01—Abstract
Summary
Summary of the 10-K filed March 1, 2007. Cited figures are marked; the original filing is the authoritative source.
WESCO International, Inc. reported 2006 net sales of $5,320.6 milliona, up 20.3% from $4,421.1 million in 2005, with net income of $217.3 million (diluted EPS of $4.14, versus $2.10 in 2005).
Management attributed growth to strong growth in served markets, acquisitions (sales from recent acquisitions were $506.6 millionb, about 9.1% of the sales increase), price increases, and productivity initiatives. Gross margin rose to 20.4% from 19.0%, and SG&A fell to 13.0% of sales from 13.9%, which lifted income from operations to $364.9 million, up 74.4%. The balance sheet changed materially in 2006.
The November 2006 acquisition of Communications Supply Holdings, Inc. for approximately $536 millionc was funded with 1.75% Convertible Senior Debentures due 2026 ($300 million), revolver borrowings, and the Receivables Facility. Total debt rose to $1,140.3 million at year-end, against stockholders' equity of $763.2 million. Because the December 2006 amendment to the Receivables Facility removed the sale treatment for receivables, $390.5 million of receivables returned to the balance sheet, and related costs will move to interest expense in 2007.
Operating cash flow was $207.1 milliond, down from $295.1 million in 2005. Subsequent events include a board-authorized stock repurchase program of up to $400 million (announced February 1, 2007) and an amendment increasing the Receivables Facility commitment from $400 million to $500 million.
The filing also notes a pending jury trial in April 2007 in a Florida lawsuit in which a former supplier seeks more than $17 million in damages. Management expects overall economic growth to continue through 2007 and plans to use cash flow and credit facilities to pay down debt, repurchase shares and fund acquisitions.
02—Key points
Key Highlights
- Net sales rose 20.3% to $5,320.6 million in 2006; net income increased to $217.3 million from $103.5 million
- Diluted EPS was $4.14 in 2006, compared with $2.10 in 2005
- Gross margin improved to 20.4% from 19.0%, and SG&A fell to 13.0% of sales from 13.9%
- Acquired Communications Supply Holdings, Inc. in November 2006 for approximately $536 million
- Total debt was $1,140.3 million at December 31, 2006, against stockholders' equity of $763.2 million
- Board authorized a stock repurchase program of up to $400 million on February 1, 2007
- Receivables Facility commitment was increased from $400 million to $500 million in February 2007
03—Questions
Frequently Asked Questions
What drove the growth in WESCO's 2006 results?
Management attributed the 20.3% sales increase to strong growth in served markets, acquisitions (sales from recent acquisitions were $506.6 million), price increases that kept pace with rising cost of sales, favorable currency rates, and higher sales volume. Operating income rose 74.4% to $365.0 million on organic growth and margin improvement.
How did WESCO finance the Communications Supply acquisition?
The company funded the approximately $536 million acquisition with proceeds from its 1.75% Convertible Senior Debentures due 2026 ($300 million issued November 2006), borrowings under its revolving credit facility and Receivables Facility, and cash from operations.
Why did total debt increase so much in 2006?
Total debt rose to $1,140.3 million from $403.6 million, largely because the December 2006 amendment to the Receivables Facility meant transferred receivables no longer qualified for sale treatment. As a result, $390.5 million of receivables returned to the balance sheet with an equal assumed borrowing.
Does WESCO pay dividends, and what are its capital return plans?
WESCO has not paid dividends on its common stock and does not presently plan to in the foreseeable future. Earnings are expected to be retained to support growth, share repurchases or debt reduction. The board authorized a repurchase program of up to $400 million on February 1, 2007, and the revolving credit facility and 2017 Notes indenture restrict dividend payments.
What legal risk is disclosed in the filing?
A former supplier has sued WESCO in a Florida state court, alleging the company failed to fulfill commercial obligations to purchase product and seeking damages in excess of $17 million. WESCO believes it has meritorious defenses, and a jury trial is scheduled for April 2007. Management does not believe the ultimate outcome is likely to have a material adverse effect on financial condition or liquidity.
04—Continue