01—Abstract
Summary
Summary of the 10-K filed March 18, 2003. Cited figures are marked; the original filing is the authoritative source.
WESCO International, Inc. reported net sales of $3,325.8 milliona for 2002, down from $3,658.0 million in 2001, as weak industrial and MRO demand reduced volumes.
Gross profit fell to $590.8 millionb, with gross margin of 17.8% versus 17.6% a year earlier, while SG&A declined to $494.4 million. Income from operations was $76.6 million compared with $95.3 million, and net income rose to $23.1 million ($0.49 diluted EPS) from $20.2 million ($0.43), helped by a $5.3 million reversal of income tax contingency accruals that lowered the effective tax rate to 11.0%. Operating cash flow fell sharply to $20.4 million from $161.1 million, principally due to a decrease in accounts payable.
The balance sheet shows total debt of $418.0 millionc and stockholders' equity of $169.3 million at year-end 2002. Cash fell to $22.6 million, and the company repaid debt through a $290 million 2002 Revolving Credit Facility maturing in 2007 and a $51 million mortgage facility, of which $13 million was drawn. The Receivables Facility, which removed $293.0 million of receivables from the balance sheet, requires annual renewal and expires June 20, 2003.
Management stated it expects sufficient cash for foreseeable requirements, and the company has no specific near-term acquisition plans. Cypress and its affiliates own approximately 44%d of common stock and can exercise significant influence.
For investors, the key points are the thin net margin of 0.7%, the reliance on the Receivables Facility and revolving credit availability, the approximately $110 million of variable-rate debt, and the restriction on dividends, which the company does not plan to pay. The company also repurchased no shares in 2002 under its $25 million authorization, which expires in May 2003.
02—Key points
Key Highlights
- Net sales declined to $3.33 billion in 2002 from $3.66 billion in 2001, with the filing attributing the drop to lower capacity utilization among industrial and MRO customers.
- Net income increased to $23.1 million, or $0.49 per diluted share, from $20.2 million, or $0.43, aided by a $5.3 million tax contingency reversal that reduced the effective tax rate to 11.0%.
- Income from operations fell to $76.6 million from $95.3 million, with SG&A reduced to $494.4 million through compensation and benefit cuts.
- Operating cash flow dropped to $20.4 million from $161.1 million, primarily due to a decrease in accounts payable.
- Total indebtedness was $418.0 million against stockholders' equity of $169.3 million at December 31, 2002.
- The Receivables Facility, which removed $293.0 million of receivables from the balance sheet, expires June 20, 2003 and requires annual renewal.
- Cypress and its affiliates hold approximately 44% of common stock, and the company does not plan to pay dividends.
03—Questions
Frequently Asked Questions
How did WESCO perform financially in 2002?
Net sales fell to $3,325.8 million from $3,658.0 million, and income from operations declined to $76.6 million from $95.3 million. Net income rose to $23.1 million, or $0.49 per diluted share, largely because of a $5.3 million income tax contingency reversal that lowered the effective tax rate to 11.0%.
What is driving WESCO's sales decline?
The filing attributes the 2002 net sales decrease of about $330 million to continuing weakness in the North American economy, which reduced capacity utilization among many industrial and MRO customers and lowered plant expansion and upgrading activity.
How is WESCO financing its operations and debt?
WESCO relies on internally generated cash flow, a $290 million 2002 Revolving Credit Facility maturing in 2007 with about $154 million available at year-end, a $51 million mortgage facility with $13 million outstanding, and an accounts receivable securitization program. The Receivables Facility requires annual renewal and its current arrangement expires June 20, 2003.
Does WESCO pay dividends or repurchase shares?
WESCO has not paid dividends and does not presently plan to pay them, with earnings retained for growth or debt reduction. Its revolving credit facility and indenture also restrict dividends. Its $25 million share repurchase program expires in May 2003, and no shares were repurchased during 2002.
What risks do investors face from WESCO's capital structure?
The company is significantly leveraged, with $418.0 million of indebtedness, and about $110 million of its debt is at variable rates, making it vulnerable to interest rate increases. Its controlling shareholders, Cypress and affiliates, own approximately 44% of common stock and can exercise significant influence over its affairs.
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