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, industrial and communications maintenance, repair and operating (“MRO”) and original equipment manufactures (“OEM”) products, construction materials, and advanced supply chain management and logistics services used primarily in the industrial, construction, utility and commercial, institutional and government markets. We serve over
65,000
active customers globally, through approximately
400
full service branches and
eight
distribution centers located primarily in the United States, Canada and Mexico, with operations in
11
additional countries.
2. ACCOUNTING POLICIES
Basis of Consolidation
The consolidated financial statements include the accounts of WESCO International, Inc. (“WESCO International”) and all of its subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying disclosures. Although these estimates are based on management’s best knowledge of current events and actions WESCO may undertake in the future, actual results may ultimately differ from the estimates.
Revenue Recognition
Revenues are recognized for product sales when title, ownership and risk of loss pass to the customer or for services when the service is rendered. In the case of stock sales and special orders, a sale occurs at the time of shipment from WESCO's distribution point, as the terms of WESCO’s sales are predominantly FOB shipping point. In cases where WESCO processes customer orders but ships directly from its suppliers, revenue is recognized once product is shipped and title has passed. In all cases, revenue is recognized once the sales price to the customer is fixed or is determinable and WESCO has reasonable assurance as to the collectability.
In certain customer arrangements, WESCO provides services such as inventory management. WESCO may perform some or all of the following services for customers: determine inventory stocking levels; establish inventory reorder points; launch purchase orders; receive material; put away material; and pick material for order fulfillment. WESCO recognizes revenue for services rendered during the period based upon a previously negotiated fee arrangement. WESCO also sells inventory to these customers and recognizes revenue at the time title and risk of loss transfers to the customer. The amount of revenue attributed to these services totaled $
10.8 million
, $
11.1 million
, and $
10.0 million
in
2011
,
2010
and
2009
, respectively.
Selling, General and Administrative Expenses
WESCO includes warehousing, purchasing, branch operations, information services, and marketing and selling expenses in this category, as well as other types of general and administrative costs.
Supplier Volume Rebates
WESCO receives volume rebates from certain suppliers based on contractual arrangements with such suppliers. An asset, included within other accounts receivable on the balance sheet, represents the estimated amounts due to WESCO under the rebate provisions of such contracts. The corresponding rebate income is recorded as a reduction of cost of goods sold. The appropriate level of such income is derived from the level of actual purchases made by WESCO from suppliers. Receivables under the supplier rebate program were $
38.5 million
at
December 31, 2011
and $
31.0 million
at
December 31, 2010
. Supplier volume rebate rates have historically ranged between approximately
0.8%
and
1.2%
of sales depending on market conditions. In
2011
, the rebate rate was
1.2%
.
Shipping and Handling Costs and Fees
WESCO records the costs and fees associated with transporting its products to customers as a component of selling, general and administrative expenses. These costs totaled $
50.9 million
, $
42.4 million
and $
49.2 million
in
2011
,
2010
and
2009
, respectively.
Cash Equivalents
Cash equivalents are defined as highly liquid investments with original maturities of 90 days or less when purchased.
Asset Securitization
WESCO maintains control of the receivables transferred pursuant to its accounts receivable securitization program (the “Receivables Facility”); therefore the transfers do not qualify for “sale” treatment. As a result, the transferred receivables remain on the balance sheet, and WESCO recognizes the related secured borrowing. The expenses associated with the Receivables Facility are reported as interest expense in the statement of income.
Allowance for Doubtful Accounts
WESCO maintains allowances for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments. WESCO has a systematic procedure using estimates based on historical data and reasonable assumptions of collectability made at the local branch level and on a consolidated corporate basis to calculate the allowance for doubtful accounts. If the financial condition of WESCO’s customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required. The allowance for doubtful accounts was $
21.6 million
at
December 31, 2011
and $
18.6 million
at
December 31, 2010
. The total amount recorded as selling, general and administrative expense related to bad debts was $
6.6 million
, $
6.4 million
and $
6.1 million
for
2011
,
2010
and
2009
, respectively.
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. WESCO makes provisions for obsolete or slow-moving inventories as necessary to reflect reduction in inventory value. WESCO writes down its inventory to its net realizable value based on internal factors derived from historical analysis of actual losses. Looking back, WESCO identifies items at risk of becoming obsolete, defined as being in excess of 36 months supply relative to demand or movement. WESCO then analyzes in a detailed manner the ultimate disposition of the previously identified excess inventory items, such as sold, returned to supplier, or scrapped. This item by item analysis allows WESCO to develop an estimate which represents the historical likelihood that an item identified as being in excess supply ultimately becomes obsolete. On a current basis, WESCO applies the estimate to inventory items currently in excess of 36 months supply, and reduces its inventory carrying value by the derived amount. Reserves for excess and obsolete inventories were $
14.6 million
and $
20.5 million
at
December 31, 2011
and
2010
, respectively. The total expense related to excess and obsolete inventories, included in cost of goods sold, was $
5.5 million
, $
7.5 million
and $
7.8 million
for
2011
,
2010
and
2009
, respectively. WESCO absorbs into the cost of inventory the general and administrative expenses related to inventory such as purchasing, receiving and storage and at
December 31, 2011
and
2010
, $
47.6 million
and $
43.8 million
, respectively, of these costs were included in ending inventory.
Other Assets
WESCO amortizes deferred financing fees over the term of the various debt instruments. Deferred financing fees in the amount of $
4.7 million
were incurred during the year ending
December 31, 2011
. As of
December 31, 2011
and
2010
, the amount of other assets related to unamortized deferred financing fees was $
12.9 million
and $
12.6 million
, respectively.
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. Estimated useful lives range from
five
to
forty
years for leasehold improvements and buildings and
three
to
ten
years for furniture, fixtures and equipment.
Capitalized computer software costs are amortized using the straight-line method over the estimated useful life, typically
three
to
five
years, and are reported at the lower of unamortized cost or net realizable value.
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 and reported as selling, general and administrative expenses.
WESCO assesses its long-lived assets for impairment by periodically reviewing operating performance and respective utilization of real and tangible assets. Upon closure of any branch, asset usefulness and remaining life are evaluated and any charges taken as appropriate. Of WESCO’s $
133.6 million
net book value of property, plant and equipment as of
December 31, 2011
, $
72.9 million
consists of land, buildings and leasehold improvements and are geographically dispersed among WESCO’s
400
branches and
eight
distribution centers, mitigating the risk of impairment. Approximately $
27.8 million
of assets consist of computer equipment and capitalized software and are evaluated for use and serviceability relative to carrying value. The remaining fixed assets, mainly of furniture and fixtures, warehousing equipment and transportation equipment, are similarly evaluated for serviceability and use.
Goodwill and Indefinite Life Intangible Assets
Goodwill and indefinite life intangible assets are tested for impairment annually during the fourth quarter using information available at the end of September, or more frequently if events or circumstances occur indicating that their carrying value may not be recoverable. The evaluation of impairment involves comparing the current fair value of goodwill and indefinite life intangible assets to the recorded value. WESCO estimates the fair value of goodwill using a combination of discounted cash flow analyses and market multiples. Assumptions used for these fair value techniques are based on a combination of historical results, current forecasts, market data and recent economic events. WESCO evaluates the recoverability of indefinite life intangible assets using a discounted cash flow analysis based on projected financial information. The determination of fair value involves significant judgment and management applies its best judgment when assessing the reasonableness of financial projections. At
December 31, 2011
and
2010
, goodwill and trademarks totaled $
1,055.0 million
and $
1,031.4 million
, respectively. No impairment losses were identified in
2011
as a result of this review. However, two trademarks valued at $
18.1
million are sensitive to a further decline in financial performance. WESCO is taking actions to improve its future financial performance; however, WESCO cannot predict whether or not there will be certain events that could adversely affect the reported value of these trademarks.
Definite Lived Intangible Assets
Intangible assets are amortized over
4
to
19
years. A portion of intangible assets related to customer relationships are amortized using an accelerated method whereas all other intangible assets subject to amortization use a straight-line method which reflects the pattern in which the economic benefits of the respective assets are consumed or otherwise used. Intangible assets are tested for impairment if events or circumstances occur indicating that the respective asset might be impaired.
Insurance Programs
WESCO uses commercial insurance for auto, workers’ compensation, casualty and health claims as a risk-reduction strategy to minimize catastrophic losses. The Company’s strategy involves large deductibles where WESCO must pay all costs up to the deductible amount. WESCO estimates the reserve based on historical incident rates and costs. The assumptions included in developing this accrual include the period of time from incurrence of a claim until the claim is paid by the insurance provider. The total liability related to the insurance programs was $
9.7 million
at
December 31, 2011
and $
11.4 million
at
December 31, 2010
.
Income Taxes
Income taxes are accounted for under the liability method in accordance with income tax accounting guidance. 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 it is more likely than not that a portion or all of a deferred tax asset may not be realized.
WESCO accounts for uncertainty in income taxes using a recognition threshold and measurement attribute prescribed by income tax accounting guidance. WESCO frequently reviews tax issues and positions taken on tax returns to determine the need and amount of contingency reserves necessary to cover any probable audit adjustments. WESCO recognizes interest related to unrecognized tax benefits as part of interest expense. Penalties are recognized as part of income tax expense.
Convertible Debentures
WESCO separately accounts for the liability and equity components of its convertible debentures in a manner that reflects its non-convertible debt borrowing rate. WESCO estimates its non-convertible debt borrowing rate through a combination of discussions with its financial institutions and review of relevant market data. The discounts to the convertible note balances are amortized to interest expense, using the effective interest method, over the implicit life of the Debentures.
Foreign Currency
The local currency is the functional currency for the majority 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 the end of each period. 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 other comprehensive income within stockholders’ equity. Gains and losses from foreign currency transactions are included in net income for the period.
Stock-Based Compensation
WESCO’s stock-based employee compensation plans are comprised of stock options, stock-settled stock appreciation rights and restricted stock units. Compensation cost for all stock-based awards is measured at fair value on the date of grant, and compensation cost is recognized, net of estimated forfeitures, over the service period for awards expected to vest. The fair value of stock options and stock-settled appreciation rights is determined using the Black-Scholes valuation model. Expected volatilities are based on historical volatility of WESCO’s common stock. The expected life of stock options and stock-settled
appreciation rights is estimated using historical data pertaining to option exercises and employee terminations. The risk-free rate is based on the U.S. Treasury yields in effect at the time of grant. The forfeiture assumption is based on WESCO’s historical employee behavior that is reviewed on an annual basis. The fair value of restricted stock units is determined by the grant-date closing price of WESCO’s common stock. No dividends are assumed for stock based awards.
WESCO granted the following stock-settled stock appreciation rights and restricted stock units at the following weighted average assumptions:
|
|
|
|
|
|
|
|
|
|
|
2011
|
|
2010
|
|
2009
|
|
Stock-settled appreciation rights granted
|
399,260
|
|
708,949
|
|
815,231
|
|
Restricted stock units
|
53,852
|
|
153,318
|
|
245,997
|
|
Risk free interest rate
|
2.3%
|
|
1.8%
|
|
2.3%
|
|
Expected life (in years)
|
5.0
|
|
5.0
|
|
4.5
|
|
Expected volatility
|
49%
|
|
49%
|
|
51%
|
The weighted average fair value per stock-settled appreciation right granted was $
26.46
, $
14.71
and $
11.15
for the years ended
December 31, 2011
,
2010
and
2009
, respectively. The weighted average fair value per restricted stock unit granted was $
60.05
, $
33.05
and $
25.37
for the years ended
December 31, 2011
,
2010
and
2009
, respectively. WESCO recognized $
15.4 million
, $
15.8 million
and $
13.3 million
of non-cash stock-based compensation expense, which is included in selling, general and administrative expenses, in
2011
,
2010
and
2009
, respectively.
Treasury Stock
Common stock purchased for treasury is recorded at cost. At the date of subsequent reissue, the treasury stock account is reduced by the cost of such stock, with cost determined on a weighted average basis.
Fair Value of Financial Instruments
The Company’s financial instruments consist of cash and cash equivalents, accounts receivable, accounts payable and other accrued liabilities, and outstanding indebtedness. The estimated fair value of the Company’s outstanding indebtedness described in Note 7 at
December 31, 2011
and
2010
was $
1,178.9 million
and $
1,269.7 million
, respectively. The aggregate fair value of the senior notes and debentures was approximately $
850.9 million
and $
860.2 million
at
December 31, 2011
and
2010
, respectively. The fair values of these fixed rate facilities are estimated based upon market price quotes. The fair values of the mortgage facility, the Receivables Facility and our revolving credit facility ("the Revolving Credit Facility"), approximated carrying values. The fair values for these facilities are based upon market price quotes and market comparisons available for instruments with similar terms and maturities. For all remaining WESCO financial instruments, carrying values are considered to approximate fair value due to their short maturities.
Environmental Expenditures
WESCO has facilities and operations that 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 that do not contribute to future revenue, are expensed. Liabilities are recorded when remedial efforts are probable and the costs can be reasonably estimated.
Recent Accounting Pronouncements
In June 2011, the Financial Accounting Standards Board (the "FASB") issued new disclosure guidance related to the presentation of the statement of comprehensive income. This guidance provides an entity the option to present the total of comprehensive income, the components of net income and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements; the current option to report other comprehensive income and its components in the statement of changes in stockholders' equity was eliminated. This accounting standard is effective for periods beginning on or after December 15, 2011. Other than the change in presentation, this accounting standard will not have an impact on WESCO's financial position, results of operations or cash flows.
In September 2011, the FASB issued guidance to amend and simplify the rules related to testing goodwill for impairment. The revised guidance allows an entity to make an initial qualitative evaluation, based on the entity's events and circumstances, to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. The results of this qualitative assessment determine whether it is necessary to perform the currently required two-step
impairment test. The new guidance is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. Early adoption is permitted. Adoption of this guidance is not expected to have a material impact on WESCO's financial position, results of operations or cash flows.
In September 2011, the FASB issued an accounting update that requires additional qualitative and quantitative disclosures by employers that participate in multi-employer pension plans. The amendments are effective for annual periods for the fiscal years ending after December 15, 2011, with early adoption permitted. Adoption of this guidance did not have a material impact on WESCO's financial position, results of operations or cash flows.
Other pronouncements issued by the FASB or other authoritative accounting standards groups with future effective dates are either not applicable or are not expected to be significant to WESCO’s financial position, results of operations or cash flows.
3. GOODWILL AND INTANGIBLE ASSETS
Goodwill
The following table sets forth the changes in the carrying amount of goodwill:
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|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31
|
|
|
2011
|
|
2010
|
|
|
(In thousands)
|
|
Beginning balance January 1
|
$
|
985,714
|
|
|
$
|
863,410
|
|
|
Translation adjustments and payments to goodwill for prior acquisitions
|
(4,734
|
)
|
|
2,467
|
|
|
Additions to goodwill for acquisitions
|
27,147
|
|
|
119,837
|
|
|
Ending balance December 31
|
$
|
1,008,127
|
|
|
$
|
985,714
|
|
WESCO has never recorded an impairment loss related to goodwill or intangible assets.
Intangible Assets
The components of intangible assets are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2011
|
|
|
|
December 31, 2010
|
|
|
Life
|
|
Gross Carrying
Amount
(1)
|
|
Accumulated
Amortization
(1)
|
|
Net
Carrying
Amount
|
|
Gross Carrying
Amount
(1)
|
|
Accumulated
Amortization
(1)
|
|
Net
Carrying
Amount
|
|
|
(In thousands)
|
|
Intangible Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trademarks
|
Indefinite
|
|
$
|
46,852
|
|
|
$
|
—
|
|
|
$
|
46,852
|
|
|
$
|
45,687
|
|
|
$
|
—
|
|
|
$
|
45,687
|
|
|
Non-compete agreements
|
5-7
|
|
|
1,252
|
|
|
(1,038
|
)
|
|
214
|
|
|
1,252
|
|
|
(895
|
)
|
|
357
|
|
|
Customer relationships
|
4-19
|
|
|
70,670
|
|
|
(32,527
|
)
|
|
38,143
|
|
|
65,967
|
|
|
(25,933
|
)
|
|
40,034
|
|
|
Distribution agreements
|
10-19
|
|
|
35,291
|
|
|
(6,897
|
)
|
|
28,394
|
|
|
31,084
|
|
|
(4,950
|
)
|
|
26,134
|
|
|
Patents
|
10
|
|
|
48,310
|
|
|
(5,039
|
)
|
|
43,271
|
|
|
48,310
|
|
|
(215
|
)
|
|
48,095
|
|
|
|
|
|
$
|
202,375
|
|
|
$
|
(45,501
|
)
|
|
$
|
156,874
|
|
|
$
|
192,300
|
|
|
$
|
(31,993
|
)
|
|
$
|
160,307
|
|
_________________________
|
|
|
|
(1)
|
Excludes the original cost and accumulated amortization of fully-amortized intangibles.
|
Amortization expense related to intangible assets totaled $
13.4 million
, $
7.5 million
and $
7.3 million
for the years ended
December 31, 2011
,
2010
and
2009
, respectively.
The following table sets forth the estimated amortization expense for intangibles for the next five years (in thousands):
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|
|
|
|
|
|
Estimated
|
|
|
Amortization
|
|
For the year ended December 31,
|
Expense
|
|
2012
|
$
|
12,002
|
|
|
2013
|
11,831
|
|
|
2014
|
11,262
|
|
|
2015
|
11,262
|
|
|
2016
|
11,262
|
|
4. 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, commercial, institutional, and governmental markets. WESCO’s largest supplier accounted for approximately
10%
of WESCO's purchases in
2011
and
12%
of purchases in
2010
and
2009
, and therefore, WESCO could potentially incur risk due to supplier concentration. Based upon WESCO’s broad customer base, the Company has concluded that it has no material credit risk as a result of customer concentration.
5. ACQUISITIONS
The following table sets forth the consideration paid for acquisitions:
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|
|
|
|
|
|
|
|
|
|
Year Ended December 31
|
2011
|
2010
|
|
(In thousands)
|
|
|
|
Details of acquisitions:
|
|
|
|
Fair value of assets acquired
|
$
|
54,663
|
|
$
|
297,849
|
|
|
Fair value of liabilities assumed
|
(6,570
|
)
|
(31,162
|
)
|
|
Deferred acquisition payments
|
—
|
|
185
|
|
|
Cash paid for acquisitions
|
$
|
48,093
|
|
$
|
266,872
|
|
|
Supplemental cash flow disclosure related to acquisitions:
|
|
|
|
Cash paid for acquisitions
|
$
|
48,093
|
|
$
|
266,872
|
|
|
Less: cash acquired
|
—
|
|
(1,475
|
)
|
|
Cash paid for acquisitions, net of cash acquired
|
$
|
48,093
|
|
$
|
265,397
|
|
2011 Acquisitions of RECO, LLC and Brews Supply, Ltd.
On
March 14, 2011
, WESCO Distribution, Inc. ("WESCO Distribution") completed its acquisition of RECO, LLC ("RECO"), a Siemens automation, controls, and electrical distributor located in the midwest and southeastern regions of the United States with approximately $
25 million
in annual sales. WESCO funded the purchase price paid at closing with cash and borrowings under the Receivables Facility. The purchase price was allocated to the respective assets and liabilities based upon their estimated fair values as of the acquisition date. The excess of the purchase price over the fair value of the net assets acquired has been allocated to goodwill valued at $
6.0 million
. Management believes the majority of goodwill will be deductible for tax purposes.
On
October 3, 2011
, WESCO Distribution through its wholly-owned Canadian subsidiary, completed its acquisition of Brews Supply, Ltd. ("Brews"), a full line electrical distributor of industrial, utility, and commercial products located in western Canada with approximately $
50 million
in annual sales. WESCO funded the purchase price paid at closing with cash and borrowings under the Receivables Facility. The purchase price was allocated to the respective assets and liabilities based upon their estimated fair values as of the acquisition date. The excess of the purchase price over the fair value of the net assets acquired, including intangible assets, has been allocated to goodwill. The fair value of intangible assets was estimated by management and the allocation resulted in goodwill and intangible assets of $
19.8 million
and $
10.2 million
, respectively. Management believes the majority of goodwill will be deductible for tax purposes. The intangible assets include customer relationships of $
4.8 million
amortized over
10
years, supplier relationships of $
4.2 million
amortized over
10
years and
trademarks of $
1.2 million
. Trademarks have an indefinite life and are not being amortized. No residual value is estimated for the intangible assets. With the acquisition of Brews, WESCO obtained a
49%
ownership in a joint venture. This entity has been consolidated. The noncontrolling interest incurred a loss of less than $
0.1 million
in 2011.
2010 Acquisitions of TVC Communications, L.L.C. and Potelcom Supply, Inc.
On
December 16, 2010
, WESCO Distrib
ution completed its acquisition of TVC Communications, L.L.C. (“TVC Communications”), an international distributor in the Western Hemisphere of infrastructure products to the cable television and telecommunication industries. TVC Communications offers products necessary to build out a broadband network, ranging from the industry’s widest selection of premier branded components, to a variety of proprietary and private label products. TVC Communications also offers a full suite of value-added services, including design, engineering, installation, repair and maintenance.
WESCO paid at closing a cash purchase price of approximately $
251.0
million, net of
$1.5 million
of cash acquired, of which $
20.0
million was held in escrow to address post-closing working capital adjustments. WESCO funded the purchase price paid at closing with cash and borrowings under the Receivables Facility. The purchase price was allocated to the respective assets and liabilities based upon their estimated fair values as of the acquisition date. The excess of the purchase price over the fair value of the net assets acquired, including intangible assets, has been allocated to goodwill. The fair value of intangible assets was estimated by management and the allocation resulted in intangible assets of
$86.4 million
and goodwill of
$109.2 million
. Management believes the majority of goodwill will be deductible for tax purposes. The intangible assets include technology patents of $
48.3
million amortized over
10
years, customer relationships of $
20.6
million amortized over
10
years, supplier relationships of $
9.7
million amortized over
15
years and trademarks of $
7.8
million. Trademarks have an indefinite life and are not being amortized. No residual value is estimated for the intangible assets.
The allocation of assets acquired and liabilities assumed for the TVC Communications acquisition is summarized below:
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|
|
|
|
|
|
|
|
TVC Communications, LLC
|
|
(In thousands)
|
|
|
Assets Acquired
|
|
|
Cash and cash equivalents
|
$
|
1,475
|
|
|
Trade accounts receivable
|
38,744
|
|
|
Other accounts receivable
|
978
|
|
|
Inventories
|
41,313
|
|
|
Prepaid expenses and other current assets
|
1,377
|
|
|
Property, buildings and equipment
|
2,268
|
|
|
Intangible assets
|
86,442
|
|
|
Goodwill
|
109,183
|
|
|
Other noncurrent assets
|
158
|
|
|
Total assets acquired
|
281,938
|
|
|
|
|
|
Liabilities Assumed
|
|
|
Accounts payable
|
24,249
|
|
|
Accrued payroll and benefit costs
|
1,183
|
|
|
Other current liabilities
|
4,019
|
|
|
Total liabilities assumed
|
29,451
|
|
|
|
|
|
Fair value of net assets acquired, including intangible assets
|
$
|
252,487
|
|
TVC Communications contributed $
6.9 million
in net sales and had no impact on net income of WESCO's 2010 results. Unaudited pro forma results of operations (in thousands, except per share data) for the twelve months ended December 31, 2010 and 2009 are included below as if the acquisition occurred on the first day of the respective periods. The summary of the unaudited pro forma results of operations is not necessarily indicative of what WESCO's results of operations would have been had TVC Communications been acquired at the beginning of 2009, nor does it purport to represent results of operations for any
future periods. Seasonality of sales is not a significant factor to these pro forma combined results of operations.
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31
|
2010
|
2009
|
|
(In thousands, except per share data)
|
|
|
|
Net Sales
|
$
|
5,315,929
|
|
$
|
4,907,441
|
|
|
Net Income
|
132,455
|
|
121,306
|
|
|
Earnings per common share:
|
|
|
|
Basic
|
$
|
3.12
|
|
$
|
2.87
|
|
|
Diluted
|
$
|
2.87
|
|
$
|
2.84
|
|
On
June 30, 2010
, WESCO Distribution completed its acquisition of Potelcom Supply, Inc., a single branch operation with annual sales of approximately $
25 million
serving the utility, industrial, and governmental markets in Alaska. WESCO funded the purchase price at closing with cash and borrowings under the Receivables Facility. The purchase price was allocated to the respective assets and liabilities based upon their estimated fair value as of the acquisition date. The excess of the purchase price over the fair value of the net assets acquired has been allocated to goodwill valued at $
10.7 million
.
6. PROPERTY, BUILDINGS AND EQUIPMENT
The following table sets forth the components of property, buildings and equipment:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
2011
|
|
2010
|
|
|
(In thousands)
|
|
Buildings and leasehold improvements
|
96,527
|
|
|
92,862
|
|
|
Furniture, fixtures and equipment
|
152,164
|
|
|
140,427
|
|
|
Software costs
|
44,909
|
|
|
77,335
|
|
|
|
293,600
|
|
|
310,624
|
|
|
Accumulated depreciation and amortization
|
(190,385
|
)
|
|
(215,768
|
)
|
|
|
103,215
|
|
|
94,856
|
|
|
Land
|
21,097
|
|
|
21,169
|
|
|
Construction in progress
|
9,238
|
|
|
2,020
|
|
|
|
133,550
|
|
|
118,045
|
|
Depreciation expense was $
12.5 million
, $
11.7 million
and $
13.7 million
, and capitalized software amortization was $
5.7 million
, $
4.7 million
and $
5.0 million
, in
2011
,
2010
and
2009
, respectively. The unamortized software cost was $
19.7 million
and $
18.0 million
as of
December 31, 2011
and
2010
, respectively. Furniture, fixtures and equipment include capitalized leases of $
9.6 million
and $
9.2 million
and related accumulated amortization of $
4.7 million
and $
4.0 million
as of
December 31, 2011
and
2010
, respectively.
7. DEBT
The following table sets forth WESCO’s outstanding indebtedness:
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
2011
|
|
2010
|
|
|
(In thousands)
|
|
Mortgage financing facility
|
$
|
37,564
|
|
|
$
|
39,239
|
|
|
Accounts receivable securitization facility
|
250,000
|
|
|
370,000
|
|
|
Revolving credit facility
|
36,792
|
|
|
—
|
|
|
7.50% Senior Subordinated Notes due 2017
|
150,000
|
|
|
150,000
|
|
|
1.75% Convertible Senior Debentures due 2026, less debt discount of $0 and $7 in 2011 and 2010, respectively
|
56
|
|
|
214
|
|
|
6.0% Convertible Senior Debentures due 2029, less debt discount of $175,908 and $178,420 in 2011 and 2010, respectively
|
169,054
|
|
|
166,580
|
|
|
Acquisition related notes
|
85
|
|
|
204
|
|
|
Capital leases
|
2,521
|
|
|
3,167
|
|
|
Other
|
3,261
|
|
|
477
|
|
|
Total debt
|
649,333
|
|
|
729,881
|
|
|
Less current portion
|
(6,411
|
)
|
|
(3,988
|
)
|
|
Total long-term debt
|
$
|
642,922
|
|
|
$
|
725,893
|
|
Mortgage Financing Facility
In 2003, WESCO finalized a mortgage financing facility of
$51 million
, of which $
37.6 million
was outstanding as of
December 31, 2011
. Total borrowings under the mortgage financing facility are subject to a 22-year amortization schedule, with a balloon payment due at the end of the 10-year term. The interest rate on borrowings under this facility is fixed at
6.5%
.
Accounts Receivable Securitization Facility
During 2011, WESCO Distribution entered into an amendment of its existing Receivables Facility, pursuant to the terms and conditions of the Fourth Amendment to Third Amended and Restated Receivables Purchase Agreement, dated as of April 13, 2009 (the “Amendment”), by and among WESCO Receivables Corp., WESCO Distribution, the Purchasers and Purchaser Agents party thereto and PNC Bank, National Association, as Administrator. The Amendment added an accordion feature, allowing WESCO Distribution to request increases to the purchase commitments of up to $
100 million
in the aggregate. The Amendment also lowered the interest rate spread from
1.75%
to
1.10%
, the commitment fee from
0.75%
to
0.55%
, and extended the term of the Receivables Facility to August 2014. As of December 31, 2011, the purchase commitment was $
450 million
.
Under the Receivables Facility, WESCO sells, on a continuous basis, an undivided interest in all domestic accounts receivable to WESCO Receivables Corp., a wholly owned special purpose entity (the “SPE”). The SPE sells, without recourse, a senior undivided interest in the receivables to third-party conduits and financial institutions for cash while maintaining a subordinated undivided interest in the receivables, in the form of overcollateralization. WESCO has agreed to continue servicing the sold receivables for the third-party conduits and financial institutions at market rates; accordingly, no servicing asset or liability has been recorded.
As of
December 31, 2011
and
2010
, accounts receivable eligible for securitization totaled approximately $
613.9 million
and $
537.0 million
, respectively. The consolidated balance sheets as of
December 31, 2011
and
2010
include $
250.0 million
and $
370.0 million
, respectively, of account receivable balances legally sold to third parties, as well as borrowings for equal amounts. At
December 31, 2011
, the interest rate on borrowings under this facility was approximately
1.64%
.
Revolving Credit Facility
During 2011, WESCO Distribution entered into a new Revolving Credit Facility, which has an aggregate borrowing capacity of $
400 million
and includes a letter of credit sub-facility of up to $
80 million
. The Revolving Credit Facility consists of two separate sub-facilities: (i) a U.S. sub-facility with a borrowing limit at any given time of up to $
400 million
less the amount of outstanding borrowings under the Canadian sub-facility and (ii) a Canadian sub-facility with a borrowing limit of up to $
175 million
. The facility also contains an accordion feature, allowing WESCO Distribution to request increases to the borrowing commitments under the facility of up to $
100 million
in the aggregate. The facility matures in August 2016 and is collateralized by the inventory and certain other assets of WESCO Distribution and certain of its domestic subsidiaries and the
inventory, accounts receivable, and certain other assets of WESCO Distribution Canada, L.P. WESCO Distribution’s obligations under the Revolving Credit Facility have been guaranteed by WESCO International and by certain of WESCO International’s subsidiaries.
Availability under the facility is limited to the amount of eligible U.S. and Canadian inventory and Canadian receivables applied against certain advance rates. Depending upon the amount of excess availability under the facility, interest will be calculated at LIBOR plus a margin that ranges between
1.50%
and
2.00%
or at the Alternative Rate (prime rate) plus a margin that ranges between
0.50%
and
1.00%
. The interest rate margin is reduced by
0.25%
if WESCO's leverage ratio, as calculated under the Revolving Credit Facility, falls below a ratio of
2.5
to
1.0
. At
December 31, 2011
, the interest rate on borrowings under this facility was approximately
3.0%
.
As long as pro forma combined availability for the preceding 60-day period, up to and including the transaction date, under the facility and WESCO Distribution's accounts receivable securitization facility is greater than $
125 million
, WESCO is permitted, subject to certain specified conditions, to make acquisitions and repurchase WESCO International's outstanding capital stock and WESCO outstanding indebtedness.
During
2011
, WESCO borrowed $
435.7 million
in the aggregate under the Revolving Credit Facility and made repayments in the aggregate amount of $
398.9 million
. During
2010
, aggregate borrowings and repayments were $
636.0 million
and $
832.5 million
, respectively. At
December 31, 2011
, WESCO had a balance outstanding of
$36.8 million
under the facility. WESCO had $
299.3 million
available under the facility at
December 31, 2011
, after giving effect to outstanding letters of credit, as compared to approximately $
276.7 million
at
December 31, 2010
.
7.50%
Senior Subordinated Notes due 2017
At
December 31, 2011
,
$150 million
in aggregate principal amount of the
7.50%
Senior Subordinated Notes due 2017 (the “2017 Notes”) was outstanding. The 2017 Notes were issued by WESCO Distribution under an indenture dated as of September 27, 2005 with The Bank of New York, as successor to J.P. Morgan Trust Company, National Association, as trustee, and are unconditionally guaranteed on an unsecured basis by WESCO International. The 2017 Notes accrue interest at the rate of
7.50%
per annum and are payable in cash semi-annually in arrears on each April 15 and October 15.
Between October 15, 2011 and October 14, 2012, WESCO Distribution may redeem all or a part of the 2017 Notes at a redemption price equal to
102.50%
of the principal amount. Between October 15, 2012 and October 14, 2013, WESCO Distribution may redeem all or a part of the 2017 Notes at a redemption price equal to
101.25%
of the principal amount. On and after October 15, 2013, WESCO Distribution may redeem all or a part of the 2017 Notes at a redemption price equal to
100%
of the principal amount.
If WESCO Distribution undergoes a change of control prior to maturity, holders of 2017 Notes will have the right, at their option, to require WESCO Distribution to repurchase for cash some or all of their 2017 Notes at a repurchase price equal to
101%
of the principal amount of the 2017 Notes being repurchased, plus accrued and unpaid interest to, but not including, the repurchase date.
2.625%
Convertible Senior Debentures due 2025
Proceeds of $
150 million
were received in connection with the issuance of the
2.625%
Convertible Senior Debentures due 2025 (the
"
2025 Debentures”) by WESCO International in September 2005. On August 27, 2009, WESCO International completed an exchange offer pursuant to which it issued $
345.0 million
in aggregate principal amount of
6.0%
Convertible Senior Debentures due 2029 (the “2029 Debentures”) in exchange for approximately $
299.7 million
and $
57.7 million
in aggregate principal amounts of its outstanding
1.75%
Convertible Senior Debentures due 2026 (the “2026 Debentures”) and 2025 Debentures, respectively (see the discussion below under “
6.0%
Convertible Senior Debentures due 2029” for additional information). On November 19, 2010, WESCO International announced that it would redeem all of its outstanding 2025 Debentures. In connection with the redemption, holders of $
89.8 million
aggregate principal amount of 2025 Debentures converted on December 23, 2010 their 2025 debentures pursuant to the terms of the 2025 Debentures. In settlement of those conversions, WESCO paid an aggregate of approximately $
89.8 million
in cash, including cash in lieu of fractional shares, and issued
340,213
shares of its common stock. WESCO redeemed the remaining $
2.5 million
aggregate principal amount of outstanding 2025 Debentures at a redemption price equal to
100%
of the principal amount plus accrued and unpaid interest. Following the redemption on December 23, 2010, there were no 2025 Debentures outstanding.
On January 1, 2009, WESCO retrospectively applied the provisions of guidance concerning convertible debt instruments to the 2025 Debentures. WESCO utilized an interest rate of
6%
to reflect the non-convertible market rate of its offering upon issuance. WESCO amortized the debt discount over a five year period starting on the date of issuance. There was
no
non-cash interest expense recorded for the year ended
December 31, 2011
. Non-cash interest expense of $
2.1 million
and $
4.0 million
was recorded for the years ended
2010
and
2009
, respectively.
1.75%
Convertible Senior Debentures due 2026
Proceeds of $
300 million
were received in connection with the issuance of the 2026 Debentures by WESCO International in November 2006. On August 27, 2009, WESCO International completed an exchange offer pursuant to which it issued $
345.0 million
in aggregate principal amount of 2029 Debentures in exchange for approximately $
299.7 million
and $
57.7 million
in aggregate principal amounts of its outstanding 2026 Debentures and 2025 Debentures, respectively (see the
6.0%
Convertible Senior Debentures due 2029 discussion below for additional information). On November 30, 2011, WESCO International announced that it would redeem all of its 2026 Debentures on January 3, 2012. WESCO International redeemed the remaining $
0.1 million
aggregate principal amount of outstanding 2026 Debentures at a redemption price equal to
100%
of the principal amount plus accrued and unpaid interest. Following the redemption on January 3, 2012, there were no 2026 Debentures outstanding.
On January 1, 2009, WESCO retrospectively applied the provisions of guidance concerning convertible debt instruments to the 2026 Debentures. WESCO utilized an interest rate of
6%
to reflect the non-convertible market rate of its offering upon issuance. WESCO amortized the debt discount over a five year period starting on the date of issuance. Non-cash interest expense of less than $
0.1 million
, less than $
0.1 million
and $
7.1 million
was recorded for the years ended
December 31, 2011
,
2010
and
2009
, respectively.
6.0%
Convertible Senior Debentures due 2029
On August 27, 2009, WESCO International completed an exchange offer pursuant to which it issued $
345.0 million
in aggregate principal amount of 2029 Debentures in exchange for approximately $
299.7 million
and $
57.7 million
in aggregate principal amounts of its outstanding 2026 Debentures and 2025 Debentures, respectively. As a result of the debt exchange, WESCO recorded a gain of $
6.0 million
, which included the write-off of debt issuance costs. The 2029 Debentures were issued pursuant to an Indenture dated August 27, 2009 (the “Indenture”), with The Bank of New York Mellon, as trustee, and are unconditionally guaranteed on an unsecured senior subordinate basis by WESCO Distribution.
WESCO utilized an interest rate of
13.875%
to reflect the non-convertible debt borrowing rate of its offering upon issuance, which was determined based on discussions with its financial institutions and a review of relevant market data, and resulted in a $
181.2 million
discount to the 2029 Debenture balance and a net increase in additional capital of $
106.5 million
. In addition, the financing costs related to the issuance of the 2029 Debentures were allocated between the debt and equity components. WESCO is amortizing the debt discount and financing costs over the life of the instrument. Non-cash interest expense of $
2.5 million
and $
2.1 million
was recorded for the years ended
December 31, 2011
and
2010
, respectively. The debt discount amortization will approximate $
2.8 million
in 2012, $
3.1 million
in 2013, $
3.6 million
in 2014, $
4.1 million
in 2015, and $
4.6 million
in 2016.
While the 2029 Debentures accrue interest at an effective interest rate of
13.875%
(as described above), the coupon interest rate of
6.0%
per annum is payable in cash semi-annually in arrears on each March 15 and September 15, commencing March 15, 2010. Beginning with the six-month period commencing September 15, 2016, WESCO will also pay contingent interest in cash during any six-month period in which the trading price of the 2029 Debentures for each of the five trading days ending on the second trading day immediately preceding the first day of the applicable six-month interest period equals or exceeds
120%
of the principal amount of the 2029 Debentures. During any interest period when contingent interest shall be payable, the contingent interest payable per $
1,000
principal amount of 2029 Debentures will equal
0.25%
of the average trading price of $
1,000
principal amount of the 2029 Debentures during the five trading days immediately preceding the first day of the applicable six-month interest period. In accordance with guidance related to derivatives and hedging, the contingent interest feature of the 2029 Debentures is an embedded derivative that is not considered clearly and closely related to the host contract. The contingent interest component had no significant value at issuance or
December 31, 2011
.
The 2029 Debentures are convertible into cash, and in certain circumstances, shares of WESCO International’s common stock, $
0.01
par value, at any time on or after September 15, 2028, or prior to September 15, 2028 in certain circumstances. The 2029 Debentures will be convertible based on an initial conversion rate of
34.6433
shares of common stock per $
1,000
principal amount of the 2029 Debentures (equivalent to an initial conversion price of approximately $
28.87
per share). The conversion rate and conversion price may be adjusted under certain circumstances.
At any time on or after September 15, 2016, the Company may redeem all or a part of the 2029 Debentures plus accrued and unpaid interest (including contingent interest and additional interest, if any) to, but not including, the redemption date. If WESCO International undergoes certain fundamental changes, as defined in the Indenture, prior to maturity, holders of the 2029 Debentures will have the right, at their option, to require WESCO International to repurchase for cash some or all of their 2029 Debentures at a repurchase price equal to
100%
of the principal amount of the 2029 Debentures being repurchased, plus accrued and unpaid interest (including contingent interest and additional interest, if any) to, but not including, the repurchase date.
The following table sets forth the components of WESCO’s outstanding convertible debenture indebtedness:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2011
|
|
December 31, 2010
|
|
|
Principal Balance
|
|
Discount
|
|
Net
Carrying
Amount
|
|
Principal Balance
|
|
Discount
|
|
Net
Carrying
Amount
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
Convertible Debentures:
|
|
|
|
|
|
|
|
|
|
|
|
|
2026
|
$
|
56
|
|
|
$
|
—
|
|
|
$
|
56
|
|
|
$
|
221
|
|
|
$
|
(7
|
)
|
|
$
|
214
|
|
|
2029
|
344,962
|
|
|
(175,908
|
)
|
|
169,054
|
|
|
345,000
|
|
|
(178,420
|
)
|
|
166,580
|
|
|
|
$
|
345,018
|
|
|
$
|
(175,908
|
)
|
|
$
|
169,110
|
|
|
$
|
345,221
|
|
|
$
|
(178,427
|
)
|
|
$
|
166,794
|
|
Covenant Compliance
WESCO was in compliance with all relevant covenants contained in its debt agreements as of
December 31, 2011
.
The following table sets forth the aggregate principal repayment requirements for all indebtedness for the next five years and thereafter, as of
December 31, 2011
:
|
|
|
|
|
|
|
|
(In thousands)
|
|
|
2012
|
$
|
6,411
|
|
|
2013
|
36,594
|
|
|
2014
|
250,328
|
|
|
2015
|
133
|
|
|
2016
|
36,813
|
|
|
Thereafter
|
494,962
|
|
|
Total payments on debt
|
825,241
|
|
|
Debt discount on convertible debentures
|
(175,908
|
)
|
|
Total long-term debt
|
$
|
649,333
|
|
WESCO’s 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 revolving credit agreement requires WESCO to meet certain fixed charge coverage tests depending on availability.
8. CAPITAL STOCK
Preferred Stock
There are
20 million
shares of preferred stock authorized at a par value of $
.01
per share. The Board of Directors has the authority, without further action by the stockholders, to issue all authorized preferred shares 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, liquidation values, voting rights, conversion rights, redemption provisions and other matters.
Common Stock
There are
210 million
shares of common stock and
20 million
shares of Class B common stock authorized at a par value of $
.01
per share. The Class B common stock is identical to the 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 common stock.
Under the terms of the Revolving Credit Facility, WESCO International is restricted from declaring or paying dividends and
as such, at
December 31, 2011
and
2010
, no dividends had been declared, and therefore no retained earnings were reserved for dividend payments.
Additional Capital
WESCO separately accounts for the liability and equity components of its Debentures in a manner that reflects its non-convertible debt borrowing rate. As of
December 31, 2011
and
2010
, the net equity included in additional capital related to the Debentures totaled $
106.4 million
and $
106.5 million
, respectively.
9. EQUITY INVESTMENT
During the first quarter of 2008, WESCO and Deutsch Engineered Connecting Devices, Inc. (“Deutsch”) completed a transaction with respect to WESCO’s LADD operations, which resulted in a joint venture in which Deutsch owned a
60%
interest and WESCO owned a
40%
interest. WESCO accounted for its investment in the joint venture using the equity method of accounting. Accordingly, earnings from the joint venture were recorded as other income in the consolidated statement of income. Deutsch was entitled, but not obliged, to acquire the remaining
40%
after January 1, 2010. Deutsch paid to WESCO aggregate consideration of approximately $
75.0 million
, consisting of $
60.0 million
in cash plus a $
15.0 million
promissory note for its
60%
interest in the joint venture.
On
January 15, 2010
, WESCO received $
1.8 million
in accrued interest related to the promissory note for the period from January 2, 2008 to January 2, 2010. In addition, Deutsch and WESCO entered into an amended promissory note agreement. The amendment extended the maturity date for the payment of principal and interest to the earlier of (a) the closing date of Deutsch’s option to acquire the remaining
40%
joint venture interest or (b) the maturity date of Deutsch’s credit facility or mezzanine financing facility. Interest accrued at a rate of
8.5%
compounded annually. Management believed this rate was commensurate with a market rate of interest; therefore, no reserve or allowance was recorded against the promissory note.
On
April 30, 2010
, Deutsch notified WESCO it would exercise its option to purchase the remaining
40%
of the LADD joint venture. The option price for Deutsch to acquire the remaining
40%
of the joint venture was determined based upon a multiple of trailing earnings, with a minimum purchase price of $
40.0 million
and maximum purchase price of $
50.0 million
. The investment in the LADD joint venture at March 31, 2010 was $
43.4 million
, and the estimated option exercise price was $
40.0 million
. As a result, WESCO recorded a pre-tax impairment loss of $
3.4 million
to selling, general and administrative expenses during the first quarter of 2010. On
June 7, 2010
, WESCO completed the sale of its
40%
interest in the LADD joint venture and recorded an additional impairment charge of $
0.4 million
to selling, general and administrative expenses. WESCO received $
40.0 million
for its
40%
interest plus $
15.0 million
for the outstanding promissory note and $
0.5 million
for accrued interest.
10. INCOME TAXES
The following table sets forth the components of the provision for income taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31
|
|
|
2011
|
|
2010
|
|
2009
|
|
|
|
|
(In thousands)
|
|
|
|
Current taxes:
|
|
|
|
|
|
|
Federal
(1)
|
$
|
60,415
|
|
|
$
|
11,363
|
|
|
$
|
30,136
|
|
|
State
|
5,705
|
|
|
2,018
|
|
|
2,355
|
|
|
Foreign
|
2,643
|
|
7,801
|
|
7,801
|
|
|
7,531
|
|
|
Total current
|
68,763
|
|
|
21,182
|
|
|
40,022
|
|
|
Deferred taxes:
|
|
|
|
|
|
|
Federal
|
9,692
|
|
|
21,069
|
|
|
5,351
|
|
|
State
|
2,187
|
|
|
1,112
|
|
|
1,841
|
|
|
Foreign
|
2,494
|
|
|
(1,199
|
)
|
|
(15,151
|
)
|
|
Total deferred
|
14,373
|
|
|
20,982
|
|
|
(7,959
|
)
|
|
|
$
|
83,136
|
|
|
$
|
42,164
|
|
|
$
|
32,063
|
|
_________________________
|
|
|
|
(1)
|
Tax benefits related to stock options and other equity instruments recorded directly to additional paid in capital totaled $
5.6 million
, $
8.2 million
and $
59.7 million
in
2011
,
2010
and
2009
, respectively.
|
The following table sets forth the components of income before income taxes by jurisdiction:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31
|
|
|
2011
|
|
2010
|
|
2009
|
|
|
|
|
(In thousands)
|
|
|
|
United States
|
$
|
260,859
|
|
|
$
|
166,108
|
|
|
$
|
171,508
|
|
|
Foreign
|
18,517
|
|
|
(8,467
|
)
|
|
(34,357
|
)
|
|
|
$
|
279,376
|
|
|
$
|
157,641
|
|
|
$
|
137,151
|
|
The following table sets forth the reconciliation between the federal statutory income tax rate and the effective rate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31
|
|
|
2011
|
|
2010
|
|
2009
|
|
Federal statutory rate
|
35.0
|
%
|
|
35.0
|
%
|
|
35.0
|
%
|
|
State taxes, net of federal tax benefit
|
2.1
|
|
|
1.5
|
|
|
2.5
|
|
|
Nondeductible expenses
|
0.7
|
|
|
1.3
|
|
|
1.3
|
|
|
Domestic tax benefit from foreign operations
|
—
|
|
|
(0.3
|
)
|
|
(0.4
|
)
|
|
Foreign tax rate differences
|
(6.3
|
)
|
|
(8.0
|
)
|
|
(13.7
|
)
|
|
Federal tax credits
|
(0.1
|
)
|
|
(0.1
|
)
|
|
(0.3
|
)
|
|
Domestic production activity deduction
|
(0.5
|
)
|
|
(0.5
|
)
|
|
(0.4
|
)
|
|
Adjustment related to uncertain tax positions
|
(0.7
|
)
|
|
(4.2
|
)
|
|
0.4
|
|
|
Revaluation of deferred tax items
|
0.4
|
|
|
1.9
|
|
|
(0.6
|
)
|
|
Other
|
(0.8
|
)
|
|
0.1
|
|
|
(0.4
|
)
|
|
|
29.8
|
%
|
|
26.7
|
%
|
|
23.4
|
%
|
As of
December 31, 2011
, WESCO had approximately $
246.8 million
of undistributed earnings related to its foreign subsidiaries. Management believes that these earnings will be indefinitely reinvested in foreign jurisdiction; accordingly, WESCO has not provided for U.S. federal income taxes related to these earnings.
The following table sets forth deferred tax assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31
|
|
|
2011
|
|
2010
|
|
|
|
|
(In thousands)
|
|
|
|
|
Assets
|
|
Liabilities
|
|
Assets
|
|
Liabilities
|
|
Accounts receivable
|
$
|
4,015
|
|
|
$
|
—
|
|
|
$
|
3,586
|
|
|
$
|
—
|
|
|
Inventory
|
—
|
|
|
6,515
|
|
|
—
|
|
|
7,163
|
|
|
Depreciation
|
—
|
|
|
6,064
|
|
|
—
|
|
|
15,754
|
|
|
Amortization of intangible assets
|
—
|
|
|
162,675
|
|
|
—
|
|
|
143,371
|
|
|
Convertible debt interest
|
—
|
|
|
93,736
|
|
|
—
|
|
|
84,551
|
|
|
Employee benefits
|
30,454
|
|
|
—
|
|
|
30,474
|
|
|
—
|
|
|
Tax loss carryforwards
|
24,232
|
|
|
—
|
|
|
32,692
|
|
|
—
|
|
|
Other
|
37,529
|
|
|
3,938
|
|
|
11,268
|
|
|
3,722
|
|
|
Total deferred taxes
|
$
|
96,230
|
|
|
$
|
272,928
|
|
|
$
|
78,020
|
|
|
$
|
254,561
|
|
As of
December 31, 2011
and
2010
, WESCO had state tax benefits derived from net operating loss carryforwards of approximately $
6.3 million
($
4.1 million
, net of federal income tax) and $
6.9 million
($
4.5 million
, net of federal income tax),
respectively. In addition, WESCO had tax benefits from net operating losses resulting from the recapitalization of its Canadian operations of $
20.2 million
and $
27.1 million
, respectively. The amounts will begin expiring in 2012 and 2027, respectively. Utilization of WESCO’s state net operating loss carryforwards is subject to annual limitations imposed by state statute. Such annual limitations could result in the expiration of the net operating loss and tax credit carryforwards before utilization. Management anticipates utilizing the net operating losses prior to the expiration of statutes of limitations; accordingly, WESCO has not recorded a valuation allowance.
WESCO analyzes its filing positions for all open tax years in all juri
sdictions. The Company is currently under examination in several tax jurisdictions, both within the United States and outside the United States, and remains subject to examination until the statute of limitations expires for the respective tax jurisdictions. In 2011, the Company settled its Internal Revenue Service examination for the years 2000 to 2006, for which an income tax receivable was recorded, and its Canadian Competent Authority examination for the years 1998 to 2003, for which the Company was fully reserved. The following summary sets forth the tax years that remain open in the Company’s major tax jurisdictions:
|
|
|
|
|
|
|
United States — Federal
|
|
2000 and forward *
|
|
United States — States
|
|
2006 and forward
|
|
Canada
|
|
1998 and forward *
|
* Open by waiver of statute only.
The following table sets forth the reconciliation of gross unrecognized tax benefits:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
2011
|
|
2010
|
|
2009
|
|
|
(In thousands)
|
|
Beginning balance January 1
|
$
|
3,394
|
|
|
$
|
8,085
|
|
|
$
|
7,451
|
|
|
Additions based on tax positions related to the current year
|
265
|
|
|
1,439
|
|
|
319
|
|
|
Additions for tax positions of prior years
(1)
|
20,064
|
|
|
4,668
|
|
|
927
|
|
|
Reductions for tax positions of prior years
|
(2,161
|
)
|
|
(8,818
|
)
|
|
—
|
|
|
Settlements
|
(512
|
)
|
|
(1,368
|
)
|
|
(336
|
)
|
|
Lapse in statute of limitations
|
(172
|
)
|
|
(612
|
)
|
|
(276
|
)
|
|
Ending balance December 31
|
$
|
20,878
|
|
—
|
|
$
|
3,394
|
|
|
$
|
8,085
|
|
_________________________
(1)
Additions for tax positions of prior years primarily relate to transfer pricing issues between the United States and
Canada which are under review by the Canadian Competent Authority. A corresponding deferred tax asset in the amount of $
23.1 million
excluding interest has been recorded for the position in the United States.
The total amount of unrecognized tax benefits were
$20.9 million
,
$3.4 million
and
$8.1 million
as of
December 31, 2011
,
2010
and
2009
, respectively. If these tax benefits were recognized in the consolidated financial statements, the portion of these amounts that would reduce the Company’s tax provision would be $
19.7 million
, $
1.9 million
, and $
7.1 million
respectively. This amount in 2011 would be offset by the corresponding deferred tax asset discussed above.
During the next twelve months, it is reasonably possible that the amount of unrecognized tax benefits will decrease by as much as $
17.3 million
(all of which will be offset by the reversal of a deferred tax asset) due to certain issues being settled by the resolution of federal, state and/or foreign tax examinations and/or the expiration of statutes of limitations. Management does not expect this decrease to have an impact on the effective tax rate.
WESCO records interest related to uncertain tax positions as a part of interest expense in the consolidated statement of income. Any penalties are recognized as part of income tax expense. Penalties recorded to income tax expense were immaterial in amount for
2011
,
2010
and
2009
, respectively. As of
December 31, 2011
and
2010
, WESCO had an accrued liability of $
11.4 million
and $
9.5 million
, respectively, for interest related to uncertain tax positions.
11. EARNINGS PER SHARE
Basic earnings per share are computed by dividing net income by the weighted average common shares outstanding during the periods. Diluted earnings per share are computed by dividing net income by the weighted average common shares and common share equivalents outstanding during the periods. The dilutive effect of common share equivalents is considered in the
diluted earnings per share computation using the treasury stock method, which includes consideration of stock-based compensation.
The following table sets forth the details of basic and diluted earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31
|
|
|
2011
|
|
2010
|
|
2009
|
|
|
|
|
(In thousands)
|
|
|
|
Net income
|
$
|
196,251
|
|
|
$
|
115,477
|
|
|
$
|
105,088
|
|
|
Weighted average common shares outstanding used in computing basic earnings per share
|
43,220
|
|
|
42,499
|
|
|
42,282
|
|
|
Common shares issuable upon exercise of dilutive stock options
|
1,179
|
|
|
840
|
|
|
390
|
|
|
Common shares issuable from contingently convertible debentures (see below for basis of calculation)
|
5,224
|
|
|
2,774
|
|
|
—
|
|
|
Weighted average common shares outstanding and common share equivalents used in computing diluted earnings per share
|
49,623
|
|
|
46,113
|
|
|
42,672
|
|
|
Earnings per share attributable to WESCO International, Inc.
|
|
|
|
|
|
|
Basic
|
$
|
4.54
|
|
|
$
|
2.72
|
|
|
$
|
2.49
|
|
|
Diluted
|
$
|
3.96
|
|
|
$
|
2.50
|
|
|
$
|
2.46
|
|
As of
December 31, 2011
,
2010
and
2009
, the computation of diluted earnings per share attributable to WESCO International, Inc. excluded stock-settled stock appreciation rights of approximately
1.2 million
,
2.4 million
and
3.6 million
at weighted average exercise prices of $
62.48
per share, $
46.73
per share and $
39.65
per share, respectively. These amounts were excluded because their effect would have been antidilutive.
Because of WESCO’s obligation to settle the par value of the 2029 Debentures and the 2026 Debentures (the “Debentures”) in cash, WESCO is not required to include any shares underlying the Debentures in its diluted weighted average shares outstanding until the average stock price per share for the period exceeds the conversion price of the respective Debentures. At such time, only the number of shares that would be issuable (under the treasury stock method of accounting for share dilution) will be included, which is based upon the amount by which the average stock price exceeds the conversion price. The conversion prices of the 2029 Debentures and 2026 Debentures are $
28.87
and $
88.15
, respectively. Share dilution is limited to a maximum of
11,950,622
shares for the 2029 Debentures and
635
shares for the 2026 Debentures. Share dilution for the 2026 Debentures reflects the impact of the convertible debt exchange. For the periods ended
December 31, 2011
and
2010
, the effect of the 2029 debentures on diluted earnings per share attributable to WESCO International, Inc. was a decrease of $
0.47
and $
0.16
, respectively. There was no impact of the Debentures on diluted earnings per share attributable to WESCO International, Inc. for the year ended
December 31, 2009
.
12. EMPLOYEE BENEFIT PLANS
A majority of WESCO’s employees are covered by defined contribution retirement savings plans for their service rendered subsequent to WESCO’s formation. WESCO also offers a deferred compensation plan for select individuals. For U.S. participants, WESCO will make contributions in an amount equal to
50%
of the participant’s total monthly contributions up to a maximum of
6%
of eligible compensation. For Canadian participants, WESCO will make contributions in an amount ranging from
1%
to
7%
of the participant’s eligible compensation based on years of continuous service. In addition, employer contributions may be made at the discretion of the Board of Directors. Discretionary employer contributions charges of $
16.2 million
and $
14.2 million
were incurred in
2011
and
2010
, respectively. All discretionary contributions were suspended during 2009 due to cost reductions actions; accordingly, no discretionary charges were incurred. For the years ended
December 31, 2011
,
2010
and
2009
, WESCO incurred charges of $
27.6 million
, $
25.3 million
and $
8.3 million
, respectively, for all such plans. Contributions are made in cash to employee retirement savings plan accounts. Employees then have the option to transfer balances allocated to their accounts into any of the available investment options, including WESCO common stock.
13. STOCK-BASED COMPENSATION
WESCO has sponsored four stock option plans: the 1999 Long-Term Incentive Plan (“LTIP”), the 1998 Stock Option Plan, the Stock Option Plan for Branch Employees and the 1994 Stock Option Plan. The LTIP was designed to be the successor plan to all prior plans. Any shares remaining reserved for future issuance under the prior plans are available for issuance under the LTIP. The LTIP and predecessor plans are administered by the Compensation Committee of the Board of Directors.
An initial reserve of
6,936,000
shares of common stock has been authorized for issuance under the LTIP. This reserve automatically increases by (i) the number of shares of common stock covered by unexercised options granted under prior plans that are canceled or terminated after the effective date of the LTIP, and (ii) the number of shares of common stock surrendered by employees to pay the exercise price and/or minimum withholding taxes in connection with the exercise of stock options granted under our prior plans. As of
December 31, 2011
,
2.7 million
shares of common stock were reserved under the LTIP for future equity award grants. In December 2003, in a privately negotiated transaction, WESCO redeemed the net equity value of stock options originally granted in 1994 and 1995, representing approximately
2.9 million
shares. These shares are included in the reserve of common stock available for issuance under the LTIP.
Awards granted vest and become exercisable once criteria based on time is achieved. All awards vest immediately in the event of a change in control. Each award terminates on the tenth anniversary of its grant date unless terminated sooner under certain conditions.
As of
December 31, 2011
, there was $
16.7 million
of total unrecognized compensation expense related to non-vested stock-based compensation arrangements for all awards previously made of which approximately $
10.0 million
is expected to be recognized in 2012, $
6.1 million
in 2013 and $
0.6 million
in 2014.
The total intrinsic value of awards exercised during the years ended
December 31, 2011
and
2010
was $
13.8 million
and $
9.9 million
, respectively. The total amount of cash received from the exercise of options was $
0.4 million
and $
1.8 million
, respectively. The tax benefit associated with the exercise of stock options and stock-settled stock appreciation rights totaled $
5.4 million
and $
3.1 million
in
2011
and
2010
, respectively. WESCO uses the direct only method and tax law ordering approach to calculate the tax effects of stock-based compensation. The tax benefit was recorded as a credit to additional paid-in capital.
The following table sets forth a summary of both stock options and stock appreciation rights and related information for the years indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011
|
|
2010
|
|
2009
|
|
|
Awards
|
|
Weighted
Average
Exercise
Price
|
|
Weighted
Average
Remaining
Contractual
Life
|
|
Aggregate
Intrinsic
Value
(In thousands)
|
|
Awards
|
|
Weighted
Average
Exercise
Price
|
|
Awards
|
|
Weighted
Average
Exercise
Price
|
|
Beginning of year
|
4,498,303
|
|
|
$
|
36.38
|
|
|
|
|
|
|
4,226,153
|
|
|
$
|
35.30
|
|
|
3,933,035
|
|
|
$
|
36.44
|
|
|
Granted
|
399,260
|
|
|
59.16
|
|
|
|
|
|
|
708,949
|
|
|
33.19
|
|
|
815,231
|
|
|
25.37
|
|
|
Exercised
|
(543,154
|
)
|
|
25.83
|
|
|
|
|
|
|
(335,155
|
)
|
|
14.79
|
|
|
(253,253
|
)
|
|
12.55
|
|
|
Cancelled
|
(87,876
|
)
|
|
46.86
|
|
|
|
|
|
|
(101,644
|
)
|
|
40.62
|
|
|
(268,860
|
)
|
|
43.22
|
|
|
End of year
|
4,266,533
|
|
|
39.64
|
|
|
6.1
|
|
|
$
|
63,668
|
|
|
4,498,303
|
|
|
36.38
|
|
|
4,226,153
|
|
|
35.30
|
|
|
Exercisable at end of year
|
3,176,161
|
|
|
$
|
39.23
|
|
|
5.3
|
|
|
$
|
48,986
|
|
|
3,011,120
|
|
|
$
|
38.65
|
|
|
2,661,320
|
|
|
$
|
35.61
|
|
The following table sets forth a summary of restricted stock units and related information for the year ended
December 31, 2011
:
|
|
|
|
|
|
|
|
|
|
|
|
Awards
|
|
Weighted
Average
Fair
Value
|
|
Unvested at December 31, 2010
|
392,493
|
|
|
$
|
28.36
|
|
|
Granted
|
53,852
|
|
|
60.05
|
|
|
Vested
|
(236,913
|
)
|
|
27.93
|
|
|
Forfeited
|
(6,141
|
)
|
|
32.02
|
|
|
Unvested at December 31, 2011
|
203,291
|
|
|
$
|
37.16
|
|
14. 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, 2011
, are as follows
:
|
|
|
|
|
|
|
|
(In thousands)
|
|
|
2012
|
$
|
47,015
|
|
|
2013
|
32,768
|
|
|
2014
|
24,470
|
|
|
2015
|
20,580
|
|
|
2016
|
16,276
|
|
|
Thereafter
|
42,498
|
|
Rental expense for the years ended
December 31, 2011
,
2010
and
2009
was
$48.0 million
,
$45.4 million
and
$46.3 million
, respectively.
From time to time, a number of lawsuits and claims have been or may be asserted against WESCO relating to the conduct of its business, including routine litigation relating to commercial and employment matters. The outcomes of litigation cannot be predicted with certainty, and some lawsuits may be determined adversely to WESCO. However, management does not believe that the ultimate outcome is likely to have a material adverse effect on WESCO’s financial condition or liquidity, although the resolution in any fiscal quarter of one or more of these matters may have a material adverse effect on WESCO’s results of operations for that period.
WESCO is a co-defendant in a lawsuit filed in a state court in Indiana in which a customer alleges that WESCO sold defective products manufactured or remanufactured by others and is seeking monetary damages in the amount of
approximately
$50 million
. WESCO has denied any liability, continues to believe that it has meritorious defenses and intends to vigorously defend itself against these allegations. Accordingly, no liability was recorded for this matter as of December 31, 2011. Furthermore, due to the uncertainty of this litigation, WESCO is not currently able to reasonably estimate the possible loss or range of loss from this legal proceeding.
15. SEGMENTS AND RELATED INFORMATION
WESCO provides distribution of product and services through its ten operating segments which have been aggregated as one reportable segment. WESCO has over
250,000
unique product stock keeping units and markets more than
1,000,000
pr
oducts for customers. There were no material amounts of sales or transfers among geographic areas and no material amounts of export sales.
WESCO attributes revenues from external customers to individual countries on the basis of the point of sale. The following table sets forth information about WESCO by geographic area:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Sales
Year Ended December 31,
|
|
Long-Lived Assets
December 31,
|
|
(In thousands)
|
2011
|
|
2010
|
|
2009
|
|
2011
|
|
2010
|
|
2009
|
|
United States
|
$
|
4,994,641
|
|
|
82
|
%
|
|
$
|
4,198,420
|
|
|
83
|
%
|
|
$
|
3,928,182
|
|
|
85
|
%
|
|
$
|
131,989
|
|
|
$
|
117,768
|
|
|
$
|
112,955
|
|
|
Canada
|
900,551
|
|
|
15
|
%
|
|
682,415
|
|
|
13
|
%
|
|
559,367
|
|
|
12
|
%
|
|
24,609
|
|
|
12,446
|
|
|
12,343
|
|
|
Mexico
|
84,871
|
|
|
1
|
%
|
|
51,413
|
|
|
1
|
%
|
|
39,032
|
|
|
1
|
%
|
|
572
|
|
|
641
|
|
|
624
|
|
|
Subtotal North American Operations
|
5,980,063
|
|
|
|
|
4,932,248
|
|
|
|
|
4,526,581
|
|
|
|
|
157,170
|
|
|
130,855
|
|
|
125,922
|
|
|
Other Foreign
|
145,655
|
|
|
2
|
%
|
|
131,614
|
|
|
3
|
%
|
|
97,373
|
|
|
2
|
%
|
|
771
|
|
|
325
|
|
|
74
|
|
|
Total U.S. and Foreign
|
$
|
6,125,718
|
|
|
|
|
$
|
5,063,862
|
|
|
|
|
$
|
4,623,954
|
|
|
|
|
$
|
157,941
|
|
|
$
|
131,180
|
|
|
$
|
125,996
|
|
The following table sets forth sales information about WESCO’s sales by product category:
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
2011
|
|
2010
|
|
2009
|
|
(percentages based on total sales)
|
|
|
|
|
|
|
General and Industrial Supplies
|
34%
|
|
35%
|
|
35%
|
|
Wire, Cable and Conduit
|
18%
|
|
18%
|
|
18%
|
|
Data and Broadband Communications
|
17%
|
|
15%
|
|
14%
|
|
Power Distribution Equipment
|
11%
|
|
12%
|
|
13%
|
|
Lighting and Controls
|
9%
|
|
10%
|
|
11%
|
|
Control, Automation and Motors
|
11%
|
|
10%
|
|
9%
|
16. OTHER FINANCIAL INFORMATION
WESCO Distribution, a 100% owned subsidiary of WESCO International, has outstanding
$150.0 million
in aggregate principal amount of 2017 Notes, and WESCO International has outstanding
$0.1 million
in aggregate principal amount of 2026 Debentures and
$345.0 million
in aggregate principal amount of 2029 Debentures. The 2017 Notes are fully and unconditionally guaranteed by WESCO International on a subordinated basis to all existing and future senior indebtedness of WESCO International. The 2026 Debentures and 2029 Debentures are fully and unconditionally guaranteed by WESCO Distribution on a senior subordinated basis to all existing and future senior indebtedness of WESCO Distribution.
Condensed consolidating financial information for WESCO International, WESCO Distribution, Inc. and the non-guarantor subsidiaries is as follows:
CONDENSED CONSOLIDATING BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2011
|
|
|
(In thousands)
|
|
|
WESCO
International,
Inc.
|
|
WESCO
Distribution,
Inc.
|
|
Non-Guarantor
Subsidiaries
|
|
Consolidating
and
Eliminating
Entries
|
|
Consolidated
|
|
Cash and cash equivalents
|
$
|
5
|
|
|
$
|
44,412
|
|
|
$
|
19,452
|
|
|
$
|
—
|
|
|
$
|
63,869
|
|
|
Trade accounts receivable, net
|
—
|
|
|
—
|
|
|
939,422
|
|
|
—
|
|
|
939,422
|
|
|
Inventories, net
|
—
|
|
|
341,423
|
|
|
285,544
|
|
|
—
|
|
|
626,967
|
|
|
Other current assets
|
270
|
|
|
32,548
|
|
|
74,344
|
|
|
—
|
|
|
107,162
|
|
|
Total curent assets
|
275
|
|
|
418,383
|
|
|
1,318,762
|
|
|
—
|
|
|
1,737,420
|
|
|
Intercompany receivables, net
|
—
|
|
|
—
|
|
|
1,881,208
|
|
|
(1,881,208
|
)
|
|
—
|
|
|
Property, buildings and equipment, net
|
—
|
|
|
54,038
|
|
|
79,512
|
|
|
—
|
|
|
133,550
|
|
|
Intangible assets, net
|
—
|
|
|
6,981
|
|
|
149,893
|
|
|
—
|
|
|
156,874
|
|
|
Goodwill and other intangibles, net
|
—
|
|
|
246,125
|
|
|
762,002
|
|
|
—
|
|
|
1,008,127
|
|
|
Investments in affiliates and other noncurrent assets
|
2,219,142
|
|
|
3,412,735
|
|
|
31,745
|
|
|
(5,621,141
|
)
|
|
42,481
|
|
|
Total assets
|
$
|
2,219,417
|
|
|
$
|
4,138,262
|
|
|
$
|
4,223,122
|
|
|
$
|
(7,502,349
|
)
|
|
$
|
3,078,452
|
|
|
Accounts payable
|
$
|
—
|
|
|
$
|
423,509
|
|
|
$
|
219,268
|
|
|
$
|
—
|
|
|
$
|
642,777
|
|
|
Other current liabilities
|
7,797
|
|
|
6,510
|
|
|
188,762
|
|
|
—
|
|
|
203,069
|
|
|
Total current liabilities
|
7,797
|
|
|
430,019
|
|
|
408,030
|
|
|
—
|
|
|
845,846
|
|
|
Intercompany payables, net
|
668,447
|
|
|
1,142,761
|
|
|
—
|
|
|
(1,811,208
|
)
|
|
—
|
|
|
Long-term debt
|
169,054
|
|
|
188,081
|
|
|
285,787
|
|
|
—
|
|
|
642,922
|
|
|
Other noncurrent liabilities
|
28,131
|
|
|
163,177
|
|
|
52,466
|
|
|
—
|
|
|
243,774
|
|
|
Stockholders’ equity
|
1,345,988
|
|
|
2,214,224
|
|
|
3,406,839
|
|
|
(5,621,141
|
)
|
|
1,345,910
|
|
|
Total liabilities and stockholders’ equity
|
$
|
2,219,417
|
|
|
$
|
4,138,262
|
|
|
$
|
4,153,122
|
|
|
$
|
(7,432,349
|
)
|
|
$
|
3,078,452
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2010
|
|
|
(In thousands)
|
|
|
WESCO
International,
Inc.
|
|
WESCO
Distribution,
Inc.
|
|
Non-Guarantor
Subsidiaries
|
|
Consolidating
and
Eliminating
Entries
|
|
Consolidated
|
|
Cash and cash equivalents
|
$
|
1
|
|
|
$
|
32,341
|
|
|
$
|
21,235
|
|
|
$
|
—
|
|
|
$
|
53,577
|
|
|
Trade accounts receivable, net
|
—
|
|
|
—
|
|
|
792,681
|
|
|
—
|
|
|
792,681
|
|
|
Inventories, net
|
—
|
|
|
321,111
|
|
|
267,737
|
|
|
—
|
|
|
588,848
|
|
|
Other current assets
|
(4,492
|
)
|
|
90,105
|
|
|
(7,033
|
)
|
|
—
|
|
|
78,580
|
|
|
Total current assets
|
(4,491
|
)
|
|
443,557
|
|
|
1,074,620
|
|
|
—
|
|
|
1,513,686
|
|
|
Intercompany receivables, net
|
—
|
|
|
—
|
|
|
1,933,768
|
|
|
(1,933,768
|
)
|
|
—
|
|
|
Property, buildings and equipment, net
|
—
|
|
|
41,115
|
|
|
76,930
|
|
|
—
|
|
|
118,045
|
|
|
Intangible assets, net
|
—
|
|
|
7,817
|
|
|
152,490
|
|
|
—
|
|
|
160,307
|
|
|
Goodwill and other intangibles, net
|
—
|
|
|
240,313
|
|
|
745,401
|
|
|
—
|
|
|
985,714
|
|
|
Investments in affiliates and other noncurrent assets
|
2,002,358
|
|
|
3,237,808
|
|
|
39,527
|
|
|
(5,230,671
|
)
|
|
49,022
|
|
|
Total assets
|
$
|
1,997,867
|
|
|
$
|
3,970,610
|
|
|
$
|
4,022,736
|
|
|
$
|
(7,164,439
|
)
|
|
$
|
2,826,774
|
|
|
Accounts payable
|
$
|
—
|
|
|
$
|
349,250
|
|
|
$
|
188,255
|
|
|
$
|
—
|
|
|
$
|
537,505
|
|
|
Other current liabilities
|
8,016
|
|
|
17,562
|
|
|
145,150
|
|
|
—
|
|
|
170,728
|
|
|
Total current liabilities
|
8,016
|
|
|
366,812
|
|
|
333,405
|
|
|
—
|
|
|
708,233
|
|
|
Intercompany payables, net
|
646,607
|
|
|
1,287,161
|
|
|
—
|
|
|
(1,933,768
|
)
|
|
—
|
|
|
Long-term debt
|
166,573
|
|
|
151,755
|
|
|
407,565
|
|
|
—
|
|
|
725,893
|
|
|
Other noncurrent liabilities
|
28,077
|
|
|
167,705
|
|
|
48,272
|
|
|
—
|
|
|
244,054
|
|
|
Stockholders’ equity
|
1,148,594
|
|
|
1,997,177
|
|
|
3,233,494
|
|
|
(5,230,671
|
)
|
|
1,148,594
|
|
|
Total liabilities and stockholders’ equity
|
$
|
1,997,867
|
|
|
$
|
3,970,610
|
|
|
$
|
4,022,736
|
|
|
$
|
(7,164,439
|
)
|
|
$
|
2,826,774
|
|
CONDENSED CONSOLIDATING STATEMENTS OF INCOME
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2011
|
|
|
(In thousands)
|
|
|
WESCO
International,
Inc.
|
|
WESCO
Distribution,
Inc.
|
|
Non-Guarantor
Subsidiaries
|
|
Consolidating
and
Eliminating
Entries
|
|
Consolidated
|
|
Net sales
|
$
|
—
|
|
|
$
|
3,230,753
|
|
|
$
|
2,998,639
|
|
|
$
|
(103,674
|
)
|
|
$
|
6,125,718
|
|
|
Cost of goods sold
|
—
|
|
|
2,585,978
|
|
|
2,406,845
|
|
|
(103,674
|
)
|
|
4,889,149
|
|
|
Selling, general and administrative expenses
|
70
|
|
|
546,902
|
|
|
325,011
|
|
|
—
|
|
|
871,983
|
|
|
Depreciation and amortization
|
—
|
|
|
11,996
|
|
|
19,611
|
|
|
—
|
|
|
31,607
|
|
|
Results of affiliates’ operations
|
229,621
|
|
|
173,421
|
|
|
—
|
|
|
(403,042
|
)
|
|
—
|
|
|
Interest expense, net
|
23,990
|
|
|
16,520
|
|
|
13,093
|
|
|
—
|
|
|
53,603
|
|
|
Other income
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Provision for income taxes
|
9,321
|
|
|
13,157
|
|
|
60,658
|
|
|
—
|
|
|
83,136
|
|
|
Net income (loss)
|
196,240
|
|
|
229,621
|
|
|
173,421
|
|
|
(403,042
|
)
|
|
196,240
|
|
|
Less: Net loss attributable to noncontrolling interest
|
—
|
|
|
—
|
|
|
(11
|
)
|
|
—
|
|
|
(11
|
)
|
|
Net income (loss) attributable to WESCO International, Inc.
|
$
|
196,240
|
|
|
$
|
229,621
|
|
|
$
|
173,432
|
|
|
$
|
(403,042
|
)
|
|
$
|
196,251
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2010
|
|
|
(In thousands)
|
|
|
WESCO
International,
Inc.
|
|
WESCO
Distribution,
Inc.
|
|
Non-Guarantor
Subsidiaries
|
|
Consolidating
and
Eliminating
Entries
|
|
Consolidated
|
|
Net sales
|
$
|
—
|
|
|
$
|
2,820,855
|
|
|
$
|
2,318,495
|
|
|
$
|
(75,488
|
)
|
|
$
|
5,063,862
|
|
|
Cost of goods sold
|
—
|
|
|
2,262,038
|
|
|
1,878,875
|
|
|
(75,488
|
)
|
|
4,065,425
|
|
|
Selling, general and administrative expenses
|
234
|
|
|
518,100
|
|
|
245,249
|
|
|
—
|
|
|
763,583
|
|
|
Depreciation and amortization
|
—
|
|
|
12,581
|
|
|
11,354
|
|
|
—
|
|
|
23,935
|
|
|
Results of affiliates’ operations
|
153,107
|
|
|
126,711
|
|
|
—
|
|
|
(279,818
|
)
|
|
—
|
|
|
Interest expense, net
|
27,565
|
|
|
16,816
|
|
|
13,182
|
|
|
—
|
|
|
57,563
|
|
|
Other income
|
—
|
|
|
(4,285
|
)
|
|
—
|
|
|
—
|
|
|
(4,285
|
)
|
|
Provision for income taxes
|
9,831
|
|
|
(10,791
|
)
|
|
43,124
|
|
|
—
|
|
|
42,164
|
|
|
Net income (loss) attributable to WESCO International, Inc.
|
$
|
115,477
|
|
|
$
|
153,107
|
|
|
$
|
126,711
|
|
|
$
|
(279,818
|
)
|
|
$
|
115,477
|
|
CONDENSED CONSOLIDATING STATEMENTS OF INCOME (continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2009
|
|
|
(In thousands)
|
|
|
WESCO
International,
Inc.
|
|
WESCO
Distribution,
Inc.
|
|
Non-Guarantor
Subsidiaries
|
|
Consolidating
and
Eliminating
Entries
|
|
Consolidated
|
|
Net sales
|
$
|
—
|
|
|
$
|
3,049,745
|
|
|
$
|
1,574,209
|
|
|
$
|
—
|
|
|
$
|
4,623,954
|
|
|
Cost of goods sold
|
—
|
|
|
2,470,956
|
|
|
1,253,105
|
|
|
—
|
|
|
3,724,061
|
|
|
Selling, general and administrative expenses
|
39
|
|
|
503,831
|
|
|
190,026
|
|
|
—
|
|
|
693,896
|
|
|
Depreciation and amortization
|
—
|
|
|
19,736
|
|
|
6,309
|
|
|
—
|
|
|
26,045
|
|
|
Results of affiliates’ operations
|
136,606
|
|
|
99,375
|
|
|
—
|
|
|
(235,981
|
)
|
|
—
|
|
|
Interest expense, net
|
28,014
|
|
|
16,106
|
|
|
9,634
|
|
|
—
|
|
|
53,754
|
|
|
Gain on debt exchange
|
(5,962
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(5,962
|
)
|
|
Other income
|
—
|
|
|
(4,991
|
)
|
|
—
|
|
|
—
|
|
|
(4,991
|
)
|
|
Provision for income taxes
|
9,427
|
|
|
6,876
|
|
|
15,760
|
|
|
—
|
|
|
32,063
|
|
|
Net income (loss) attributable to WESCO International, Inc.
|
$
|
105,088
|
|
|
$
|
136,606
|
|
|
$
|
99,375
|
|
|
$
|
(235,981
|
)
|
|
$
|
105,088
|
|
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2011
|
|
|
(In thousands)
|
|
|
WESCO
International,
Inc.
|
|
WESCO
Distribution,
Inc.
|
|
Non-Guarantor
Subsidiaries
|
|
Consolidating
and Eliminating
Entries
|
|
Consolidated
|
|
Net cash (used) provided by operating activities
|
$
|
(19,823
|
)
|
|
$
|
181,348
|
|
|
$
|
6,008
|
|
|
$
|
—
|
|
|
$
|
167,533
|
|
|
Investing activities:
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
—
|
|
|
(30,546
|
)
|
|
(2,801
|
)
|
|
—
|
|
|
(33,347
|
)
|
|
Acquisition payments
|
—
|
|
|
(48,093
|
)
|
|
—
|
|
|
—
|
|
|
(48,093
|
)
|
|
Other
|
—
|
|
|
97
|
|
|
—
|
|
|
—
|
|
|
97
|
|
|
Net cash used in investing activities
|
—
|
|
|
(78,542
|
)
|
|
(2,801
|
)
|
|
—
|
|
|
(81,343
|
)
|
|
Financing activities:
|
|
|
|
|
|
|
|
|
|
|
Net borrowings (repayments)
|
21,840
|
|
|
(105,931
|
)
|
|
—
|
|
|
—
|
|
|
(84,091
|
)
|
|
Equity transactions
|
(2,013
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(2,013
|
)
|
|
Other
|
—
|
|
|
15,196
|
|
|
—
|
|
|
—
|
|
|
15,196
|
|
|
Net cash provided (used) by financing activities
|
19,827
|
|
|
(90,735
|
)
|
|
—
|
|
|
—
|
|
|
(70,908
|
)
|
|
Effect of exchange rate changes on cash and cash equivalents
|
—
|
|
|
—
|
|
|
(4,990
|
)
|
|
—
|
|
|
(4,990
|
)
|
|
Net change in cash and cash equivalents
|
4
|
|
|
12,071
|
|
|
(1,783
|
)
|
|
—
|
|
|
10,292
|
|
|
Cash and cash equivalents at the beginning of year
|
1
|
|
|
32,341
|
|
|
21,235
|
|
|
—
|
|
|
53,577
|
|
|
Cash and cash equivalents at the end of period
|
$
|
5
|
|
|
$
|
44,412
|
|
|
$
|
19,452
|
|
|
$
|
—
|
|
|
$
|
63,869
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2010
|
|
|
(In thousands)
|
|
|
WESCO
International,
Inc.
|
|
WESCO
Distribution,
Inc.
|
|
Non-Guarantor
Subsidiaries
|
|
Consolidating
and Eliminating
Entries
|
|
Consolidated
|
|
Net cash (used) provided by operating activities
|
$
|
(96,685
|
)
|
|
$
|
301,578
|
|
|
$
|
(77,610
|
)
|
|
$
|
—
|
|
|
$
|
127,283
|
|
|
Investing activities:
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
—
|
|
|
(14,702
|
)
|
|
(430
|
)
|
|
—
|
|
|
(15,132
|
)
|
|
Acquisition payments
|
—
|
|
|
(265,397
|
)
|
|
—
|
|
|
—
|
|
|
(265,397
|
)
|
|
Sale of subsidiary
|
—
|
|
|
40,000
|
|
|
—
|
|
|
—
|
|
|
40,000
|
|
|
Other
|
—
|
|
|
19,986
|
|
|
—
|
|
|
—
|
|
|
19,986
|
|
|
Net cash used in investing activities
|
—
|
|
|
(220,113
|
)
|
|
(430
|
)
|
|
—
|
|
|
(220,543
|
)
|
|
Financing activities:
|
|
|
|
|
|
|
|
|
|
|
Net borrowings (repayments)
|
92,350
|
|
|
(58,894
|
)
|
|
—
|
|
|
—
|
|
|
33,456
|
|
|
Equity transactions
|
4,333
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
4,333
|
|
|
Other
|
—
|
|
|
(7,154
|
)
|
|
—
|
|
|
—
|
|
|
(7,154
|
)
|
|
Net cash provided (used) by financing activities
|
96,683
|
|
|
(66,048
|
)
|
|
—
|
|
|
—
|
|
|
30,635
|
|
|
Effect of exchange rate changes on cash and cash equivalents
|
—
|
|
|
—
|
|
|
3,873
|
|
|
—
|
|
|
3,873
|
|
|
Net change in cash and cash equivalents
|
(2
|
)
|
|
15,417
|
|
|
(74,167
|
)
|
|
—
|
|
|
(58,752
|
)
|
|
Cash and cash equivalents at the beginning of year
|
3
|
|
|
16,924
|
|
|
95,402
|
|
|
—
|
|
|
112,329
|
|
|
Cash and cash equivalents at the end of period
|
$
|
1
|
|
|
$
|
32,341
|
|
|
$
|
21,235
|
|
|
$
|
—
|
|
|
$
|
53,577
|
|
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS (continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2009
|
|
|
(In thousands)
|
|
|
WESCO
International,
Inc.
|
|
WESCO
Distribution,
Inc.
|
|
Non-Guarantor
Subsidiaries
|
|
Consolidating
and Eliminating
Entries
|
|
Consolidated
|
|
Net cash (used) provided by operating activities
|
$
|
(61,795
|
)
|
|
$
|
335,097
|
|
|
$
|
18,362
|
|
|
$
|
—
|
|
|
$
|
291,664
|
|
|
Investing activities:
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
—
|
|
|
(12,161
|
)
|
|
(809
|
)
|
|
—
|
|
|
(12,970
|
)
|
|
Acquisition payments
|
—
|
|
|
(262
|
)
|
|
—
|
|
|
—
|
|
|
(262
|
)
|
|
Other
|
—
|
|
|
2,540
|
|
|
—
|
|
|
—
|
|
|
2,540
|
|
|
Net cash used in investing activities
|
—
|
|
|
(9,883
|
)
|
|
(809
|
)
|
|
—
|
|
|
(10,692
|
)
|
|
Financing activities:
|
|
|
|
|
|
|
|
|
|
|
Net borrowings (repayments)
|
59,235
|
|
|
(314,817
|
)
|
|
—
|
|
|
—
|
|
|
(255,582
|
)
|
|
Equity transactions
|
2,563
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2,563
|
|
|
Other
|
—
|
|
|
(11,926
|
)
|
|
—
|
|
|
—
|
|
|
(11,926
|
)
|
|
Net cash provided (used) by financing activities
|
61,798
|
|
|
(326,743
|
)
|
|
—
|
|
|
—
|
|
|
(264,945
|
)
|
|
Effect of exchange rate changes on cash and cash equivalents
|
—
|
|
|
—
|
|
|
9,964
|
|
|
—
|
|
|
9,964
|
|
|
Net change in cash and cash equivalents
|
3
|
|
|
(1,529
|
)
|
|
27,517
|
|
|
—
|
|
|
25,991
|
|
|
Cash and cash equivalents at the beginning of year
|
—
|
|
|
18,453
|
|
|
67,885
|
|
|
—
|
|
|
86,338
|
|
|
Cash and cash equivalents at the end of period
|
$
|
3
|
|
|
$
|
16,924
|
|
|
$
|
95,402
|
|
|
$
|
—
|
|
|
$
|
112,329
|
|
17. SELECTED QUARTERLY FINANCIAL DATA (unaudited)
The following table sets forth selected quarterly financial data for the years ended December 31,
2011
and
2010
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
Quarter
|
|
Second
Quarter
|
|
Third
Quarter
|
|
Fourth
Quarter
|
|
2011
|
|
|
|
|
|
|
|
|
Net Sales
|
$
|
1,431,305
|
|
|
$
|
1,524,515
|
|
|
$
|
1,580,376
|
|
|
$
|
1,589,522
|
|
|
Cost of goods sold
|
1,145,255
|
|
|
1,217,666
|
|
|
1,264,745
|
|
|
1,261,483
|
|
|
Income from operations
|
64,745
|
|
|
84,996
|
|
|
91,752
|
|
|
91,486
|
|
|
Income before income taxes
|
52,104
|
|
|
71,065
|
|
|
76,673
|
|
|
79,534
|
|
|
Net income
|
37,305
|
|
|
50,207
|
|
|
53,890
|
|
|
54,838
|
|
|
Net income attributable to WESCO International, Inc.
|
37,305
|
|
|
50,207
|
|
|
53,890
|
|
|
54,849
|
|
|
Basic earnings per share attributable to WESCO International, Inc.
(A)
|
0.87
|
|
|
1.16
|
|
|
1.24
|
|
|
1.27
|
|
|
Diluted earnings per share attributable to WESCO International, Inc.
(B)
|
0.74
|
|
|
1.00
|
|
|
1.11
|
|
|
1.12
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
|
|
|
|
|
|
Net Sales
|
$
|
1,148,599
|
|
|
$
|
1,259,121
|
|
|
$
|
1,324,555
|
|
|
$
|
1,331,587
|
|
|
Cost of goods sold
|
921,183
|
|
|
1,016,169
|
|
|
1,066,769
|
|
|
1,061,304
|
|
|
Income from operations
|
38,276
|
|
|
51,355
|
|
|
61,246
|
|
|
60,042
|
|
|
Income before income taxes
|
27,252
|
|
|
38,733
|
|
|
47,498
|
|
|
44,158
|
|
|
Net income
|
19,200
|
|
|
27,793
|
|
|
33,661
|
|
|
34,823
|
|
|
Net income attributable to WESCO International, Inc.
|
19,200
|
|
|
27,793
|
|
|
33,661
|
|
|
34,823
|
|
|
Basic earnings per share attributable to WESCO International, Inc.
(A)
|
0.45
|
|
|
0.65
|
|
|
0.79
|
|
|
0.82
|
|
|
Diluted earnings per share attributable to WESCO International, Inc.
(B)
|
0.44
|
|
|
0.60
|
|
|
0.74
|
|
|
0.72
|
|
_________________________
|
|
|
|
(A)
|
Earnings per share (EPS) in each quarter is computed using the weighted average number of shares outstanding during the quarter while EPS for the full year is computed by taking the average of the weighted average number of shares outstanding each quarter. Thus, the sum of the four quarters’ EPS may not equal the full-year EPS.
|
|
|
|
|
(B)
|
Diluted earnings per share (DEPS) in each quarter is computed using the weighted average number of shares outstanding during that quarter while DEPS for the full year is computed by taking the average of the weighted average number of shares outstanding each quarter. Thus, the sum of the four quarters’ DEPS may not equal the full-year DEPS.
|
18. SUBSEQUENT EVENT
On
January 3, 2012
, WESCO Distribution, Inc. completed its acquisition of RS Electronics, a leading North American distributor of electronic and electrical products serving primarily the industrial, medical equipment, automotive, and contract manufacturing end markets with
eight
branches located in the midwest and southeastern United States and approximately $
60 million
in annual sales. WESCO funded the purchase price paid at closing with cash and borrowings under the Receivables Facility. The purchase price allocation will be completed during the first quarter of 2012.
