01—Abstract
Summary
Summary of the 10-K filed February 21, 2014. Cited figures are marked; the original filing is the authoritative source.
WESCO International, Inc. reported 2013 net sales of $7.51 billiona, up 14.2% from $6.58 billion in 2012, with acquisitions contributing 14.6% of the increase and organic sales flat.
Income from operations rose to $481.0 millionb from $332.9 million, and net income attributable to WESCO International, Inc. increased 37.0% to $276.4 million, or $5.25 diluted earnings per share (versus $3.95 in 2012). The growth was driven primarily by the integration of EECOL Electric, acquired in December 2012, and the reversal of a $36.1 million ArcelorMittal litigation charge recorded in 2012. The balance sheet and cash flow picture improved over the year.
Operating cash flow was $315.1 millionc and free cash flow was $308.4 million, which the company defines as a non-GAAP measure. Total debt fell to $1.49 billion from $1.74 billion, and the financial leverage ratio based on total debt was 3.2 at year-end versus 4.7 a year earlier. Liquidity totaled $605.6 million, including $512.2 million of available revolving credit capacity.
The company refinanced its term loan in part with $500 milliond of 5.375% Senior Notes due 2021 issued in November 2013, which triggered a $13.2 million loss on debt extinguishment. Investors should note the concentration of risk and the ongoing commitments disclosed in the filing. The company paid no dividends and expects to reinvest earnings in growth, debt reduction and acquisitions.
Goodwill and indefinite-lived intangibles totaled $1.84 billion, about 40% of total assets, and the filing identifies a $16.6 million trademark as most sensitive to a decline in performance. The largest supplier accounted for approximately 12% of purchases, and the ten largest for approximately 31%. The company also disclosed that it completed the LaPrairie acquisition, with annual sales of approximately $30 million, in the first quarter of 2014.
02—Key points
Key Highlights
- Net sales rose 14.2% to $7.51 billion in 2013, with acquisitions contributing 14.6% and organic sales flat.
- Diluted EPS increased to $5.25 from $3.95, and net income attributable to WESCO rose 37.0% to $276.4 million.
- Income from operations increased to $481.0 million from $332.9 million, aided by the EECOL integration and the reversal of the $36.1 million 2012 ArcelorMittal charge.
- Total debt declined to $1.49 billion from $1.74 billion, and the financial leverage ratio based on total debt improved to 3.2 from 4.7.
- Operating cash flow was $315.1 million, and free cash flow was $308.4 million (a non-GAAP measure defined by the company).
- Liquidity of $605.6 million at year-end included $512.2 million of available revolving credit capacity.
- The company does not pay dividends and plans to reinvest earnings in growth, debt reduction and acquisitions.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2013, Wesco International kept $0.04.
- Revenue$7.51B100.0%
- Cost of revenue−$5.97B79.4%
- Gross profit$1.55B20.6%
- Operating costs−$1.06B14.2%
- Operating income$481.0M6.4%
- Interest, other & tax−$204.6M2.7%
- Net income$276.4M3.7%
Where FY2013 revenue went
$7.51B- Cost of revenue: $5.97B, 79% of revenue
- SG&A: $996.8M, 13% of revenue
- Net income: $276.4M, 3.7% of revenue
- Other operating costs: $67.6M, 0.9% of revenue
- Interest, other & tax: $204.6M, 2.7% of revenue
Kept 3.7% as net income
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2013filed February 21, 2014Financial Statements
FY2013 against FY2012
| Line item | FY2013FY2012 | Change |
|---|---|---|
| Revenue | $7.51B$6.58B | +14.2% |
| Cost of Revenue | $5.97B$5.25B | +13.7% |
| Gross Profit | $1.55B$1.33B | +16.1% |
| SG&A Expenses | $996.81M$961.01M | +3.7% |
| Operating Income | $481.00M$332.87M | +44.5% |
| Interest Expense | $85.61M$47.76M | +79.2% |
| Net Income | $276.43M$201.78M | +37.0% |
| EPS (Basic) | $6.26$4.62 | +35.5% |
| EPS (Diluted) | $5.25$3.95 | +32.9% |
| Shares Outstanding (Basic) | 44.15M43.68M | +1.1% |
| Shares Outstanding (Diluted) | 52.65M51.13M | +3.0% |
05—Questions
Frequently Asked Questions
What drove the increase in WESCO's 2013 sales and earnings?
Sales growth came mainly from acquisitions, which added 14.6 percentage points, while organic sales were flat. Operating income increased primarily due to the integration of EECOL's operations and the $36.1 million ArcelorMittal litigation recovery in 2013, which offset a 2012 charge of the same amount.
How much debt does WESCO carry, and how has it changed?
Total debt was $1,487.7 million at December 31, 2013, down from $1,735.2 million a year earlier. The company issued $500 million of 5.375% Senior Notes due 2021 and used the proceeds to prepay a portion of its Term Loan Facility. Its financial leverage ratio based on total debt was 3.2 at year-end 2013, compared with 4.7 at year-end 2012.
Does WESCO pay dividends?
No. WESCO has not paid dividends on its common stock and does not currently plan to pay them. Earnings are expected to be reinvested to support business growth, debt reduction or acquisitions, and the Revolving Credit Facility and Term Loan Agreement restrict dividend payments.
How concentrated are WESCO's customers and suppliers?
No single customer accounted for more than 2% of 2013 sales, and the top ten customers accounted for approximately 10%. On the supply side, the ten largest suppliers accounted for approximately 31% of purchases, and the largest, Eaton Corporation, accounted for approximately 12%. Most supplier agreements are terminable by either party on 60 days' notice or less.
What is the status of the ArcelorMittal litigation?
A jury awarded AIH approximately $36.1 million in February 2013, and the company recorded a corresponding charge in 2012 and a receivable from its insurers. The court later awarded prejudgment interest of $3.9 million, and the company recorded $4.7 million and $1.6 million in interest-related liabilities with matching insurance receivables. WESCO is appealing the final judgment, and the outcome cannot be predicted with certainty.
06—Continue