01—Abstract
Summary
Summary of the 10-K filed March 29, 2002. Cited figures are marked; the original filing is the authoritative source.
WESCO International, Inc. reported net sales of $3.66 billiona for 2001, down from $3.88 billion in 2000, with net income of $20.2 million, or $0.43 per diluted share, compared with $33.4 million, or $0.70 per share, a year earlier.
The company describes itself as a leading North American provider of electrical construction products and electrical and industrial MRO supplies, the second largest distributor in the U.S. electrical distribution industry, and the largest provider of integrated supply services. Management attributes the sales decline mainly to an 8.6%b drop in core operations, driven by weakness in telecom and semiconductor markets, reduced industrial MRO and capital spending, and lower control and automation product sales. Core sales for the two months ended February 28, 2002 were down approximately 12% from the prior-year period.
The balance sheet and liquidity picture drove much of the filing's discussion. Total long-term debt including current portion was $452.0 millionc at year-end 2001, and stockholders' equity was $144.7 million. In March 2002 the company entered into a $290 million revolving credit agreement secured by substantially all inventory and Canadian receivables, with the proceeds used to retire its prior revolving facility.
Cash flow from operations rose to $161.1 milliond in 2001 from $46.9 million in 2000, largely due to working capital improvement, though the filing notes that the receivables securitization program used $45.0 million of cash in 2001. The company does not pay dividends and has a share repurchase program, which the new credit facility permits subject to financial ratios. Investors should note several risks the filing highlights: significant leverage, with approximately $169 million of variable-rate debt; restrictive covenants in the credit facility and senior subordinated notes; and controlling shareholders, Cypress and its affiliates, who own approximately 44% of common stock.
The filing also states that adoption of SFAS No. 142 is expected to have a material non-cash impact on results because goodwill will no longer be amortized, with goodwill amortization of $11.9 million in 2001. Management expects 2002 capital expenditures similar to 2001 but significantly lower acquisition spending, and anticipates working capital requirements could increase by $50 million or more in 2002.
02—Key points
Key Highlights
- Net sales of $3.66 billion in 2001, down from $3.88 billion in 2000, with core operations sales declining 8.6%
- Net income fell to $20.2 million ($0.43 diluted EPS) from $33.4 million ($0.70 diluted EPS) in 2000
- Operating cash flow increased to $161.1 million in 2001 from $46.9 million in 2000, primarily from working capital improvement
- Total long-term debt of $452.0 million and stockholders' equity of $144.7 million at December 31, 2001
- March 2002 entry into a $290 million revolving credit agreement, with proceeds used to retire the prior revolving facility
- Core sales for the two months ended February 28, 2002 decreased approximately 12% from the prior-year period
- Cypress and its affiliates hold approximately 44% of common stock and can exercise significant influence over company affairs
03—Questions
Frequently Asked Questions
How much did WESCO's sales and earnings decline in 2001?
Net sales decreased by $223.1 million, or 5.7%, to $3.66 billion from $3.88 billion. Net income fell to $20.2 million, or $0.43 per diluted share, from $33.4 million, or $0.70 per diluted share. The filing attributes the sales decline principally to an 8.6% decrease in core business operations, partially offset by acquired companies.
What is WESCO's debt position and how has it been refinanced?
Total long-term debt including the current portion was $452.0 million at December 31, 2001, including $68.6 million under the revolving credit facility and $377.7 million of senior subordinated notes. In March 2002, WESCO entered into a $290 million revolving credit agreement maturing in 2007, secured by substantially all inventory and Canadian receivables, and used the proceeds to retire its existing revolving facility. Interest is LIBOR plus a margin of 200 to 275 basis points depending on excess availability.
What does the filing say about 2002 business trends and cash needs?
The filing states that the sales decline continued into 2002, with core sales for the two months ended February 28, 2002 down approximately 12% from the comparable 2001 period. Management expects 2002 capital expenditures to be similar to 2001, expects acquisition spending to be significantly lower, and anticipates working capital requirements could increase by $50 million or more after the significant reduction achieved in 2001.
Are there any dividends or share repurchases planned?
WESCO has not paid dividends and does not presently plan to pay them in the foreseeable future, with earnings expected to be retained for growth or debt reduction. Under its 1999 share repurchase program, the company had purchased approximately 3.9 million shares for about $32.8 million as of February 28, 2002. The August 2001 credit facility amendment had prohibited repurchases, but the new March 2002 credit agreement permits them if certain financial ratios are met.
What accounting change could affect WESCO's future reported earnings?
Upon adoption of SFAS No. 142 in fiscal 2002, goodwill will no longer be amortized but will be tested for impairment. Management believes the adoption will have a material non-cash impact on results of operations due to the elimination of goodwill amortization, which was $11.9 million in 2001. The company was still evaluating goodwill for impairment and had not completed its analysis as of the filing.
04—Continue