
based upon certain events. Pursuant to the stock option agreements governing
each Management Stockholder's stock options, such Management Stockholder also
has the right under certain limited circumstances to require us to purchase all
of such Management Stockholder's options at the then fair market value of the
Common Stock minus the exercise price upon such events. At December 31, 1998,
the redemption value of the shares and exercisable portion of the options was
$130.3 million. See Note 11 to Consolidated Financial Statements. These
repurchase rights will terminate upon the consummation of this Offering. In
addition, such stock subscription agreements and stock option agreements provide
that such rights are subject to, and limited by, any restrictions contained in
the Credit Facilities, the Indentures or other debt instruments on our ability
to redeem or repurchase equity held by Management Stockholders.
A portion of the purchase price paid for the Common Stock purchased by
certain Management Stockholders has been financed by full-recourse bank loans
guaranteed by us. As of December 31, 1998, Messrs. Burleson, Goodwin, Haley,
Kramp, Mehta, Piraino, Swed, Thimjon, Van and Vanderhoff had outstanding loans
guaranteed by us in the amount of $0, $260,572, $3,054,872, $68,700, $1,487,903,
$266,634, $343,200, $0, $49,686 and $282,832, respectively and since January 1,
1997, the largest amounts outstanding under such loans were $68,800, $260,572,
$3,054,872, $68,800, $1,487,903, $266,634, $587,959, $167,262, $49,686 and
$282,832, respectively.
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<PAGE> 63
PAYMENTS IN CONNECTION WITH THE RECAPITALIZATION
In connection with the Recapitalization, Cypress received a transaction fee
of approximately $9.5 million from us and was reimbursed for all out-of-pocket
expenses. We have also agreed to indemnify Cypress to the fullest extent
allowable under applicable Delaware law and against any suits, claims, damages
or expenses which may be made against or incurred by Cypress under applicable
securities laws, including in connection with the Offering.
Approximately $517.5 and $62.1 million of the equity consideration paid in
connection with the Recapitalization was paid to CD&R and Westinghouse,
respectively, to purchase their shares of Common Stock. In addition,
approximately $52.1 million of the equity consideration was paid to purchase
100,000 shares held by Westinghouse upon exercise of an option granted at the
date of formation with an exercise price of $100 per share. Westinghouse also
held approximately $66.6 million of our formerly existing indebtedness which was
repaid in connection with the Recapitalization. See "Management's Discussion and
Analysis of Financial Conditions and Results of Operations -- Recent
Developments" and Notes 3 and 16 to Consolidated Financial Statements.
OTHER TRANSACTIONS
Prior to the Recapitalization, Westinghouse and CD&R were considered to be
related parties. In 1998, we purchased $2.8 million from, and sold $7.3 million
worth of products to, Westinghouse. See Note 16 to Consolidated Financial
Statements. We paid an affiliate of CD&R fees of approximately $0.1 million for
advisory, management consulting and monitoring services rendered during 1998.
61
<PAGE> 64
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information known to us with respect
to the beneficial ownership of Common Stock as of , 1999 and as
adjusted to reflect the Company's sale of the Common Stock in the Offering by
(i) each person known by us to beneficially own more than five percent of our
outstanding Common Stock, (ii) each of our directors, (iii) each executive
officer named in the Summary Compensation Table, and (iv) all of our directors
and officers as a group. Unless otherwise indicated, the person or persons named
have sole voting and investment power.
<TABLE>
<CAPTION>
Percent Owned
Beneficially(1)
NUMBER OF -------------------
Shares Owned Prior to After
NAME Beneficially(1) Offering Offering
- ---- ------------------------- -------- --------
<S> <C> <C> <C>
Cypress Merchant Banking Partners L.P.(2)
c/o The Cypress Group L.L.C
65 East 55th Street
New York, New York 10222........................ 53.4%
Cypress Offshore Partners L.P.(2)
Bank of Bermuda (Cayman) Limited
P.O. Box 513 G.T Third Floor
British America Tower
George Town, Grand Cayman
Cayman Islands, B.W.I........................... 2.8%
Chase Equity Associates, L.P.(3)
c/o Chase Capital Partners, L.P.
380 Madison Avenue, 12th Floor
New York, New York 10017........................ 13.4%
Co-Investment Partners, L.P.
c/o CIP Partners, LLC
660 Madison Avenue
New York, New York 10021........................ 13.4%
Roy W. Haley...................................... 6.7%
James H. Mehta.................................... 2.7%
James V. Piraino.................................. *
Patrick M. Swed................................... 1.6%
Stanley C. Weiss(4)............................... *
James L. Singleton(2)............................. *
James A. Stern(2)................................. *
Anthony D. Tutrone................................ *
Michael J. Cheshire............................... *
Robert J. Tarr, Jr................................ *
Kenneth L. Way.................................... *
All executive officers and directors as a group
(18) persons.................................... 14.0%
</TABLE>
- -------------------------
* Represents holdings of less than 1%.
(1) In determining the number and percentage of shares beneficially owned by
each person, shares that may be acquired by such person pursuant to options
or convertible stock exercisable or convertible within 60 days of the date
hereof are deemed outstanding for purposes of determining the total number
of outstanding shares for such person and are not deemed outstanding for
such purpose for all other stockholders.
(2) Cypress Merchant Banking Partners L.P. and Cypress Offshore Partners L.P.
are affiliates of Cypress. Messrs. Singleton and Stern are members of
Cypress and may be deemed to share beneficial ownership of the shares of
Common Stock shown as beneficially owned by such Cypress funds. Such
individuals disclaim beneficial ownership of such shares.
(3) These shares constitute shares of non-voting Class B Common Stock which are
convertible at any time into Common Stock at the option of the holder.
(4) Mr. Weiss retired from the Company effective December 31, 1998.
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DESCRIPTION OF CAPITAL STOCK
The following description of our capital stock does not purport to be
complete and is qualified in its entirety by reference to applicable Delaware
law and to the provisions of our Certificate of Incorporation and By-laws, as
amended and restated. Copies of the forms of Certificate of Incorporation and
By-laws, as amended and restated, have been filed as exhibits to the
Registration Statement of which this prospectus forms a part.
At the time of the Offering, the authorized capital stock consists of
120,000,000 shares of Common Stock, par value of $.01 per share, 10,000,000
shares of Class B Common Stock, par value $.01 per share ("Class B Common
Stock") and 20,000,000 shares of Preferred Stock.
COMMON STOCK
VOTING RIGHTS. Each holder of shares of Common Stock is entitled to one
vote per share on all matters to be voted on by stockholders. Holders of Common
Stock are not entitled to cumulative votes in the election of directors.
DIVIDEND RIGHTS. The holders of Common Stock are entitled to dividends and
other distributions if, as and when declared by the Board out of assets legally
available therefor, subject to the rights of any holder of preferred stock,
restrictions set forth in the Company's credit facilities and restrictions, if
any, imposed by other indebtedness outstanding from time to time. See "Dividend
Policy" and "Management's Discussion and Analysis of Financial Conditions and
Results of Operations -- Liquidity and Capital Resources." The holders of Common
Stock and Class B Common Stock are entitled to equivalent per share dividends
and distributions.
OTHER RIGHTS. Upon the liquidation, dissolution or winding up of the
Company, the holders of shares of Common Stock would be entitled to share pro
rata (on an equal basis with the holders of the Class B Common Stock) in the
distribution of all of the Company's assets remaining available for distribution
after satisfaction of all its liabilities and the payment of the liquidation
preference of any outstanding preferred stock. The holders of Common Stock have
no preemptive or other subscription rights to purchase shares of the Company,
nor are they entitled to the benefits of any sinking fund provisions. No share
of Common Stock issued in connection with or outstanding prior to the Offering
is subject to any further call or assessment.
REDEEMABLE COMMON STOCK. Certain employees and key management of WESCO who
hold Common Stock and options may require WESCO to repurchase in the event of
death, disability or termination without cause during the term of employment,
all of their shares and the exercisable portion of the options they hold. This
repurchase right will terminate upon the consummation of the Offering.
CLASS B COMMON STOCK
The Class B Common Stock (nonvoting) is identical to the Common Stock in
all respects except that the holders of Class B Common Stock will have no right
to vote, except as required by law. Shares of Class B Common Stock automatically
convert into the same number of shares of Common Stock upon the sale or transfer
by the holder thereof to a non-affiliate. To the extent permitted by law, each
holder of Class B Common Stock is entitled to convert any or all shares of Class
B Common Stock held into the same number of shares of Common Stock.
PREFERRED STOCK
The Board of Directors has the authority, without further action by the
stockholders, to issue up to 20,000,000 shares of Preferred Stock in one or more
series and to fix the number of shares, designations, voting powers,
preferences, optional and other special rights and the restrictions or
qualifications thereof. The rights, preferences, privileges and powers of each
series of Preferred Stock may differ with respect to dividend rates, amounts
payable on liquidation, voting rights, conversion
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rights, redemption provisions, sinking fund provisions and other matters. The
issuance of shares of Preferred Stock could decrease the amount of earnings and
assets available for distribution to holders of shares of Common Stock and Class
B Common Stock and could adversely affect the rights and powers, including
voting rights, of holders of shares of Common Stock and Class B Common Stock.
The existence of authorized and undesignated shares of Preferred Stock may also
have an adverse effect on the market price of the Common Stock. In addition, the
issuance of any shares of Preferred Stock could have the effect of delaying,
deferring or preventing a change of control of the Company. No shares of
Preferred Stock are outstanding, and the Company has no current intention to
issue any shares of Preferred Stock.
CERTAIN PROVISIONS OF THE AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
The Company's Certificate of Incorporation, as amended and restated,
provides for a classified Board of Directors in which directors are divided into
three classes, each class being elected for a term of three years expiring at
successive yearly intervals. In addition, the Certificate of Incorporation
requires a vote of of the remaining Board of Directors to fill a vacancy on
the Board and does not permit vacancies to be filled by a vote of the
stockholders. The Certificate of Incorporation provides that vacancies filled by
the Board of Directors will be filled for the remainder of the term of the class
in which the vacancy occurs. The Certificate of Incorporation further states
that a decrease in the number of directors will not shorten the term of any
incumbent.
SECTION 203 OF THE DELAWARE GENERAL CORPORATION LAW
We are a Delaware corporation subject to Section 203 of the DGCL ("Section
203"). Section 203 provides in general that a stockholder acquiring more than
15% of the outstanding voting stock of a corporation subject to Section 203 (an
"Interested Stockholder") but less than 85% of such stock may not engage in
certain Business Combinations (as defined in Section 203) with the corporation
for a period of three years subsequent to the date on which the stockholder
became an Interested Stockholder unless (i) prior to such date the corporation's
board of directors approve either the Business Combination or the transaction in
which the stockholder became an Interested Stockholder or (ii) the Business
Combination is approved by the corporation's board of directors and authorized
by a vote of at least 66 2/3% of the outstanding voting stock of the corporation
not owned by the Interested Stockholder. A "Business Combination" includes
mergers, asset sales and other transactions resulting in financial benefit to a
stockholder. Section 203 could prohibit or delay mergers or other takeover or
change of control attempts with respect to the Company and, accordingly, may
discourage attempts that might result in a premium over the market price for the
shares held by stockholders.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Common Stock will be .
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DESCRIPTION OF CERTAIN INDEBTEDNESS
CREDIT FACILITIES
The following is a summary of the material terms of the Credit Agreement
entered into among the Company, WESCO Canada, WESCO Distribution, certain
financial institutions party thereto, Chase, as U.S. administrative agent,
syndication agent and U.S. collateral agent, The Chase Manhattan Bank of Canada,
as Canadian administrative agent and Canadian collateral agent ("Chase Canada"),
and Lehman Commercial Paper Inc. ("Lehman Commercial Paper"), as documentation
agent. The following summary is qualified in its entirety by reference to the
Credit Agreement.
THE FACILITIES. The Credit Agreement provides for (a) three Term Loan
Facilities in an aggregate principal amount of up to $270.0 million (the "Term
Facilities"), consisting of (i) a Tranche A Term Loan Facility (the "Tranche A
Term Facility") providing for term loans ("Tranche A Term Loan") to WESCO
Distribution in an aggregate principal amount of up to $80.0 million, (ii) a
Tranche B Term Loan Facility (the "Tranche B Term Facility") providing for term
loans to WESCO Distribution in an aggregate principal amount of up to $90.0
million (the "Tranche B Term Loan") and (iii) a Delayed Draw Term Loan Facility
(the "Delayed Draw Term Facility") providing for term loans to WESCO
Distribution in an aggregate principal amount of up to $100.0 million and (b) a
Revolving Credit Facility providing for (i) dollar revolving loans in an
aggregate principal amount outstanding at any time not to exceed $50.0 million
and (ii) U.S. dollar and/or Canadian dollar revolving loans in an aggregate
principal amount outstanding at any time not to exceed U.S. $50.0 million (the
"Revolving Facility" and, together with the Term Facilities, the "Credit
Facilities"). An aggregate principal amount not to exceed $25.0 million is
available under the Revolving Facility for acquisitions permitted under the
Credit Agreement.
AVAILABILITY. The full amount of the Tranche A Term Facility and the
Tranche B Term Facility was drawn upon the closing of WESCO Distribution's notes
offering on June 5, 1998 and amounts repaid or prepaid will not be able to be
reborrowed. The Delayed Draw Term Facility is available for two years after June
5, 1998 solely for acquisitions permitted under the Credit Agreement and amounts
repaid or prepaid will not be able to be reborrowed. Amounts under the Revolving
Facility are available on a revolving basis.
INTEREST. Borrowings under the Term Facilities and borrowings in U.S.
dollars under the Revolving Facility bear interest at a rate per annum equal (at
WESCO Distribution's option) to: (a) LIBOR plus a borrowing margin based on
WESCO Distribution's financial performance or (b) a rate equal to the highest of
Chase's published prime rate, a certificate of deposit rate plus 1% and the
Federal Funds effective rate plus 0.5% ("ABR") plus, in each case a borrowing
margin based on WESCO Distribution's financial performance. The borrowing
margins applicable to the Tranche A Term Loan and U.S. dollar borrowings under
the Revolving Facility are initially 2.25% for LIBOR loans and 1.25% for ABR
loans. The borrowing margins applicable to the Tranche B Term Loan and the
Delayed Draw Term Facility will initially be 2.50% for LIBOR loans and 1.50% for
ABR loans. Borrowings in Canadian dollars under the Revolving Facility bear
interest at a rate per annum equal (at WESCO Distribution's option) to: (a) the
higher of Chase Canada's published prime rate and the Canadian Dollar Offered
Rate plus 1% (the "Canadian Prime Rate") plus, in each case, a borrowing margin
based on WESCO Distribution's financial performance or (b) the Canadian banker's
acceptance rate (the "B/A Rate"), plus a borrowing margin based on WESCO
Distribution's financial performance. The borrowing margins applicable to any
Canadian dollar borrowing under the Revolving Facility are initially 2.25% for
B/A Rate loans and 1.25% for Canadian Prime Rate loans. Amounts outstanding
under the Credit Facilities not paid when due will bear interest at a default
rate equal to 2% above the rates otherwise applicable to the loans under the
Credit Agreement.
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FEES. WESCO Distribution has agreed to pay certain fees with respect to
the Credit Agreement, including (i) fees on the unused commitments of the
lenders equal to 0.5% on the undrawn portion of the commitments in respect of
the Revolving Facility and the Delayed Draw Term Facility (subject to a
reduction based on WESCO Distribution's financial performance); (ii) letter of
credit fees on the aggregate face amount of outstanding letters of credit equal
to the then applicable borrowing margin for LIBOR loans under the Revolving
Facility and a negotiated per annum issuing bank fee for the letter of credit
issuing bank; (iii) annual administration fees; and (iv) agent, arrangement and
other similar fees.
SECURITY; GUARANTEES. The obligations of WESCO Distribution under the
Credit Facilities are irrevocably guaranteed, jointly and severally, by the
Company and by each existing and subsequently acquired or organized domestic
subsidiary and, to the extent no adverse tax consequences would result, foreign
subsidiary of the Company other than WESCO Distribution and the Receivables
Subsidiary (the "U.S. Guarantors"). In addition, the obligations of WESCO
Distribution under the Credit Facilities and the related guarantees are secured
by substantially all of the assets of the Company and each other existing and
subsequently acquired or organized domestic subsidiary and, to the extent no
adverse tax consequences would result, foreign subsidiary of the Company other
than the Receivables Subsidiary (collectively, the "U.S. Collateral"), including
but not limited to (i) a first priority pledge of all the capital stock of WESCO
Distribution and of each existing and subsequently acquired or organized
domestic subsidiary and, subject to the foregoing limitation, foreign subsidiary
of the Company and (ii) a perfected first priority security interest in, and
mortgage on, substantially all tangible and intangible assets of WESCO
Distribution and the U.S. Guarantors (including, but not limited to, accounts
receivable, documents, inventory, equipment, intellectual property, investment
property, general intangibles, real property, cash and cash accounts and
proceeds of the foregoing), in each case subject to certain exceptions.
The obligations of WESCO Canada under the Revolving Facility are
irrevocably guaranteed, jointly and severally, by the Company, WESCO
Distribution and by each existing and subsequently acquired or organized
subsidiary of WESCO Canada and any other subsidiary of the Company organized
under the laws of Canada and the U.S. Guarantors. In addition, the obligations
of WESCO Canada under the Revolving Facility and the related guarantees are
secured by (i) the U.S. Collateral and (ii) substantially all of the assets of
WESCO Canada and each existing and subsequently acquired or organized subsidiary
of WESCO Canada and any other subsidiary of the Company organized under the laws
of Canada including but not limited to (A) a first priority pledge of all the
capital stock of WESCO Canada and each existing and subsequently acquired or
organized subsidiary of WESCO Canada and any other subsidiary of the Company
organized under the laws of Canada and (B) a perfected first-priority security
interest in, and mortgage on, substantially all tangible and intangible assets
of WESCO Canada and each existing and subsequently acquired or organized
subsidiary of WESCO Canada and any other subsidiary of the Company organized
under the laws of Canada (including, but not limited to, accounts receivable,
documents, inventory, equipment, intellectual property, investment property,
general intangibles, real property, intercompany notes, cash and proceeds of the
foregoing), in each case subject to certain exceptions.
COMMITMENT REDUCTIONS AND REPAYMENTS. The Revolving Facility will mature
in 2004. The Tranche A Term Loan will mature in 2004 with quarterly amortization
payments during the term of such loan in an annual aggregate principal amount as
follows: 1999, $4.0 million; 2000, $8.0 million; 2001, $12.0 million; 2002,
$16.0 million; 2003, $20.0 million; and 2004, $20.0 million. The Tranche B Term
Loan will mature in 2006, with quarterly amortization payments during the term
of such loan in an annual aggregate principal amount as follows: 1999 through
2004, $500,000; 2005, $34.2 million; and 2006, $52.3 million. The Delayed Draw
Term Facility will mature in 2005, with quarterly amortization payments during
the term of such facility in an annual aggregate principal amount as follows:
2002, $25.0 million; 2003, $25.0 million; 2004, $25.0 million; and 2005, $25.0
million
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(assuming WESCO Distribution borrows the full amount available under the Delayed
Draw Term Facility); provided that on the last day of each fiscal quarter of
WESCO Distribution that loans are outstanding under the Delayed Draw Term
Facility, WESCO Distribution is required to repay 1/4 of 1% of the aggregate
principal amount of such loans, with any such repayment being applied against
the amortization schedule set forth above. No amounts have been borrowed to date
under the Delayed Draw Term Facility.
In addition, the Credit Facilities are subject to mandatory prepayment and
reductions in an amount equal to (a) 100% of the net cash proceeds of certain
equity issuances by the Company, WESCO Distribution, WESCO Canada or any of
their respective subsidiaries, (b) 100% of the net cash proceeds of certain debt
issuances of the Company, WESCO Distribution, WESCO Canada or any of their
respective subsidiaries, (c) 75% of WESCO Distribution's excess cash flow
(subject to a reduction to 50% if WESCO Distribution's long-term senior
unsecured debt receives an investment grade rating from Standard and Poor's
Rating Service or Moody's Investors Service, Inc.) and (d) 100% of the net cash
proceeds of certain asset sales or other dispositions of property by the
Company, WESCO Distribution or any of its subsidiaries, in each case subject to
certain exceptions.
AFFIRMATIVE, NEGATIVE AND FINANCIAL COVENANTS. The Credit Agreement
contains a number of covenants that, among other things, restrict the ability of
the Company, WESCO Distribution, WESCO Canada and their respective subsidiaries
to dispose of assets, incur additional indebtedness, incur or guarantee
obligations, repay other indebtedness or amend other debt instruments, pay
dividends, create liens on assets, make investments, loans or advances, make
acquisitions, engage in mergers or consolidations, change the business conducted
by WESCO Distribution, WESCO Canada and their respective subsidiaries, make
capital expenditures, or engage in certain transactions with affiliates and
otherwise restrict certain corporate activities. In addition, the Credit
Agreement requires us to comply with specified financial ratios and tests,
including a maximum leverage ratio, a minimum working capital test and a minimum
interest coverage ratio. The Credit Agreement also contains provisions that
prohibit any modifications of the Indentures in any manner adverse to the
lenders under the Credit Agreement and that limit the Company's ability to
refinance or otherwise prepay the Notes without the consent of such lenders.
EVENTS OF DEFAULT. The Credit Agreement contains customary events of
default, including non-payment of principal, interest or fees, violation of
covenants, inaccuracy of representations or warranties in any material respect,
cross default to certain other indebtedness, bankruptcy, ERISA events, material
judgments and liabilities, actual or asserted invalidity of any material
security interest and change of control.
RECEIVABLES FACILITY
The following is a summary of the material terms of the Receivables
Facility entered into among WESCO Distribution, WESCO Canada, WESCO Receivables
Corp., a special purpose subsidiary of WESCO Distribution (the "SPC"), Chase as
liquidity bank (the "Liquidity Bank") and funding agent for a multi-seller
asset-backed commercial paper issuer (the "CP Issuer"). The following summary is
qualified in its entirety by reference to the Receivables Sale Agreements and
the Pooling Agreement (each as defined below).
THE RECEIVABLES FACILITY. The Company has established the SPC as a
wholly-owned, special purpose, bankruptcy-remote subsidiary. The SPC purchases
the receivables (the "Receivables") generated by the Company, WESCO Canada and
certain other subsidiaries (the "Receivables Sellers") pursuant to two
receivables sale agreements (collectively, the "Receivables Sale Agreements").
The Receivables Sale Agreements contain customary terms for similar
transactions, including representations and warranties of the Receivables
Sellers as to the Receivables and certain corporate matters, affirmative and
negative covenants and purchase termination events, and will be limited recourse
to the Receivables Sellers for breach of representations, warranties and
covenants.
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The SPC has entered into a pooling agreement, as supplemented (the "Pooling
Agreement") with Chase as trustee (the "Trustee") pursuant to which the SPC
transfers to a trust (the "Trust") all the Receivables, and the CP Issuer, or in
certain circumstances, the Liquidity Bank (together with the CP Issuer, the
"Receivables Purchasers") provides financing to the SPC (which in turn uses such
financing to pay a portion of the purchase price of the Receivables purchased
from the Receivables Sellers) through the purchase of an undivided percentage
ownership interest in the Trust ("Transferred Interests"). If the CP Issuer no
longer wishes to, or is unable to, provide financing, which may occur at any
time, the Liquidity Bank is committed to thereafter be the Purchaser. The
Receivables Facility is supported by a commitment of the Liquidity Bank, subject
to the terms and conditions of the Pooling Agreement, to purchase Transferred
Interests for a period of approximately six years (the "Revolving Period") on a
revolving basis in an amount not to exceed $300 million at any time. The
availability of the Receivables Facility is subject to the Trust holding
Receivables meeting certain eligibility requirements equal to the amount of the
outstanding Transferred Interests and required reserves. Approximately $250
million was initially funded under the Receivables Facility. See Note 4 to
Consolidated Financial Statements for further information concerning funding
under the Receivables Facility.
The Trust, on behalf of the Receivables Purchasers, has a first priority
perfected ownership or security interest in the Receivables, the rights of the
SPC under the Receivables Sale Agreements and cash collections and other
proceeds received in respect of the Receivables.
Pursuant to a servicing agreement entered into by the Receivables Sellers,
the SPC and the Trust, the Receivables Sellers have agreed to service the
Receivables for the Trust; provided, that, upon the occurrence of certain
events, the servicing agreement may be terminated by the Trustee.
COSTS. The effective financing rate under the Receivables Facility will be
the weighted average of the interest rates on all outstanding commercial paper
issued by the CP Issuer to fund its purchase of the Transferred Interests,
except if the Liquidity Bank is the Purchaser, the effective financing rate will
be either (i) adjusted LIBOR plus a margin of up to 2.25% per annum or (ii) ABR
plus a margin of up to 1.25% per annum, at the option of the SPC, plus in each
case the fees described below.
FEES. The SPC has agreed to pay certain fees with respect to the
Receivables Facility, including a commitment fee to the Liquidity Bank,
calculated on the excess of the average aggregate purchase commitment for any
monthly period over the average aggregate Transferred Interests funded by the
Liquidity Banks for such period, a program fee and agent, arrangement and other
similar fees.
FACILITY REDUCTIONS. After the end of the Revolving Period, all
collections in respect of Receivables purchased by the SPC from the Receivables
Sellers will be used to reduce the Transferred Interests of the Receivables
Purchasers in the Receivables. Additionally, at any time, the SPC at its option
may reduce the purchase commitment upon notice to the Receivables Purchasers or
terminate the purchases of Transferred Interests by the Receivables Purchasers.
EARLY TERMINATION EVENTS. The Pooling Agreement contains certain early
amortization events which will cause the termination of, or permit the
Receivables Purchasers to terminate, the Revolving Period and effectively reduce
the amount of financing available under the Receivables Facility to zero. Early
amortization events include nonpayment of amounts when due, violation of
covenants, inaccuracy of representations and warranties in any material respect,
cross-acceleration and certain cross-defaults to certain other indebtedness of
WESCO Distribution (including the Credit Facilities), failure to comply with
specified Receivables performance tests, purchase termination events under the
Receivables Sale Agreements, bankruptcy, material judgments, imposition of PBGC
liens and actual or asserted invalidity of the Receivables Purchasers' ownership
interest in the Receivables. Purchase termination events under the Receivables
Sale Agreements relating to the Receivables Sellers include nonpayment of
amounts when due, violation of covenants, inaccuracy of representations and
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warranties in any material respect, bankruptcy, ERISA events, imposition of PBGC
liens and actual or asserted invalidity of WESCO Distribution's ownership
interest in the Receivables.
REPLACEMENT FACILITY. Although WESCO Distribution received a six-year
commitment, WESCO Distribution intends to replace the Receivables Facility
through a securitization of the Receivables in the capital markets or another
securitization transaction. However, no assurance can be made that such
transaction will be completed or, if completed, whether such transaction may
have materially different terms from the Receivables Facility.
9 1/8% SENIOR SUBORDINATED NOTES DUE 2008
WESCO Distribution has outstanding $300 million in aggregate principal
amount of its Senior Subordinated Notes. The Senior Subordinated Notes are
subject to the terms and conditions of an Indenture (the "Senior Subordinated
Indenture") dated as of June 5, 1998 between WESCO Distribution and Bank One,
N.A., as trustee. The Senior Subordinated Notes are subject to all of the terms
and conditions of the Senior Subordinated Indenture. The following summary of
the material provisions of the Senior Subordinated Notes does not purport to be
complete, and is subject to, and qualified in its entirety by reference to, all
of the provisions of the Senior Subordinated Indenture and those terms made a
part of the Senior Subordinated Indenture and not otherwise defined herein are
used below with the meanings set forth in the Senior Subordinated Indenture.
GENERAL. The Senior Subordinated Notes will mature on June 1, 2008 and
bear interest at 9 1/8% per annum, payable semi-annually on June 1 and December
1 of each year. The Senior Subordinated Notes are general unsecured obligations
of WESCO Distribution and are subordinated in right of payment to all existing
and future senior debt of WESCO Distribution. The Notes are unconditionally
guaranteed, on an unsecured senior subordinated basis, jointly and severally, by
WESCO.
OPTIONAL REDEMPTION. The Senior Subordinated Notes are subject to
redemption at any time, at the option of WESCO Distribution, in whole or in
part, on or after June 1, 2003 at redemption prices (plus accrued and unpaid
interest) starting at 104.563% of principal (plus accrued and unpaid interest)
during the 12-month period beginning June 1, 2003 and declining annually to 100%
of principal (plus accrued and unpaid interest) on June 1, 2006 and thereafter.
In addition, prior to June 1, 2001, WESCO Distribution may redeem up to 35%
of the aggregate principal amount of the Senior Subordinated Notes with the net
proceeds of this Offering or other equity offerings, to the extent such proceeds
are contributed (within 120 days of any such offering) to WESCO Distribution as
common equity, at a price equal to 109.125% of the principal (plus accrued and
unpaid interest) provided that at least 65% of the original aggregate principal
amount of the Senior Subordinated Notes remains outstanding thereafter.
CHANGE OF CONTROL. Upon the occurrence of a Change of Control (as defined
in the Senior Subordinated Indenture), each holder of the Senior Subordinated
Notes may require WESCO Distribution to repurchase all or a portion of such
holder's Senior Subordinated Notes at a purchase price equal to 101% of the
principal amount thereof (plus accrued and unpaid interest). Generally, a Change
of Control means the occurrence of any of the following: (i) the disposition of
all or substantially all of WESCO Distribution's assets to any person, (ii) the
adoption of a plan relating to the liquidation or dissolution of WESCO
Distribution, (iii) the consummation of any transaction in which a person other
than the principals and their related parties becomes the beneficial owner of
more than 50% of the voting stock of WESCO Distribution, or (iv) the first day
on which a majority of the members of the Board of Directors of WESCO
Distribution are not continuing directors.
SUBORDINATION. The Senior Subordinated Notes are general unsecured
obligations of WESCO Distribution and are subordinate to all existing and future
senior debt of WESCO Distribution. The
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Senior Subordinated Notes will rank senior in right of payment to all
subordinated Indebtedness of WESCO Distribution.
CERTAIN COVENANTS. The Senior Subordinated Indenture contains a number of
covenants restricting the operations of WESCO Distribution, which, among other
things, limit the ability of WESCO Distribution to incur additional
indebtedness, pay dividends or make distributions, sell assets, issue subsidiary
stock, restrict distributions from subsidiaries, create certain liens, enter
into certain consolidations or mergers and enter into certain transactions with
affiliates.
EVENTS OF DEFAULT. Events of Default under the Senior Subordinated
Indenture include the following: (i) a default for 30 days in the payment when
due of interest on the Senior Subordinated Notes; (ii) default in payment when
due of the principal of or premium, if any, on the Senior Subordinated Notes;
(iii) failure by WESCO Distribution to comply with certain provisions of the
Senior Subordinated Indenture (subject, in some but not all cases, to notice and
cure periods); (iv) default under indebtedness for money borrowed by WESCO
Distribution in excess of $25 million; (v) failure by WESCO Distribution to pay
final judgments aggregating in excess of $25 million, which judgments are not
paid, discharged or stayed for a period of 60 days; (vi) certain events of
bankruptcy or insolvency with respect to WESCO Distribution.
Upon the occurrence of an Event of Default, with certain exceptions, the
Trustee or the holders of at least 25% in principal amount of the then
outstanding Senior Subordinated Notes may accelerate the maturity of all the
Senior Subordinated Notes as provided in the Senior Subordinated Indenture.
11 1/8% SENIOR DISCOUNT NOTES DUE 2008
WESCO has outstanding $87 million in aggregate principal amount of its
Senior Discount Notes. The Senior Discount Notes are subject to the terms and
conditions of an Indenture (the "Senior Discount Indenture") dated as of June 5,
1998 between WESCO and Bank One, N.A., as trustee. The Senior Discount Notes are
subject to all of the terms and conditions of the Senior Discount Indenture. The
following summary of the material provisions of the Senior Discount Notes does
not purport to be complete, and is subject to, and qualified in its entirety by
reference to, all of the provisions of the Senior Discount Indenture and those
terms made a part of the Senior Discount Indenture and not otherwise defined
herein are used below with the meanings set forth in the Senior Discount
Indenture.
GENERAL. The Senior Discount Notes will mature on June 1, 2008 and were
sold at a discount resulting in a yield to maturity of 11.175% per annum,
payable semi-annually on June 1 and December 1 of each year. The Senior Discount
Notes are general unsecured obligations of WESCO and are subordinated in right
of payment to all existing and future senior debt of WESCO.
OPTIONAL REDEMPTION. The Senior Discount Notes are subject to redemption
at any time, at the option of WESCO, in whole or in part, on or after June 1,
2003 at redemption prices (plus accrued and unpaid interest) starting at
105.563% of principal (plus accrued and unpaid interest) during the 12-month
period beginning June 1, 2003 and declining annually to 100% of principal (plus
accrued and unpaid interest) on June 1, 2006 and thereafter. At any time prior
to June 1, 2001, WESCO may redeem, in whole but not in part, the Senior Discount
Notes with the proceeds of an equity offering at a redemption price equal to
111.125% of the accreted value at the date of redemption.
CHANGE OF CONTROL. Upon the occurrence of a Change of Control, each holder
of the Senior Discount Notes may require WESCO to repurchase all or a portion of
such holder's Senior Discount Notes at a purchase price equal to 101% of the
principal amount thereof (plus accrued and unpaid interest). Generally, a Change
of Control means the occurrence of any of the following: (i) the disposition of
all or substantially all of WESCO's assets to any person, (ii) the adoption of a
plan relating to the liquidation or dissolution of WESCO, (iii) the consummation
of any transaction in
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which a person other than the principals and their related parties becomes the
beneficial owner of more than 50% of the voting stock of WESCO, or (iv) the
first day on which a majority of the members of the Board of Directors of WESCO
are not continuing directors.
SUBORDINATION. The Senior Discount Notes are general unsecured obligations
of WESCO and are subordinate to all existing and future senior debt of WESCO.
The Senior Discount Notes will rank senior in right of payment to all
subordinated Indebtedness of WESCO.
CERTAIN COVENANTS. The Senior Discount Indenture contains a number of
covenants restricting the operations of WESCO, which, among other things, limit
the ability of WESCO to incur additional indebtedness, pay dividends or make
distributions, sell assets, issue subsidiary stock, restrict distributions from
subsidiaries, create certain liens, enter into certain consolidations or mergers
and enter into certain transactions with affiliates.
EVENTS OF DEFAULT. Events of Default under the Senior Discount Indenture
include the following: (i) a default for 30 days in the payment when due of
interest on the Senior Discount Notes; (ii) default in payment when due of the
principal of or premium, if any, on the Senior Discount Notes; (iii) failure by
WESCO to comply with certain provisions of the Senior Discount Indenture
(subject, in some but not all cases, to notice and cure periods); (iv) default
under indebtedness for money borrowed by WESCO or any of its subsidiaries in
excess of $25 million; (v) failure by WESCO or any significant subsidiary to pay
final judgments aggregating in excess of $25 million, which judgments are not
paid, discharged or stayed for a period of 60 days; (vi) certain events of
bankruptcy or insolvency with respect to WESCO.
Upon the occurrence of an Event of Default, with certain exceptions, the
Trustee or the holders of at least 25% in principal amount of the then
outstanding Senior Discount Notes may accelerate the maturity of all the Senior
Discount Notes as provided in the Senior Discount Indenture.
CONVERTIBLE PROMISSORY NOTES
The Company issued four promissory notes to certain sellers in connection
with four acquisitions, including Bruckner, which are convertible in whole or in
part into Common Stock. Three outstanding notes in the aggregate principal
amount of $32 million are automatically convertible into shares of Common Stock
upon the Offering. One note is convertible as to $5 million of its principal
amount, at the election of the payee, into shares of Common Stock upon the
Offering. The number of shares of Common Stock into which each note is
convertible is determined by dividing the unpaid principal amount, or the amount
elected by the payee to be received in the form of shares of Common Stock, as
the case may be, by the Offering price.
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SHARES ELIGIBLE FOR FUTURE SALE
Upon the consummation of this Offering, we will have shares
of Common Stock issued and outstanding, including outstanding shares of Class B
Common Stock which are convertible into Common Stock. All of the
shares of Common Stock to be sold in the Offering (and any shares
sold upon exercise of the underwriters' over-allotment option) will be freely
tradable without restrictions or further registration under the Securities Act,
except for any shares purchased by an "affiliate" of WESCO (as that term is
defined in Rule 144 under the Securities Act ("Rule 144")), which will be
subject to the resale limitations of Rule 144. After the completion of the
Offering, we will have shares of Common Stock outstanding which
are "restricted securities" as that term is defined in Rule 144 and are also
subject to certain restrictions on disposition. Restricted securities may be
sold in the public market only if registered or if they qualify for an exemption
from registration under Rule 144 or Rule 701 under the Securities Act. Sales of
restricted securities in the public market, or the availability of such shares
for sale, could have an adverse effect on the price of the Common Stock. See
"Risk Factors -- The Price of our Common Stock May Fluctuate Significantly" and
"Risk Factors -- A Number of Shares Are or Will be Available for Future Sale."
RULE 144
In general, under Rule 144, as currently in effect, a person (or persons
whose shares are required to be aggregated) who has beneficially owned shares of
common stock for at least one year, including a person who may be deemed an
"affiliate" of WESCO, is entitled to sell, within any three-month period, a
number of shares that does not exceed the greater of 1% of the total number of
shares of the class of stock sold or the average weekly reported trading volume
of the class of stock being sold during the four calendar weeks preceding such
sale. A person who is not deemed an "affiliate" of WESCO at any time during the
three months preceding a sale and who has beneficially owned shares for at least
two years is entitled to sell such shares under Rule 144 without regard to the
volume limitations as described above. As defined in Rule 144, an "affiliate" of
an issuer is a person that directly or indirectly through the use of one or more
intermediaries controls, is controlled by, or is under common control with, such
issuer. The foregoing summary of Rule 144 is not intended to be a complete
description thereof.
, who, after the Offering, will hold in the aggregate
shares of Common Stock, for a period of 180 days after the date
of this prospectus have agreed, pursuant to lock-up agreements, that they will
not, without the prior written consent of Lehman Brothers Inc., offer, sell,
contract to sell or otherwise dispose of any shares of Common Stock or
securities exercisable or exchangeable for common stock or enter into any
derivative transaction with similar effect as a sale of Common Stock. The
restrictions described in this paragraph do not apply to (i) the sale of Common
Stock to the underwriters in this offering, (ii) the issuance by WESCO of shares
of Common Stock upon the exercise of an option or the conversion of a security
outstanding on the date of this prospectus, (iii) transactions by any person
other than WESCO relating to shares of Common Stock or (iv) [other exceptions].
REGISTRATION RIGHTS
Pursuant to the Registration and Participation Agreement, the Investor
Group and the Management Stockholders (as defined) have the right, under certain
circumstances and subject to certain conditions, to request that we register
under the Securities Act shares of our Common Stock held by them. Subject to
certain conditions and exceptions, the Investor Group and the Management
Stockholders also have the right to require that shares of Common Stock held by
them be included in any registration under the Securities Act commenced by us.
No such stockholder has requested to register its shares of Common Stock in the
Offering. The Registration and Participation Agreement provides that we will pay
all expenses in connection with the first three registrations requested by the
Investor Group and the Management Stockholders. The Registration and
Participation Agreement also provides that we will indemnify the Investors and
the Management Stockholders and their affiliates for certain liabilities they
may incur under the securities laws.
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CERTAIN UNITED STATES FEDERAL TAX CONSIDERATIONS
The following summary describes certain United States federal income and
estate tax consequences that may be relevant to the purchase, ownership and
disposition of common stock by a Non-U.S. Holder. For this purpose, a "Non-U.S.
Holder" is any person who is, for United States federal income tax purposes, a
foreign corporation, a non-resident alien individual, a foreign partnership or a
foreign estate or trust. This discussion does not address all aspects of United
States federal income and estate taxes and does not deal with foreign, state and
local consequences that may be relevant to such Non-U.S. Holders in light of
their personal circumstances. Furthermore, this discussion is based on
provisions of the Internal Revenue Code of 1986, as amended (the "Code"),
existing and proposed regulations promulgated thereunder and administrative and
judicial interpretations thereof, as of the date hereof, all of which are
subject to change. EACH PROSPECTIVE PURCHASER OF COMMON STOCK IS ADVISED TO
CONSULT A TAX ADVISOR WITH RESPECT TO CURRENT AND POSSIBLE FUTURE TAX
CONSEQUENCES OF ACQUIRING, HOLDING AND DISPOSING OF COMMON STOCK AS WELL AS ANY
TAX CONSEQUENCES THAT MAY ARISE UNDER THE LAWS OF ANY U.S. STATE, MUNICIPALITY
OR OTHER TAXING JURISDICTION.
DIVIDENDS
We do not anticipate paying cash dividends on our capital stock in the
foreseeable future. See "Dividend Policy." In the event, however, that dividends
are paid on shares of Common Stock, dividends paid to a Non-U.S. Holder of
common stock generally will be subject to withholding of United States federal
income tax at a 30% rate or such lower rate as may be specified by an applicable
income tax treaty. However, dividends that are effectively connected with the
conduct of a trade or business by the Non-U.S. Holder within the United States
and, where a tax treaty applies, are attributable to a United States permanent
establishment of the Non-U.S. Holder, are not subject to the withholding tax,
but instead are subject to United States federal income tax on a net income
basis at applicable graduated individual or corporate rates. Certain
certification and disclosure requirements must be complied with in order for
dividends to be exempt from withholding under such effectively connected income
exemption. Any such effectively connected dividends received by a foreign
corporation may be subject to an additional "branch profits tax" at a 30% rate
or such lower rate as may be specified by an applicable income tax treaty.
Until December 31, 1999, dividends paid to an address outside the United
States are presumed to be paid to a resident of such country (unless the payer
has knowledge to the contrary) for purposes of the withholding tax discussed
above and, under the current interpretation of United States Treasury
regulations, for purposes of determining the applicability of a tax treaty rate.
However, a Non-U.S. Holder of common stock who wishes to claim the benefit of an
applicable treaty rate (and avoid back-up withholding as discussed below) for
dividends paid after December 31, 1999, will be required to satisfy applicable
certification and other requirements. Special rules apply to dividend payments
made after December 31, 1999 to foreign intermediaries, U.S. or foreign wholly-
owned entities that are disregarded for U.S. federal income tax purposes and
entities that are treated as fiscally transparent in the United States, the
applicable income tax treaty jurisdiction, or both. In addition, U.S. tax
legislation, effective August 4, 1997, denies income tax treaty benefits to
foreigners receiving income derived through a partnership (or otherwise fiscally
transparent entity) in certain circumstances.
A Non-U.S. Holder of common stock eligible for a reduced rate of United
States withholding tax pursuant to an income tax treaty may obtain a refund of
any excess amounts withheld by filing an appropriate claim for refund with the
Internal Revenue Service (the "IRS").
GAIN ON DISPOSITION OF COMMON STOCK
A Non-U.S. Holder generally will not be subject to United States federal
income tax with respect to gain recognized on a sale or other disposition of
common stock unless (i) the gain is
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effectively connected with a trade or business of the Non-U.S. Holder in the
United States and, where a tax treaty applies, is attributable to a United
States permanent establishment of the Non-U.S. Holder, (ii) in the case of a
Non-U.S. Holder who is an individual and holds the common stock as a capital
asset, such holder is present in the United States for 183 or more days in the
taxable year of the sale or other disposition and certain other conditions are
met, (iii) the Non-U.S. Holder is subject to tax pursuant to the provisions of
the U.S. tax law applicable to certain U.S. expatriates, (iv) we are or have
been a "U.S. real property holding corporation" for United States federal income
tax purposes, and the Non-U.S. Holder owned, directly or pursuant to certain
attribution rules, more than 5% of the Company's common stock at any time within
the shorter of the five-year period preceding such disposition or such Non-U.S.
Holder's holding period. The Company believes it is not, and does not anticipate
becoming, a "U.S. real property holding corporation" for United States federal
income tax purposes.
An individual Non-U.S. Holder described in clause (i) above will be subject
to tax on the net gain derived from the sale under regular graduated United
States federal income tax rates. An individual Non-U.S. Holder described in
clause (ii) above will be subject to a flat 30% tax on the gain derived from the
sale, which may be offset by United States source capital losses (even though
the individual is not considered a resident of the United States). If a Non-U.S.
Holder that is a foreign corporation falls under clause (i) above, it will be
subject to tax on its gain under regular graduated United States federal income
tax rates and, in addition, may be subject to the branch profits tax equal to
30% of its effectively connected earnings and profits within the meaning of the
Code for the taxable year, as adjusted for certain items, unless it qualifies
for a lower rate under an applicable income tax treaty.
FEDERAL ESTATE TAX
Common stock owned or treated as owned by an individual Non-U.S. Holder at
the time of death will be included in such holder's gross estate for United
States federal estate tax purposes, unless an applicable estate tax treaty
provides otherwise.
INFORMATION REPORTING AND BACKUP WITHHOLDING
The Company must report annually to the IRS and to each Non-U.S. Holder the
amount of dividends paid to such Non-U.S. Holder and the tax withheld with
respect to such dividends, regardless of whether withholding was required.
Copies of the information returns reporting such dividends and withholding may
also be made available to the tax authorities in the country in which the
Non-U.S. Holder resides under the provisions of an applicable income tax treaty.
Until December 31, 1999, backup withholding generally will not apply to
dividends paid to a Non-U.S. Holder at an address outside the United States
(unless the payer has knowledge that the payee is a U.S. person). With respect
to dividends paid after December 31, 1999, however, a Non-U.S. Holder will be
subject to back-up withholding unless applicable certification requirements are
met.
Payment of the proceeds of a sale of Common Stock within the United States
or conducted through certain U.S.-related financial intermediaries is subject to
(i) information reporting, and (ii) backup withholding (other than payments made
before January 1, 2000, by or through certain U.S.-related financial
intermediaries), unless the beneficial owner certifies under penalties of
perjury that it is a Non-U.S. Holder (and the payor does not have actual
knowledge that the beneficial owner is a United States person) or the holder
otherwise establishes an exemption.
Any amounts withheld under the backup withholding rules may be allowed as a
refund or a credit against such holder's U.S. federal income tax liability
provided the required information is furnished to the IRS.
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UNDERWRITING
Under the terms of, and subject to the conditions contained in, the U.S.
Underwriting Agreement, the form of which is filed as an exhibit to the
Registration Statement, the underwriters named below (the "U.S. Underwriters"),
for whom Lehman Brothers Inc., Bear, Stearns & Co. Inc., Donaldson, Lufkin &
Jenrette Securities Corporation, Goldman, Sachs & Co., Robert W. Baird & Co.,
Incorporated and ING Baring Furman Selz LLC are acting as representatives (the
"U.S. Representatives"), have severally agreed, subject to the terms and
conditions of the U.S. Underwriting Agreement, to purchase from WESCO, and WESCO
has agreed to sell to each U.S. Underwriter, the aggregate number of shares of
Common Stock set forth opposite the name of each such U.S. Underwriter below:
<TABLE>
<CAPTION>
NUMBER
U.S. UNDERWRITERS OF SHARES
----------------- ---------
<S> <C>
Lehman Brothers Inc.........................................
Bear, Stearns & Co. Inc. ...................................
Donaldson, Lufkin & Jenrette Securities Corporation.........
Goldman, Sachs & Co.........................................
Robert W. Baird & Co. Incorporated..........................
ING Baring Furman Selz LLC..................................
--------
Total..................................................
========
</TABLE>
Under the terms of, and subject to the conditions contained in, the
International Underwriting Agreement, the form of which is filed as an exhibit
to the Registration Statement, the managers named below of the concurrent
offering of the shares of Common Stock outside the U.S. and Canada (the
"International Managers" and, together with the U.S. Underwriters, the
"Underwriters"), for whom Lehman Brothers International (Europe), Bear, Stearns
International Limited, DLJ Securities International, Goldman Sachs
International, Robert W. Baird & Co. Incorporated and Baring Brothers Limited,
as agent for ING Bank NV are acting as lead managers (the "Lead Managers" and,
together with the U.S. Representatives, the "Representatives"), have severally
agreed, subject to the terms and conditions of the International Underwriting
Agreement, to purchase from WESCO, and WESCO has agreed to sell to each
International Manager, the aggregate number of shares of Common Stock set forth
opposite the name of each International Manager below:
<TABLE>
<CAPTION>
NUMBER
INTERNATIONAL MANAGERS OF SHARES
---------------------- ---------
<S> <C>
Lehman Brothers International (Europe)......................
Bear, Stearns International Limited.........................
DLJ Securities International................................
Goldman Sachs International.................................
Robert W. Baird & Co. Incorporated..........................
Baring Brothers Limited, as agent for ING Bank NV...........
--------
Total..................................................
========
</TABLE>
The U.S. Underwriting Agreement and the International Underwriting
Agreement (together, the "Underwriting Agreements") provide that the obligations
of the U.S. Underwriters and the International Managers to purchase shares of
Common Stock are subject to certain conditions, and that if any of the foregoing
shares of Common Stock are purchased by the U.S. Underwriters pursuant to the
U.S. Underwriting Agreement or by the International Managers pursuant to the
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International Underwriting Agreement: then all the shares of Common Stock agreed
to be purchased by the U.S. Underwriters and the International Managers, as the
case may be, pursuant to their respective underwriting agreements, must be so
purchased. The offering price and underwriting discounts and commissions per
share for the U.S. offering and the international offering are identical. The
closing of the U.S. offering is a condition to the closing of the international
offering and the closing of the international offering is a condition to the
closing of the U.S. offering.
The Representatives have advised us that the U.S. Underwriters and the
International Managers propose to offer the shares of Common Stock directly to
the public at the public offering price set forth on the cover page of this
prospectus, and to certain selected dealers (who may include the U.S.
Underwriters and the International Managers) at such public offering price less
a selling concession not in excess of $ per share. The selected dealers may
reallow a concession not in excess of $ per share to certain brokers and
dealers. After this offering, the public offering price, the concession to
selected dealers and the reallowance may be changed by the U.S. Underwriters and
the International Managers.
We have agreed to indemnify, under certain circumstances, the U.S.
Underwriters and the International Managers against certain liabilities,
including liabilities under the Securities Act, and to contribute, under certain
circumstances, to payments that the U.S. Underwriters and the International
Managers may be required to make in respect thereof.
We have granted to the U.S. Underwriters an option to purchase up to an
aggregate additional shares of Common Stock and have granted to the
International Managers an option to purchase up to additional shares
of Common Stock, in each case exercisable solely to cover over-allotments, at
the public offering price less the underwriting discounts and commissions shown
on the cover page of this prospectus. Such options may be exercised at any time
until days after the date of the Underwriting Agreements. To the extent
that the over-allotment option is exercised, each U.S. Underwriter or
International Manager, as the case may be, will be committed, subject to certain
conditions, to purchase a number of additional shares of Common Stock
proportionate to such U.S. Underwriter's or International Manager's initial
commitment as indicated in the preceding tables.
The U.S. Underwriters and the International Managers have entered into an
Agreement Between U.S. Underwriters and International Managers pursuant to which
each U.S. Underwriter has agreed that, as part of the distribution of the shares
of Common Stock offered in the U.S. offering, (i) it is not purchasing any such
shares for the account of anyone other than a U.S. Person (as defined below),
and (ii) it has not offered or sold, will not offer, sell, resell or deliver,
directly or indirectly, any such shares or distribute any prospectus relating to
the U.S. offering to anyone other than a U.S. Person. In addition, pursuant to
such agreement, each International Manager has agreed that, as part of the
distribution of the shares of Common Stock offered in the international
offering, (i) it is not purchasing any such shares for the account of a U.S.
Person, and (ii) it has not offered or sold, and will not offer, sell, resell or
deliver, directly or indirectly, any of such shares or distribute any prospectus
relating to the international offering to any U.S. Person.
The foregoing limitations do not apply to stabilization transactions or to
certain other transactions specified in the Underwriting Agreements and the
Agreement Between U.S. Underwriters and International Managers, including (i)
certain purchases and sales between U.S. Underwriters and the International
Managers, (ii) certain offers, sales, resales, deliveries or distributions to or
through investment advisors or other persons exercising investment discretion,
(iii) purchases, offers or sales by a U.S. Underwriter who is also acting as an
International Manager or by an International Manager who is also acting as a
U.S. Underwriter and (iv) other transactions specifically approved by the U.S.
Representatives and the Lead Managers. As used herein, the term "U.S. Person"
means any resident or national of the United States or Canada, any corporation,
partnership or other entity created or organized in or under the laws of the
United States or Canada,
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or any estate or trust the income of which is subject to United States or
Canadian federal income taxation regardless of the source, the term "United
States" means the United States of America (including the District of Columbia)
and its territories, its possessions and other areas subject to its
jurisdiction, and the term "Canada" means Canada, its provinces, its
territories, its possessions and other areas subject to its jurisdiction.
Pursuant to the Agreement Between the U.S. Underwriters and the
International Managers, sales may be made between the U.S. Underwriters and the
International Managers of such a number of shares of Common Stock as may be
mutually agreed. The price of any shares so sold shall be the public offering
price as then in effect for the shares of Common Stock being sold by the U.S.
Underwriters and the International Managers less an amount equal to the selling
concession allocable to such shares of Common Stock, unless otherwise determined
by mutual agreement. To the extent that there are sales between the U.S.
Underwriters and the International Managers pursuant to the Agreement Between
the U.S. Underwriters and the International Managers the number of shares of
Common Stock available for sale by the U.S. Underwriters or by the International
Managers may be more or less than the amount specified on the cover page of the
this prospectus.
Until the distribution of the Common Stock is completed, rules of the
Commission may limit the ability of the Underwriters and certain selling group
members to bid for and purchase shares of Common Stock. As an exception to these
rules, the Representatives are permitted to engage in certain transactions that
stabilize the price of the Common Stock. Such transactions may consist of bids
or purchases for the purpose of pegging, fixing or maintaining the price of the
Common Stock.
If the Underwriters create a short position in the Common Stock in
connection with this Offering (i.e., if they sell more shares of Common Stock
than are set forth on the cover page of this prospectus), the Representatives
may reduce that short position by purchasing Common Stock in the open market.
The Representatives also may elect to reduce any short position by exercising
all or part of the over-allotment options described herein.
The Representatives may also impose a penalty bid on certain Underwriters
and selling group members. This means that, if the Representatives purchase
shares of Common Stock in the open market to reduce the Underwriters' short
position or to stabilize the price of the Common Stock, they may reclaim the
amount of the selling concession from the Underwriters and selling group members
who sold those shares as part of this Offering.
In general, purchases of a security for the purpose of stabilization or to
reduce a syndicate short position could cause the price of the security to be
higher than it might otherwise be in the absence of such purchases. The
imposition of a penalty bid might have an effect on the price of a security to
the extent that it were to discourage resales of the security by purchasers in
this Offering.
Neither the Company nor any of the Underwriters makes any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the price of the Common Stock. In addition, neither
the Company nor any of the Underwriters makes any representation that the
Representatives will engage in such transactions or that such transactions, once
commenced, will not be discontinued without notice.
Each International Manager has represented and agreed that (i) it has not
offered or sold and, prior to the date six months after the date of issue of the
shares of Common Stock, will not offer or sell any shares of Common Stock to
persons in the United Kingdom except to persons whose ordinary activities
involve them in acquiring, holding, managing or disposing of investments (as
principal or agent) for the purposes of their businesses or otherwise in
circumstances which have not resulted and will not result in an offer to the
public in the United Kingdom within the meaning of the Public Offers of
Securities Regulations 1995, (ii) it has complied and will comply with all
applicable provisions of the Financial Services Act 1986 with respect to
anything done by it in relation to the shares of Common Stock in, from or
otherwise involving the United Kingdom and (iii) it has only
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issued or passed on, and will only issue or pass on to any person in the United
Kingdom any document received by it in connection with the issue of the shares
of Common Stock if that person is of a kind described in Article 11(3) of the
Financial Services Act 1986 (Investment Advertisements) (Exemptions) Order 1996
or is a person to whom such document may otherwise be issued or passed upon.
The Common Stock is expected to be listed on the NYSE under the symbol
.
who, after this Offering, will own in the aggregate shares
of Common Stock, for a period of 180 days from the date of this prospectus have
agreed that they will not, subject to certain limited exceptions, directly or
indirectly, offer, sell or otherwise dispose of any shares of Common Stock or
any securities convertible into or exchangeable or exercisable for any such
shares of Common Stock or enter into any derivative transaction with similar
effect as a sale of Common Stock, without the prior written consent of Lehman
Brothers Inc. The restrictions described in this paragraph do not apply to (i)
the sale of Common Stock to the Underwriters in this Offering, (ii) the issuance
by WESCO of shares of Common Stock upon the exercise of an option or the
conversion of a security outstanding prospectus, (iii) transactions by any
person other than WESCO relating to shares of Common Stock or other securities
acquired in open market transactions after the completion of this Offering or
(iv) [other exceptions].
Any offer of the shares of Common Stock in Canada will be made only
pursuant to an exemption from the prospectus filing requirement and an exemption
from the dealer registration requirement (where such an exemption is not
available, offers shall be made only by a registered dealer) in the relevant
Canadian jurisdiction where such offer is made.
Purchasers of the shares of Common Stock offered hereby may be required to
pay stamp taxes and other charges in accordance with the laws and practices of
the country of purchase, in addition to the offering price set forth on the
cover hereof.
The U.S. Underwriters and the International Managers have informed WESCO
that they do not intend to sell to, and therefore will not confirm the sales of
shares of Common Stock offered hereby to any accounts over which they exercise
discretionary authority in excess of 5% of shares offered by them.
Lehman Brothers Inc. has provided investment banking, financial advisory
and other services to us, for which services Lehman Brothers Inc. has received
customary fees.
DIRECTED SHARE PROGRAM
At the request of the Company, the Underwriters have reserved for sale, at
the Offering price, up to 7.5% of the shares of the Common Stock that will be
offered by this prospectus for directors, officers and employees of the Company.
Certain purchasers of such reserved shares may be required to agree in writing
not to sell, transfer, assign, pledge or hypothecate such shares for 180 days
from their date of purchase. The number of shares of Common Stock available for
sale to the general public will be reduced to the extent such persons purchase
such reserved shares. Any reserved shares that are not so purchased will be
offered by the Underwriters to the general public on the same basis as the other
shares offered hereby.
LEGAL MATTERS
The validity of the shares of Common Stock offered by this prospectus will
be passed upon for us by Kirkpatrick & Lockhart LLP, Pittsburgh, Pennsylvania,
and for the Underwriters by Simpson Thacher & Bartlett, New York, New York.
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<PAGE> 81
EXPERTS
The consolidated balance sheets of WESCO as of December 31, 1997 and 1998
and the consolidated statements of operations, stockholders' equity and
redeemable common stock and cash flows of WESCO for each of the three years in
the period ended December 31, 1998 included in this prospectus have been
included herein in reliance on the report of PricewaterhouseCoopers LLP,
independent accountants, given on the authority of that firm as experts in
accounting and auditing.
The balance sheet of Bruckner as of December 31, 1997 and the statements of
income and retained earnings and cash flows of Bruckner for the year then ended
included in this prospectus have been included herein in reliance on the report
of Anchin, Block & Anchin LLP, independent accountants, given on the authority
of that firm as experts in accounting and auditing.
ADDITIONAL INFORMATION
We have filed with the Securities and Exchange Commission a Registration
Statement under the Securities Act with respect to the shares of Common Stock
offered hereby. This prospectus, which constitutes part of the Registration
Statement, does not contain all of the information set forth in the Registration
Statement and the exhibits and schedules thereto. The summaries in this
prospectus of additional information included in the Registration Statement or
any exhibit thereto are qualified in their entirety by reference to such
information or exhibit. For further information with respect to us and our
Common Stock, reference is hereby made to the Registration Statement and the
exhibits and schedules thereto, copies of which may be inspected without charge
at the public reference facilities maintained by the Securities and Exchange
Commission at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549,
or obtained from the Commission upon payment of the fees prescribed by the
Commission. In addition, registration statements and certain other documents
filed with the Commission through its Electronic Data Gathering, Analysis and
Retrieval ("EDGAR") system are publicly available through the Commission's site
on the World Wide Web, located at http://www.sec.gov. The Registration
Statement, including all exhibits thereto and amendments thereof, has been filed
with the Commission through EDGAR.
After the Offering, such reports, statements and other information may also
be obtained from the New York Stock Exchange, Inc., 20 Broad Street, New York,
New York 10005. The Company intends to furnish its shareholders with annual
reports containing audited consolidated financial statements and an opinion
thereon expressed by independent public accountants and with quarterly reports
containing unaudited consolidated financial information for the first three
quarters of each fiscal year.
The Company was founded as a Delaware corporation in 1994. Our executive
offices are located at Commerce Court, Suite 700, Four Station Square,
Pittsburgh, Pennsylvania 15219, and its telephone number is (412) 454-2200.
79
<PAGE> 82
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
WESCO International, Inc.
Report of Independent Accountants......................... F-2
Consolidated Balance Sheets as of December 31, 1997 and
1998................................................... F-3
Consolidated Statements of Operations for the years ended
December 31, 1996, 1997 and 1998....................... F-4
Consolidated Statements of Stockholders' Equity and
Redeemable Common Stock for the years ended December
31, 1995, 1996, 1997 and 1998.......................... F-5
Consolidated Statements of Cash Flows for the years ended
December 31, 1996, 1997 and 1998....................... F-6
Notes to Consolidated Financial Statements................ F-7
Bruckner Supply Company, Inc.
Independent Accountants' Report........................... F-25
Balance Sheet as of December 31, 1997..................... F-26
Statement of Income and Retained Earnings for the year
ended December 31, 1997................................ F-27
Statement of Cash Flows for the year ended December 31,
1997................................................... F-28
Notes to the Financial Statements......................... F-29
</TABLE>
F-1
<PAGE> 83
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and Board of Directors
of WESCO International, Inc.:
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations, stockholders' equity and
redeemable common stock and cash flows present fairly, in all material respects,
the financial position of WESCO International, Inc. and subsidiaries at December
31, 1997 and 1998, and the results of their operations and their cash flows for
each of the three years in the period ended December 31, 1998 in conformity with
generally accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
600 Grant Street
Pittsburgh, Pennsylvania
February 12, 1999
F-2
<PAGE> 84
WESCO INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31
----------------------
1997 1998
-------- ----------
(DOLLARS IN THOUSANDS,
EXCEPT SHARE DATA)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents............................... $ 7,620 $ 8,093
Trade accounts receivable, net of allowance for doubtful
accounts of $10,814 and $8,082 in 1997 and 1998,
respectively (NOTE 4).................................. 351,170 181,511
Other accounts receivable............................... 17,261 22,265
Inventories............................................. 299,406 343,764
Income taxes receivable................................. 3,405 7,329
Prepaid expenses and other current assets............... 3,699 2,892
Deferred income taxes (NOTE 12)......................... 14,277 16,217
-------- ----------
Total current assets............................... 696,838 582,071
Property, buildings and equipment, net (NOTE 7)............. 95,082 107,596
Goodwill and other intangibles, net of accumulated
amortization of $5,108 and $10,163 in 1997 and 1998,
respectively (NOTE 5)..................................... 69,331 234,049
Other assets (NOTE 8)....................................... 9,609 26,806
-------- ----------
Total assets....................................... $870,860 $ 950,522
======== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable........................................ $311,796 $ 378,590
Accrued payroll and benefit costs....................... 27,694 19,614
Current portion of long-term debt....................... 891 16,592
Other current liabilities (NOTE 10)..................... 20,154 51,671
-------- ----------
Total current liabilities.......................... 360,535 466,467
Long-term debt (NOTE 9)..................................... 294,275 579,238
Other noncurrent liabilities................................ 5,875 7,040
Deferred income taxes (NOTE 12)............................. 16,662 18,832
-------- ----------
Total liabilities.................................. 677,347 1,071,577
Commitments and contingencies (NOTE 17)
Redeemable Class A common stock, $.01 par value; 89,306 and
84,808 shares issued and outstanding in 1997 and 1998,
respectively (redemption value of redeemable common stock
and vested options of $68,597 and $130,267 in 1997 and
1998, respectively) (NOTE 11)............................. 8,978 21,506
STOCKHOLDERS' EQUITY (NOTE 11):
Class A common stock, $.01 par value; 2,000,000
authorized, 933,280 and 436,156 shares issued and
outstanding in 1997 and 1998, respectively............. 9 4
Class B nonvoting convertible common stock, $.01 par
value; 2,000,000 shares authorized, 80,504 issued and
outstanding in 1998.................................... -- 1
Additional capital...................................... 93,319 327,076
Retained earnings (deficit)............................. 89,366 (468,220)
Common stock to be issued under option.................. 2,500 --
Accumulated other comprehensive income (loss)........... (659) (1,422)
-------- ----------
Total stockholders' equity......................... 184,535 (142,561)
-------- ----------
Total liabilities and stockholders' equity......... $870,860 $ 950,522
======== ==========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-3
<PAGE> 85
WESCO INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
--------------------------------------
1996 1997 1998
---------- ---------- ----------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C>
Sales, net...................................... $2,274,622 $2,594,819 $3,025,439
Cost of goods sold.............................. 1,869,565 2,130,900 2,487,780
---------- ---------- ----------
Gross profit.................................. 405,057 463,919 537,659
Selling, general and administrative expenses.... 326,003 372,532 415,028
Depreciation and amortization................... 10,846 11,331 14,805
Recapitalization costs (NOTE 3)................. -- -- 51,800
---------- ---------- ----------
Income from operations........................ 68,208 80,056 56,026
Interest expense, net........................... 17,382 20,109 45,121
Other expenses (NOTE 4)......................... -- -- 10,122
---------- ---------- ----------
Income before income taxes.................... 50,826 59,947 783
Provision for income taxes (NOTE 12)............ 18,364 23,710 8,519
---------- ---------- ----------
Net income (loss)............................. $ 32,462 $ 36,237 $ (7,736)
========== ========== ==========
Earnings per common share (NOTE 13):
Basic......................................... $ 31.97 $ 35.48 $ (9.93)
========== ========== ==========
Diluted....................................... $ 29.47 $ 31.52 $ (9.93)
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-4
<PAGE> 86
WESCO INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
AND REDEEMABLE COMMON STOCK
<TABLE>
<CAPTION>
COMMON
STOCK ACCUMULATED
TO BE OTHER REDEEMABLE
COMMON STOCK RETAINED ISSUED COMPREHENSIVE CLASS A
COMPREHENSIVE ----------------- ADDITIONAL EARNINGS UNDER INCOME COMMON
INCOME CLASS A CLASS B CAPITAL (DEFICIT) OPTION (LOSS) STOCK
------------- ------- ------- ---------- --------- -------- ------------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1995... $ 9 $ -- $ 93,319 $ 20,667 $ 2,500 $ (126) $ 7,730
Exercise of common stock
options.................... 343
Issuance of common stock..... 857
Net income................... $32,462 32,462
Translation adjustment....... (85) (85)
-------
Comprehensive income......... $32,377
======= --- ---- -------- --------- ------- ------- -------
BALANCE, DECEMBER 31, 1996... 9 -- 93,319 53,129 2,500 (211) 8,930
Exercise of common stock
options.................... 171
Issuance of common stock..... 201
Repurchase of common stock... (324)
Net income................... $36,237 36,237
Translation adjustment....... (448) (448)
-------
Comprehensive income......... $35,789
======= --- ---- -------- --------- ------- ------- -------
BALANCE, DECEMBER 31, 1997... 9 -- 93,319 89,366 2,500 (659) 8,978
Recapitalization, net........ (5) 1 231,089 (549,143) (2,500) 1,271
Issuance of common stock..... 16,759
Repurchase of common stock... (707) (1,427)
Exercise of common stock
options.................... 888
Forfeiture and repurchase of
common stock options....... 1,780 (4,075)
Net income (loss)............ $(7,736) (7,736)
Translation adjustment....... (763) (763)
-------
Comprehensive income......... $(8,499)
======= --- ---- -------- --------- ------- ------- -------
BALANCE, DECEMBER 31, 1998... $ 4 $ 1 $327,076 $(468,220) $ -- $(1,422) $21,506
=== ==== ======== ========= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-5
<PAGE> 87
WESCO INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
---------------------------------
1996 1997 1998
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss)........................................... $ 32,462 $ 36,237 $ (7,736)
Adjustments to reconcile net income (loss) to net cash
provided (used) by operating activities:
Recapitalization costs.................................... -- -- 40,500
Depreciation and amortization............................. 10,846 11,331 14,805
Accretion of original issue and amortization of purchase
discounts............................................... 4,592 4,856 6,300
Amortization of debt issuance costs and interest rate
caps.................................................... 531 418 1,276
Gain on sale of property, buildings and equipment......... (81) (855) (1,404)
Deferred income taxes..................................... (78) 2,837 2,370
Changes in assets and liabilities, excluding the effects
of acquisitions:
Sale of trade accounts receivable....................... -- -- 274,245
Trade and other receivables............................. (21,058) (32,641) (23,644)
Inventories............................................. (24,389) (31,671) (5,645)
Prepaid expenses and other current assets............... 5,930 (1,120) (2,151)
Other assets............................................ 700 (3,652) 191
Accounts payable........................................ 20,323 9,690 (8,445)
Accrued payroll and benefit costs....................... (1,942) 1,594 (8,380)
Other current and noncurrent liabilities................ (12,700) (9,001) (5,428)
--------- --------- ---------
Net cash provided (used) by operating activities... 15,136 (11,977) 276,854
INVESTING ACTIVITIES:
Capital expenditures........................................ (9,330) (11,591) (10,694)
Proceeds from the sale of property, buildings and
equipment................................................. 2,338 3,996 2,039
Advances to affiliates...................................... -- -- (1,461)
Acquisitions, net of cash acquired (NOTE 19)................ (103,918) (13,914) (173,976)
--------- --------- ---------
Net cash used by investing activities.............. (110,910) (21,509) (184,092)
FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt.................... 546,396 430,843 1,064,288
Repayments of long-term debt................................ (459,730) (389,613) (797,555)
Debt issuance costs......................................... (682) (172) (10,693)
Recapitalization costs...................................... -- -- (28,974)
Repurchase of common stock.................................. -- (324) (657,956)
Proceeds from issuance of common stock...................... 1,200 372 332,795
Proceeds from contributed capital........................... -- -- 5,806
--------- --------- ---------
Net cash provided (used) by financing activities... 87,184 41,106 (92,289)
--------- --------- ---------
Net change in cash and cash equivalents..................... (8,590) 7,620 473
Cash and cash equivalents at the beginning of period........ 8,590 -- 7,620
--------- --------- ---------
Cash and cash equivalents at the end of period.............. $ -- $ 7,620 $ 8,093
========= ========= =========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-6
<PAGE> 88
WESCO INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 branch locations in the United
States, Canada, Mexico, Puerto Rico, Guam, Singapore and the United Kingdom.
Subsequent to the completion in June 1998 of a leveraged recapitalization
(see Note 3), WESCO was substantially owned by an investor group led by
affiliates of The Cypress Group L.L.C. ("Cypress") with WESCO's management
retaining the remaining interest.
On February 28, 1994, Clayton & Dubilier Private Equity Fund IV Limited
Partnership, managed by Clayton, Dubilier & Rice ("CD&R"), formed WESCO
Distribution, Inc. for the purpose of acquiring substantially all of the assets
and certain liabilities of Westinghouse Electric Supply Company ("1994
Formation") from the former Westinghouse Electric Corporation ("Westinghouse").
2. ACCOUNTING POLICIES
Basis of Presentation
The consolidated financial statements include the accounts of WESCO
International, Inc. and all of its subsidiaries. All significant intercompany
accounts and transactions have been eliminated in consolidation.
The preparation of the consolidated financial statements in conformity with
generally accepted accounting principles requires management to make certain
estimates and assumptions. These may affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities at the date
of the consolidated financial statements. They may also affect the reported
amounts of revenues and expenses during the reported period. Actual results
could differ from these estimates upon subsequent resolution of some matters.
Revenue Recognition
Revenues are recognized at the time products are shipped or services are
rendered.
Cash Equivalents
Cash equivalents are defined as highly liquid investments with original
maturities of 90 days or less when purchased.
Asset Securitization
WESCO accounts for the securitization of accounts receivable in accordance
with Statement of Financial Accounting Standards ("SFAS") No. 125 "Accounting
for Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities." At the time the receivables are sold the balances are removed from
the balance sheet. SFAS No. 125 also requires retained interests in the
transferred assets to be measured by allocating the previous carrying amount
between the assets sold and retained interests, if any, based on their relative
fair values at the date of transfer.
Inventories
Inventories primarily consist of merchandise purchased for resale and are
stated at the lower of cost or market. Cost is determined principally under the
average cost method.
F-7
<PAGE> 89
Property, Buildings and Equipment
Property, buildings and equipment are recorded at cost. Depreciation
expense is determined using the straight-line method over the estimated useful
lives of the assets. Leasehold improvements are amortized over either their
respective lease terms or their estimated lives, whichever is shorter.
Expenditures for new facilities and improvements that extend the useful life of
an asset are capitalized. Ordinary repairs and maintenance are expensed as
incurred. When property is retired or otherwise disposed of, the cost and the
related accumulated depreciation are removed from the accounts and any related
gains or losses are recorded.
Intangible Assets
Goodwill and other intangible assets arising from acquisitions are
amortized on a straight-line basis over periods not exceeding 35 years. The
carrying value of individual components of intangible assets are regularly
reviewed by evaluating the estimated future undiscounted cash flows to determine
recoverability of the assets. Any decrease in value is recognized on a current
basis.
Income Taxes
Income taxes are accounted for under the liability method. Deferred tax
assets and liabilities are determined based on differences between the financial
reporting and tax basis of assets and liabilities and are measured using the
enacted tax rates and laws that will be in effect when the differences are
expected to reverse. Valuation allowances, if any, are provided when a portion
or all of a deferred tax asset may not be realized.
Earnings Per Share
Basic earnings per share are computed by dividing net income by the
weighted-average common shares outstanding during the respective periods.
Diluted earnings per share are computed by dividing net income by the
weighted-average common shares and common share equivalents outstanding during
the period. The dilutive effect of common share equivalents is considered in the
diluted earnings per share computation using the treasury stock method.
Foreign Currency Translation
The local currency is the functional currency for substantially all of
WESCO's operations outside the United States. Assets and liabilities of these
operations are translated to U.S. dollars at the exchange rate in effect at each
period end. Income statement accounts are translated at the average exchange
rate prevailing during the period. Translation adjustments arising from the use
of differing exchange rates from period to period are included as a component of
stockholders' equity. Gains and losses from foreign currency transactions are
included in net income for the period.
Financial Instruments
Periodically, WESCO enters into interest rate cap, floor and collar
agreements to mitigate the exposure changes in interest rates have on
variable-rate borrowings. If the requirements for hedge accounting are met,
amounts paid or received under these agreements are recognized over the life of
the agreements as adjustments to interest expense. Otherwise, the instruments
are marked to market and the gains and losses from changes in the market value
of the contracts are recorded in the current period. These financial instruments
did not have a material impact on WESCO's consolidated financial statements for
the three years ended December 31, 1998.
Environmental Expenditures
WESCO has facilities and operations which distribute certain products that
must comply with environmental regulations and laws. Expenditures for current
operations are expensed or capitalized, as appropriate. Expenditures relating to
existing conditions caused by past operations, and which do
F-8
<PAGE> 90
not contribute to future revenue, are expensed. Liabilities are recorded when
remedial efforts are probable and the costs can be reasonably estimated.
Reclassifications
Certain prior year amounts have been reclassified in order to conform with
the current presentations.
Recent Accounting Pronouncements
In April 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-5, "Reporting on the Costs of Start-Up
Activities." This statement, which is effective for fiscal years beginning after
December 15, 1998, requires costs incurred to open a new facility, introduce a
new product, commence a new operation or other similar activities to be expensed
as incurred. Management does not expect this statement will have a material
impact on the results of operations and financial position.
In June 1998, The Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." This statement
is effective in fiscal years beginning after June 15, 1999, 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 operation or financial
position of WESCO.
3. RECAPITALIZATION
On June 5, 1998, WESCO repurchased and retired all of the common stock of
WESCO held by CD&R, Westinghouse, and certain other management and nonmanagement
stockholders for an aggregate consideration of approximately $653.5 million
("Equity Consideration"), repaid approximately $379.1 million of then
outstanding indebtedness, and sold to an investor group led by affiliates of
Cypress common stock representing approximately 88.7% of WESCO for an aggregate
cash consideration of $318.1 million ("Cash Equity Contribution") (collectively,
"Recapitalization"). WESCO funded the Equity Consideration and the repayment of
indebtedness from proceeds of the Cash Equity Contribution, issuance of
approximately $351 million of Senior Subordinated and Senior Discount Notes, a
new $170 million credit facility and the sale of approximately $250 million of
accounts receivable. The transaction was treated as a recapitalization for
financial reporting purposes and, accordingly, the historical bases of WESCO's
assets and liabilities were not affected.
In connection with the Recapitalization, WESCO recorded a one-time charge
of $51.8 million primarily related to noncapitalized financing expenses,
professional and legal fees and management compensation costs.
4. ACCOUNTS RECEIVABLE SECURITIZATION
WESCO and certain of its subsidiaries entered into an agreement with a
financial institution and a multi-seller asset-backed commercial paper issuer
("Receivables Facility") whereby it sells on a continuous basis an undivided
interest in all eligible accounts receivable while maintaining a subordinated
interest in a portion of the receivables. Pursuant to the Receivables Facility,
WESCO formed WESCO Receivables Corporation, a wholly-owned, special purpose,
bankruptcy-remote subsidiary ("SPC"). SPC was formed to purchase, on a revolving
basis and not to exceed $300 million, trade accounts receivables generated by
certain subsidiaries of WESCO. WESCO may, under certain circumstances, increase
the size of the Receivables Facility when the amount of eligible trade accounts
receivables exceeds $300 million. The SPC will transfer to a trust all the
receivables and the commercial paper issuer will provide financing to pay the
purchase price of the receivables.
F-9
<PAGE> 91
As of December 31, 1998, securitized accounts receivable totaled $360.1
million, of which the subordinated retained interest was $84.1 million.
Accordingly, $276 million of accounts receivable balances were removed from the
consolidated balance sheet. Net proceeds from the transactions totaled $274.2
million. Proceeds from securitized receivables were used primarily to complete
the Recapitalization discussed in Note 3 and for general working capital needs.
During 1998, WESCO incurred costs associated with the Receivables Facility of
$10.1 million, primarily related to the discount and loss on the sale of such
receivables, partially offset by related servicing revenue. This amount is
recorded as other expenses in the consolidated statement of operations.
5. ACQUISITIONS
On September 11, 1998, WESCO acquired substantially all the assets and
assumed substantially all liabilities and obligations relating to the operations
of Bruckner Supply Company, Inc. ("Bruckner"), a privately owned company
headquartered in Port Washington, New York. Bruckner is a provider of integrated
supply procurement and outsourcing activities for large industrial companies.
Net sales totaled approximately $222 million in 1997.
The Bruckner purchase price at closing was $99.1 million, consisting of
$72.5 million in cash and a noninterest bearing convertible note discounted to a
value of $26.6 million for financial reporting purposes, resulting in goodwill
of $88.0 million.
The Bruckner purchase agreement provided for certain post-closing
adjustments, which were paid in December 1998 and totaled $6.0 million. The
agreement also provides for additional contingent consideration, not to exceed
$130 million, of which $30 million was payable and recorded in other current
liabilities at December 31, 1998, to be paid based on a multiple of increases in
earnings before interest, taxes, depreciation and amortization of Bruckner with
respect to calendar years 1998 through 2004. Following an initial public
offering, up to 50% of the additional contingent consideration, if any, may be
converted at the election of the holder into Class A common stock at the then
market value.
In January 1998 WESCO acquired the electrical distribution businesses of
Avon Electric Supplies, Inc. and its affiliates ("Avon"). Net sales totaled
approximately $85 million in 1997.
The following unaudited pro forma information assumes that the Bruckner and
Avon acquisitions had occurred at the beginning of each period presented.
Adjustments to arrive at the pro forma information include, among others, those
related to acquisition financing, amortization of goodwill and the related tax
effects of such adjustments at an assumed rate of 39%.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
----------------------------------
1997 1998
------------- -------------
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C>
Sales, net................................................. $2,901,725 $3,205,333
Net income (loss).......................................... 41,551 (3,102)
Basic earnings (loss) per share............................ 35.48 (3.98)
Diluted earnings (loss) per share.......................... 30.07 (3.98)
</TABLE>
The pro forma financial information does not purport to present what
WESCO's results of operations would have been if the Bruckner and Avon
acquisitions had actually occurred at the beginning of each period presented, or
to project WESCO's results of operations for any future period.
In addition to the Bruckner and Avon acquisitions, WESCO acquired four
other distributors in 1998, the largest of which were Brown Wholesale Electric
Company (acquired January 1998) and
F-10
<PAGE> 92
Reily Electric Supply, Inc. (acquired May 1998). In 1996 and 1997 combined,
WESCO acquired nine distributors. A summary of certain information with respect
to all acquisitions follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-------------------------------
1996 1997 1998
-------- ------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Aggregate purchase price................................ $110,597 $16,164 $250,218
Recorded goodwill....................................... 59,766 5,913 162,743
</TABLE>
All of the acquisitions were accounted for under the purchase method of
accounting for business combinations. The results of operations of these
companies are included in the consolidated financial statements prospectively
from the acquisition dates. Pro forma results of these acquisitions, excluding
Bruckner and Avon, assuming they had been made at the beginning of each year
presented, would not be materially different from the consolidated results
reported herein.
6. CONCENTRATIONS OF CREDIT RISK AND SIGNIFICANT SUPPLIERS
WESCO distributes its products and services and extends credit to a large
number of customers in the industrial, construction, utility and manufactured
structures markets. In addition, one supplier accounted for approximately 18%,
18% and 15% of WESCO's purchases for each of the three years in the period ended
December 31, 1998, respectively.
7. PROPERTY, BUILDINGS AND EQUIPMENT
The following table sets forth property, buildings and equipment:
<TABLE>
<CAPTION>
DECEMBER 31
-------------------
1997 1998
------- --------
(IN THOUSANDS)
<S> <C> <C>
Land........................................................ $17,875 $ 17,613
Buildings and leasehold improvements........................ 61,629 59,619
Furniture, fixtures and equipment........................... 30,083 43,734
------- --------
109,587 120,966
Accumulated depreciation and amortization................... (20,721) (26,907)
88,866 94,059
Construction in progress.................................... 6,216 13,537
------- --------
$95,082 $107,596
======= ========
</TABLE>
F-11
<PAGE> 93
8. OTHER ASSETS
The following table sets forth the components of other assets:
<TABLE>
<CAPTION>
DECEMBER 31
------------------
1997 1998
------- -------
(IN THOUSANDS)
<S> <C> <C>
Debt issuance costs......................................... $ 1,270 $10,654
Software costs.............................................. 6,846 7,866
Favorable lease commitments................................. 1,054 1,054
Other....................................................... 1,916 4,115
------- -------
11,086 23,689
Accumulated amortization.................................... (7,355) (8,481)
------- -------
3,731 15,208
Investment in and advances to affiliate..................... -- 11,598
Restricted cash............................................. 5,878 --
------- -------
$ 9,609 $26,806
======= =======
</TABLE>
Debt issuance costs are amortized on a straight-line basis, which does not
differ materially from the effective-interest rate method, over the term of the
related debt. Investment in and advances to affiliate represents WESCO's
investment in and amounts due from an unconsolidated equity-owned affiliate.
Restricted cash represented proceeds received from the sale of properties that
collateralized certain mortgage notes. Such mortgage notes were repaid in
connection with the Recapitalization.
9. LONG TERM DEBT
The following table sets forth WESCO's outstanding indebtedness:
<TABLE>
<CAPTION>
DECEMBER 31
--------------------
1997 1998
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Term loans.................................................. -- $169,500
Revolving facility.......................................... -- 42,450
Old revolving facility...................................... $226,145 --
Senior subordinated notes (1)............................... -- 289,194
Senior discount notes (2)................................... -- 52,071
Mortgage notes (3).......................................... 65,291 --
Other....................................................... 3,730 42,615
-------- --------
295,166 595,830
Less current portion........................................ (891) (16,592)
-------- --------
$294,275 $579,238
======== ========
</TABLE>
- -------------------------
(1) Net of original issue discount of $918 and purchase discount of $9,888
(2) Net of original issue discount of $33,266 and purchase discount of $1,664
(3) Net of original issue discount of $16,601
In connection with the Recapitalization, the old revolving facility and the
mortgage notes were repaid. The old revolving facility was pursuant to credit
agreements with various banks that provided for an aggregate $360 million of
revolving credit facilities maturing in February 2000. This facility
F-12
<PAGE> 94
provided variable-rate borrowings tied to market indexes plus a fixed margin.
The mortgage notes consisted of a zero coupon First Mortgage Note due February
2001 and an 8.0% First Mortgage Note due February 2001, each held by
Westinghouse.
The term loans and revolving facility borrowings were made pursuant to a
credit agreement ("Credit Agreement") entered into by and between WESCO
Distribution, Inc., ("WESCO Distribution") a wholly owned subsidiary of WESCO
and certain financial institutions. The Credit Agreement provides for three term
loan facilities in an aggregate principal amount of $270 million, consisting of
Tranche A Term Loan, Tranche B Term Loan and a Delayed Draw Term Loan Facility,
and a $100 million Revolving Credit Facility. Tranche A Term Loan provides for
aggregate borrowings of $80 million, Tranche B Term Loan provides for aggregate
borrowings of $90 million and the Delayed Draw Term Loan Facility provides for
up to $100 million aggregate principal. The term loan facilities mature in
various periods from 2004 through 2006. The Revolving Credit Facility provides
for up to $100 million of revolving credit denominated in U.S. dollars or
Canadian dollars. The maximum Canadian sublimit is approximately $46 million.
The Revolving Credit Facility matures in 2004.
Borrowings under the Credit Agreement are guaranteed by WESCO and are
collateralized by substantially all the assets of WESCO and bear rates of
interest equal to various indices, at WESCO's option, such as LIBOR, prime rate
or the Federal Funds rate, plus a borrowing margin based on WESCO's financial
performance. At December 31, 1998, the interest rate on Tranche A Term Loan,
Tranche B Term Loan and the Revolving Credit Facility was 7.6%, 7.8% and 8.3%,
respectively. In addition, WESCO has a 0.5% commitment fee on the unused
commitments under the Revolving Credit Facility and the Delayed Draw Term Loan
Facility.
At December 31, 1998, WESCO has four interest rate cap and two interest
rate collar agreements with aggregate notional amounts of $205 million that
expire at various times between August 1999 and February 2000. The aggregate
cost of these agreements of $0.2 million is being amortized to interest expense
on a straight-line basis over the period of the agreements. The agreements
effectively provide a ceiling for LIBOR at 7.0% and, with respect to $50 million
notional value of interest rate collars, a floor of 4.5%. The market value of
the interest rate caps and collars approximates the carrying value at December
31, 1998.
The Senior Subordinated Notes in an aggregate principal amount of $300
million were issued by WESCO Distribution. The notes are unsecured obligations
and are fully and unconditionally guaranteed by WESCO. The Senior Subordinated
Notes bear interest at 9 1/8%, payable semiannually on June 1 and December 1
beginning December 1, 1998. The notes are due June 1, 2008. The Senior
Subordinated Notes are redeemable by WESCO Distribution at any time prior to
June 1, 2001, up to a maximum of 35% of the original aggregate principal amount
of the Senior Subordinated Notes, with proceeds of an equity offering at a
redemption price equal to 109.125% of the principal amount provided plus accrued
and unpaid interest.
In addition, the Senior Subordinated Notes are redeemable at the option of
WESCO Distribution, in whole or in part, at any time after June 1, 2003 at the
following prices:
<TABLE>
<CAPTION>
REDEMPTION PRICE
----------------
<S> <C>
2003.................................................. 104.563%
2004.................................................. 103.042
2005.................................................. 101.521
2006 and thereafter................................... 100.000
</TABLE>
At any time prior to June 1, 2003, the Senior Subordinated Notes may be
redeemed, in whole but not in part, at the option of the Company at any time
within 180 days after a change of control, at a redemption price equal to the
principal amount thereof plus accrued and unpaid interest and the
F-13
<PAGE> 95
then applicable premium. In addition, the noteholders have the right to require
WESCO, upon a change of control, to repurchase all or any part of the Senior
Subordinated Notes at a redemption price equal to 101% of the principal amount
provided plus accrued and unpaid interest.
The Senior Discount Notes, issued by WESCO, have an aggregate principal
amount of $87 million. The notes were issued with an original issue discount of
$36.5 million that is being accreted over the period ending June 1, 2003.
Beginning June 1, 2003, interest accrues at 11 1/8% payable semiannually on June
1 and December 1. At any time prior to June 1, 2001, WESCO may redeem, in whole
but not in part, the Senior Discount Notes with the proceeds of an equity
offering at a redemption price equal to 111.125% of the accreted value at the
date of redemption.
Approximately 35% of the then outstanding Senior Discount Notes ($30.9
million at December 31, 1998) must be redeemed on June 1, 2003. The remaining
notes are due June 1, 2008 and are redeemable at the option of WESCO, in whole
or in part, at any time after June 1, 2003 at the following prices:
<TABLE>
<CAPTION>
REDEMPTION PRICE
----------------
<S> <C>
2003.................................................. 105.563%
2004.................................................. 103.708
2005.................................................. 101.854
2006 and thereafter................................... 100.000
</TABLE>
At any time prior to June 1, 2003, the Senior Discount Notes may be
redeemed, in whole but not in part, at the option of WESCO at any time within
180 days after a change of control, at a redemption price equal to 100% of the
accreted value to the redemption date plus the then applicable premium. In
addition, the noteholders have the right to require WESCO, upon a change of
control, to repurchase all or any part of the Senior Discount Notes at a
redemption price equal to 101% of the accreted value prior to June 1, 2003 or
101% of the principal amount plus accrued and unpaid interest if after June 1,
2003.
At December 31, 1997 and 1998, other borrowings primarily consist of notes
issued to sellers in connection with acquisitions, of which $2 million and $37
million, respectively, are convertible into common stock at an initial public
equity offering price.
The following table sets forth the aggregate principal repayment
requirements for all indebtedness for the next five years:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
1999.................................................... $16,871
2000.................................................... 40,736
2001.................................................... 13,071
2002.................................................... 16,530
2003.................................................... 51,412
</TABLE>
The credit agreements contain various restrictive covenants that, among
other things, impose limitations on (i) dividend payments or certain other
restricted payments or investments; (ii) the incurrence of additional
indebtedness and guarantees or issuance of additional stock; (iii) creation of
liens; (iv) mergers, consolidation or sales of substantially all of WESCO's
assets (v) certain transactions among affiliates; (vi) payments by certain
subsidiaries to WESCO; and (vii) capital expenditures. In addition, the
agreements require WESCO to meet certain leverage, working capital and interest
coverage ratios.
WESCO is permitted to pay dividends under certain limited circumstances. At
December 31, 1997 and 1998, no retained earnings were available for dividend
payments.
F-14
<PAGE> 96
Based on current market interest rates and discounted cash flow analyses,
the fair value of WESCO's long-term debt approximates its carrying value at
December 31, 1997 and 1998.
WESCO had $3.3 million and $4.5 million of outstanding letters of credit at
December 31, 1997 and 1998, respectively. These letters of credit are used as
collateral for performance and bid bonds. The value of the letters of credit
approximates the contract value.
10. OTHER CURRENT LIABILITIES
The following table sets forth the components of other current liabilities:
<TABLE>
<CAPTION>
DECEMBER 31
------------------
1997 1998
------- -------
(IN THOUSANDS)
<S> <C> <C>
Accrued taxes other than income..................... $10,696 $12,466
Accrued interest.................................... 1,508 4,986
Deferred acquisition payable........................ -- 30,000
Other............................................... 7,950 4,219
------- -------
$20,154 $51,671
======= =======
</TABLE>
11. CAPITAL STOCK
Common Stock
There are 2,000,000 shares each of Class A and Class B common stock
authorized at a par value of $.01 per share. The Class B common stock is
identical to the Class A Common Stock, except for voting and conversion rights.
The holders of Class B common stock have no voting rights. With certain
exceptions, Class B common stock may be converted, at the option of the holder,
into the same number of shares of Class A common stock. No Class B common stock
was outstanding at December 31, 1997.
Redeemable Class A Common Stock
Certain employees and key management of WESCO who hold Class A common stock
and options may require WESCO to repurchase, under certain conditions, death,
disability or termination without cause during the term of employment, all of
the shares and the exercisable portion of the options held. This repurchase
right terminates upon the consummation of an initial equity public offering of
WESCO's Class A common stock. In connection with the redemption features
described above, WESCO has classified outside of permanent equity an amount
representing the initial fair value of the redeemable shares. These shares and
exercisable options have not been marked to market since the events of
redemption are considered remote.
F-15
<PAGE> 97
The following table sets forth capital stock share activity:
<TABLE>
<CAPTION>
REDEEMABLE
CLASS A CLASS B CLASS A
-------- ------- ----------
<S> <C> <C> <C>
December 31, 1995..................................... 933,280 -- 79,904
Options exercised..................................... -- -- 3,428
Shares issued......................................... -- -- 4,750
-------- ------ -------
December 31, 1996..................................... 933,280 88,082
Options exercised..................................... -- -- 1,714
Shares issued......................................... -- -- 800
Shares repurchased.................................... -- -- (1,290)
-------- ------ -------
December 31, 1997..................................... 933,280 89,306
Recapitalization, net................................. (498,554) 80,504 (28,046)
Shares issued......................................... -- -- 26,984
Shares repurchased.................................... -- -- (9,636)
Options exercised..................................... 1,430 -- 6,200
-------- ------ -------
December 31, 1998..................................... 436,156 80,504 84,808
======== ====== =======
</TABLE>
12. INCOME TAXES
The following table sets forth the components of the provision for income
taxes:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
----------------------------
1996 1997 1998
------- ------- ------
(IN THOUSANDS)
<S> <C> <C> <C>
Current taxes
Federal.................................................. $15,360 $16,689 $5,037
State.................................................... 2,872 3,067 1,229
Foreign.................................................. 210 1,117 (117)
------- ------- ------
Total current......................................... 18,442 20,873 6,149
Deferred taxes
Federal.................................................. (1,588) 2,727 1,926
State.................................................... (267) (183) 431
Foreign.................................................. 523 293 13
Charge in lieu of taxes.................................. 1,254 -- --
------- ------- ------
Total deferred........................................ (78) 2,837 2,370
------- ------- ------
$18,364 $23,710 $8,519
======= ======= ======
</TABLE>
At the time of the 1994 Formation, WESCO had approximately $45 million of
future tax deductions ($18 million of future tax benefits) that resulted in the
creation of certain deferred tax assets. At that time, WESCO recorded a
valuation allowance for the full amount of the deferred tax assets reflected on
the opening balance sheet since the realization of the future tax benefits was
not considered likely. However, at December 31, 1996, all of these deductions
had been recognized as a reduction in noncurrent intangible assets.
F-16
<PAGE> 98
The charge in lieu of taxes recognized in 1996 represents the amount of tax
expense that would have been recognized had the benefits described above been
recorded at the time of the 1994 Formation.
The following table sets forth the components of income before income taxes
by jurisdiction:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
----------------------------
1996 1997 1998
------- ------- ------
(IN THOUSANDS)
<S> <C> <C> <C>
United States.............................................. $49,072 $57,083 $1,743
Canada..................................................... 1,754 2,864 (960)
------- ------- ------
$50,826 $59,947 $ 783
======= ======= ======
</TABLE>
The following table sets forth the reconciliation between the federal
statutory income tax rate and the effective rate:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-----------------------
1996 1997 1998
---- ---- -------
<S> <C> <C> <C>
Federal statutory rate...................................... 35.0% 35.0% 35.0%
State taxes, net of federal tax benefit..................... 4.2 3.3 137.8
Nondeductible expenses...................................... 2.5 2.6 206.2
Recapitalization costs...................................... -- -- 657.8
Foreign taxes............................................... (0.1) 0.3 (51.1)
Net adjustment to valuation allowance....................... (5.8) -- --
Other....................................................... 0.3 (1.6) 102.3
---- ---- -------
36.1% 39.6% 1,088.0%
==== ==== =======
</TABLE>
In 1996, WESCO determined that it was more likely than not that it would
realize the benefits of certain deferred tax assets originating subsequent to
the 1994 Formation. As a result, WESCO recognized benefits of approximately $2.9
million associated with the realization of post formation deferred tax assets
through the reversal of the associated valuation allowance.
The following table sets forth deferred tax assets and liabilities:
<TABLE>
<CAPTION>
DECEMBER 31
--------------------
1997 1998
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Accounts receivable......................................... $ 4,236 $ 6,330
Inventory................................................... 4,819 5,325
Other....................................................... 5,222 4,562
-------- --------
Deferred tax assets.................................... 14,277 16,217
-------- --------
Intangibles................................................. (3,766) (4,792)
Property, buildings and equipment........................... (4,079) (4,173)
Other....................................................... (8,817) (9,867)
-------- --------
Deferred tax liabilities............................... (16,662) (18,832)
-------- --------
$ (2,385) $ (2,615)
======== ========
</TABLE>
F-17
<PAGE> 99
13. EARNINGS PER SHARE
The following table sets forth the details of basic and diluted earnings
per share:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-----------------------------------
1996 1997 1998
---------- ---------- -------
(DOLLARS IN THOUSANDS, EXCEPT SHARE
DATA)
<S> <C> <C> <C>
Net income (loss).................................... $ 32,462 $ 36,237 $(7,736)
Interest on convertible debt......................... -- 125 --
---------- ---------- -------
Net income (loss) used in diluted earnings per
share.............................................. $ 32,462 $ 36,362 $(7,736)
Weighted average common shares outstanding used in
computing basic earnings (loss) per share.......... 1,015,238 1,021,282 779,440
Common shares issuable upon exercise of dilutive
stock options...................................... 86,335 125,729 --
Assumed conversion of convertible debt............... -- 6,606 --
---------- ---------- -------
Weighted average common shares outstanding and common
share equivalents used in computing diluted
earnings (loss) per share.......................... 1,101,573 1,153,617 779,440
========== ========== =======
Basic earnings (loss) per share...................... $ 31.97 $ 35.48 $ (9.93)
Diluted earnings (loss) per share.................... 29.47 31.52 (9.93)
</TABLE>
Interest on convertible debt of $1.3 million and common share equivalents
outstanding in 1998 of 114,718 were anti-dilutive and, accordingly, were not
considered in the computation of diluted loss per share for the year ended
December 31, 1998.
14. EMPLOYEE BENEFIT PLANS
A majority of WESCO's employees are covered by defined contribution
retirement savings plans for their service rendered subsequent to the 1994
Formation. Westinghouse retained certain retiree pension and health benefits for
service rendered prior to the 1994 Formation. U.S. employee contributions of not
more than 6% of eligible compensation are matched 50% by WESCO. WESCO's
contributions for Canadian employees range from 1% to 6% of eligible
compensation based on years of service.
In addition, employer contributions may be made at the discretion of the
Board of Directors and can be based on WESCO's current year performance.
Employees are credited for service with Westinghouse in determining the vesting
of WESCO's contributions. For the years ended December 31, 1996, 1997 and 1998,
WESCO contributed $9.3 million, $12.5 million and $14.1 million, respectively,
which was charged to expense.
15. STOCK INCENTIVE PLANS
Stock Purchase Plan.
In connection with the Recapitalization, WESCO established a stock purchase
plan ("1998 Stock Purchase Plan") under which certain employees may be granted
an opportunity to purchase WESCO's Class A common stock. The maximum number of
shares available for purchase may not exceed 7,400. The purchase price per share
is determined by the Board of Directors of WESCO to represent fair market value,
as defined by the Stock Subscription Agreement. Should the purchase price of the
stock be less than the fair market value of the stock at the grant date, such
excess will be recorded as compensation expense in the consolidated statements
of operations. During 1998, 5,050 shares were issued at a weighted-average share
price of $621.
F-18
<PAGE> 100
At the time of the 1994 Formation, WESCO established a stock purchase plan
("1994 Stock Purchase Plan") under which certain employees were granted an
opportunity to purchase WESCO's Class A Common Stock. Future purchases of shares
under the 1994 Stock Purchase Plan were terminated in conjunction with the
establishment of the 1998 Stock Purchase Plan. Shares purchased under the 1994
Stock Purchase Plan in the periods indicated were as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
------------------------
1996 1997 1998
------ ---- ------
<S> <C> <C> <C>
Shares purchased............................................ 2,610 800 2,292
Weighted-average share price................................ $ 169 $251 $ 621
</TABLE>
Other Stock Purchases.
In addition, certain key management employees of WESCO, nonemployee
directors and other investors may be granted an opportunity to purchase WESCO's
Class A common stock. The purchase price per share is determined by the Board of
Directors to represent the fair market value, as defined by the Stock
Subscription Agreement. At December 31, 1997 and 1998, 54,150 shares and 73,792
shares, respectively, had been purchased.
Other stock purchases in the periods indicated were as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-------------------------
1996 1997 1998
------ ---- -------
<S> <C> <C> <C>
Shares purchased............................................ 2,140 -- 19,642
Weighted-average share price................................ $ 195 -- $ 621
</TABLE>
Stock Option Plans.
WESCO has sponsored three stock options plans, the 1998 Stock Option Plan,
the Stock Option Plan for Branch Employees (collectively "Stock Option Plans")
and the 1994 Stock Option Plan. Participation is limited to executive and senior
officers, certain other key employees and branch employees. The Stock Option
Plans and the 1994 Stock Option Plan cover a maximum of 112,500 and 181,000
shares of WESCO's Class A common stock, respectively. The exercise price per
share is determined by the Board of Directors to represent the fair market
value, as defined by these plans, at the grant date.
Options granted will vest and will become exercisable over periods ranging
from four to five years or earlier based on WESCO achieving certain financial
performance criteria, except in the event of a change in control. Each option
terminates on the tenth anniversary of its grant date unless terminated sooner
under certain conditions.
The plans require WESCO to repurchase the exercisable portion of the
options held by an employee if the employee dies, is disabled or terminated
without cause during the term of employment. This repurchase right terminates
upon consummation of an initial public equity offering of WESCO's Class A common
stock. Since the triggering event requiring the repurchase is considered remote,
WESCO accounts for the plans as fixed plans and, accordingly, no compensation
expense has been recorded.
In connection with the Recapitalization, future issuances of options under
the 1994 Stock Option Plan were terminated and all options granted under the
1994 Stock Option Plan became fully vested.
The following table sets forth shares of common stock reserved for future
issuance at December 31, 1998:
<TABLE>
<S> <C>
Stock Purchase Plan......................................... 2,350
Stock Option Plans.......................................... 27,607
</TABLE>
F-19
<PAGE> 101
The following table sets forth a summary of stock option activity and
related information for the years indicated:
<TABLE>
<CAPTION>
1996 1997 1998
------------------------ ------------------------ ------------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
OPTIONS EXERCISE PRICE OPTIONS EXERCISE PRICE OPTIONS EXERCISE PRICE
------- -------------- ------- -------------- ------- --------------
<S> <C> <C> <C> <C> <C> <C>
Beginning of year.............. 95,970 $102 98,842 $107 119,844 $127
Granted (1).................... 6,300 181 26,140 198 72,100 565
Exercised...................... (3,428) 100 (1,714) 100 (19,626) 155
Canceled....................... -- -- (3,424) 102 (6,686) 221
------ ------- -------
End of year.................... 98,842 107 119,844 127 165,632 310
====== ======= =======
Exercisable at end of year..... 18,796 101 33,848 103 88,822 119
</TABLE>
- -------------------------
(1) Options granted in 1998 include 11,000 options that were issued at a
discount, resulting in approximately $4.1 million of compensation expense.
Of these options, 6,200 were subsequently exercised. The remaining 4,800
were forfeited and the associated costs were classified as additional
capital.
The Westinghouse option discussed in Note 16 is not included in the
information set forth above.
The following table sets forth exercise prices for options outstanding as
of December 31, 1998:
<TABLE>
<CAPTION>
EXERCISE PRICE WEIGHTED AVERAGE
PER OPTION OPTIONS REMAINING CONTRACTUAL LIFE
- -------------- ------- --------------------------
<C> <C> <S>
$100.00.... 63,148 5.6 years
114.30.... 12,431 7.0
195.40.... 27,913 8.0
250.97.... 1,040 8.9
621.08.... 61,100 9.6
</TABLE>
In connection with the implementation of SFAS No. 123, "Accounting for
Stock-Based Compensation," WESCO has elected to continue to account for
stock-based compensation arrangements under the provisions of Accounting
Principles Board (APB) Opinion No. 25.
If compensation costs had been determined based on the fair value at the
grant dates according to SFAS No. 123, WESCO's net income and earnings per
share, would have been as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-----------------------------
1996 1997 1998
------- ------- -------
(IN THOUSANDS, EXCEPT SHARE
DATA)
<S> <C> <C> <C>
Net income (loss)
As reported............................................. $32,462 $36,237 $(7,736)
Pro forma............................................... 32,441 36,144 (8,629)
Basic earnings (loss) per share
As reported............................................. $ 31.97 $ 35.48 $ (9.93)
Pro forma............................................... 31.95 35.39 (11.07)
Diluted earnings (loss) per share
As reported............................................. $ 29.47 $ 31.52 $ (9.93)
Pro forma............................................... 29.45 31.44 (11.07)
</TABLE>
F-20
<PAGE> 102
The weighted-average fair value per option granted was $16.70, $33.56 and
$223.20, for the years ended December 31, 1996, 1997 and 1998, respectively.
For purposes of presenting pro forma results, the fair value of each option
grant is estimated on the date of grant using the Black-Scholes option-pricing
model and the following assumptions:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
------------------------
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Risk-free interest rate..................................... 6.5% 6.5% 5.0%
Expected life (years)....................................... 7 7 7
=== === ===
</TABLE>
16. RELATED PARTIES
Prior to the Recapitalization, Westinghouse was considered a related party.
A summary of purchases from and sales to Westinghouse follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
----------------------------
1996 1997 1998
------- ------- ------
(IN THOUSANDS)
<S> <C> <C> <C>
Purchases from Westinghouse................................ $19,115 $15,498 $2,765
Sales to Westinghouse...................................... 21,192 21,666 7,271
======= ======= ======
</TABLE>
The amount due from Westinghouse at December 31, 1997, net of amounts owed
was approximately $2.6 million.
In connection with the 1994 Formation, WESCO granted Westinghouse an option
to purchase 100,000 shares of Class A common stock at $100 per share. The fair
value of this option, or $2.5 million, was included in the consolidated balance
sheets as common stock to be issued under option. This option was exercised and
the associated shares were repurchased in connection with the Recapitalization.
In connection with the Recapitalization, WESCO paid Cypress $9.5 million
related to transaction fees and WESCO received from CD&R $5.8 million as
contributed capital. Prior to the Recapitalization, WESCO paid CD&R an annual
financial advisory and management consulting fee of $0.4 million.
17. COMMITMENTS AND CONTINGENCIES
Future minimum rental payments required under operating leases, primarily
for real property that have noncancelable lease terms in excess of one year as
of December 31, 1998, are as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
1999........................................................ $17,827
2000........................................................ 15,677
2001........................................................ 13,399
2002........................................................ 9,083
2003........................................................ 5,034
Thereafter.................................................. 9,787
</TABLE>
Rental expense for the years ended December 31, 1996, 1997 and 1998, was
$22.0 million, $26.4 million and $29.1 million, respectively.
WESCO has litigation arising from time to time in the normal course of
business. In management's opinion, any present litigation WESCO is aware of will
not materially affect WESCO's consolidated financial position, results of
operations or cash flows.
F-21
<PAGE> 103
Westinghouse agreed to indemnify WESCO for certain environmental
liabilities that existed at the time of the 1994 Formation. WESCO has made a
claim under this indemnity amounting to $1.5 million. The ultimate resolution of
this environmental compliance issue is not expected to materially impact WESCO's
consolidated financial position, results of operations or cash flows.
At December 31, 1998, WESCO has guaranteed $8.9 million in loans to certain
stockholders.
18. SEGMENTS AND RELATED INFORMATION
In 1998, WESCO adopted SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information." SFAS No. 131 established standards for
disclosure of operating segments under the management approach. For purposes of
this standard, WESCO is engaged principally in one line of business -- the sale
of electrical products and maintenance repair and operating supplies -- which
represents more than 95% of the consolidated sales, income from operations and
assets, for the year ended December 31, 1998. The following table presents
information about WESCO by geographic area. There were no material amounts of
sales or transfers among geographic areas and no material amounts of United
States export sales:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
----------------------------------------------------------------------
SALES, NET LONG-LIVED ASSETS
------------------------------------ ------------------------------
1996 1997 1998 1996 1997 1998
---------- ---------- ---------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
United States.............. $1,993,995 $2,292,121 $2,713,213 $151,835 $161,250 $344,481
Canada..................... 258,739 280,812 272,463 12,733 11,962 10,483
Other...................... 21,888 21,886 39,763 147 810 1,889
---------- ---------- ---------- -------- -------- --------
$2,274,622 $2,594,819 $3,025,439 $164,715 $174,022 $356,853
========== ========== ========== ======== ======== ========
</TABLE>
19. SUPPLEMENTAL CASH FLOW INFORMATION
The following table sets forth supplemental cash flow information:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-------------------------------
1996 1997 1998
-------- ------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Details of acquisitions
Fair value of assets acquired......................... $170,583 $21,498 $307,056
Liabilities assumed................................... (54,884) (5,334) (56,838)
Restructuring reserve................................. (5,102) -- --
Notes issued to seller................................ (2,950) (2,250) (46,242)
Deferred acquisition payable.......................... -- -- (30,000)
-------- ------- --------
Cash paid for acquisitions............................ 107,647 13,914 173,976
Less cash acquired.................................... 3,729 -- --
-------- ------- --------
$103,918 $13,914 $173,976
======== ======= ========
Cash paid for interest.................................. $ 11,600 $15,377 $ 35,093
Cash paid for income taxes.............................. 13,756 27,523 9,470
</TABLE>
Noncash investing and financing activities not reflected in the
consolidated statement of cash flows for the year ended December 31, 1998,
consisted of $5.8 million use of restricted cash to reduce long-term debt, $5.2
million of capital expenditures included in accounts payable, the conversion of
F-22
<PAGE> 104
$1.6 million of notes payable to redeemable Class A common stock and the
immaterial effects of the sale for a note of an equity interest in an operating
division at book value.
20. OTHER FINANCIAL INFORMATION
In June 1998, WESCO Distribution issued $300 million of 9 1/8% Senior
Subordinated Notes. The Senior Subordinated Notes are fully and unconditionally
guaranteed by WESCO on a subordinated basis to all existing and future senior
indebtedness of WESCO. Summarized financial information for WESCO Distribution
is as follows:
BALANCE SHEET DATA
<TABLE>
<CAPTION>
DECEMBER 31,
1998
---------------
(IN THOUSANDS)
<S> <C>
Current assets.............................................. $582,071
Noncurrent assets........................................... 368,451
Current liabilities......................................... 466,467
Long-term debt.............................................. 527,167
Other noncurrent liabilities................................ 25,872
Total liabilities and stockholders' equity.................. 950,522
</TABLE>
STATEMENT OF OPERATIONS DATA
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1998
-----------------
(IN THOUSANDS)
<S> <C>
Sales, net.................................................. $3,025,439
Gross profit................................................ 537,659
Income from operations...................................... 56,026
Net income (loss)........................................... (4,377)
</TABLE>
Prior to the June 5, 1998 issuance of the Senior Discount Notes, WESCO
Distribution financial information was identical to that of WESCO's presented
herein.
F-23
<PAGE> 105
21. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
The following table sets forth selected quarterly financial data for the
years ended December 31, 1997 and 1998.
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER(1) QUARTER QUARTER
-------- ---------- -------- --------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C>
1997
Sales, net...................................... $576,776 $659,377 $679,991 $678,675
Gross profit.................................... 104,340 114,698 120,913 123,968
Income from operations.......................... 14,890 20,744 23,443 20,979
Income before income taxes...................... 10,092 15,833 18,207 15,815
Net income...................................... 6,085 9,533 10,989 9,630
Basic earnings per share........................ 5.96 9.34 10.76 9.43
Diluted earnings per share...................... 5.39 8.33 9.54 8.33
1998
Sales, net...................................... $693,448 $748,307 $777,701 $805,983
Gross profit.................................... 126,694 133,292 137,854 139,819
Income (loss) from operations................... 20,174 (23,423) 28,306 30,969
Income (loss) before income taxes............... 13,972 (36,271) 11,513 11,569
Net income (loss)............................... 8,523 (18,129) 26,438 (24,568)
Basic earnings (loss) per share................. 8.32 (20.08) 44.66 (41.04)
Diluted earnings (loss) per share............... 7.37 (20.08) 37.47 (41.04)
</TABLE>
- -------------------------
(1) Includes a one-time charge of $51.8 million related to the Recapitalization
in 1998 (see Note 3).
F-24
<PAGE> 106
INDEPENDENT ACCOUNTANTS' REPORT
To the stockholders and directors of
BRUCKNER SUPPLY COMPANY, INC.
We have audited the accompanying balance sheet of Bruckner Supply Company, Inc.
as of December 31, 1997, and the related statements of income and retained
earnings and cash flows for the year then ended. These financial statements are
the responsibility of the company's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Bruckner Supply Company, Inc.
at December 31, 1997, and the results of its operations and its cash flows for
the year then ended in conformity with generally accepted accounting principles.
/s/ ANCHIN, BLOCK & ANCHIN LLP
New York, New York
February 23, 1998
F-25
<PAGE> 107
BRUCKNER SUPPLY COMPANY, INC.
BALANCE SHEET
DECEMBER 31, 1997
<TABLE>
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash..................................................... $ 175,760
Debt Securities-Notes 1 and 2............................ 8,428,780
Accounts receivable...................................... 22,044,715
Inventories -- Note 1.................................... 2,195,277
Prepaid expenses and other current assets................ 126,624
-----------
Total Current Assets.................................. $32,971,156
Property and Equipment, Net-Notes 1 and 3.................. 357,705
Due From Affiliates -- Note 4.............................. 4,586
-----------
Total Assets.......................................... $33,333,447
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable......................................... $18,539,018
Bank overdraft........................................... 3,536,448
Other current liabilities................................ 618,476
-----------
Total Current Liabilities............................. $22,693,942
STOCKHOLDERS' EQUITY:
Common stock, stated value:
Authorized -- 200 shares
Issued and outstanding -- 25 shares................... $ 7,500
Additional paid-in capital............................... 2,022,843
Retained earnings........................................ 8,536,014
-----------
10,566,357
Net unrealized holding gains on available-for-sale
securities -- Notes 1 and 2........................... 73,148
-----------
Total Stockholders' Equity............................ 10,639,505
-----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY................. $33,333,447
===========
</TABLE>
See the accompanying Notes to the Financial Statements.
F-26
<PAGE> 108
BRUCKNER SUPPLY COMPANY, INC.
STATEMENT OF INCOME AND RETAINED EARNINGS
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<S> <C> <C>
Net Sales -- Note 7......................................... $222,406,503
Cost of Sales............................................... 203,417,417
------------
Gross Profit................................................ 18,989,086
% to Net Sales............................................ 8.5%
Operating Expenses.......................................... 8,852,762
------------
Operating Income............................................ 10,136,324
Investment and Other Income:
Investment income, net -- Note 2.......................... $647,067
Other income.............................................. 170,863
--------
817,930
------------
Income before Income Taxes.................................. 10,954,254
Provision for Income Taxes -- Note 1........................ 215,000
------------
Net Income.................................................. 10,739,254
Retained Earnings:
Balance, beginning of year................................ 9,220,700
Distributions to stockholders............................. (11,423,940)
------------
Balance, end of year...................................... $ 8,536,014
============
</TABLE>
See the accompanying Notes to the Financial Statements.
F-27
<PAGE> 109
BRUCKNER SUPPLY COMPANY, INC.
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.................................................. $10,739,254
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization............................. $ 111,429
Amortization of bond interest............................. 2,733
Net realized gain on sale of debt and marketable equity
securities.............................................. (96,088)
Gain on sale of property and equipment.................... (750)
Increase in:
Accounts receivable..................................... (10,718,009)
Inventories............................................. (1,540,402)
Prepaid expenses and other current assets............... (29,538)
Increase in:
Accounts payable and accrued expenses................... 7,009,628
------------
Total adjustments.................................. (5,260,997)
-----------
Net Cash Provided by Operating Activities............... 5,478,257
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment....................... (82,980)
Proceeds from sale of property and equipment.............. 750
Purchases of debt and marketable equity securities........ (22,997,355)
Proceeds from sales and maturities of debt and marketable
equity securities....................................... 23,446,815
Decrease in due from affiliate............................ 1,992,732
------------
Net Cash Provided by Investing Activities............... 2,359,962
CASH FLOWS FROM FINANCING ACTIVITIES
Distributions to stockholders............................. (11,423,940)
Increase in bank overdraft................................ 3,536,448
------------
Net Cash Used in Financing Activities................... (7,887,492)
-----------
NET DECREASE IN CASH........................................ (49,273)
CASH:
Beginning of year......................................... 225,033
-----------
End of year............................................... $ 175,760
===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Income taxes -- paid...................................... $ 165,780
-- refunded.................................. 9,134
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING ACTIVITIES:
Net unrealized holding losses on available-for-sale
securities.............................................. $ (41,824)
</TABLE>
See the accompanying Notes to the Financial Statements.
F-28
<PAGE> 110
BRUCKNER SUPPLY COMPANY, INC.
NOTES TO THE FINANCIAL STATEMENTS
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
DESCRIPTION OF BUSINESS:
Bruckner Supply Company, Inc. (the "Company") is an integrated supply
company whose customers are major corporations located throughout the United
States. The Company's revenues include total amounts billed to customers for
products sold and all other aspects of handling customers' purchasing
operations.
REVENUE RECOGNITION:
The Company generally sells merchandise which is shipped directly by its
vendors to customers. Revenue is recognized upon shipment.
DEBT SECURITIES:
Debt securities available for sale are measured at fair value, with net
unrealized gains and losses reported in equity. The Company uses the specific
identification method to determine the cost of securities sold.
USE OF ESTIMATES:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
INVENTORIES:
Inventories, which consist of finished goods, are valued at the lower of
cost, first-in, first-out method, or market.
PROPERTY AND EQUIPMENT:
Property and equipment are stated at cost less accumulated depreciation and
amortization. Depreciation is computed by straight-line and accelerated methods
over the estimated useful lives of the assets.
Leasehold improvements are amortized by the straight-line method over the
estimated useful lives of the assets.
INCOME TAXES:
The Company is taxed as an S corporation for Federal and New York States
tax purposes, whereby the company's income is reported by the stockholders.
Accordingly, no provision has been made for Federal income taxes. The Company
continues to be liable for certain states' corporate taxes.
F-29
<PAGE> 111
NOTE 2 -- DEBT SECURITIES:
The following table is a summary of investments at December 31, 1997:
<TABLE>
<CAPTION>
GROSS UNREALIZED
-----------------
AMORTIZED COST GAINS LOSSES FAIR VALUE
-------------- ------- ------ ----------
<S> <C> <C> <C> <C>
Available-For-Sale Debt Securities........ $8,355,632 $73,148 -- $8,428,780
</TABLE>
The following table summarizes the maturities of all debt securities at
fair value held at December 31, 1997:
<TABLE>
<CAPTION>
MORE THAN MORE THAN
WITHIN 1 YEAR 1 TO 5 YEARS 5 TO 10 YEARS TOTAL
------------- ------------ ------------- ----------
<S> <C> <C> <C> <C>
Available-For-Sale Debt Securities........... $2,656,195 $4,016,570 $1,756,015 $8,428,780
</TABLE>
Proceeds from sales and maturities of securities classified as
available-for-sale were $23,446,815. Gains of $133,493 and losses of $37,405
were realized on these sales. The net unrealized holding gains on
available-for-sale securities decreased by $41,824 in 1997.
<TABLE>
<S> <C>
Investment income for 1997 is comprised of:
Interest income........................................... $583,861
Net realized gains on sales of securities................. 96,088
--------
679,949
Less: Investment expenses................................. 32,882
--------
$647,067
========
</TABLE>
NOTE 3 -- PROPERTY AND EQUIPMENT:
<TABLE>
<S> <C>
Property and equipment consist of the following:
Leasehold improvements.................................... $ 91,139
Machinery and equipment................................... 476,238
Furniture and fixtures.................................... 244,586
Transportation and delivery equipment..................... 233,799
----------
1,045,762
Less: Accumulated depreciation and amortization........... 688,057
----------
$ 357,705
==========
</TABLE>
NOTE 4 -- DUE FROM AFFILIATES:
The amounts due from affiliates are non-interest bearing and have no
specified repayment terms.
NOTE 5 -- RETIREMENT PLAN:
The Company maintains a defined-contribution 401(k) savings plan covering
substantially all employees. Company contributions to the plan are at the
discretion of the Board of Directors. During 1997 no company contribution was
made to the plan.
F-30
<PAGE> 112
NOTE 6 -- COMMITMENTS AND CONTINGENCIES:
LEASES:
The Company leases office space from an affiliate under an operating lease,
which expires December 31, 2002, at an annual rent of $150,000. The lease
requires the Company to pay real estate taxes.
In February, 1998, the Company entered into an operating lease for
additional office space, which expires February 6, 1999, at an annual rent of
$80,000.
The Company also leases certain computer equipment under an operating
lease, which expires August 31, 1999, at an annual rate of $155,820.
Rent expense was $305,909 for 1997.
Future minimum rental commitments are as follows:
<TABLE>
<CAPTION>
YEARS ENDING DECEMBER 31,
- --------------------------------------------------
<S> <C>
1998................................... $ 379,153
1999................................... 260,547
2000................................... 150,000
2001................................... 150,000
2002................................... 150,000
----------
Total.................................. $1,089,700
==========
</TABLE>
STOCKHOLDERS' AGREEMENT:
Under the terms of a stockholders' agreement, upon their death, Bruckner
Supply Company, Inc. is required to purchase the shares owned by its
stockholders at a value determined annually by the stockholders, and may be paid
out over a period of ten years.
NOTE 7 -- MAJOR CUSTOMER:
For the year ended December 31, 1997, one customer, through multiple
operating divisions located throughout the United States, accounted for
approximately 68% of net sales and approximately 37% of the December 31, 1997
accounts receivable balance.
NOTE 8 -- SUBSEQUENT EVENT (UNAUDITED):
September 11, 1998, the Company sold to WESCO Distribution, Inc.,
substantially all of its assets and liabilities, other than cash, debt
securities, amounts due from affiliates, certain equipment and prepaid expenses
and bank overdraft.
F-31
<PAGE> 113
SHARES
WESCO INTL. LOGO
WESCO INTERNATIONAL, INC.
COMMON STOCK
---------------------------
PROSPECTUS
, 1999
---------------------------
LEHMAN BROTHERS
BEAR, STEARNS & CO. INC.
DONALDSON, LUFKIN & JENRETTE
GOLDMAN, SACHS & CO.
ROBERT W. BAIRD & CO.
INCORPORATED
ING BARING FURMAN SELZ LLC
<PAGE> 114
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth estimated expenses expected to be incurred
in connection with the issuance and distribution of the securities being
registered.
<TABLE>
<S> <C>
Securities and Exchange Commission Registration Fee......... $55,948
NYSE Listing Fee............................................ *
NASD Filing Fee............................................. 20,625
Printing and Engraving Expenses............................. *
Accounting Fees and Expenses................................ *
Legal Fees and Expenses..................................... *
Blue Sky Qualification Fees and Expenses.................... *
Transfer Agent Fees and Expenses............................ *
Miscellaneous............................................... *
-------
Total.................................................. $ *
=======
</TABLE>
- -------------------------
* To be provided by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Under Section 145 of the DGCL, a corporation has the power to indemnify
directors and officers under certain prescribed circumstances and subject to
certain limitations against certain costs and expenses, including attorneys'
fees actually and reasonably incurred in connection with any action, suit or
proceeding, whether civil, criminal, administrative or investigative, to which
any of them is a party by reason of his being a director or officer of the
corporation if it is determined that he acted in accordance with the applicable
standard of conduct set forth in such statutory provision. Article VI of our
By-Laws provides that we will indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding by reason of the fact that he is or was a director, officer,
employee or agent of the Company, or is or was serving at the our request as a
director, officer, employee or agent of another entity, against certain
liabilities, costs and expenses. Article VI further permits us to maintain
insurance on behalf of any person who is or was a director, officer, employee or
agent of the Company, or is or was serving at our request as a director,
officer, employee or agent of another entity against any liability asserted
against such person and incurred by such person in any such capacity or arising
out of his status as such, whether or not we would have the power to indemnify
such person against such liability under the DGCL. We maintain directors' and
officers' liability insurance.
Section 102(b)(7) of the Delaware General Corporation Law (the "DGCL")
permits a corporation, in its certificate of incorporation, to limit or
eliminate, subject to certain statutory limitations, the liability of directors
to the corporation or its stockholders for monetary damages for breaches of
fiduciary duty, except for liability (a) for any breach of the director's duty
of loyalty to the corporation or its stockholders, (b) for acts or omissions not
in good faith or which involve intentional misconduct or a knowing violation of
law, (c) under Section 174 of the DGCL, or (d) for any transaction from which
the director derived an improper personal benefit. Article SIXTH of our
II-1
<PAGE> 115
Certificate of Incorporation contains the following provision regarding
limitation of liability of our directors and officers:
"(e) No director of the Corporation shall be liable to the Corporation or its
stockholders for monetary damages for breach of his or her fiduciary duty as a
director, provided that nothing contained in this [Third Restated Certificate of
Incorporation] shall eliminate or limit the liability of a director (a) for any
breach of the director's duty of loyalty to the Corporation or its stockholders,
(b) for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (c) under Section 174 of the DGCL, or
(d) for any transaction from which the director derived an improper personal
benefit."
The Underwriting Agreement filed as an exhibit hereto contains provisions
pursuant to which each Underwriter severally agrees to indemnify us, any person
controlling the Company within the meaning of Section 15 of the Securities Act
of 1933, as amended, or Section 20 of the Securities Exchange Act of 1934, as
amended, each director of the Company, and each officer of the Company who signs
this registration statement with respect to information relating to such
Underwriter furnished in writing by or on behalf of such Underwriter expressly
for use in this registration statement.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Within the past three years, the Company sold shares of its capital stock
in the following transactions, each of which was intended to be exempt from the
registration requirements of the Securities Act of 1933, as amended.
On April 9, 1996, the Company sold to one key member of management of the
Company 860 shares of Common Stock, for an aggregate purchase price of $98,298
and granted to such person 1,140 options to purchase shares of its Common Stock
with an exercise price of $114.30 per share. For the foregoing transactions, the
Company relied upon exemption from registration under Rule 701 under the
Securities Act.
On December 20, 1996, the Company sold to two senior executives of the
Company and three other key members of management of the Company 3,890 shares of
its Common Stock, for an aggregate purchase price of $760,106, and granted to
such persons 5,160 options to purchase shares of its Common Stock with an
exercise price of $195.40 per share. For the foregoing transactions, the Company
relied upon exemption from registration under Rule 701 under the Securities Act.
On January 1, 1997, the Company granted key branch employees 25,250 options
to purchase shares of its Common Stock with an exercise price of $195.40 per
share. For the foregoing transactions, the Company relied upon exemption from
registration under Rule 701 under the Securities Act.
On November 26, 1997, the Company sold to one senior executive of the
Company 800 shares of its Common Stock, for an aggregate purchase price of
$200,776, and granted to such senior executive 1,040 options to purchase shares
of its Common Stock with an exercise price of $250.97 per share. For the
foregoing transactions, the Company relied upon exemption from registration
under Rule 701 under the Securities Act.
On January 31, 1998, the Company sold to each of two accredited investors
in a private placement 996 shares of its Common Stock, for an aggregate purchase
price of $499,932. For the foregoing transactions, the Company relied upon
exemption from registration under Section 4(2) of the Securities Act.
On March 26, 1998, the Company sold to one senior executive officer of the
Company 1,932 shares of its Common Stock, for an aggregate purchase price of
$1,199,927, and granted to
II-2
<PAGE> 116
such senior executive 11,000 options to purchase shares of its Common Stock with
an exercise price of $250.97 per share. For the foregoing transactions, the
Company relied upon the exemption from registration under Rule 701 under the
Securities Act.
On April 24, 1998, the Company sold to one key member of management of the
Company 300 shares of its Common Stock, for an aggregate purchase price of
$186,324 and granted to such key member of management 390 options to purchase
shares of its Common Stock with an exercise price of $621.08 per share. For the
foregoing transactions, the Company relied upon the exemption from registration
Rule 701 under the Securities Act.
On June 5, 1998, in connection with the Recapitalization of the Company,
the Company sold to (i) Cypress Merchant Banking Partners L.P., 318,426 shares
of its Common Stock, for an aggregate purchase price of $197,768,020, (ii)
Cypress Offshore Partners L.P., 16,650 shares of its Common Stock, for an
aggregate purchase price of $10,340,982, (iii) The Travelers Insurance Company,
7,246 shares of its Common Stock, for an aggregate purchase price of $4,500,346,
(iv) The Travelers Life and Annuity Company, 805 shares of its Common Stock, for
an aggregate purchase price of $499,969, (v) The Travelers Indemnity Company,
7,084 shares of its Common Stock, for an aggregate purchase price of $4,399,731,
(vi) The Phoenix Insurance Company, 966 shares of its Common Stock, for an
aggregate purchase price of $599,963, (vii) Co-Investment Partners, L.P., 80,505
shares of its Common Stock, for an aggregate purchase price of $50,000,045 and
(viii) Chase Equity Associates, L.P., 80,504 shares of its Class B Common Stock,
for an aggregate purchase price of $49,999,424. For the foregoing transactions,
the Company relied upon exemption from registration under Regulation D under the
Securities Act.
On August 5, 1998, the Company sold to senior executives 13,910 shares of
its Common Stock, for an aggregate purchase price of $8,639,223. For the
foregoing transactions, the Company relied upon exemption from registration
under Regulation D under the Securities Act.
On August 5, 1998, the Company sold to key members of management 5,050
shares of its Common Stock, for an aggregate purchase price of $3,136,454. For
the foregoing transactions, the Company relied upon the exemption from
registration under Rule 701 under the Securities Act.
On August 6, 1998, as contemplated by the Recapitalization, the Company
granted to key members of management 60,710 options to purchase shares of its
Common Stock with an aggregate exercise price of $37,705,767. For the foregoing
transactions, the Company relied upon the exemption from registration under Rule
701 under the Securities Act.
On November 20, 1998, the Company sold to senior executives 2,600 shares of
its Common Stock, for an aggregate purchase price of $1,614,808. For the
foregoing transactions, the Company relied upon exemption from registration
under Regulation D under the Securities Act.
On December 31, 1998, the Company sold to three directors of the Company
1,200 shares of its Common Stock, for an aggregate purchase price of $745,296.
For the foregoing transactions, the Company relied upon exemption from
registration under Regulation D under the Securities Act.
II-3
<PAGE> 117
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) The following exhibits are filed as part of this registration
statement:
<TABLE>
<CAPTION>
PRIOR FILING OR
EXHIBIT NO. DESCRIPTION OF EXHIBIT SEQUENTIAL PAGE NUMBER
- ----------- ---------------------- ----------------------
<C> <S> <C>
1.1 Form of Underwriting Agreement*
2.1 Recapitalization Agreement dated as of March 27, Incorporated by reference
1998 among Thor Acquisitions L.L.C., WESCO to WESCO's Exhibit 2.1 to
International, Inc. (formerly known as CDW Holding Registration Statement in
Corporation, "WESCO") and certain securityholders Form S-4 (No. 333-43225)
of WESCO. (the "Form S-4")
2.2 Purchase Agreement dated May 29, 1998 among WESCO, Incorporated by reference
WESCO Distribution, Inc. ("WESCO Distribution"), to Exhibit 2.2 to the
Chase Securities Inc. and Lehman Brothers Inc. Form S-4
2.3 Asset Purchase Agreement among Bruckner Supply Incorporated by reference
Company, Inc. and WESCO Distribution dated to Exhibit 2.01 to the
September 11, 1998, previously filed. Omitted Current Report on Form
schedules and exhibits will be provided 8-K dated September 11,
supplementally to the Commission upon request. 1998
3.1 Amended and Restated Certificate of Incorporation
of WESCO*
3.2 Amended and Restated By-Laws of WESCO*
4.1 Form of Common Stock Certificate*
4.2 Form of Class B Common Stock Certificate*
4.3 Indenture dated as of June 5, 1998 among WESCO, Incorporated by reference
WESCO Distribution and Bank One, N.A. to Exhibit 4.1 to the
Form S-4
4.4 Form of 9 1/8% Senior Subordinated Note Due 2008, Incorporated by reference
Series A (included in Exhibit 4.3). to Exhibit 4.2 to the
Form S-4
4.5 Form of 9 1/8% Senior Subordinated Note Due 2008, Incorporated by reference
Series B (included in Exhibit 4.3). to Exhibit 4.3 to the
Form S-4
4.6 Exchange and Registration Rights Agreement dated Incorporated by reference
as of June 5, 1998 among the Company, WESCO and to Exhibit 4.4 to the
the Initial Purchasers Form S-4
4.7 Indenture dated as of June 5, 1998 between WESCO Incorporated by reference
and Bank One, N.A. to Exhibit 4.5 to the
Form S-4
4.8 Form of 11 1/8% Senior Discount Note Due 2008, Incorporated by reference
Series A (included in Exhibit 4.7) to Exhibit 4.6 to the
Form S-4
4.9 Form of 11 1/8% Senior Discount Note Due 2008, Incorporated by reference
Series B (included in Exhibit 4.7) to Exhibit 4.7 to the
Form S-4
4.10 Exchange and Registration Rights Agreement dated Incorporated by reference
as of June 5, 1998 among WESCO and the Initial to Exhibit 4.8 to the
Purchasers Form S-4
5.1 Opinion of Kirkpatrick & Lockhart LLP as to the
legality of the Common Stock*
</TABLE>
II-4
<PAGE> 118
<TABLE>
<CAPTION>
PRIOR FILING OR
EXHIBIT NO. DESCRIPTION OF EXHIBIT SEQUENTIAL PAGE NUMBER
- ----------- ---------------------- ----------------------
<C> <S> <C>
10.1 CDW Holding Corporation Stock Purchase Plan Incorporated by reference
to Exhibit 10.1 to the
Form S-4
10.2 Form of Stock Subscription Agreement Incorporated by reference
to Exhibit 10.2 to the
Form S-4
10.3 CDW Holding Corporation Stock Option Plan Incorporated by reference
to Exhibit 10.3 to the
Form S-4
10.4 Form of Stock Option Agreement Incorporated by reference
to Exhibit 10.4 to the
Form S-4
10.5 CDW Holding Corporation Stock Option Plan for Incorporated by reference
Branch Employees to Exhibit 10.5 to the
Form S-4
10.6 Form of Branch Stock Option Agreement Incorporated by reference
to Exhibit 10.6 to the
Form S-4
10.7 Non-Competition Agreement, dated as of February Incorporated by reference
28, 1996, between Westinghouse, WESCO and WESCO to Exhibit 10.8 to the
Distribution Form S-4
10.8 Employment Agreement between WESCO Distribution Incorporated by reference
and Stanley C. Weiss to Exhibit 10.9 to the
Form S-4
10.9 Lease dated May 24, 1995 as amended by Amendment Incorporated by reference
One dated June, 1995 and by Amendment Two dated to Exhibit 10.10 to the
December 24, 1995 by and between WESCO Form S-4
Distribution as Tenant and Opal Investors, L.P.
and Mural GEM Investors as Landlord
10.10 Lease dated April 1, 1992 as renewed by Letter of Incorporated by reference
Notice of Intent to Renew dated December 13, 1996 to Exhibit 10.11 to the
by and between the Company successor in interest Form S-4
to Westinghouse Electric Corporation as Tenant and
Utah State Retirement Fund as Landlord
10.11 Lease dated September 4, 1997 and between WESCO Incorporated by reference
Distribution as Tenant and The Buncher Company as to Exhibit 10.12 to the
Landlord Form S-4
10.12 Lease dated March, 1995 by and between WESCO Incorporated by reference
Distribution-Canada, Inc. ("WESCO Canada") as to Exhibit 10.13 to the
Tenant and Atlantic Construction, Inc. as Landlord Form S-4
10.13 Credit Agreement dated as of June 5, 1998 among Incorporated by reference
WESCO, the Company, WESCO Canada, The Chase to Exhibit 10.14 to the
Manhattan Bank, The Chase Manhattan Bank of Canada Form S-4
and Lehman Commercial Paper, Inc.
</TABLE>
II-5
<PAGE> 119
<TABLE>
<CAPTION>
PRIOR FILING OR
EXHIBIT NO. DESCRIPTION OF EXHIBIT SEQUENTIAL PAGE NUMBER
- ----------- ---------------------- ----------------------
<C> <S> <C>
10.14 U.S. Receivables Sales Agreement dated June 5, Incorporated by reference
1998 among the Company, WESCO Receivables Corp. to Exhibit 10.15 to the
(the "SPC"), The Chase Manhattan Bank and other Form S-4
sellers named therein.
10.15 Canadian Receivables Sales Agreement dated June 5, Incorporated by reference
1998 among WESCO Distribution, WESCO Canada, the to Exhibit 10.16 to the
SPC, The Chase Manhattan Bank of Canada and other Form S-4
sellers named therein.
10.16 WESCO Receivables Master Trust Pooling Agreement Incorporated by reference
dated June 5, 1998 among the Company, WESCO to Exhibit 10.17 to the
Canada, the SPC, and The Chase Manhattan Bank Form S-4
10.17 WESCO Receivables Master Trust Pooling Agreement Incorporated by reference
Series 1998-1 Supplement dated June 5, 1998 to Exhibit 10.18 to the
Form S-4
10.18 Amended and Restated Registration and Incorporated by reference
Participation Agreement dated June 5, 1998 among to Exhibit 10.19 to the
WESCO and certain securityholders of WESCO named Form S-4
therein.
10.19 Employment Agreement between WESCO Distribution Incorporated by reference
and Roy W. Haley to Exhibit 10.20 to the
Form S-4
10.20 WESCO International, Inc. 1998 Stock Option Plan Incorporated by reference
to WESCO's Exhibit 10.1
to Quarterly Report on
Form 10-Q for the quarter
ended September 30, 1998
10.21 Form of Management Stock Option Agreement Incorporated by reference
to WESCO's Exhibit 10.1
to Quarterly Report on
Form 10-Q for the quarter
ended September 30, 1998
21.1 Subsidiaries of WESCO*
23.1 Consent of Kirkpatrick & Lockhart LLP (included in
its opinion filed as Exhibit 5.1 hereto)*
23.2 Consent of PricewaterhouseCoopers LLP, Independent Filed herewith
Accountants
23.3 Consent of Anchin, Block & Anchin LLP, Independent Filed herewith
Accountants
24.1 Powers of Attorney (included on signature page) Filed herewith
27.1 Financial Data Schedule Filed herewith
</TABLE>
- -------------------------
* To be filed by amendment.
** The registrant hereby agrees to furnish supplementally to the Commission,
upon request, a copy of any omitted schedule to any of the agreements
contained herein.
II-6
<PAGE> 120
(b) The following financial statement schedules are filed herewith,
accompanied by reports of independent accountants on such schedules:
For the years ended December 31, 1996, 1997 and 1998.
Schedule II -- Valuation and Qualifying Accounts
Financial statement schedules not listed above have been omitted because
they are inapplicable, are not required under applicable provisions of
Regulation S-X, or the information that would otherwise be included in such
schedules is contained in the registrant's financial statements or accompanying
notes.
ITEM 17. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-7
<PAGE> 121
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Pittsburgh, Commonwealth
of Pennsylvania, on March 3, 1999.
WESCO INTERNATIONAL, INC.
By: /s/ ROY W. HALEY
------------------------------------
Name: Roy W. Haley
Title: Chairman of the Board,
President and Chief
Executive Officer
POWER OF ATTORNEY
We, the undersigned directors and officers of WESCO International, Inc., do
hereby constitute and appoint Steven A. Burleson and Anthony D. Tutrone, or
either of them, our true and lawful attorneys and agents, to do any and all acts
and things in our name and on our behalf in our capacities as directors and
officers and to execute any and all instruments for us and in our names in the
capacities indicated below, which said attorneys and agents, or either of them,
may deem necessary or advisable to enable said corporation to comply with the
Securities Act of 1933 and any rules, regulations and requirements of the
Securities and Exchange Commission, in connection with this Registration
Statement, including specifically, but without limitation, power and authority
to sign for us or any of us in our names in the capacities indicated below, any
and all amendments (including post-effective amendments) hereto and we do hereby
ratify and confirm all that said attorneys and agents, or either of them, shall
do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed on the March 3, 1999 by the following
persons in the capacities indicated, with respect to WESCO International, Inc.:
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S>
/s/ ROY W. HALEY Chairman, President and Chief Executive Officer (Principal
- --------------------------------------------------- Executive Officer)
Roy W. Haley
/s/ STEVEN A. BURLESON Vice President, Chief Financial Officer and Corporate
- --------------------------------------------------- Controller (Principal Financial and Accounting Officer)
Steven A. Burleson
/s/ JAMES L. SINGLETON Director
- ---------------------------------------------------
James L. Singleton
/s/ JAMES A. STERN Director
- ---------------------------------------------------
James A. Stern
/s/ ANTHONY D. TUTRONE Director
- ---------------------------------------------------
Anthony D. Tutrone
/s/ MICHAEL J. CHESHIRE Director
- ---------------------------------------------------
Michael J. Cheshire
/s/ ROBERT J. TARR, JR. Director
- ---------------------------------------------------
Robert J. Tarr, Jr.
/s/ KENNETH L. WAY Director
- ---------------------------------------------------
Kenneth L. Way
/s/ STEVEN A. BURLESON
- ---------------------------------------------------
Steven A. Burleson
as Attorney-in-Fact
</TABLE>
<PAGE> 122
REPORT OF INDEPENDENT ACCOUNTANTS
ON FINANCIAL STATEMENT SCHEDULE
To the Stockholders and Board of Directors
of WESCO International, Inc.:
Our audits of the consolidated financial statements referred to in our report
dated February 12, 1999 appearing on page F-2 of this prospectus also included
an audit of the financial statement schedule listed in Item 16 of this Form S-1.
In our opinion, this financial statement schedule presents fairly, in all
material respects, the information set forth therein when read in conjunction
with the related consolidated financial statements.
/s/ PricewaterhouseCoopers
600 Grant Street
Pittsburgh, Pennsylvania
February 12, 1999
<PAGE> 123
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
COL. A COL. B COL. C COL. D COL. E COL. F
- ---------------------------------------------- ----------- ----------- ----------- ---------- -----------
ADDITIONS
-------------------------
BALANCE AT CHARGED TO BALANCE AT
BEGINNING CHARGED TO OTHER END OF
OF PERIOD EXPENSE ACCOUNTS DEDUCTIONS PERIOD
----------- ----------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Allowance for doubtful accounts:
Year ended December 31, 1996................ 8,589 3,017 2,961a (4,492) 10,075
Year ended December 31, 1997................ 10,075 3,274 594 (3,129) 10,814
Year ended December 31, 1998................ 10,814 2,325 3,423a (8,480)c 8,082
Allowance for deferred tax assets:
Year ended December 31, 1996................ 4,182 -- (1,254)b (2,928) --
Year ended December 31, 1997................ -- -- -- -- --
Year ended December 31, 1998................ -- -- -- -- --
</TABLE>
- ---------------------------
a Represents allowance for doubtful accounts acquired in connection with certain
acquisitions.
b Represents reversal of valuation allowances as a result of realizing the
benefits of the deferred tax assets acquired at the date of Formation.
c Includes $3,464 which represents a reduction in the allowance for doubtful
accounts related to the sale of receivables at fair market value in connection
with the Receivables Facility.
<PAGE> 124
INDEX TO EXHIBITS
The registrant hereby agrees to furnish supplementally to the Commission,
upon request, a copy of any omitted schedule to any of the agreements contained
herein.
<TABLE>
<CAPTION>
PRIOR FILING OR
EXHIBIT NO. DESCRIPTION OF EXHIBIT SEQUENTIAL PAGE NUMBER
- ----------- ---------------------- ----------------------
<C> <S> <C>
1.1 Form of Underwriting Agreement*
2.1 Recapitalization Agreement dated as of March 27, Incorporated by reference
1998 among Thor Acquisitions L.L.C., WESCO to WESCO's Exhibit 2.1 to
International, Inc. (formerly known as CDW Holding Registration Statement in
Corporation, "WESCO") and certain securityholders Form S-4 (No. 333-43225)
of WESCO. (the "Form S-4")
2.2 Purchase Agreement dated May 29, 1998 among WESCO, Incorporated by reference
WESCO Distribution, Inc. ("WESCO Distribution"), to Exhibit 2.2 to the
Chase Securities Inc. and Lehman Brothers Inc. Form S-4
2.3 Asset Purchase Agreement among Bruckner Supply Incorporated by reference
Company, Inc. and WESCO Distribution dated to Exhibit 2.01 to the
September 11, 1998, previously filed. Omitted Current Report on Form
schedules and exhibits will be provided 8-K dated September 11,
supplementally to the Commission upon request. 1998
3.1 Amended and Restated Certificate of Incorporation
of WESCO*
3.2 Amended and Restated By-Laws of WESCO*
4.1 Form of Common Stock Certificate*
4.2 Form of Class B Common Stock Certificate*
4.3 Indenture dated as of June 5, 1998 among WESCO, Incorporated by reference
WESCO Distribution and Bank One, N.A. to Exhibit 4.1 to the
Form S-4
4.4 Form of 9 1/8% Senior Subordinated Note Due 2008, Incorporated by reference
Series A (included in Exhibit 4.3). to Exhibit 4.2 to the
Form S-4
4.5 Form of 9 1/8% Senior Subordinated Note Due 2008, Incorporated by reference
Series B (included in Exhibit 4.3). to Exhibit 4.3 to the
Form S-4
4.6 Exchange and Registration Rights Agreement dated Incorporated by reference
as of June 5, 1998 among the Company, WESCO and to Exhibit 4.4 to the
the Initial Purchasers Form S-4
4.7 Indenture dated as of June 5, 1998 between WESCO Incorporated by reference
and Bank One, N.A. to Exhibit 4.5 to the
Form S-4
4.8 Form of 11 1/8% Senior Discount Note Due 2008, Incorporated by reference
Series A (included in Exhibit 4.7) to Exhibit 4.6 to the
Form S-4
4.9 Form of 11 1/8% Senior Discount Note Due 2008, Incorporated by reference
Series B (included in Exhibit 4.7) to Exhibit 4.7 to the
Form S-4
4.10 Exchange and Registration Rights Agreement dated Incorporated by reference
as of June 5, 1998 among WESCO and the Initial to Exhibit 4.8 to the
Purchasers Form S-4
5.1 Opinion of Kirkpatrick & Lockhart LLP as to the
legality of the Common Stock*
</TABLE>
<PAGE> 125
<TABLE>
<CAPTION>
PRIOR FILING OR
EXHIBIT NO. DESCRIPTION OF EXHIBIT SEQUENTIAL PAGE NUMBER
- ----------- ---------------------- ----------------------
<C> <S> <C>
10.1 CDW Holding Corporation Stock Purchase Plan Incorporated by reference
to Exhibit 10.1 to the
Form S-4
10.2 Form of Stock Subscription Agreement Incorporated by reference
to Exhibit 10.2 to the
Form S-4
10.3 CDW Holding Corporation Stock Option Plan Incorporated by reference
to Exhibit 10.3 to the
Form S-4
10.4 Form of Stock Option Agreement Incorporated by reference
to Exhibit 10.4 to the
Form S-4
10.5 CDW Holding Corporation Stock Option Plan for Incorporated by reference
Branch Employees to Exhibit 10.5 to the
Form S-4
10.6 Form of Branch Stock Option Agreement Incorporated by reference
to Exhibit 10.6 to the
Form S-4
10.7 Non-Competition Agreement, dated as of February Incorporated by reference
28, 1996, between Westinghouse, WESCO and WESCO to Exhibit 10.8 to the
Distribution Form S-4
10.8 Employment Agreement between WESCO Distribution Incorporated by reference
and Stanley C. Weiss to Exhibit 10.9 to the
Form S-4
10.9 Lease dated May 24, 1995 as amended by Amendment Incorporated by reference
One dated June, 1995 and by Amendment Two dated to Exhibit 10.10 to the
December 24, 1995 by and between WESCO Form S-4
Distribution as Tenant and Opal Investors, L.P.
and Mural GEM Investors as Landlord
10.10 Lease dated April 1, 1992 as renewed by Letter of Incorporated by reference
Notice of Intent to Renew dated December 13, 1996 to Exhibit 10.11 to the
by and between the Company successor in interest Form S-4
to Westinghouse Electric Corporation as Tenant and
Utah State Retirement Fund as Landlord
10.11 Lease dated September 4, 1997 and between WESCO Incorporated by reference
Distribution as Tenant and The Buncher Company as to Exhibit 10.12 to the
Landlord Form S-4
10.12 Lease dated March, 1995 by and between WESCO Incorporated by reference
Distribution-Canada, Inc. ("WESCO Canada") as to Exhibit 10.13 to the
Tenant and Atlantic Construction, Inc. as Landlord Form S-4
10.13 Credit Agreement dated as of June 5, 1998 among Incorporated by reference
WESCO, the Company, WESCO Canada, The Chase to Exhibit 10.14 to the
Manhattan Bank, The Chase Manhattan Bank of Canada Form S-4
and Lehman Commercial Paper, Inc.
</TABLE>
<PAGE> 126
<TABLE>
<CAPTION>
PRIOR FILING OR
EXHIBIT NO. DESCRIPTION OF EXHIBIT SEQUENTIAL PAGE NUMBER
- ----------- ---------------------- ----------------------
<C> <S> <C>
10.14 U.S. Receivables Sales Agreement dated June 5, Incorporated by reference
1998 among the Company, WESCO Receivables Corp. to Exhibit 10.15 to the
(the "SPC"), The Chase Manhattan Bank and other Form S-4
sellers named therein.
10.15 Canadian Receivables Sales Agreement dated June 5, Incorporated by reference
1998 among WESCO Distribution, WESCO Canada, the to Exhibit 10.16 to the
SPC, The Chase Manhattan Bank of Canada and other Form S-4
sellers named therein.
10.16 WESCO Receivables Master Trust Pooling Agreement Incorporated by reference
dated June 5, 1998 among the Company, WESCO to Exhibit 10.17 to the
Canada, the SPC, and The Chase Manhattan Bank Form S-4
10.17 WESCO Receivables Master Trust Pooling Agreement Incorporated by reference
Series 1998-1 Supplement dated June 5, 1998 to Exhibit 10.18 to the
Form S-4
10.18 Amended and Restated Registration and Incorporated by reference
Participation Agreement dated June 5, 1998 among to Exhibit 10.19 to the
WESCO and certain securityholders of WESCO named Form S-4
therein.
10.19 Employment Agreement between WESCO Distribution Incorporated by reference
and Roy W. Haley to Exhibit 10.20 to the
Form S-4
10.20 WESCO International, Inc. 1998 Stock Option Plan Incorporated by reference
to WESCO's Exhibit 10.1
to Quarterly Report on
Form 10-Q for the quarter
ended September 30, 1998
10.21 Form of Management Stock Option Agreement Incorporated by reference
to WESCO's Exhibit 10.1
to Quarterly Report on
Form 10-Q for the quarter
ended September 30, 1998
21.1 Subsidiaries of WESCO*
23.1 Consent of Kirkpatrick & Lockhart LLP (included in
its opinion filed as Exhibit 5.1 hereto)*
23.2 Consent of PricewaterhouseCoopers LLP, Independent Filed herewith
Accountants
23.3 Consent of Anchin, Block & Anchin LLP, Independent Filed herewith
Accountants
24.1 Powers of Attorney (included on signature page) Filed herewith
27.1 Financial Data Schedule Filed herewith
</TABLE>
- -------------------------
* To be filed by amendment.
<PAGE> 1
Exhibit 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-1 (to
register Common Stock) of our report dated February 12, 1999, on our audits of
the consolidated financial statements and financial statement schedule of WESCO
International, Inc. and subsidiaries. We also consent to the references to our
firm under the captions "Experts" and "Selected Historical Consolidated
Financial Data."
/s/ PricewaterhouseCoopers
600 Grant Street
Pittsburgh, Pennsylvania
March 3, 1999
<PAGE> 1
Exhibit 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-1 (to
register Common Stock) of our report dated February 23, 1998, on our audits of
the financial statements of Bruckner Supply Company, Inc. We also consent to the
references to our firm under the caption "Experts".
/s/ Anchin, Block & Anchin LLP
New York, New York
March 3, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM WESCO
INTERNATIONAL, INC. AND SUBSIDIARIES' CONSOLIDATED FINANCIAL STATEMENTS AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 8,093
<SECURITIES> 0
<RECEIVABLES> 189,593
<ALLOWANCES> 8,082
<INVENTORY> 343,764
<CURRENT-ASSETS> 582,071
<PP&E> 107,596
<DEPRECIATION> 0
<TOTAL-ASSETS> 950,522
<CURRENT-LIABILITIES> 466,467
<BONDS> 579,238
0
0
<COMMON> 5
<OTHER-SE> (142,566)
<TOTAL-LIABILITY-AND-EQUITY> 950,522
<SALES> 3,025,439
<TOTAL-REVENUES> 3,025,439
<CGS> 2,487,780
<TOTAL-COSTS> 2,969,413
<OTHER-EXPENSES> 10,122
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 45,121
<INCOME-PRETAX> 783
<INCOME-TAX> 8,519
<INCOME-CONTINUING> (7,736)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (7,736)
<EPS-PRIMARY> (9.93)
<EPS-DILUTED> (9.93)
</TABLE>
