1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 28, 2001
REGISTRATION NO. -
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
------------------------
<Table>
WESCO INTERNATIONAL, INC. WESCO DISTRIBUTION, INC
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS
CHARTER) CHARTER)
25-1723342 25-1723345
(I.R.S. EMPLOYER IDENTIFICATION NUMBER) (I.R.S. EMPLOYER IDENTIFICATION NUMBER)
DELAWARE DELAWARE
(STATE OR OTHER JURISDICTION OF INCORPORATION OR (STATE OR OTHER JURISDICTION OF INCORPORATION OR
ORGANIZATION) ORGANIZATION)
5063 5063
(PRIMARY STANDARD INDUSTRIAL CLASSIFICATION CODE (PRIMARY STANDARD INDUSTRIAL CLASSIFICATION CODE
NUMBER) NUMBER)
</Table>
COMMERCE COURT
FOUR STATION SQUARE, SUITE 700
PITTSBURGH, PENNSYLVANIA 15219
TELEPHONE: (412) 454-2200
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANTS' PRINCIPAL EXECUTIVE OFFICES)
------------------------
ROY W. HALEY
CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER
COMMERCE COURT
FOUR STATION SQUARE, SUITE 700
PITTSBURGH, PENNSYLVANIA 15219
TELEPHONE: (412) 454-2200
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------------
COPIES TO:
MICHAEL C. MCLEAN, ESQUIRE
KIRKPATRICK & LOCKHART LLP
HENRY W. OLIVER BUILDING
535 SMITHFIELD STREET
PITTSBURGH, PENNSYLVANIA 15222-2312
TELEPHONE: (412) 355-6500
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED EXCHANGE OFFER: As soon as
practicable after the effective date of this Registration Statement.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
------------------------
CALCULATION OF REGISTRATION FEE
<Table>
<Caption>
---------------------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------------------
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO OFFERING PRICE PER AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED BE REGISTERED NOTE(1) PRICE(1) REGISTRATION FEE
---------------------------------------------------------------------------------------------------------------------------------
9 1/8% Senior Subordinated Notes Due
2008 $100,000,000 90.142% $90,142,000 $22,536
---------------------------------------------------------------------------------------------------------------------------------
Guarantee (2) (3) (3) (3) (3)
---------------------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------------------
</Table>
(1) Estimated solely for purposes of calculating the registration fee in
accordance with Rule 457(f) under the Securities Act of 1933, as amended
(the "Securities Act").
(2) Guarantee by WESCO International, Inc. of WESCO Distribution, Inc.'s 9 1/8%
Senior Subordinated Notes Due 2008 to be issued in exchange for WESCO
International's outstanding guarantee of WESCO Distribution's 9 1/8% Senior
Subordinated Notes Due 2008, originally issued on August 23, 2001.
(3) No separate registration fee is payable for the guarantee of WESCO
International, Inc. pursuant to Rule 457(n) under the Securities Act.
------------------------
THE REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANTS
SHALL FILE A FURTHER AMENDMENT THAT SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
2
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES NOR A
SOLICITATION OF AN OFFER TO BUY THESE SECURITIES WHERE THE OFFER OR SALE IS NOT
PERMITTED.
SUBJECT TO COMPLETION, DATED SEPTEMBER 28, 2001
PRELIMINARY PROSPECTUS
WESCO DISTRIBUTION, INC.
OFFER TO EXCHANGE UP TO $100,000,000 IN PRINCIPAL AMOUNT OF OUR
9 1/8% SENIOR SUBORDINATED NOTES DUE 2008
WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
FOR ANY AND ALL OF OUR OUTSTANDING
9 1/8% SENIOR SUBORDINATED NOTES DUE 2008, ISSUED 2001
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M. NEW YORK CITY TIME ON ,
2001, UNLESS EXTENDED
We are offering to exchange up to $100,000,000 in aggregate principal amount
of our 9 1/8% senior subordinated notes due 2008 (the "exchange notes") for an
equal aggregate principal amount of our outstanding 9 1/8% senior subordinated
notes due 2008, issued 2001 (the "original notes"). We sometimes refer to the
original notes and the exchange notes collectively as the "notes." The exchange
notes will be unconditionally guaranteed by WESCO International, Inc., our
parent company, but not by any of WESCO International's other direct or indirect
subsidiaries.
The terms of the exchange notes are substantially identical in all respects
(including principal amount, interest rate and maturity) to the terms of the
original notes for which they may be exchanged pursuant to this exchange offer,
except that the exchange notes will be freely transferable by the holders (other
than as described herein), are issued free of any covenant restricting transfer
absent registration and will not have the right to earn additional interest in
the event of a failure to register the exchange notes. The exchange notes will
evidence the same debt as the original notes and contain terms that are
substantially identical to the terms of the original notes. Original notes that
are accepted for exchange will be cancelled and retired. For a description of
the terms of the exchange notes, see "Description of the Notes."
The exchange notes will bear interest from the most recent date to which
interest has been paid on the original notes, or if no interest has been paid on
the original notes, from August 23, 2001. Holders whose original notes are
accepted for exchange will not receive any payment in respect of interest on the
original notes for which the record date occurs on or after completion of the
exchange offer. See "The Exchange Offer - Terms of the Exchange." The first
interest payment date on the notes is December 1, 2001.
The principal features of the exchange offer are as follows:
- You may withdraw tendered original notes at any time prior to the
expiration of the exchange offer.
- The exchange of original notes for exchange notes pursuant to the exchange
offer should not be a taxable event for U.S. federal income tax purposes.
- We will not receive any proceeds from the exchange offer.
- There is no existing public market for the original notes. We expect that
the exchange notes will be eligible for trading in the PORTAL Market, but
do not intend to list the exchange notes on any securities exchange or
seek approval for quotation through any automated trading systems.
------------------------
EACH BROKER-DEALER THAT RECEIVES EXCHANGE NOTES FOR ITS OWN ACCOUNT PURSUANT
TO THE EXCHANGE OFFER MUST ACKNOWLEDGE THAT IT WILL DELIVER A PROSPECTUS IN
CONNECTION WITH ANY RESALE OF THE EXCHANGE NOTES. THE LETTER OF TRANSMITTAL
STATES THAT BY SO ACKNOWLEDGING AND BY DELIVERING A PROSPECTUS, A BROKER-DEALER
WILL NOT BE DEEMED TO ADMIT THAT IT IS AN "UNDERWRITER" WITHIN THE MEANING OF
THE SECURITIES ACT. THIS PROSPECTUS, AS IT MAY BE AMENDED OR SUPPLEMENTED FROM
TIME TO TIME, MAY BE USED BY A BROKER-DEALER IN CONNECTION WITH ANY RESALE OF
EXCHANGE NOTES RECEIVED IN EXCHANGE FOR ORIGINAL NOTES WHERE THE ORIGINAL NOTES
WERE ACQUIRED BY THE BROKER-DEALER AS A RESULT OF MARKET-MAKING ACTIVITIES OR
OTHER TRADING ACTIVITIES. WE HAVE AGREED THAT, FOR A PERIOD OF 180 DAYS
FOLLOWING THE CONSUMMATION OF THE EXCHANGE OFFER, WE WILL MAKE THIS PROSPECTUS
AVAILABLE TO ANY BROKER-DEALER FOR USE IN CONNECTION WITH ANY SUCH RESALE. SEE
"PLAN OF DISTRIBUTION."
------------------------
FOR A DISCUSSION OF CERTAIN FACTORS YOU SHOULD CONSIDER BEFORE PARTICIPATING
IN THE EXCHANGE OFFER, SEE "RISK FACTORS" BEGINNING ON PAGE 16 OF THIS
PROSPECTUS.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED THAT
THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS , 2001
3
You should rely only on the information contained or incorporated by
reference in this prospectus. We have not authorized any other person to provide
you with different information. If anyone provides you with different or
inconsistent information, you should not rely on it. You should assume that the
information appearing in this prospectus is accurate only as of the date on the
front cover of this prospectus or, with respect to information incorporated by
reference from reports or documents filed with the Securities and Exchange
Commission (the "SEC"), the date such report or document was filed. Our
business, financial condition, results of operations and prospectus may have
changed since that date. Neither the delivery of this prospectus nor any sale
made hereunder shall under any circumstances imply that the information herein
is correct as of any date subsequent to the date on the cover of this
prospectus.
TABLE OF CONTENTS
<Table>
<Caption>
PAGE
----
Industry and Market Data.................................... ii
Where You Can Find More Information......................... ii
Incorporation by Reference and Delivery of Certain
Documents................................................. ii
Forward-Looking Statements.................................. iii
Summary..................................................... 1
Risk Factors................................................ 16
Use of Proceeds............................................. 23
Capitalization.............................................. 23
Selected Consolidated Financial Data........................ 24
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 27
Business.................................................... 36
Management.................................................. 48
Security Ownership by Certain Beneficial Owners and
Management................................................ 50
Description of Other Indebtedness and Receivables
Facility.................................................. 52
The Exchange Offer.......................................... 54
Description of the Notes.................................... 65
Book-Entry; Delivery and Form............................... 101
Exchange and Registration Rights Agreement.................. 104
Certain U.S. Federal Income Tax Considerations.............. 107
Plan of Distribution........................................ 112
Legal Matters............................................... 113
Experts..................................................... 113
Index to Consolidated Financial Statements.................. F-1
</Table>
------------------------
WESCO Distribution, Inc. is a Delaware corporation and a wholly owned
subsidiary of WESCO International, Inc., a Delaware corporation. The principal
executive offices of WESCO Distribution and WESCO International are located at
Commerce Court, Four Station Square, Suite 700, Pittsburgh, Pennsylvania 15219,
and the telephone number at that address is (412) 454-2200. Our website is
located at www.wescodist.com. The information in our website is not part of this
prospectus.
Our trade and service marks, including "WESCO," "the extra effort
people(R)," and the running man design, are filed in the U.S. Patent and
Trademark Office, the Canadian Trademark Office and the Mexican Instituto de la
Propriedad Industrial.
i
4
INDUSTRY AND MARKET DATA
In this prospectus we rely on and refer to information and statistics
regarding the electrical distribution industry. Unless otherwise indicated,
historical and projected market and market share data for the electrical
distribution industry is derived from Electrical Wholesaling magazine or
Distribution Information Services Corporation, and historical and projected
market and market share data with respect to integrated supply services is
derived from studies prepared by Frank Lynn & Associates. We have not
independently verified market and market share data from third-party sources.
Except where specified, market and market share data are for the U.S. electrical
distribution industry. We believe such market share data is inherently
imprecise, but is generally indicative of our relative market share.
WHERE YOU CAN FIND MORE INFORMATION
We and WESCO International, our parent company and guarantor of the notes,
have filed with the SEC a registration statement on Form S-4 (together with all
amendments, exhibits, schedules and supplements thereto, the "registration
statement") under the Securities Act covering the exchange notes offered
pursuant to this prospectus. This prospectus, which forms a part of the
registration statement, does not contain all of the information set forth in the
registration statement. For further information about us, WESCO International
and the exchange notes, you should refer to the registration statement.
Statements contained in this prospectus as to the contents of any contract,
agreement or other document are not necessarily complete. For a more complete
understanding and description of each contract, agreement or other document
filed as an exhibit to the registration statement, we encourage you to read the
documents contained in the exhibits. WESCO International is subject to the
informational requirements of the Securities Exchange Act of 1934, as amended
(the "Exchange Act") and, in accordance therewith, files periodic reports and
other information with the SEC. The registration statement, reports and other
information may be inspected and copied at the public reference rooms of the SEC
located at 450 Fifth Street, N.W., Room 1024, Washington D.C. 20549. Please call
1-800-SEC-0330 for further information on the operations of the public reference
facilities. Copies of such material, including copies of all or any portion of
the registration statement, can be obtained from the public reference room of
the SEC at prescribed rates or accessed electronically on the SEC website at
www.sec.gov. WESCO International's common stock is listed on the New York Stock
Exchange and such reports and other information concerning it may also be
inspected at the offices of the New York Stock Exchange, 20 Broad Street, New
York, New York 10005.
INCORPORATION BY REFERENCE AND
DELIVERY OF CERTAIN DOCUMENTS
The SEC allows us to "incorporate by reference" the information we file
with it, which means that we can disclose important information to you by
referring you to documents containing that information. The information
incorporated by reference is considered to be part of this prospectus, and later
information that we file with the SEC will automatically update and supersede
this information. We incorporate by reference the documents listed blow and any
future filings we make with the SEC under Sections 13(a), 13(c), 14 or 15(d) of
the Securities Exchange Act of 1934 until the expiration date of the exchange
offer, or, if required, for the 180 day period following the consummation of the
exchange offer in connection with any use of this prospectus for resales by
broker-dealers.
- Annual Report on Form 10-K of WESCO International for the year ended
December 31, 2000;
- Quarterly Report on Form 10-Q of WESCO International for the quarter
ended March 31, 2001;
ii
5
- Quarterly Report on Form 10-Q of WESCO International for the quarter
ended June 30, 2001;
- Current Report on Form 8-K of WESCO International to report an event
dated January 30, 2001;
- Current Report on Form 8-K of WESCO International to report an event
dated August 8, 2001;
- Current Report on Form 8-K of WESCO International to report an event
dated August 23, 2001; and
- Proxy Statement for the 2001 Annual Meeting of Stockholders of WESCO
International.
You may request a copy of these filings, at no cost, by writing or
telephoning us at our principal executive offices at the following address:
Commerce Court, Four Station Square, Suite 700, Pittsburgh, Pennsylvania 15219,
telephone: (412) 454-2200, Attention: Corporate Secretary. You may also obtain
copies of these filings, at no cost, by accessing our website at
www.wescodist.com; however, the information found on our website is not
considered part of this prospectus.
FORWARD-LOOKING STATEMENTS
The statements contained in this prospectus that are not historical facts
are or may be deemed to be "forward-looking statements" as defined in the
Private Securities Litigation Reform Act of 1995. Some of these statements can
be identified by the use of forward-looking terminology such as "believes,"
"estimates," "intends," "may," "will," "should" or "anticipates" or the negative
or other variation of these or similar words, or by discussion of strategy or
risks and uncertainties. In addition, from time to time we or our
representatives have made or may make forward-looking statements orally or in
writing. Furthermore, such forward-looking statements may be included in various
filings that we make with the SEC, or press releases or oral statements made by
or with the approval of one of our authorized executive officers.
Forward-looking statements in this prospectus include, among others, statements
regarding:
- business strategy;
- growth strategy;
- productivity and profitability enhancement;
- competition;
- new product and service introductions; and
- liquidity and capital resources.
These statements are only present expectations. Actual events or results
may differ materially. Factors that could cause such a difference include those
discussed under the heading "Risk Factors" in this prospectus.
We undertake no obligation to update or revise publicly any forward-looking
statement, whether as a result of new information, future events or otherwise.
All subsequent written and oral forward-looking statements attributable to us or
persons acting on our behalf are expressly qualified in their entirety by the
cautionary statements contained in this prospectus.
iii
6
SUMMARY
This summary highlights some of the information in this prospectus. Because
this is only a summary, it may not contain all of the information that may be
important to you in deciding whether to participate in the exchange offer.
Therefore, you should read the entire prospectus, especially "Risk Factors" and
the financial and other information contained elsewhere or incorporated by
reference into this prospectus, before making an investment decision.
Unless the context otherwise requires, in this prospectus, the term "WESCO
International" refers to WESCO International, Inc., the guarantor of the notes;
the terms "the Company," "we," "us," "our," "WESCO" and "WESCO Distribution"
refer to WESCO Distribution, Inc., the issuer of the notes and a wholly owned
subsidiary of WESCO International, and its subsidiaries. The principal asset of
WESCO International is all of the outstanding capital stock of WESCO
Distribution.
THE COMPANY
We are a leading North American provider of electrical products and other
industrial maintenance, repair and operating supplies, commonly referred to
collectively as "MRO." We are the second largest distributor in the estimated
$79 billion U.S. electrical distribution industry and the largest provider of
integrated supply services. Our integrated supply solutions and outsourcing
services fulfill a customer's industrial MRO procurement needs through a highly
automated, proprietary electronic procurement and inventory replenishment
system. This allows our customers to consolidate suppliers and reduce their
procurement and operating costs. We have over 360 branches and five distribution
centers located in 48 states, nine Canadian provinces, Puerto Rico, Mexico,
Guam, the United Kingdom and Singapore. We serve over 130,000 customers
worldwide, offering over 1,000,000 products from over 23,000 suppliers. Our
diverse customer base includes a wide variety of industrial companies;
contractors for industrial, commercial and residential projects; utility
companies; and commercial, institutional and governmental customers. Our leading
market positions, extensive geographic reach, broad product and service
offerings and acquisition program have enabled us to significantly increase our
net sales and improve our financial performance.
We have acquired 25 companies since August 1995, representing annual sales
of approximately $1.4 billion. Our strong internal growth, combined with
acquisitions, have increased our net sales and earnings before interest, taxes,
depreciation, amortization and restructuring charges at compounded annual growth
rates of 16% and 31%, respectively, between 1994 and 2000.
INDUSTRY OVERVIEW
ELECTRICAL DISTRIBUTION. The U.S. electrical distribution industry had
sales of approximately $79 billion in 2000. While overall weakness in the
current economic environment has contributed to recent sales declines, industry
growth has averaged 6% per year from 1985 to 2000. This expansion has been
driven by general economic growth, increased use of electrical products in
businesses and industries, new products and technologies, and customers who are
seeking to more efficiently purchase a broad range of products and services from
a single point of contact, thereby eliminating the costs and expenses of
purchasing directly from manufacturers or multiple sources. The U.S. electrical
distribution industry is also highly fragmented. In 1999, the latest year for
which market share data is available, the four national distributors, including
WESCO, accounted for less than 16% of estimated total industry sales.
INTEGRATED SUPPLY. The market for integrated supply services has more than
doubled from $5 billion in 1997 to over $10 billion in 2000, an increase of 27%
per year. Recent projections estimate that the integrated supply market will
reach $18.4 billion by 2004. Growth is being driven by the desire of large
industrial companies to reduce operating expenses by
1
7
implementing comprehensive third-party programs, which outsource the
cost-intensive procurement, stocking and administrative functions associated
with the purchase and consumption of MRO supplies. For our customers, these
costs can account for over 50% of the total costs for MRO products and services.
The total potential in the U.S. for integrated supply services, measured as all
purchases of industrial MRO supplies and services, is currently estimated to be
approximately $260 billion.
COMPETITIVE STRENGTHS
We believe our key competitive strengths include:
MARKET LEADERSHIP. Our ability to manage large construction projects and
complex multi-site plant maintenance programs and procurement projects that
require special sourcing, technical advice, logistical support and locally based
service has enabled us to establish leadership positions in our principal
markets. We have utilized these skills to generate significant revenues in
electrical products and other MRO intensive industries such as: electrical
contracting, utilities, original equipment manufacturing, process manufacturing
and commercial, institutional and governmental clients. We have also been able
to leverage our position within these industries to expand our customer base.
VALUE-ADDED SERVICES. We are a leader in providing a wide range of
services and procurement solutions that draw on our product knowledge, supply
and management expertise and systems capabilities, enabling our customers to
reduce supply chain costs and improve efficiency. These programs include:
- National Accounts -- we coordinate product supply and materials
management activities for customers with multiple locations who seek
purchasing leverage through a single electrical products provider;
- Integrated Supply -- we design and implement programs that enable our
customers to significantly reduce the number of MRO suppliers they use
through services that include highly automated, proprietary electronic
procurement and inventory replenishment systems and on-site materials
management and logistics services; and
- Major Projects -- we have a dedicated team of experienced construction
management personnel to service the needs of the top engineering and
construction firms which specialize in major projects such as airport
expansions, stadiums and healthcare facilities.
BROAD PRODUCT OFFERING. We provide our customers with a broad product
selection consisting of over 1,000,000 electrical, industrial and data
communications products sourced from over 23,000 suppliers. Our broad product
offering enables us to meet virtually all of a customer's electrical product and
other MRO requirements.
EXTENSIVE DISTRIBUTION NETWORK. Our distribution network consists of over
360 branches and five distribution centers located in 48 states, nine Canadian
provinces, Puerto Rico, Mexico, Guam, the United Kingdom and Singapore. This
extensive network, which would be extremely difficult and expensive to
duplicate, allows us to:
- offer multi-site distribution capabilities to large customers and
national accounts;
- tailor branch products and services to customer needs;
- minimize local inventory requirements; and
- provide same-day shipments.
2
8
LOW COST OPERATOR. Our competitive position has been enhanced by our low
cost position, which is based on:
- extensive use of automation and technology;
- centralization of functions such as purchasing and accounting;
- strategically located distribution centers;
- purchasing economies of scale; and
- incentive programs that increase productivity and encourage
entrepreneurship.
Our low cost position enables us to generate a significant amount of cash flow
as the capital investment required to maintain our business is low. This cash
flow is available for debt reduction, strategic acquisitions and continued
investment in the growth of the business.
STRONG MANAGEMENT TEAM. Our senior management team is comprised of
recognized industry leaders. They have successfully grown the Company both
organically and through the successful integration of 25 acquisitions since
1995. In addition, our senior management and a broad range of key operating
personnel are owners, holding approximately 29% of the common stock of WESCO
International. Our stock ownership and other incentive programs closely align
management's interests in the financial performance of the Company with those of
our stakeholders.
BUSINESS STRATEGY
Our objective is to be the leading provider of electrical products and
other MRO supplies and services to companies in North America and selected
international markets. In achieving this leadership position, our goal is to
grow earnings at a faster rate than sales by focusing on margin enhancement and
continuous productivity improvement. Our growth strategy leverages our existing
strengths and focuses on developing new initiatives and programs.
ENHANCE OUR LEADERSHIP POSITION IN ELECTRICAL DISTRIBUTION. We intend to
leverage our extensive market presence and brand equity in the WESCO name to
further our leadership position in electrical distribution. We are focusing our
sales and marketing on existing industries where we are expanding our product
and service offerings as well as targeting new clients, both within industries
we currently serve and in new markets which provide significant growth
opportunities. Markets where we believe such opportunities exist include retail,
education, financial services and health care.
GROW NATIONAL ACCOUNTS PROGRAMS. From 1994 through 2000, revenue from our
national accounts program increased in excess of 15% annually. Our objective is
to continue to increase revenue generated through our national accounts program
by:
- offering existing national accounts customers new products, more services
and additional locations;
- extending certain established national accounts relationships to include
integrated supply; and
- expanding our customer base by leveraging our existing industry expertise
in markets we currently serve as well as entering into new markets.
FOCUS ON MAJOR PROJECTS. We are increasing our focus on large
construction, renovation and institutional projects. We seek to secure new major
projects contracts through:
- aggressive national marketing of our demonstrated project management
capabilities;
- further development of relationships with leading contractors and
engineering firms;
3
9
- close coordination with national accounts customers on their major
project requirements; and
- offering an integrated supply service approach to contractors for major
projects.
EXTEND OUR LEADERSHIP POSITION IN INTEGRATED SUPPLY. We intend to expand
our leadership position as the largest integrated supply service provider by:
- continuing to tailor our proven and profitable business model to the
scale and scope of our customers' operations;
- maximizing the use of our highly automated proprietary information
systems;
- leveraging established relationships with our large industrial customer
base, especially among existing national account customers who could
benefit from our integrated supply model; and
- being a low cost provider of integrated supply services.
GAIN SHARE IN KEY LOCAL MARKETS. We intend to increase our market share in
key geographic markets through a combination of increased sales and marketing
efforts at existing branches, acquisitions that expand our product and customer
base and new branch openings. We intend to leverage our existing relationships
with preferred suppliers to increase sales of their products in local markets
through various initiatives, including sales promotions, cooperative marketing
efforts, direct participation by suppliers in national accounts implementation,
dedicated sales forces and product exclusivity. To promote growth, we have
instituted a compensation system for branch managers that encourages our branch
managers to increase sales and optimize business activities in their local
markets, including managing the sales force, configuring inventories, targeting
potential customers for marketing efforts and tailoring local service options.
PURSUE STRATEGIC ACQUISITIONS. Since 1995, we have considered over 300
potential acquisitions and have completed and successfully integrated 25
acquisitions, which represent annual sales of approximately $1.4 billion. We
believe that the highly fragmented nature of the electrical and industrial MRO
distribution industry will continue to provide us with a number of acquisition
opportunities. In our disciplined approach toward acquisitions, potential
acquisitions are evaluated based on a variety of financial, strategic and
operational criteria.
EXPAND PRODUCT AND SERVICE OFFERINGS. We continue to build on our
demonstrated ability to introduce new products and services to meet existing
customer demands and capitalize on new market opportunities. For example, we
have the platform to sell integrated lighting control and power distribution
equipment in a single package for multi-site specialty retailers, restaurant
chains and department stores. These are strong growth markets where our national
accounts strategies and logistics infrastructure provide significant benefits
for our customers.
LEVERAGE OUR E-COMMERCE AND INFORMATION SYSTEM CAPABILITIES. We conduct a
significant amount of business electronically. Our electronic transaction
management capabilities lower costs and shorten cycle time in the supply chain
process for us and for our customers. We intend to continue to invest in
information technology to create more effective linkages with both customers and
suppliers.
EXPAND OUR INTERNATIONAL OPERATIONS. Our international sales, the majority
of which are in Canada, accounted for approximately 10% of sales in 2000. We
believe that there is significant additional demand for our products and
services outside the United States and Canada. Many of our multinational
domestic customers are seeking global distribution, integrated supply and
project management solutions. We are primarily expanding our international
operations by supporting our established customers in new geographic markets
4
10
where we can do so effectively and profitably. This strategy of expanding
internationally with well-developed customers and suppliers significantly
reduces financial and operational risks.
THE SPONSOR
The Cypress Group L.L.C. ("Cypress"), which owns approximately 44% of the
outstanding WESCO International common stock, is a private equity firm which
currently manages over $3.5 billion of equity capital on behalf of major public
and private pension funds, university endowments, trusts and other leading
financial institutions. Cypress seeks to invest alongside extraordinary
executives in growth businesses to achieve long-term capital appreciation. The
Cypress professionals have successfully employed this strategy in numerous other
investments such as Infinity Broadcasting Corporation, Lear Corporation, R.P.
Scherer Corporation, Cinemark USA, Inc., Williams Scotsman, Inc. and ClubCorp,
Inc.
-------------------------
WESCO International common stock is listed on the New York Stock Exchange
under the ticker symbol "WCC."
5
11
THE EXCHANGE OFFER
Issuance of the Original
Notes......................... We sold the original notes on August 23, 2001
to JP Morgan Securities Inc., Lehman Brothers
Inc., PNC Capital Markets Inc., TD Securities
(USA) Inc., BNY Capital Markets, Inc., ABN AMRO
Incorporated, Comerica Securities, Fleet
Securities, Inc. and Scotia Capital. We
collectively refer to those purchasers in this
prospectus as the "initial purchasers." The
initial purchasers subsequently resold the
outstanding notes to qualified institutional
buyers pursuant to Rule 144A under the
Securities Act of 1933, as amended.
Exchange and Registration
Rights Agreement.............. Simultaneously with the sale of the original
notes, we entered into an exchange and
registration rights agreement with the initial
purchasers for the exchange offer. In the
exchange and registration rights agreement, we
agreed, among other things, to file a
registration statement with the SEC and to
complete this exchange offer prior to 225 days
after issuing the original notes. After the
exchange offer is complete, you will no longer
be entitled to any exchange or registration
rights with respect to your outstanding notes,
including original notes.
Transferability of Exchange
Notes......................... Based on interpretations by the Staff of the
SEC to third parties, we believe that the
exchange notes issued in the exchange offer may
be offered for resale, resold or otherwise
transferred by the holder without compliance
with the registration and prospectus delivery
provisions of the Securities Act provided that:
- the exchange notes are acquired in the
ordinary course of the holder's business;
- the holder has no arrangement with any person
to participate in the distribution of the
exchange notes issued in the exchange offer
and neither the holder nor any such other
person is engaging or intending to engage in
a distribution of the exchange notes; and
- the holder is not an affiliate of us or of
WESCO International.
Each broker-dealer that is issued exchange
notes in the exchange offer for its own account
in exchange for original notes that were
acquired by that broker-dealer as a result of
market-making or other trading activities, must
acknowledge that it will deliver a prospectus
meeting the requirements of the Securities Act
in connection with any resale of the exchange
notes. A broker-dealer may use this prospectus
for an offer to resell, resale or other
retransfer of the exchange notes issued to it
in the
6
12
exchange offer for 180 days following the
consummation of the exchange offer.
See "The Exchange Offer - Terms of the
Exchange."
The Exchange Offer............ We are offering to exchange up to $100,000,000
aggregate principal amount of our exchange
notes for a like aggregate principal amount of
our original notes. The terms of the exchange
notes are identical in all material respects
(including principal amount, interest rate and
maturity) to the terms of the original notes
for which they may be exchanged pursuant to the
exchange offer, except that the exchange notes
are freely transferable by holders (other than
as provided herein), and are not subject to any
obligation regarding registration under the
Securities Act as described above.
No Minimum Condition.......... The exchange offer is not conditioned upon any
minimum aggregate principal amount of original
notes being tendered for exchange.
Expiration Date; Withdrawal of
Tenders..................... The exchange offer will expire at 5:00 p.m.,
New York City time, on ,
2001 (the "expiration date"), unless the
exchange offer is extended, in which case the
term "expiration date" means the latest date
and time to which the exchange offer is
extended. We do not currently intend to extend
the expiration date. Tenders may be withdrawn
at any time prior to 5:00 p.m., New York City
time, on the expiration date. See "The Exchange
Offer - Withdrawal Rights."
Exchange Date................. The date of acceptance for exchange of the
original notes will be the fourth business day
following the expiration date.
Conditions to the Exchange
Offer......................... The exchange offer is subject to certain
customary conditions, which may be waived by
us. We currently expect that each of the
conditions will be satisfied and that no
waivers will be necessary. See "The Exchange
Offer - Certain Conditions to the Exchange
Offer." We reserve the right to terminate or
amend the exchange offer at any time prior to
the expiration date upon the occurrence of any
such condition.
Procedures for Tendering
Original notes................ Each holder wishing to accept the exchange
offer must complete, sign and date the letter
of transmittal, or a facsimile thereof, in
accordance with the instructions contained
herein and therein, and mail or otherwise
deliver the letter of transmittal, or such
facsimile, together with the original notes and
any other required documentation to the
exchange agent at the address set forth
therein. See "The Exchange Offer - Procedures
for Tendering Original Notes" and "Plan of
Distribution."
7
13
Use of Proceeds............... We will not receive any proceeds from the
exchange of original notes pursuant to the
exchange offer.
Federal Income Tax
Considerations................ The exchange of notes pursuant to the exchange
offer should not be a taxable event for federal
income tax purposes. See "Certain U.S. Federal
Income Tax Considerations."
Special Procedures for
Beneficial Owners............. Any beneficial owner whose original notes are
registered in the name of a broker, dealer,
commercial bank, trust company or other nominee
and who wishes to tender should contact the
registered holder promptly and instruct the
registered holder to tender on behalf of such
beneficial owner. If a beneficial owner wishes
to tender on its own behalf, such beneficial
owner must, prior to completing and executing
the letter of transmittal and delivering the
original notes, either make appropriate
arrangements to register ownership of the
original notes in its name or obtain a properly
completed bond power from the registered
holder. The transfer of registered ownership
may take considerable time. See "The Exchange
Offer - Procedures for Tendering Original
Notes."
Guaranteed Delivery
Procedures.................... Holders of original notes who wish to tender
their original notes and whose original notes
are not immediately available or who cannot
deliver their original notes, the letter of
transmittal or any other documents required by
the letter of transmittal to the exchange agent
prior to the expiration date must tender their
original notes according to the guaranteed
delivery procedures set forth in "The Exchange
Offer - Procedures for Tendering Original
Notes."
Acceptance of Original Notes
and Delivery of Exchange
Notes....................... We will accept for exchange any and all
original notes which are properly tendered in
the exchange offer prior to 5:00 p.m., New York
City time, on the expiration date. The exchange
notes issued pursuant to the exchange offer
will be delivered promptly following the
expiration date. See "The Exchange Offer -
Acceptance of Original Notes for Exchange;
Delivery of Exchange Notes."
Effect on Holders of Original
Notes....................... As a result of the making of, and upon
acceptance for exchange of all validly tendered
original notes pursuant to the terms of the
exchange offer, we will have fulfilled an
obligation contained in the exchange and
registration rights agreement (the "exchange
and registration rights agreement") dated as of
August 23, 2001 among us, WESCO International
and the initial purchasers identified therein,
and, accordingly, there will be no liquidated
damages payable pursuant to the terms of the
registra-
8
14
tion rights agreement, and the holders of the
original notes will have no further
registration or other rights under the exchange
and registration rights agreement. Holders of
the original notes who do not tender their
original notes in the exchange offer will
continue to hold such original notes and will
be entitled to all the rights and limitations
applicable thereto under the indenture dated as
of August 23, 2001 (the "indenture") among us,
WESCO International and Bank One, N.A., as
Trustee relating to the original notes and the
exchange notes, except for any such rights
under the exchange and registration rights
agreement that by their terms terminate or
cease to have any further effect as a result of
the making of, and the acceptance for exchange
of all validly tendered original notes pursuant
to, the exchange offer.
Consequence of Failure to
Exchange.................... Holders of original notes who do not exchange
their original notes for exchange notes
pursuant to the exchange offer will continue to
be subject to the restrictions on transfer of
the original notes provided for in the original
notes and in the indenture and as set forth in
the legend on the original notes. In general,
the original notes may not be offered or sold,
unless registered under the Securities Act,
except pursuant to an exemption from, or in a
transaction not subject to, the Securities Act
and applicable state securities law. We do not
currently anticipate that we will register the
original notes under the Securities Act. To the
extent that original notes are tendered and
accepted in the exchange offer, the trading
market for untendered original notes could be
adversely affected.
Exchange Agent................ Bank One, N.A. is serving as exchange agent
(the "exchange agent") in connection with the
exchange offer. See "The Exchange Offer -
Exchange Agent."
9
15
THE EXCHANGE NOTES
The following summary contains basic information about the exchange notes.
It does not contain all of the information that is important to you. For a more
complete understanding of the notes, you should refer to the section of this
prospectus entitled "Description of the Notes."
Issuer........................... WESCO Distribution, Inc.
Securities Offered............... $100,000,000 aggregate principal amount of
9 1/8% senior subordinated notes due 2008
(the "exchange notes").
Maturity......................... June 1, 2008.
Interest Payment Dates........... Interest on the exchange notes will be
payable in cash semi-annually in arrears on
each June 1 and December 1, commencing
December 1, 2001. Interest on the exchange
notes will accrue from the last interest
payment date on which interest was paid on
the original notes surrendered in the
exchange offer or, if no interest has been
paid on such notes, from August 23, 2001.
Original Issue Discount.......... The original notes were issued with
original issue discount. Because the
exchange of notes pursuant to the exchange
offer should not be a taxable event for
U.S. federal income tax purposes, the
exchange notes will also be treated as
having been issued with original issue
discount in an amount equal to the excess
of the stated redemption price at maturity
of the exchange notes over the issue price
of such notes. Holders of the exchange
notes will be required to include the
original issue discount in ordinary income
for U.S. federal income tax purposes as it
accrues regardless of whether the holder
uses the cash or accrual method of
accounting. See "Certain U.S. Federal
Income Tax Considerations."
Optional Redemption.............. Except as described below, we will not have
the option of redeeming the exchange notes
prior to June 1, 2003. After June 1, 2003,
we will have the option of redeeming the
notes, in whole or in part, at the
redemption prices described in this
prospectus, together with accrued and
unpaid interest and liquidated damages, if
any, to the date of redemption. See
"Description of the Notes -- Optional
Redemption."
Change of Control................ Upon the occurrence of a change of control:
- we will have the option, at any time on
or prior to June 1, 2003, to redeem the
exchange notes, in whole but not in part,
at a redemption price equal to 100% of
the principal amount of the exchange
notes, together with accrued and unpaid
interest
10
16
and liquidated damages, if any, to the
date of redemption plus the applicable
premium; and
- if we do not redeem the exchange notes in
this manner or if a change of control
occurs after June 1, 2003, each holder of
the exchange notes will have the right to
require us to make an offer to repurchase
such holder's exchange notes at a price
equal to 101% of the principal amount of
the holder's exchange notes, together
with accrued and unpaid interest and
liquidated damages, if any, to the date
of repurchase.
See "Description of the Notes -- Change of
Control" and "-- Ranking."
Guarantees....................... The exchange notes will be unconditionally
guaranteed by WESCO International on a senior subordinated basis. The guarantee
will be subordinated in right of payment to
all existing and future senior indebtedness
of WESCO International, including the
guarantee of senior indebtedness under the
revolving credit facility ($54.1 million on
an as adjusted basis as of June 30, 2001)
and effectively subordinated to all
indebtedness and other liabilities of WESCO
International's subsidiaries ($604.2
million on an as adjusted basis as of June
30, 2001, including trade payables of
$512.8 million). Investors should not rely
on WESCO International's guarantee in
evaluating an investment in the exchange
notes. See "Risk Factors."
Ranking.......................... The exchange notes will be unsecured, will
be subordinated in right of payment to all
existing and future senior indebtedness of
WESCO Distribution and will be effectively
subordinated to all obligations of the
subsidiaries of WESCO Distribution. The
exchange notes will rank pari passu with
our $300 million aggregate principal amount
of 9 1/8% senior subordinated notes due
2008, which were issued in 1998 (the "1998
notes"), and any future senior subordinated
indebtedness of WESCO Distribution and will
rank senior to all subordinated obligations
of WESCO Distribution. As of June 30, 2001,
on an as adjusted basis:
- WESCO Distribution had outstanding senior
indebtedness of $60.7 million, of which
$54.1 million was secured indebtedness
(exclusive of unused commitments under
our revolving credit facility);
- WESCO Distribution had no outstanding
senior subordinated indebtedness other
than our 1998 notes; and
11
17
- WESCO Distribution's subsidiaries had no
indebtedness, excluding guarantees of
$54.1 million of indebtedness under our
revolving credit facility (but would have
had trade payables and other liabilities
incurred in the ordinary course of
business).
See "Risk Factors" and "Description of the
Notes -- Ranking."
Certain Covenants................ The indenture governing the exchange notes
contains covenants that, subject to certain
exceptions, limits the ability of us and
our subsidiaries to:
- pay dividends or make certain other
restricted payments or investments;
- incur additional indebtedness and issue
disqualified stock and preferred stock;
- create liens on assets;
- merge, consolidate, or sell all or
substantially all of our assets;
- enter into certain transactions with
affiliates;
- create restrictions on dividends or other
payments by the subsidiaries of WESCO
Distribution; and
- incur indebtedness senior to the notes
but junior to senior indebtedness.
These covenants are subject to a number of
important exceptions and qualifications.
See "Description of the Notes."
Use of Proceeds.................. We will not receive any proceeds from the
exchange of the original notes for exchange
notes pursuant to the exchange offer. See
"Use of Proceeds."
Absence of a Public Market....... The exchange notes are new securities and
there is currently no established market
for the exchange notes. Accordingly, there
can be no assurance as to the development
or liquidity of any market for the exchange
notes. The initial purchasers have advised
us that they currently intend to make a
market in the exchange notes. However, they
are not obligated to do so, and any market
making with respect to the exchange notes
may be discontinued without notice. We do
not intend to apply for listing of the
exchange notes on any national securities
exchange or for their quotation on an
automated dealer quotation system.
12
18
RISK FACTORS
Your participation in the exchange offer and investment in the notes will
involve certain risks. You should carefully consider the discussion of risks
beginning on page 16 and the other information included or incorporated by
reference into this prospectus prior to participating in the exchange offer.
13
19
SUMMARY CONSOLIDATED FINANCIAL DATA
The following summary consolidated historical financial information for the
three years ended December 31, 2000 have been derived from the audited
historical consolidated financial statements contained elsewhere in this
prospectus. We have derived the summary consolidated financial data for the six
months ended June 30, 2000 and 2001 from the unaudited historical consolidated
financial statements contained elsewhere in this prospectus, which in the
opinion of management, include all adjustments, consisting only of normal
recurring adjustments, necessary for fair presentation of that data. The results
of operations for the interim period presented should not be regarded as
indicative of the results that may be expected for a full year. Our historical
results are not necessarily indicative of our future operating results. The
summary consolidated financial data should be read together with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the audited historical consolidated financial statements of WESCO International,
Inc. and its subsidiaries and the notes thereto contained elsewhere in this
prospectus.
<Table>
<Caption>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
-------------------------------- --------------------
1998(1) 1999(1) 2000 2000 2001
-------- -------- -------- -------- --------
(DOLLARS IN MILLIONS)
STATEMENT OF OPERATIONS DATA:
Net sales.................................... $3,025.4 $3,423.9 $3,881.1 $1,916.0 $1,872.2
Gross profit................................. 537.6 616.6 684.1 338.9 331.9
Selling, general and administrative
expenses................................... 415.0 471.2 524.3 257.9 266.0
Depreciation and amortization................ 14.8 20.4 25.0 11.5 15.0
Restructuring charge(2)...................... -- -- 9.4 -- --
Recapitalization costs(3).................... 51.8 -- -- -- --
-------- -------- -------- -------- --------
Income from operations....................... 56.0 125.0 125.4 69.5 50.9
Interest expense, net........................ 45.1 47.0 43.8 21.6 21.9
Other expenses(4)............................ 10.1 19.5 24.9 11.3 10.7
-------- -------- -------- -------- --------
Income before income taxes................... 0.8 58.5 56.7 36.6 18.3
Provision for income taxes................... 8.5(5) 23.4 23.3 14.6 7.3
-------- -------- -------- -------- --------
Income (loss) before extraordinary item...... (7.7) 35.1 33.4 22.0 11.0
Extraordinary item, net of taxes(6).......... -- (10.5) -- -- --
-------- -------- -------- -------- --------
Net income (loss)............................ $ (7.7) $ 24.6 $ 33.4 $ 22.0 $ 11.0
======== ======== ======== ======== ========
OTHER FINANCIAL DATA:
EBITDA before recapitalization and
restructuring charges(7)(8)................ $ 122.6 $ 145.3 $ 159.8 $ 81.0 $ 65.9
Capital expenditures......................... 10.7 21.2 21.6 7.6 8.0
Net cash provided by operating
activities(9).............................. 276.9 66.4 46.9 26.7 92.2
Net cash used for investing activities....... (184.1) (71.9) (60.7) (21.5) (59.5)
Net cash provided by (used for) financing
activities................................. (92.3) 6.3 26.0 3.2 (48.9)
BALANCE SHEET DATA (AS OF PERIOD END):
Cash and cash equivalents.................... $ 8.1 $ 8.8 $ 21.1 $ 17.2 $ 4.9
Working capital.............................. 115.6 199.0 240.4 212.6 176.1
Total assets................................. 950.5 1,028.8 1,170.0 1,152.2 1,173.6
Total long-term debt (including current
portion)(10)............................... 595.8 426.4 483.3 452.3 439.7
Total stockholders' equity (deficit)......... (142.6) 117.3 125.0 119.7 136.3
</Table>
14
20
(1) Certain prior period amounts have been reclassified to conform with the
current year presentation. Pursuant to Emerging Issues Task Force Issue No.
00-10, "Accounting for Shipping and Handling Fees and Costs," we have
reclassified freight billed to customers from selling, general and
administrative expenses to net sales.
(2) Represents a restructuring charge taken in the fourth quarter of 2000 which
primarily consists of a $5.4 million charge related to the closure of 14
branch operations and a $4.0 million writedown of an investment in an
affiliate. See Note 4 to the audited consolidated financial statements
included elsewhere in this prospectus.
(3) Represents a one-time charge primarily related to noncapitalized financing
expenses, professional and legal fees and management compensation costs in
connection with the June 5, 1998 recapitalization of WESCO International.
See Note 5 to the audited consolidated financial statements included
elsewhere in this prospectus.
(4) Represents costs relating to the sale of accounts receivable pursuant to
the receivables facility. See Note 6 to the audited consolidated financial
statements included elsewhere in this prospectus.
(5) Certain nondeductible recapitalization costs and other permanent
differences significantly exceeded income before income taxes and resulted
in an unusually high provision for income taxes.
(6) Represents a charge, net of tax, relating to the writeoff of unamortized
debt issuance and other costs associated with the early extinguishment of
debt and the 1999 termination of the then-existing accounts receivable
securitization program.
(7) EBITDA before recapitalization and restructuring charges represents income
from operations plus depreciation and amortization, recapitalization costs
and restructuring charges. EBITDA before recapitalization and restructuring
charges is presented since management believes that such information is
considered by certain investors to be an additional basis for evaluating
our ability to pay interest and repay debt. EBITDA should not be considered
as an alternative to measures of operating performance as determined in
accordance with generally accepted accounting principles, as a measure of
our operating results and cash flows or as a measure of our liquidity.
Since EBITDA is not calculated identically by all companies, the
presentation herein may not be comparable to other similarly titled
measures of other companies.
(8) All periods presented include the results of operations of the acquired
companies from the date of acquisition.
(9) Net cash provided by operating activities includes proceeds from the sale
of receivables of $274.2 million, $60.0 million and $40.0 million in the
years ended December 31, 1998, 1999 and 2000, respectively, and $15.0
million and $0 for the six months ended June 30, 2000 and 2001,
respectively.
(10) Excludes the off-balance sheet receivables facility. See Note 6 to the
audited consolidated financial statements included elsewhere in this
prospectus.
15
21
RISK FACTORS
Holders of original notes should consider carefully, in addition to the
other information contained in this prospectus, the following factors before
deciding whether to participate in the exchange offer. The risk factors set
forth below under "-Risks Relating to Our Business" and "-Risks Relating to the
Notes" are generally applicable to the original notes as well as the exchange
notes.
RISKS RELATING TO THE EXCHANGE OFFER
IF YOU DO NOT EXCHANGE YOUR ORIGINAL NOTES PURSUANT TO THE EXCHANGE OFFER, YOUR
ORIGINAL NOTES WILL CONTINUE TO BE SUBJECT TO THE EXISTING TRANSFER RESTRICTIONS
ON THE ORIGINAL NOTES AND YOU MAY NOT BE ABLE TO SELL YOUR ORIGINAL NOTES.
Holders of original notes who do not exchange their original notes for
exchange notes pursuant to the exchange offer will continue to be subject to the
restrictions on transfer of the original notes as set forth in the legend on the
original notes. In general, original notes may not be offered or sold unless
registered under the Securities Act, except pursuant to an exemption from, or in
a transaction not subject to, the registration requirements of the Securities
Act and applicable state securities laws. We do not currently intend to register
the original notes under the Securities Act. Based on interpretations by the
Staff of the SEC, we believe that exchange notes issued pursuant to the exchange
offer in exchange for original notes may be offered for resale, resold or
otherwise transferred by holders thereof (other than any holder which is an
"affiliate" of us or of WESCO International within the meaning of Rule 405 under
the Securities Act) without compliance with the registration and prospectus
delivery provisions of the Securities Act, provided that the original notes were
acquired in the ordinary course of such holder's business and such holders have
no arrangement with any person to participate in the distribution of the
exchange notes. Each broker-dealer that receives exchange notes for its own
account in exchange for original notes, where the original notes were acquired
by such broker-dealer as a result of market-making activities or other trading
activities, must acknowledge that it will deliver a prospectus in connection
with any resale of the exchange notes. See "Plan of Distribution." To the extent
that original notes are tendered and accepted in the exchange offer, the trading
market for untendered and tendered but unaccepted original notes will be
adversely affected.
RISKS RELATING TO OUR BUSINESS
OUR SUBSTANTIAL AMOUNT OF DEBT RESULTS IN SUBSTANTIAL DEBT SERVICE OBLIGATIONS
THAT COULD ADVERSELY AFFECT OUR ABILITY TO FULFILL OUR OBLIGATIONS UNDER THE
NOTES AND COULD LIMIT OUR GROWTH AND IMPOSE RESTRICTIONS ON OUR BUSINESS.
We are and will continue to be significantly leveraged following the
offering. As of June 30, 2001, on an as adjusted basis, we would have had $440.4
million of consolidated indebtedness and stockholders' equity of $136.1 million.
See "Capitalization" and "Selected Consolidated Financial Data." We and our
subsidiaries may incur additional indebtedness (including certain senior
indebtedness) in the future, subject to certain limitations contained in the
instruments governing our indebtedness. Accordingly, we will have significant
debt service obligations.
Our debt service obligations will have important consequences to the
holders of the notes, including the following:
- a substantial portion of cash flow from our operations will be dedicated
to the payment of principal and interest on our indebtedness, thereby
reducing the funds available for operations, future business
opportunities and acquisitions and other purposes and increasing our
vulnerability to adverse general economic and industry conditions;
16
22
- our ability to obtain additional financing in the future may be limited;
- certain of our indebtedness (including, but not limited to, the amounts
borrowed under the revolving credit facility) will be at variable rates
of interest, which will make us vulnerable to increases in interest
rates;
- all of the indebtedness incurred in connection with the revolving credit
facility will become due prior to the time the principal payment on the
notes will become due;
- we will be substantially more leveraged than certain of our competitors,
which might place us at a competitive disadvantage; and
- we may be hindered in our ability to adjust rapidly to changing market
conditions.
Our ability to make scheduled payments of the principal of, or to pay
interest on, or to refinance our indebtedness (including the notes) and to make
scheduled payments under our operating leases or to fund planned capital
expenditures or finance acquisitions will depend on our future performance,
which to a certain extent is subject to economic, financial, competitive and
other factors beyond our control. There can be no assurance that our business
will continue to generate sufficient cash flow from operations in the future to
service our debt, make necessary capital expenditures or meet other cash needs.
If unable to do so, we may be required to refinance all or a portion of our
existing debt, including the notes, to sell assets or to obtain additional
financing. There can be no assurance that any such refinancing or that any such
sale of assets or additional financing would be possible on terms reasonably
favorable to us. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources."
RESTRICTIVE DEBT COVENANTS CONTAINED IN OUR REVOLVING CREDIT FACILITY AND THE
INDENTURE COULD LIMIT OUR ABILITY TO TAKE CERTAIN ACTIONS.
The revolving credit facility and the indenture contain numerous financial
and operating covenants that will limit the discretion of our management with
respect to certain business matters. These covenants place significant
restrictions on the ability of us, our subsidiaries and WESCO International to:
- incur additional indebtedness;
- pay dividends and other distributions;
- repay subordinated obligations;
- enter into sale and leaseback transactions;
- create liens or other encumbrances;
- make certain payments and investments;
- engage in certain transactions with affiliates;
- make certain acquisitions;
- sell or otherwise dispose of assets; and
- merge or consolidate with other entities,
and will otherwise restrict corporate activities.
The revolving credit facility also requires us to meet certain financial ratios
and tests. Our ability to comply with these and other provisions of the
revolving credit facility and the indenture may be affected by changes in
economic or business conditions or other events beyond our control. A failure to
comply with the obligations contained in the revolving credit facility or the
indenture could result in an event of default under either the revolving credit
17
23
facility or the indenture which could result in acceleration of the related debt
and the acceleration of debt under other instruments evidencing indebtedness
that may contain cross-acceleration or cross-default provisions. If the
indebtedness under the revolving credit facility were to be accelerated, there
can be no assurance that our assets would be sufficient to repay in full such
indebtedness and our other indebtedness, including the notes. See "Description
of the Notes" and "Description of Other Indebtedness and Receivables Facility."
DOWNTURNS IN THE ELECTRICAL DISTRIBUTION INDUSTRY HAVE HAD IN THE PAST, AND MAY
IN THE FUTURE HAVE, AN ADVERSE EFFECT ON OUR SALES AND PROFITABILITY.
The electrical distribution industry is affected by changes in economic
conditions, including national, regional and local slowdowns in construction and
industrial activity, which are outside our control. Our operating results may
also be adversely affected by increases in interest rates that may lead to a
decline in economic activity, particularly in the construction market, while
simultaneously resulting in higher interest payments under the revolving credit
facility. In addition, during periods of economic slowdown such as the one we
are currently experiencing, our credit losses increase. There can be no
assurance that economic slowdowns, adverse economic conditions or cyclical
trends in certain customer markets will not have a material adverse effect on
our operating results and financial condition.
AN INCREASE IN COMPETITION COULD DECREASE SALES OR EARNINGS.
We operate in a highly competitive industry. We compete directly with
national, regional and local providers of electrical and other industrial MRO
supplies. Competition is primarily focused on the local service area and is
generally based on product line breadth, product availability, service
capabilities and price. Other sources of competition are buying groups formed by
smaller distributors to increase purchasing power and provide some cooperative
marketing capability. During 1999 and 2000 numerous special purpose
Internet-based procurement service companies, auction businesses and trade
exchanges were organized. Many of them targeted industrial MRO and contractor
customers of the type served by us. We expect that numerous new competitors will
develop over time as Internet-based enterprises become more established and
refine their service capabilities.
Some of our existing competitors have, and new market entrants may have,
greater financial and marketing resources than we do. To the extent existing or
future competitors seek to gain or retain market share by reducing prices, we
may be required to lower our prices, thereby adversely affecting financial
results. Existing or future competitors also may seek to compete with us for
acquisitions, which could have the effect of increasing the price and reducing
the number of suitable acquisitions. In addition, it is possible that
competitive pressures resulting from the industry trend toward consolidation
could affect growth and profit margins. See "Business -- Competition."
SUCCESS OF OUR GROWTH STRATEGY MAY BE LIMITED BY THE AVAILABILITY OF APPROPRIATE
ACQUISITIONS AND OUR ABILITY TO INTEGRATE ACQUIRED BUSINESSES INTO OURS.
A principal component of our growth strategy is to continue to expand
through additional acquisitions that complement our operations in new or
existing markets. Our acquisitions will involve risks, including the successful
integration and management of acquired operations and personnel. The integration
of acquired businesses may also lead to the loss of key employees of the
acquired companies and diversion of management attention from ongoing business
concerns. We may not be able to identify businesses that meet our strategic
criteria and acquire them on satisfactory terms. We also may not have access to
sufficient capital to complete certain acquisitions, and we will be constrained
by restrictions in our revolving credit facility. Future acquisitions may not
prove advantageous and could have a material adverse
18
24
effect on our operating results. See "Business -- Acquisition and Integration
Program" and "Description of Other Indebtedness and Receivables
Facility -- Revolving Credit Facility."
LOSS OF KEY SUPPLIERS OR LACK OF PRODUCT AVAILABILITY COULD DECREASE SALES AND
EARNINGS.
Most of our agreements with suppliers are terminable by either party on 60
days notice or less. Our ten largest suppliers in 2000 accounted for
approximately 32% of our purchases for the period. Our largest supplier was
Eaton Corporation, through its Cutler-Hammer division, accounting for
approximately 13% of our purchases. The loss of, or a substantial decrease in
the availability of, products from any of these suppliers, or the loss of key
preferred supplier agreements, could have a material adverse effect on our
business. In addition, supply interruptions could arise from shortages of raw
materials, labor disputes or weather conditions affecting products or shipments,
transportation disruptions, or other reasons beyond our control. An interruption
of operations at any of our five distribution centers could have a material
adverse effect on the operations of branches served by the affected distribution
center. Furthermore, we cannot be certain that particular products or product
lines will be available to us, or available in quantities sufficient to meet
customer demand. Such limited product access could put us at a competitive
disadvantage. See "Business -- Products and Services."
A DISRUPTION OF OUR INFORMATION SYSTEMS COULD INCREASE EXPENSES, DECREASE SALES
OR REDUCE EARNINGS.
A serious disruption of our information systems could have a material
adverse effect on our business and results of operations. Our computer systems
are an integral part of our business and growth strategies. We depend on our
information systems to process orders, manage inventory and accounts receivable
collections, purchase products, ship products to our customers on a timely
basis, maintain cost-effective operations and provide superior service to our
customers. See "Business -- Management Information Systems."
WESCO INTERNATIONAL'S CONTROLLING SHAREHOLDERS OWN APPROXIMATELY 44% OF ITS
COMMON STOCK AND CAN EXERCISE SIGNIFICANT INFLUENCE OVER OUR AFFAIRS.
Approximately 44% of the issued and outstanding shares of common stock of
WESCO International is held by Cypress and its affiliates. Accordingly, Cypress
and its affiliates can exercise significant influence over our affairs,
including the election of our directors, appointment of our management and
approval of actions requiring the approval of our stockholders, including the
adoption of amendments to our certificate of incorporation and approval of
mergers or sales of substantially all of our assets. There can be no assurance
that the interests of Cypress and its affiliates will not conflict with the
interests of the holders of the notes.
RISKS RELATING TO THE NOTES
THE NOTES ARE UNSECURED SUBORDINATED OBLIGATIONS.
Our obligations under the notes are subordinate and junior in right of
payment to all of our existing and future senior indebtedness. As of June 30,
2001, on an as adjusted basis, our aggregate amount of outstanding senior
indebtedness would have been approximately $60.7 million (excluding unused
commitments). Although the indenture contains limitations on the amount of
additional indebtedness which we and our subsidiaries may incur, under certain
circumstances, the amount of such indebtedness could be substantial, and such
indebtedness could be senior indebtedness. By reason of such subordination, in
the event of our insolvency, liquidation or other reorganization, the lenders
under the revolving credit facility and other creditors who are holders of our
senior indebtedness must be paid in full before the holders of
19
25
the notes may be paid. Accordingly, there may be insufficient assets remaining
after payment of prior claims to pay amounts due on the notes. In addition,
under certain circumstances, no payments may be made with respect to the notes
if a default exists with respect to our senior indebtedness. See "Description of
the Notes."
In addition, the notes are effectively subordinated to all liabilities of
our subsidiaries, including trade payables and the guarantees by such
subsidiaries of our obligations under the revolving credit facility. The notes
are not guaranteed by any of our subsidiaries. As of June 30, 2001, on an as
adjusted basis, our subsidiaries would have had no indebtedness (excluding
guarantees of our obligations under the revolving credit facility), but would
have had trade payables and other liabilities incurred in the ordinary course of
business. Our right to receive assets of any of our subsidiaries upon
liquidation or reorganization of such subsidiary will be subordinated to the
claims of that subsidiary's creditors (including trade creditors), except to the
extent we are recognized as a creditor of such subsidiary. See "Description of
the Notes -- Ranking."
The WESCO International guarantee is subordinated in right of payment to
all existing and future senior indebtedness of WESCO International, including
the guarantee of senior indebtedness under the revolving credit facility ($54.1
million on an as adjusted basis as of June 30, 2001) and effectively
subordinated to all indebtedness and other liabilities of WESCO International's
subsidiaries ($604.2 million on an as adjusted basis as of June 30, 2001
including trade payables of $512.8 million). Investors should not rely on the
WESCO International guarantee in evaluating an investment in the notes.
WESCO INTERNATIONAL AND ITS SUBSIDIARIES' ASSETS REMAIN SUBJECT TO A FIRST
PRIORITY PLEDGE UNDER THE REVOLVING CREDIT FACILITY.
Our obligations under the revolving credit facility are secured by a first
priority pledge of and security interest in substantially all of the assets,
except for real property, of WESCO International and its subsidiaries. If either
we or WESCO International become insolvent or are liquidated, or if payment
under any of the revolving credit facility or any other secured indebtedness is
accelerated, the lenders under the revolving credit facility or such other
secured indebtedness will be entitled to exercise the remedies available to a
secured lender under applicable law (in addition to any remedies that may be
available under the instruments pertaining to the credit facility or such other
secured indebtedness). The notes are not secured. Accordingly, holders of such
secured indebtedness will have a prior claim with respect to the assets securing
such indebtedness. See "Description of Other Indebtedness and Receivables
Facility."
A CHANGE OF CONTROL MAY TRIGGER A DEMAND BY NOTEHOLDERS FOR THE REPURCHASE OF
THE NOTES.
Upon the occurrence of a change of control:
- we will have the option, at any time on or prior to June 1, 2003 to
redeem the notes, in whole but not in part, at a redemption price equal
to 100% of the principal amount thereof, together with accrued and unpaid
interest and liquidated damages, if any, to the date of redemption plus
the applicable premium; and
- if we do not redeem the notes as set forth above, or such change in
control occurs after June 1, 2003, each holder of a note will have the
right to require us to make an offer to repurchase such holder's note at
a price equal to 101% of the principal amount thereof, together with
accrued and unpaid interest and liquidated damages, if any, to the date
of repurchase in the case of a note.
The revolving credit facility prohibits us from repurchasing any notes,
except in certain circumstances. The revolving credit facility also provides
that certain change of control events
20
26
with respect to us constitute a default thereunder. Any future credit agreements
or other agreements relating to senior indebtedness to which we become a party
may contain similar restrictions and provisions. If the purchase of the notes
upon a change of control would violate or constitute a default under any other
of our indebtedness, then we shall, to the extent needed to permit such purchase
of notes, either (i) repay all such indebtedness and terminate all commitments
outstanding thereunder or (ii) request the holders of such indebtedness to give
the requisite consents to permit the purchase of the notes. Until such time as
we are able to repay all such indebtedness and terminate all commitments
outstanding thereunder or such time as such requisite consents are obtained, we
will not be required to purchase the notes upon a change of control. In the
event of a change of control, there can be no assurance that we would have
sufficient funds or assets to satisfy all of our obligations under the revolving
credit facility and the notes. The provisions relating to a change of control
included in the indenture may increase the difficulty of a potential acquiror
obtaining control of us. See "Description of the Notes -- Change of Control."
AN ADVERSE COURT DECISION THAT WE PARTICIPATED IN A FRAUDULENT TRANSFER COULD
LIMIT OUR ABILITY TO REPAY THE SENIOR SUBORDINATED NOTES.
The incurrence of indebtedness by us, such as the notes, may be subject to
review under federal bankruptcy law or relevant state fraudulent conveyance laws
if a bankruptcy case or lawsuit is commenced by or on behalf of our unpaid
creditors. Under these laws, if, in a bankruptcy or reorganization case or a
lawsuit by or on behalf of our unpaid creditors, a court were to find that, at
the time we incurred indebtedness, including indebtedness under the notes:
- we incurred such indebtedness with the intent of hindering, delaying or
defrauding current or future creditors; or
- (a) we received less than reasonably equivalent value or fair
consideration for incurring such indebtedness and (b) we (1) were
insolvent or were rendered insolvent by reason of any of the
transactions, (2) were engaged, or about to engage, in a business or
transaction for which our assets remaining with us constituted
unreasonably small capital to carry on our business, (3) intended to
incur, or believed that we would incur, debts beyond our ability to pay
as such debts matured (as all of the foregoing terms are defined in or
interpreted under the relevant fraudulent transfer or conveyance
statutes) or (4) were a defendant in an action for money damages, or had
a judgment for money damages docketed against us (if, in either case,
after final judgment, the judgment is unsatisfied),
then such court could avoid or subordinate the amounts owing under the notes to
our presently existing and future indebtedness and take other actions
detrimental to the holders of the notes.
The measure of insolvency for purposes of the foregoing considerations will
vary depending upon the law of the jurisdiction that is being applied in any
such proceeding. Generally, however, we would be considered insolvent if, at the
time we incurred the indebtedness, either:
- the sum of our debts (including contingent liabilities) is greater than
our assets, at a fair valuation; or
- the present fair saleable value of our assets is less than the amount
required to pay the probable liability on our total existing debts and
liabilities (including contingent liabilities) as they become absolute
and matured.
There can be no assurance as to what standards a court would use to determine
whether we were solvent at the relevant time, or whether, whatever standard was
used, the notes would
21
27
not be avoided or further subordinated on another of the grounds set forth
above. In rendering their opinions in connection with the offering, our counsel
and counsel for the initial purchasers will not express any opinion as to the
applicability of federal or state fraudulent transfer and conveyance laws.
We believe that at the time the indebtedness constituting the notes was
incurred by us, we:
- were (a) neither insolvent nor rendered insolvent thereby, (b) in
possession of sufficient capital to run our businesses effectively, and
(c) incurring debts within our ability to pay as the same mature or
become due; and
- had sufficient assets to satisfy any probable money judgment against us
in any pending action.
In reaching the foregoing conclusions, we have relied upon our analyses of
internal cash flow projections and estimated values of assets and liabilities.
There can be no assurance, however, that a court passing on such questions would
reach the same conclusions.
THERE IS NO PUBLIC MARKET FOR THE NOTES, AND AN ACTIVE MARKET MAY NOT DEVELOP
OR BE MAINTAINED FOR THE NOTES.
The exchange notes are being offered to the holders of the original notes.
The original notes were offered and sold in August 2001 to a small number of
institutional investors in reliance upon an exemption from registration under
the Securities Act and applicable state securities laws. Although the original
notes are eligible for trading in the PORTAL market of the National Association
of Securities Dealers, Inc., the original notes may be transferred or resold
only in a transaction registered under or exempt from the Securities Act and
applicable state securities laws.
The exchange notes generally will be permitted to be resold or otherwise
transferred by each holder without the requirement of further registration. The
exchange notes, however, constitute a new issue of securities with no
established trading market. The exchange offer will not be conditioned upon any
minimum or maximum aggregate principal amount of original notes being tendered
for exchange. We do not intend to apply for a listing of the exchange notes on a
securities exchange or an automated quotation system, and there can be no
assurance as to the liquidity of markets that may develop for the exchange
notes, the ability of the holders of the exchange notes to sell their exchange
notes or the price at which such holders would be able to sell their exchange
notes. If markets for the exchange notes were to exist, the exchange notes could
trade at prices that may be lower than the initial market values thereof
depending on many factors. The liquidity of, and trading market for, the
exchange notes may be adversely affected by movements of interest rates, our
financial performance and general declines in the market for similar securities.
Such a decline may adversely affect the liquidity and trading market independent
of our financial performance and prospects. The initial purchasers are not
obligated to make a market in any of the notes, and any market making with
respect to the notes may be discontinued at any time without notice. In
addition, such market making activity may be limited during the pendency of the
exchange offer or the effectiveness of a shelf registration statement in lieu
thereof. See "Plan of Distribution."
In the case of non-exchanging holders of original notes, no assurance can
be given as to the liquidity of any trading market for the original notes
following the exchange offer.
THE EXCHANGE NOTES WILL BE ISSUED WITH ORIGINAL ISSUE DISCOUNT.
The original notes were issued with original issue discount. Because the
exchange of notes pursuant to the exchange offer should not be a taxable event
for U.S. federal income tax purposes, the exchange notes will also be treated as
having been issued with original issue discount. See "Certain U.S. Federal
Income Tax Considerations."
22
28
USE OF PROCEEDS
We will not receive any proceeds from the exchange of notes pursuant to the
exchange offer. The net proceeds of approximately $86.9 million from the
issuance of the original notes were used to repay a portion of the outstanding
indebtedness under our revolving credit facility. The revolving credit facility
matures on June 29, 2004. As of June 30, 2001, the average interest rate on
borrowings under the revolving credit facility was 6.62% per annum.
CAPITALIZATION
The following table sets forth WESCO International's consolidated
capitalization as of June 30, 2001 and as adjusted to give effect to the offer
and sale of the original notes and the application of the estimated net proceeds
therefrom as described under "Use of Proceeds." This information should be read
in conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations," and other financial information included elsewhere
or incorporated by reference into this prospectus.
<Table>
<Caption>
JUNE 30, 2001
----------------------
ACTUAL AS ADJUSTED
------- -----------
(DOLLARS IN MILLIONS)
TOTAL DEBT (INCLUDING CURRENT PORTION):
Revolving credit facility(1)................................ $ 141.0 $ 54.1
1998 notes.................................................. 292.1 292.1
Original notes.............................................. -- 87.6
Other debt.................................................. 6.6 6.6
------- -------
TOTAL DEBT........................................ 439.7 440.4
------- -------
TOTAL STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value; 20,000,000 shares
authorized, no shares issued or outstanding............... -- --
Common stock, $.01 par value; 210,000,000 shares authorized,
44,224,409 shares, actual and as adjusted................. 0.4 0.4
Class B nonvoting convertible common stock, $.01 par value;
20,000,000 shares authorized, 4,653,131, actual and as
adjusted.................................................. -- --
Additional capital.......................................... 569.8 569.8
Retained earnings (deficit)................................. (399.1) (399.3)
Treasury stock, at cost; 3,976,897, actual and as
adjusted.................................................. (33.4) (33.4)
Accumulated other comprehensive income (loss)............... (1.4) (1.4)
------- -------
TOTAL STOCKHOLDERS' EQUITY........................ $ 136.3 $ 136.1
------- -------
TOTAL CAPITALIZATION.............................. $ 576.0 $ 576.5
======= =======
</Table>
-------------------------
(1) As of August 31, 2001, after giving effect to the issuance of the original
notes, the use of proceeds described above, and the amendment to the
revolving credit facility, we had approximately $142.0 million outstanding
under our revolving credit facility, with approximately $120.4 million
available under the facility.
23
29
SELECTED CONSOLIDATED FINANCIAL DATA
The following data, insofar as it relates to each of the years 1996 through
2000, has been derived from financial statements audited by
PricewaterhouseCoopers LLP, independent accountants. Consolidated balance sheets
at December 31, 1999 and 2000 and the related consolidated statements of
operations and of cash flows for the three years ended December 31, 2000 and
notes thereto appear elsewhere in this prospectus. The data for the six months
ended June 30, 2000 and 2001 has been derived from unaudited financial
statements also appearing herein and which, in the opinion of management,
include all adjustments, consisting only of normal recurring adjustments,
necessary for a fair statement of the results for the unaudited interim periods.
The results of operations for the interim period presented should not be
regarded as indicative of the results that may be expected for a full year. Our
historical results are not necessarily indicative of our future operating
results.
<Table>
<Caption>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
-------------------------------------------------------- --------------------
1996(1) 1997(1) 1998(1) 1999(1) 2000 2000 2001
-------- -------- -------- -------- -------- -------- --------
(DOLLARS IN MILLIONS, EXCEPT SHARE DATA)
STATEMENT OF OPERATIONS DATA:
Net sales.......................... $2,274.6 $2,594.8 $3,025.4 $3,423.9 $3,881.1 $1,916.0 $1,872.2
Gross profit....................... 405.0 463.9 537.6 616.6 684.1 338.9 331.9
Selling, general and administrative
expenses......................... 326.0 372.5 415.0 471.2 524.3 257.9 266.0
Depreciation and amortization...... 10.8 11.3 14.8 20.4 25.0 11.5 15.0
Restructuring charge(2)............ -- -- -- -- 9.4 -- --
Recapitalization costs(3).......... -- -- 51.8 -- -- -- --
-------- -------- -------- -------- -------- -------- --------
Income from operations............. 68.2 80.1 56.0 125.0 125.4 69.5 50.9
Interest expense, net.............. 17.4 20.1 45.1 47.0 43.8 21.6 21.9
Other expenses(4).................. -- -- 10.1 19.5 24.9 11.3 10.7
-------- -------- -------- -------- -------- -------- --------
Income before income taxes......... 50.8 60.0 0.8 58.5 56.7 36.6 18.3
Provision for income taxes......... 18.3 23.8 8.5(5) 23.4 23.3 14.6 7.3
-------- -------- -------- -------- -------- -------- --------
Income (loss) before extraordinary
item............................. 32.5 36.2 (7.7) 35.1 33.4 22.0 11.0
Extraordinary item, net of
applicable taxes(6).............. -- -- -- (10.5) -- -- --
-------- -------- -------- -------- -------- -------- --------
Net income (loss).................. $ 32.5 $ 36.2 $ (7.7) $ 24.6 $ 33.4 $ 22.0 $ 11.0
======== ======== ======== ======== ======== ======== ========
Earnings (loss) per common share(7)
Basic before extraordinary
item........................... $ 0.55 $ 0.61 $ (0.17) $ 0.82 $ 0.74 $ 0.48 $ 0.25
Basic............................ 0.55 0.61 (0.17) 0.57 0.74 0.48 0.25
Diluted before extraordinary
item........................... 0.51 0.55 (0.17) 0.75 0.70 0.45 0.23
Diluted.......................... 0.51 0.55 (0.17) 0.53 0.70 0.45 0.23
Weighted average common shares
outstanding(7)
Basic............................ 58,680,756 59,030,100 45,051,632 43,057,894 45,326,475 45,848,936 44,839,917
Diluted.......................... 63,670,919 66,679,063 45,051,632 47,524,539 47,746,607 48,367,059 47,041,072
OTHER FINANCIAL DATA:
EBITDA before recapitalization and
restructuring charges(8)(9)...... $ 79.0 $ 91.4 $ 122.6 $ 145.3 $ 159.8 $ 81.0 $ 65.9
Capital expenditures............... 9.3 11.6 10.7 21.2 21.6 7.6 8.0
Net cash provided by (used for)
operating activities(10)......... 15.1 (12.0) 276.9 66.4 46.9 26.7 92.2
Net cash used for investing
activities....................... (110.9) (21.5) (184.1) (71.9) (60.7) (21.5) (59.5)
Net cash provided by (used for)
financing activities............. 87.2 41.1 (92.3) 6.3 26.0 3.2 (48.9)
Ratio of earnings to fixed
charges(11)...................... 3.1x 3.1x 1.0x 2.0x 2.1x 2.4x 1.7x
</Table>
24
30
<Table>
<Caption>
DECEMBER 31, JUNE 30,
-------------------------------------------------------------- -----------------------
1996 1997 1998 1999 2000 2000 2001
---------- ---------- ---------- ---------- ---------- ---------- ----------
BALANCE SHEET DATA (AS OF PERIOD
END):
Total assets...................... $ 773.5 $ 870.9 $ 950.5 $ 1,028.8 $ 1,170.0 $ 1,152.2 $ 1,173.6
Total long-term debt (including
current portion)(12)............ 262.2 295.2 595.8 426.4 483.3 452.3 439.7
Redeemable common stock(13)....... 8.9 9.0 21.5 -- -- -- --
Total stockholders' equity
(deficit)....................... 148.7 184.5 (142.6) 117.3 125.0 119.7 136.3
</Table>
-------------------------
(1) Certain prior period amounts have been reclassified to conform with the
current year presentation. Pursuant to Emerging Issues Task Force Issue No.
00-10, "Accounting for Shipping and Handling Fees and Costs," we have
reclassified freight billed to customers from selling, general and
administrative expenses to net sales.
(2) Represents a restructuring charge taken in the fourth quarter of 2000 which
primarily consists of a $5.4 million charge related to the closure of 14
branch operations and a $4.0 million writedown of an investment in an
affiliate. See Note 4 to the audited consolidated financial statements
included elsewhere in this prospectus.
(3) Represents a one-time charge primarily related to noncapitalized financing
expenses, professional and legal fees and management compensation costs in
connection with the June 5, 1998 recapitalization of WESCO International.
See Note 5 to the audited consolidated financial statements included
elsewhere in this prospectus.
(4) Represents costs relating to the sale of accounts receivable pursuant to
the receivables facility. See Note 6 to the audited consolidated financial
statements included elsewhere in this prospectus.
(5) Certain nondeductible recapitalization costs and other permanent
differences significantly exceeded income before income taxes and resulted
in an unusually high provision for income taxes.
(6) Represents a charge, net of tax, relating to the writeoff of unamortized
debt issuance and other costs associated with the early extinguishments of
debt and the 1999 termination of the then-existing accounts receivable
securitization program.
(7) Reflects a 57.8 to one stock split effected in the form of a stock dividend
of WESCO International common stock effective May 11, 1999.
(8) EBITDA before recapitalization and restructuring charges represents income
from operations plus depreciation and amortization, recapitalization costs
and restructuring charges. EBITDA before recapitalization and restructuring
charges is presented since management believes that such information is
considered by certain investors to be an additional basis for evaluating
our ability to pay interest and repay debt. EBITDA should not be considered
an alternative to measures of operating performance as determined in
accordance with generally accepted accounting principles, or as a measure
of our operating results and cash flows or as a measure of our liquidity.
Since EBITDA is not calculated identically by all companies, the
presentation herein may not be comparable to other similarly titled
measures of other companies.
(9) All periods indicated include the results of operations of the acquired
companies from the date of acquisition.
(10) Net cash provided by operating activities includes proceeds from the sale
of receivables of $274.2 million, $60.0 million and $40.0 million in the
years ended December 31,
25
31
1998, 1999 and 2000, respectively, and $15.0 million and $0 for the six
months ended June 30, 2000 and 2001, respectively.
(11) For purposes of calculating the ratio of earnings to fixed charges,
"earnings" represents income before income taxes and extraordinary charges
plus fixed charges. "Fixed charges" consist of interest expense,
amortization of deferred financing costs and the component of rental
expense that management believes is representative of the interest
component of rental expense.
(12) Excludes the off-balance sheet receivables facility. See Note 6 to the
audited consolidated financial statements included elsewhere in this
prospectus.
(13) Represents redeemable common stock as described in Note 11 to the audited
consolidated financial statements included elsewhere in this prospectus.
26
32
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the audited
consolidated financial statements and notes thereto included elsewhere in this
prospectus. For purposes of this discussion, the terms "we," "us," "our," the
"Company" and "WESCO" refer to WESCO International and its consolidated
subsidiaries. The principal asset of WESCO International is all of the
outstanding capital stock of WESCO Distribution.
GENERAL
Our sales can be categorized as stock, direct ship and special order. Stock
orders are filled directly from existing inventory and generally represent 40%
to 45% of total sales. Approximately 42% to 48% of our total sales are direct
ship sales. Direct ship sales are typically custom-built products, large orders
or products that are too bulky to be easily handled and, as a result, are
shipped directly to the customer from the supplier. Special orders are for
products that are not ordinarily stocked in inventory and are ordered based on a
customer's specific request. Special orders represent the remainder of total
sales. Gross profit margins on stock and special order sales are approximately
50% higher than those on direct ship sales. Although direct ship gross margins
are lower, operating profit margins are often comparable, since the product
handling and fulfillment costs associated with direct shipments are much lower.
We have historically financed acquisitions, new branch openings, working
capital needs and capital expenditures through internally generated cash flow
and borrowings under our credit facilities. During the initial phase of an
acquisition or new branch opening, we typically incur expenses related to
installing or converting information systems, training employees and other
initial operating activities. With some acquisitions, we may incur expenses in
connection with the closure of any redundant branches. Historically, the costs
associated with opening new branches, and closing branches in connection with
certain acquisitions, have not been material. We have accounted for acquisitions
under the purchase method of accounting.
We have been a leading consolidator in our industry, having acquired 25
companies from August 1995 through June 2001, representing annual sales of
approximately $1.4 billion. Management distinguishes sales attributable to core
operations separate from sales of acquired businesses. The distinction between
sales from core operations and from acquired businesses is based on our internal
records and on management estimates where the integration of acquired businesses
results in the closing or consolidation of branches. However, "core operations"
typically refers to all internally started branches and all acquired branches
that have been in operation for the entire current and prior year-to-date
periods. "Acquired businesses" generally refers to branch operations purchased
by WESCO where the branches have not been under our ownership for the entire
current and prior year-to-date periods.
Restructuring and Special Charges. In the fourth quarter of 2000, we
commenced certain programs to reduce costs, improve productivity and exit
certain operations. Total costs under these programs were $9.4 million, and were
comprised of $5.4 million related to the closure of fourteen branch operations
in the United States, Canada and the Balkans, and $4.0 million related to the
writedown of an investment in an affiliate. The $5.4 million charge related to
the closure of fourteen branch operations is principally comprised of an
inventory writedown of approximately $4.0 million and lease termination costs of
approximately $1.0 million, of which $0.4 million has been paid in 2001. The
$4.0 million investment writedown is a result of management's decision to no
longer pursue its business strategy with an affiliate.
In addition, we recorded other charges of $11.4 million in the fourth
quarter of 2000. The other charges were comprised of $7.0 million of accounts
receivables writeoffs due to the deteriorating credit environment and customer
bankruptcy filings and $4.4 million relating to inventory writedowns as a result
of actions taken to align inventories with current market
27
33
conditions. These other charges were recorded in selling, general and
administrative expenses and costs of goods sold.
Recent Acquisition. In March 2001, WESCO completed its acquisition of all
of the outstanding common stock of Herning Underground Supply, Inc. and Alliance
Utility Products, Inc. (together, "Herning") headquartered in Hayward,
California. Herning, a distributor of gas, lighting and communication utility
products, reported net sales of approximately $112 million in 2000. This
acquisition was accounted for under the purchase method of accounting.
RESULTS OF OPERATIONS
The following table sets forth the percentage relationship to net sales of
certain items in our Consolidated Statements of Operations for the periods
presented:
<Table>
<Caption>
SIX MONTHS
ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
----------------------- --------------
1998 1999 2000 2000 2001
----- ----- ----- ----- -----
Net sales................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Gross profit................................ 17.8 18.0 17.6 17.7 17.7
Selling, general and administrative
expenses.................................. 13.7 13.7 13.5 13.5 14.2
Depreciation and amortization............... 0.5 0.6 0.7 0.6 0.8
Restructuring charge........................ -- -- 0.2 -- --
Recapitalization costs...................... 1.7 -- -- -- --
----- ----- ----- ----- -----
Income from operations...................... 1.9 3.7 3.2 3.6 2.7
Interest expense............................ 1.6 1.4 1.1 1.1 1.2
Other expenses.............................. 0.3 0.6 0.6 0.6 0.5
----- ----- ----- ----- -----
Income before income taxes and extraordinary
item...................................... -- 1.7 1.5 1.9 1.0
Provision for income taxes.................. 0.3 0.7 0.6 0.8 0.4
Extraordinary item, net of tax benefits..... -- (0.3) -- -- --
----- ----- ----- ----- -----
Net income (loss)........................... (0.3)% 0.7% 0.9% 1.1% 0.6%
===== ===== ===== ===== =====
</Table>
Six Months Ended June 30, 2001 Compared to June 30, 2000
Net Sales. Net sales for the first six months of 2001 decreased $43.8
million, or 2.3%, to $1,872.2 million compared with $1,916.0 million in the
prior year period, primarily due to a sales decline in our core business of 5.3%
that was offset somewhat by increased sales of acquired companies as compared to
prior year period. The mix of direct shipment sales for the six months ended
June 30, 2001 and June 30, 2000 were 43.9% and 44.9%, respectively.
Gross Profit. Gross profit for the first six months of 2001 decreased $6.9
million, or 2.0%, to $332.0 million from $338.9 million in 2000. Gross profit
margin percentage was 17.7% for both the current and prior year period. The
decrease was primarily due to the aforementioned sales deterioration in our core
business.
Selling, General and Administrative Expenses. SG&A expenses increased $8.1
million, or 3.1%, to $266.0 million. Excluding SG&A expenses associated with
companies acquired during 2000 and 2001, SG&A expenses were essentially
unchanged. Core business SG&A expenses decreased slightly due to reduction in
certain discretionary benefits partially offset by increased bad debt expense.
As a percentage of net sales, SG&A expenses increased to 14.2% compared with
13.5% in the prior year period reflecting a lower relative sales level.
28
34
Depreciation and Amortization. Depreciation and amortization increased
$3.5 million to $15.0 million reflecting higher amortization of goodwill from
acquisitions and increases in property, buildings and equipment over the prior
year.
Interest and Other Expenses. Interest expense totaled $21.9 million for
the first six months of 2001, an increase of $0.3 million from the same period
in 2000. Other expenses totaled $10.7 million and $11.2 million for the first
six months of 2001 and 2000, respectively, reflecting costs associated with the
accounts receivable securitization. The $0.5 million decrease was principally
due to the decreased fees associated with the securitized accounts receivable.
Income Taxes. Income tax expense totaled $7.3 million and $14.6 million in
the first six months of 2001 and 2000, respectively. The effective tax rates for
2001 and 2000 were 40.0% and 39.9%, respectively. The effective tax rates differ
from the federal statutory rate primarily due to state income taxes and
nondeductible expenses.
Net Income. Net income and diluted earnings per share totaled $11.0
million and $0.23, respectively, for the first six months of 2001, compared with
$22.0 million, or $0.45 per diluted share, for the first six months of 2000.
Year Ended December 31, 2000 Compared to Year Ended December 31, 1999
Net Sales. Net sales for the year ended December 31, 2000, increased by
$457.2 million, or 13.4%, to $3.9 billion compared with $3.4 billion in the
prior year. The increase was due principally to sales gains attributable to core
business operations of almost 10%, while the remainder of the increase was
primarily due to sales of acquired businesses. The mix of direct shipment sales
increased to approximately 47% in 2000 from 46% in 1999 principally due to sales
gains achieved at Bruckner Supply Company, Inc. The majority of Bruckner's sales
are direct shipment.
Gross Profit. Gross profit for the year ended December 31, 2000, increased
by $67.5 million to $684.1 million from $616.6 million in the prior year. Gross
profit margin was 17.6% and 18.0% in 2000 and 1999, respectively. Excluding the
effects of the other charges related to inventory rationalization of $4.4
million, gross profit margin decreased to 17.7% from 18.0% in the prior year
due, in part, to a shift to lower margin direct ship project sales and also due
to increased transportation costs.
Selling, General and Administrative Expenses. SG&A expenses increased
$53.0 million, or 11.3%, to $524.3 million. Excluding the impact of the other
charges of $7.0 million, related primarily to credit deterioration and
bankruptcies, SG&A expenses increased $46.0 million or 9.8%. This increase was
primarily due to increased expenses in core business operations and, to a lesser
extent, increased SG&A of companies acquired during 1999 and 2000. Core business
SG&A expense increased 6% over 1999, due principally to increased payroll costs.
As a percentage of sales, excluding the other charges, SG&A expenses declined to
13.3% in 2000 from 13.8% in 1999, reflecting enhanced operating leverage at this
higher relative sales volume.
Depreciation and Amortization. Depreciation and amortization increased
$4.6 million to $25.0 million in 2000, reflecting higher amortization of
goodwill from acquisitions and depreciation related to increases in property,
buildings and equipment over the prior year.
Income from Operations. Income from operations increased $0.4 million to
$125.4 million in 2000, compared with $125.0 million in 1999. Excluding the
restructuring and other charges in 2000, operating income increased $21.2
million. This increase was primarily due to higher gross profit, partially
offset by increased operating costs as explained above.
Interest and Other Expenses. Interest expense totaled $43.8 million for
2000, a decrease of $3.2 million from 1999. The decrease was primarily due to
the lower level of borrowings since WESCO completed its initial public offering
in the second quarter of 1999, as well as the
29
35
increased amount of securitized accounts receivable. Other expense totaled $24.9
million and $19.5 million in 2000 and 1999, respectively, reflecting costs
associated with the accounts receivable securitization program. The $5.4 million
increase was principally due to the increased level of securitized accounts
receivable noted above.
Income Taxes. Income tax expense totaled $23.3 million in 2000, relatively
unchanged from 1999. The effective tax rates for 2000 and 1999 were 41.0% and
39.9%, respectively. The increase in the rate in 2000 is principally related to
the effect of increased nondeductible expenses on decreased pretax income as
compared to the prior year.
Income Before Extraordinary Item. Income before extraordinary item totaled
$33.4 million, or $0.70 per diluted share, compared with $35.1 million or $0.75
per diluted share, in 1999. Excluding the restructuring charge of $9.4 million,
income before extraordinary item was $39.4 million or $0.83 per diluted share.
Net Income. Net income and diluted earnings per share totaled $33.4
million and $0.70 per share, respectively, in 2000, compared with $24.6 million
and $0.53 per diluted share, respectively, in 1999. Net income in 1999 included
an extraordinary item which decreased net income by $10.5 million.
Year Ended December 31, 1999 Compared to Year Ended December 31, 1998
Net Sales. Net sales for the year ended December 31, 1999, increased by
$398.4 million, or 13.2%, to $3.4 billion compared with $3.0 billion in the
prior year, primarily due to sales attributable to acquired companies. Core
business sales increased approximately 4% over 1998. The mix of direct shipment
sales increased to approximately 46% in 1999 from 42% in 1998, principally due
to the Bruckner acquisition completed in September 1998. Substantially all of
Bruckner's sales are direct shipment.
Gross Profit. Gross profit for the year ended December 31, 1999, increased
by $79.0 million to $616.6 million from $537.6 million in 1998. Gross profit
margin was 18.0% and 17.8% in 1999 and 1998, respectively. Excluding the effects
of the Bruckner acquisition, which has a higher proportion of lower-margin
direct shipment sales, gross profit margin increased to 18.7% from 18.1% in the
prior year due to gross margin improvement initiatives.
Selling, General and Administrative Expenses. SG&A expenses increased
$56.2 million, or 13.6%, to $471.3 million. This increase was substantially due
to incremental expenses of companies acquired during 1998 and 1999 and, to a
lesser extent, increased SG&A in our core business. Core business SG&A increased
6% over 1998, due principally to increased payroll costs and, to a lesser
extent, increased transportation costs and bad debt expenses. These increases
were partially offset by reductions in certain incentive-based compensation
expenses and a reduction in certain discretionary benefits. As a percentage of
sales, SG&A expenses remained flat compared to the prior year.
Depreciation and Amortization. Depreciation and amortization increased
$5.5 million to $20.4 million in 1999, reflecting higher amortization of
goodwill from acquisitions and depreciation related to increases in property,
buildings and equipment over the prior year.
Income from Operations. Income from operations increased $69.0 million to
$125.0 million in 1999, compared with $56.0 million in 1998. Excluding the
nonrecurring recapitalization costs in 1998, operating income increased $17.2
million. The increase was primarily due to higher gross profit, partially offset
by increased operating costs as explained above.
Interest and Other Expenses. Interest expense totaled $47.0 million for
1999, an increase of $1.8 million over 1998. The increase was primarily due to
the higher levels of borrowings associated with the recapitalization and
acquisitions, partially offset by the use of proceeds from the initial public
offering of WESCO International common stock. Other expenses totaled
30
36
$19.5 million and $10.1 million in 1999 and 1998, respectively, reflecting costs
associated with the accounts receivable securitization program that commenced in
June 1998.
Income Taxes. Income tax expense totaled $23.3 million in 1999 and the
effective tax rate was 39.9%. In 1998, income tax expense totaled $8.5 million.
In 1998, we recorded charges of $51.8 million associated with the
recapitalization that resulted in $0.8 million of income before taxes. Certain
nondeductible recapitalization costs and other permanent differences
significantly exceeded the $0.8 million of income before income taxes and
resulted in an unusually high effective income tax rate.
Income Before Extraordinary Item. For 1999, income before extraordinary
item totaled $35.1 million, or $0.75 per diluted share, compared with a loss of
$7.7 million, or $0.17 per share, in 1998. The increases are primarily due to
nonrecurring recapitalization costs incurred in 1998 and to improved operating
results in 1999.
Net Income (Loss). Net income and diluted earnings per share totaled $24.6
million and $0.53 per share, respectively, in 1999, compared with a loss of $7.7
million, or $0.17 per share, respectively, in 1998. The increase is principally
due to the recapitalization costs of $51.8 million incurred in 1998 and improved
operating results in 1999 offset, in part, by the extraordinary item of $10.5
million in 1999.
LIQUIDITY AND CAPITAL RESOURCES
Total assets were approximately $1.2 billion at June 30, 2001, a $3.6
million increase over December 31, 2000. Stockholders' equity totaled $136.3
million at June 30, 2001, compared with $125.0 million at December 31, 2000.
The following table sets forth WESCO's outstanding indebtedness:
<Table>
<Caption>
DECEMBER 31,
---------------- JUNE 30,
1999 2000 2001
------ ------ --------
(IN MILLIONS)
Revolving credit facility(1)............................... $132.0 $189.6 $141.0
Senior subordinated notes.................................. 290.3 291.5 292.1
Other...................................................... 4.0 2.2 6.6
------ ------ ------
426.3 483.3 439.7
Less current portion....................................... (3.8) (0.6) (1.5)
------ ------ ------
$422.5 $482.7 $438.2
====== ====== ======
</Table>
-------------------------
(1) As of August 31, 2001, after giving effect to the issuance of the original
notes, the use of proceeds from the sale of the original notes, and the
amendment to the revolving credit facility, approximately $142.0 million
was outstanding under the revolving credit facility, with $120.4 million
available under the facility.
Revolving Credit Facility
In June 1999, WESCO Distribution entered into a revolving credit facility
with a consortium of financial institutions. At June 30, 2001, the revolving
credit facility, which matures in June 2004, consisted of up to $344 million of
revolving loans denominated in U.S. dollars and a Canadian sublimit totaling
US$35 million. Borrowings under the revolving credit facility are collateralized
by substantially all of the assets of WESCO Distribution other than the accounts
receivable sold under the receivables facility and are guaranteed by WESCO
International and certain subsidiaries.
31
37
Borrowings bear rates of interest equal to various indices, at our option
plus a borrowing margin. At June 30, 2001, the average interest rate on the
revolving credit facility borrowings was 6.62%. A commitment fee of 30 to 50
basis points per year is due on unused portions of the revolving credit
facility.
Our 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 our assets;
(v) certain transactions among affiliates; (vi) payments by certain subsidiaries
to us; and (vii) capital expenditures. In addition, the agreements require us to
meet certain leverage, working capital and interest coverage ratios. We are in
compliance with all such covenants at June 30, 2001.
In December 2000, WESCO Distribution amended its revolving credit facility,
which provided additional operating flexibility and increased the maximum amount
allowable under the accounts receivable securitization program to $475 million
from $375 million, and also amended certain financial covenants. Receivables
sold under the accounts receivable securitization program in excess of $375
million will permanently reduce the amount available under the revolving credit
facility on a dollar for dollar basis. In January 2001, the amount available
under the revolving credit facility decreased from $400 million to the currently
available $379 million due to a temporary $21 million increase in the
receivables facility to $396 million.
On August 3, 2001, WESCO Distribution entered into a further amendment to
its revolving credit facility, which, among other things, affected the pricing
of and amounts available under the revolving credit facility. The LIBOR
borrowing margins applicable to advances under the revolving credit facility,
which previously ranged from 100 to 200 basis points, were amended to range from
150 to 250 basis points, depending upon our leverage ratio. The amendment also
provided for an immediate reduction in the maximum amount available from
approximately $379 million to approximately $285 million, which was further
reduced by $0.25 for every dollar of net proceeds that we received from our sale
of the original notes. As a result, after receipt of net proceeds of
approximately $86.9 million from our sale of the original notes, the maximum
amount available under the revolving credit facility was approximately $263
million as of the time of the original notes issuance and will decrease over the
life of the facility to approximately $163 million at maturity in 2004.
The amendment also amends certain financial and other covenants, including
our covenants with respect to applicable leverage ratios, interest coverage
ratios and working capital ratios. The amendment also restricts our ability to
make acquisitions and prohibits WESCO International from repurchasing shares of
its common stock under the share repurchase program. See "Description of Other
Indebtedness and Receivables Facility -- Revolving Credit Facility."
Accounts Receivable Securitization Program
WESCO maintains an accounts receivable securitization program ("receivables
facility") with several financial institutions under which WESCO sells, on a
continuous basis, to WESCO Receivables Corporation, a wholly-owned special
purpose company ("SPC") an undivided interest in all eligible accounts
receivable. The SPC sells without recourse to a third party conduit all the
receivables while maintaining a subordinated interest in the form of
overcollateralization in a portion of the receivables. WESCO has agreed to
continue servicing the sold receivables for the financial institution at market
rates; accordingly, no servicing asset or liability has been recorded. The
amount available to WESCO under the receivables facility fluctuates on a monthly
basis depending upon the amount of eligible receivables that WESCO has from time
to time. As of June 30, 2001, WESCO had $396 million of maximum allowable
advances under the receivables facility, against which WESCO had $375 million
outstanding,
32
38
and as of August 31, 2001, WESCO had $355 million outstanding. As described
above, advances in excess of $396 million under the receivables facility will
permanently reduce the amount available to WESCO under its revolving credit
facility on a dollar-for-dollar basis. See "Description of Other Indebtedness
and Receivables Facility -- Receivables Facility."
Cash Flows
An analysis of cash flows for the first six months of 2000 and 2001
follows:
Operating Activities. Cash provided by operating activities totaled $92.2
million in the first six months of 2001, compared to $26.7 million in the prior
year. In connection with WESCO's asset securitization program, cash provided by
operations in 2000 included proceeds of $15.0 million from the sale of accounts
receivable. Excluding this transaction, cash provided by operating activities
was $92.2 million in 2001 compared to cash provided of $11.7 million in 2000. On
this basis, the $80.5 million increase in operating cash flow, compared to 2000,
was primarily generated by changes in components of working capital, offset by
decreased income adjusted for non-cash charges.
Investing Activities. Net cash used in investing activities was $59.5
million for the first six months of 2001, compared to $21.5 million in 2000.
Cash used for investing activities was higher in 2001 primarily due to a $38.0
million increase in cash paid for acquisitions. WESCO's capital expenditures for
the six months of 2001 were for computer equipment and software and branch and
distribution center facility improvements.
Financing Activities. Cash used for financing activities totaled $48.9
million for the first six months of 2001 primarily reflecting increased
repayments of debt. In the first six months of 2000, cash provided by financing
activities totaled $3.2 million, principally related to increased borrowings
offset by stock repurchases under WESCO International's share repurchase
program.
An analysis of cash flows for 1999 and 2000 follows:
Operating Activities. Cash provided by operating activities totaled $46.9
million for the year ended December 31, 2000, compared to $66.4 million a year
ago. Cash provided by operations in 2000 and 1999 included proceeds of $40.0
million and $60.0 million, respectively, from the sale of accounts receivable in
connection with the accounts receivable securitization program. Excluding these
proceeds, operating activities provided $6.9 million in 2000 and $6.4 million in
1999. On this basis, the year-to-year increase in operating cash flow of $0.5
million was primarily due to increased income adjusted for non-cash charges,
partially offset by an increase in working capital.
Investing Activities. Net cash used in investing activities was $60.7
million in 2000, compared to $71.9 million in 1999. Cash used for investing
activities was higher in 1999 primarily due to amounts invested in business
acquisitions. Capital expenditures in 2000 were $21.6 million compared to $21.2
million in 1999 and were for computer equipment and software, branch and
distribution center facility improvements, forklifts and delivery vehicles.
Capital expenditures for 2001 are not expected to differ significantly from
2000.
Financing Activities. Cash provided by financing activities was $26.0
million in 2000 which was primarily due to net borrowings of $53.3 million,
partially offset by WESCO International's treasury stock purchase program. Cash
provided by financing activities in 1999 totaled $6.3 million and was primarily
due to the initial public offering of WESCO International common stock,
partially offset by a reduction in long-term debt and treasury stock purchases.
Our liquidity needs arise from seasonal working capital requirements,
capital expenditures, debt service obligations and acquisitions. In addition,
certain of our acquisition agreements contain earn-out provisions typically
based on future earnings targets. The most significant of these agreements
relates to the acquisition of Bruckner Supply Company, Inc. which provides
33
39
for an earn-out potential of $100 million during the next four years if certain
earnings targets are achieved. Certain other acquisitions also contain
contingent consideration provisions, one of which could be significant, as it is
based on, among other things, a multiple of increases in income. See Note 7 to
the Consolidated Financial Statements included elsewhere in this prospectus.
In May 2000, WESCO International's board of directors authorized an
additional $25 million to be added to its existing $25 million share repurchase
program which was authorized in November 1999. As of June 30, 2001, WESCO
International had purchased approximately 3.9 million shares of its common stock
for approximately $32.8 million pursuant to this program. On August 3, 2001,
WESCO Distribution entered into an amendment to its revolving credit facility,
which, among other things, prohibits WESCO International's repurchase of shares
of its common stock, including under WESCO International's share repurchase
program.
Management believes that cash generated from operations, together with
amounts available under the credit agreement and the receivables facility, will
be sufficient to meet our working capital, capital expenditures and other cash
requirements for the foreseeable future. There can be no assurance, however,
that this will be the case. Financing of acquisitions can be funded under the
existing credit agreement and may, depending on the number and size of the
acquisitions, require the issuance of additional debt and equity securities.
INFLATION
The rate of inflation, as measured by changes in the consumer price index,
did not have a material effect on our sales or operating results during the
periods presented. However, inflation in the future could affect our operating
costs. Price changes from suppliers have historically been consistent with
inflation and have not had a material impact on our results of operations.
SEASONALITY
Notwithstanding current economic conditions, our operating results have
been affected by certain seasonal factors. Sales are typically at their lowest
during the first quarter due to a reduced level of activity during the winter
months. Sales increase during the warmer months beginning in March and
continuing through November. Sales drop again slightly in December as the
weather cools and also as a result of a reduced level of activity during the
holiday season. As a result, we report sales and earnings in the first quarter
that are generally lower than that of the remaining quarters.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities." We
adopted this statement, as amended by SFAS No. 138, on January 1, 2001. This
statement requires the recognition of the fair value of any derivative financial
instrument on the balance sheet. Changes in fair value of the derivative and, in
certain instances, changes in the fair value of an underlying hedged asset or
liability, are recognized through either income or as a component of other
comprehensive income. The adoption of this statement did not have a material
impact on our results of operations or financial position.
In September 2000, the FASB issued SFAS No. 140, a modification of SFAS No.
125. SFAS No. 140 is effective for transfers after March 31, 2001 and is
effective for disclosures about securitizations and collateral and for
recognition and reclassification of collateral for fiscal years ending after
December 15, 2000. The disclosure provisions of this statement have been
adopted. The adoption of this statement for future transfers is not expected to
have a material impact on our results of operations or financial position.
34
40
In July 2001, the FASB issued SFAS No. 141, "Business Combinations" and
SFAS No. 142, "Goodwill and other Intangible Assets." Under SFAS No. 141, all
business combinations will be accounted for under the purchase method. Under
SFAS No. 142, goodwill will no longer be amortized, but will be reduced only if
it was found to be impaired. Goodwill would be tested for impairment annually or
more frequently when events or circumstances occur indicating that goodwill
might be impaired. A fair-value based impairment test would be used to measure
goodwill for impairment. As goodwill is measured as a residual amount in an
acquisition, it is not possible to directly measure the fair value of goodwill.
Under this statement, the net assets of a reporting unit are subtracted from the
fair value of that reporting unit to determine the implied fair value of
goodwill. An impairment loss would be recognized to the extent the carrying
amount of goodwill exceeds the implied fair value. The provisions of this
statement are effective for all business combinations completed after July 1,
2001 and fiscal years beginning after December 15, 2001 for existing goodwill.
Management believes the adoption of this standard will have a material non-cash
impact on the financial statements. For the six months ended June 30, 2001,
goodwill amortization was $5.8 million.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Foreign Currency Risks. Over 90% of WESCO's sales are denominated in
United States dollars and are primarily from customers in the United States. As
a result, currency fluctuations are currently not material to WESCO's operating
results. WESCO does have foreign subsidiaries located in North America, Europe
and Asia and may establish additional foreign subsidiaries in the future.
Accordingly, WESCO may derive a more significant portion of its sales from
international operations and a portion of these sales may be denominated in
foreign currencies. As a result, WESCO's future operating results could become
subject to fluctuations in the exchange rates of those currencies in relation to
the United States dollar. Furthermore, to the extent that WESCO engages in
international sales denominated in United States dollars, an increase in the
value of the United States dollar relative to foreign currencies could make
WESCO's products less competitive in international markets. WESCO has and will
continue to monitor its exposure to currency fluctuations.
Interest Rate Risks. WESCO's indebtedness as of December 31, 2000 is
comprised of $189.6 million of variable-rate borrowings outstanding under its
revolving credit facility and $293.7 million of fixed-rate borrowings. Interest
cost under the revolving credit facility is based on various indices plus a
borrowing margin. WESCO uses interest rate cap agreements to hedge a portion of
its debt cost in an attempt to strike a favorable balance between fixed and
variable rate. The interest rate cap agreements effectively cap WESCO's base
LIBOR rate at 7.25% for $100.0 million of borrowings through May 2001 and at
7.0% for $25.0 million of borrowings through August 2001. The interest rate cap
agreements did not have a material impact on the Company's consolidated
financial statements for the year ended December 31, 2000. WESCO has not renewed
these interest rate cap agreements. The interest rate on WESCO's revolving
credit agreement was 8.4% at December 31, 2000. A hypothetical 10% change in
this interest rate based on variable-rate borrowing levels at December 31, 2000
and including the impact of the interest rate caps would result in a $1.6
million increase or decrease in interest rate expense.
We do not believe that there have been any material changes to WESCO's
exposure to market risks during the six months ended June 30, 2001.
In September 2001, WESCO entered into certain interest rate swap agreements
with respect to $75.0 million notional amount of indebtedness. Pursuant to the
agreements, WESCO will receive semi-annual fixed interest payments at the rate
of 9 1/8% commencing December 1, 2001 and will make quarterly variable interest
rate payments at rates ranging from LIBOR plus 397 to 405 basis points
commencing December 1, 2001 (currently rates range from 6.585% to 6.965%). The
swap agreements terminate on June 1, 2008.
35
41
BUSINESS
THE COMPANY
We are a leading North American provider of electrical products and other
industrial maintenance, repair and operating supplies, commonly referred to as
"MRO." We are the second largest distributor in the estimated $79 billion U.S.
electrical distribution industry, and the largest provider of integrated supply
services. Our integrated supply solutions and outsourcing services fulfill a
customer's industrial MRO procurement needs through a highly automated,
proprietary electronic procurement and inventory replenishment system. This
allows our customers to consolidate suppliers and reduce their procurement and
operating costs. We have over 360 branches and five distribution centers located
in 48 states, nine Canadian provinces, Puerto Rico, Mexico, Guam, the United
Kingdom and Singapore. We serve over 130,000 customers worldwide, offering over
1,000,000 products from over 23,000 suppliers. Our diverse customer base
includes a wide variety of industrial companies; contractors for industrial,
commercial and residential projects; utility companies; and commercial,
institutional and governmental customers. Our leading market positions,
extensive geographic reach, broad product and service offerings and acquisition
program have enabled us to significantly increase our net sales and improve our
financial performance.
We have acquired 25 companies since August 1995, representing annual sales
of approximately $1.4 billion. Our strong internal growth, combined with
acquisitions, have increased our net sales and earnings before interest, taxes,
depreciation, amortization and restructuring charges at compounded annual growth
rates of 16% and 31%, respectively, between 1994 and 2000.
INDUSTRY OVERVIEW
The electrical distribution industry serves customers in a number of
markets including the industrial, commercial, construction and utility markets.
Electrical distributors, such as us, provide logistical and technical services
for customers by bundling together a wide range of products typically required
for the construction and maintenance of electrical supply networks, including
wire, lighting, distribution and control equipment and a wide variety of
electrical supplies. This distribution channel enables customers to efficiently
access a broad range of products and has the capacity to deliver value-added
services. Customers are increasingly demanding that distributors provide a
broader and more complex package of services as customers seek to outsource
non-core functions and achieve documented cost savings in purchasing, inventory
and supply chain management.
ELECTRICAL DISTRIBUTION. The U.S. electrical distribution industry had
sales of approximately $79 billion in 2000. While overall weakness in the
current economic environment has contributed to recent sales declines, industry
growth has averaged 6% per year from 1985 to 2000. This expansion has been
driven by general economic growth, increased use of electrical products in
businesses and industries, new products and technologies, and customers who are
seeking to more efficiently purchase a broad range of products and services from
a single point of contact, thereby eliminating the costs and expenses of
purchasing directly from manufacturers or multiple sources. The U.S. electrical
distribution industry is also highly fragmented. In 1999, the latest year for
which market share data is available, the four national distributors, including
WESCO, accounted for less than 16% of estimated total industry sales.
INTEGRATED SUPPLY. The market for integrated supply services has more than
doubled from $5 billion in 1997 to over $10 billion in 2000, an increase of 27%
per year. Recent projections estimate that the integrated supply market will
reach $18.4 billion by 2004. Growth is being driven by the desire of large
industrial companies to reduce operating expenses by implementing comprehensive
third-party programs, which outsource the cost-intensive procurement, stocking
and administrative functions associated with the purchase and consumption of
36
42
MRO supplies. For our customers, these costs can account for over 50% of the
total costs for MRO products and services. The total potential in the U.S. for
integrated supply services, measured as all purchases of industrial MRO supplies
and services, is currently estimated to be approximately $260 billion.
COMPETITIVE STRENGTHS
MARKET LEADERSHIP. Our ability to manage large construction projects and
complex multi-site plant maintenance programs and procurement projects that
require special sourcing, technical advice, logistical support and locally based
service has enabled us to establish leadership positions in our principal
markets. We have utilized these skills to generate significant revenues in
electrical products and MRO intensive industries such as: electrical
contracting, utilities, original equipment manufacturing, process manufacturing
and other commercial, institutional and governmental clients. We have also been
able to leverage our position within these industries to expand our customer
base.
VALUE-ADDED SERVICES. We are a leader in providing a wide range of
services and procurement solutions that draw on our product knowledge, supply
and management expertise and systems capabilities, enabling our customers to
reduce supply chain costs and improve efficiency. These programs include:
- National Accounts -- we coordinate product supply and materials
management activities for MRO supplies across customers with multiple
locations who seek purchasing leverage through a single electrical
products provider;
- Integrated Supply -- we design and implement programs that enable our
customers to significantly reduce the number of MRO suppliers they use
through services that include highly automated, proprietary electronic
procurement and inventory replenishment systems and on-site materials
management and logistics services; and
- Major Projects -- we have a dedicated team of experienced construction
management personnel to service the needs of the top engineering and
construction firms which specialize in major projects such as airport
expansions, stadiums and healthcare facilities.
BROAD PRODUCT OFFERING. We provide our customers with a broad product
selection consisting of over 1,000,000 electrical, industrial and data
communications products sourced from over 23,000 suppliers. Our broad product
offering enables us to meet virtually all of a customer's electrical product and
other MRO requirements.
EXTENSIVE DISTRIBUTION NETWORK. Our distribution network consists of over
360 branches and five distribution centers located in 48 states, nine Canadian
provinces, Puerto Rico, Mexico, Guam, the United Kingdom and Singapore. This
extensive network, which would be extremely difficult and expensive to
duplicate, allows us to:
- offer multi-site distribution capabilities to large customers and
national accounts;
- tailor branch products and services to customer needs;
- minimize local inventory requirements; and
- provide same-day shipments.
LOW COST OPERATOR. Our competitive position has been enhanced by our low
cost position, which is based on:
- extensive use of automation and technology;
- centralization of functions such as purchasing and accounting;
- strategically located distribution centers;
37
43
- purchasing economies of scale; and
- incentive programs that increase productivity and encourage
entrepreneurship.
Our low cost position enables us to generate a significant amount of cash flow
as the capital investment required to maintain our business is low. This cash
flow is available for debt reduction, strategic acquisitions and continued
investment in the growth of the business.
STRONG MANAGEMENT TEAM. Our senior management team is comprised of
recognized industry leaders. They have successfully grown the Company both
organically and through successful integration of 25 acquisitions since 1995. In
addition, our senior management and a broad range of key operating personnel are
owners, holding approximately 29% of the common stock of WESCO International.
Our stock ownership and other incentive programs closely align management's
interests in the financial performance of the Company with those of our
stakeholders.
BUSINESS STRATEGY
Our objective is to be the leading provider of electrical products and
other MRO supplies and services to companies in North America and selected
international markets. In achieving this leadership position, our goal is to
grow earnings at a faster rate than sales by focusing on margin enhancement and
continuous productivity improvement. Our growth strategy leverages our existing
strengths and focuses on developing new initiatives and programs.
ENHANCE OUR LEADERSHIP POSITION IN ELECTRICAL DISTRIBUTION. We intend to
leverage our extensive market presence and brand equity in the WESCO name to
further our leadership position in electrical distribution. We are focusing our
sales and marketing on existing industries where we are expanding our product
and service offerings as well as targeting new clients, both within industries
we currently serve and in new markets which provide significant growth
opportunities. Markets where we believe such opportunities exist include retail,
education, financial services and health care. We are the second largest
electrical distributor in the U.S. and, through our value-added products and
services, we believe we have become the industry leader in serving several
important and growing markets including:
- industrial customers with large, complex plant maintenance operations,
many of which require a national multi-site service solution for their
electrical distribution product needs;
- large contractors for major industrial and commercial construction
projects;
- the electric utility industry; and
- manufacturers of factory-built homes, recreational vehicles and other
modular structures.
GROW NATIONAL ACCOUNTS PROGRAMS. From 1994 through 2000, revenue from our
national accounts program increased in excess of 15% annually. We will continue
to invest in the expansion of this program. Through our national accounts
program, we coordinate electrical MRO procurement and purchasing activities
primarily for large industrial and commercial companies across multiple
locations. We have well established relationships with over 300 companies,
providing us with a recurring base of revenue through multi-year agreements. Our
objective is to continue to increase revenue generated through our national
accounts program by:
- offering existing national accounts customers new products, more services
and additional locations;
- extending certain established national accounts relationships to include
integrated supply; and
38
44
- expanding our customer base by leveraging our existing industry expertise
in markets we currently serve as well as entering into new markets.
FOCUS ON MAJOR PROJECTS. We are increasing our focus on large
construction, renovation and institutional projects. We seek to secure new major
projects contracts through:
- aggressive national marketing of our demonstrated project management
capabilities;
- further development of relationships with leading contractors and
engineering firms;
- close coordination with national accounts customers on their major
project requirements; and
- offering an integrated supply service approach to contractors for major
projects.
EXTEND OUR LEADERSHIP POSITION IN INTEGRATED SUPPLY. We are the largest
provider of integrated supply services for MRO goods and services in the United
States. We provide a full complement of outsourcing solutions, focusing on
improving the supply chain management process for our customers' indirect
purchases. Our integrated supply programs replace the traditional multi-vendor,
resource-intensive procurement process with a single, outsourced, fully
automated process capable of managing all MRO and related service requirements.
Our solutions range from timely product delivery to assuming full responsibility
for the entire procurement function. Our customers include some of the largest
industrial companies in the United States. We intend to expand our leadership
position as the largest integrated supply service provider by:
- continuing to tailor our proven and profitable business model to the
scale and scope of our customers' operations;
- maximizing the use of our highly automated proprietary information
systems;
- leveraging established relationships with our large industrial customer
base, especially among existing national account customers who could
benefit from our integrated supply model; and
- being a low cost provider of integrated supply services.
We intend to utilize these competitive strengths to increase our integrated
supply sales to both new and existing customers, including our existing national
account customers.
GAIN SHARE IN KEY LOCAL MARKETS. Significant opportunities exist to gain
local market share, since many local markets are highly fragmented. We intend to
increase our market share in key geographic markets through a combination of
increased sales and marketing efforts at existing branches, acquisitions that
expand our product and customer base and new branch openings. We intend to
leverage our existing relationships with preferred suppliers to increase sales
of their products in local markets through various initiatives, including sales
promotions, cooperative marketing efforts, direct participation by suppliers in
national accounts implementation, dedicated sales forces and product
exclusivity. To promote growth, we have instituted a compensation system for
branch managers that encourages our branch managers to increase sales and
optimize business activities in their local markets, including managing the
sales force, configuring inventories, targeting potential customers for
marketing efforts and tailoring local service options.
PURSUE STRATEGIC ACQUISITIONS. Since 1995, we have considered over 300
potential acquisitions and have completed and successfully integrated 25
acquisitions, which represent annual sales of approximately $1.4 billion. We
believe that the highly fragmented nature of the electrical and industrial MRO
distribution industry will continue to provide us with a number of acquisition
opportunities. In our disciplined approach toward acquisitions, potential
39
45
acquisitions are evaluated based on a variety of financial, strategic and
operational criteria, including their ability to:
- better serve our existing customers;
- offer expansion into key growth markets;
- add new product or service capabilities;
- support new and existing national accounts;
- strengthen relationships with important manufacturers; and
- meet well-defined financial criteria including return on investment and
earnings accretion.
EXPAND PRODUCT AND SERVICE OFFERINGS. We continue to build on our
demonstrated ability to introduce new products and services to meet existing
customer demands and capitalize on new market opportunities. As the market for
data and electrical products converge, we have integrated our data
communications efforts into our core electrical business. Our existing
electrical sales force has been trained to sell data communications products
resulting in significant new data and electrical projects with large commercial
banks, schools and telecommunications service providers. In addition, we have
the platform to sell integrated lighting control and power distribution
equipment in a single package for multi-site specialty retailers, restaurant
chains and department stores. These are strong growth markets where our national
accounts strategies and logistics infrastructure provide significant benefits
for our customers.
LEVERAGE OUR E-COMMERCE AND INFORMATION SYSTEM CAPABILITIES. We conduct a
significant amount of business electronically. Our electronic transaction
management capabilities lower costs and shorten cycle time in the supply chain
process for us and for our customers. We intend to continue to invest in
information technology to create more effective linkages with both customers and
suppliers.
EXPAND OUR INTERNATIONAL OPERATIONS. Our international sales, the majority
of which are in Canada, accounted for approximately 10% of sales in 2000. We
believe that there is significant additional demand for our products and
services outside the U.S. and Canada. Many of our multinational domestic
customers are seeking distribution, integrated supply and project management
solutions globally. Our approach to international operations is consistent with
our domestic philosophy. We follow our established customers and pursue business
that we believe utilizes and extends our existing capabilities. This strategy of
working through well-developed customer and supplier relationships significantly
reduces risks and provides the opportunity to establish a profitable business.
We continue to pursue growth opportunities in existing locations such as
Aberdeen, Scotland and London, England, which support our sales efforts in
Europe, Africa and the former Soviet Union, Singapore, which supports our sales
efforts in Asia, and through our branches in Mexico. We also pursue various
export opportunities in Latin America and Africa. We are working toward forming
strategic alliances in critical markets.
ACQUISITION AND INTEGRATION PROGRAM
Our strategic acquisition program has been an important element in our
objective to be the leader in the markets we serve. We have completed 25
acquisitions since August 1995, representing total annual sales of approximately
$1.4 billion. Our philosophy toward growth includes a continuous evaluation to
determine whether a particular opportunity, capability or customer need is best
developed internally or purchased through a strategic acquisition. We have a
business development department that consists of a small team of professionals
who locate, evaluate and negotiate all aspects of any acquisition, with
particular emphasis on compatibility of management philosophy and strategic fit.
We believe that the highly
40
46
fragmented nature of the electrical distribution industry will continue to
provide us with a significant number of acquisition opportunities. We will
continue to utilize our strong internal capabilities to selectively evaluate the
strategic and financial benefits from potential acquisitions that complement our
customers' overall supply needs, including those in the electrical distribution,
integrated supply and other non-electrical distribution industries. The Company
expects that future acquisitions will be financed out of available internally
generated funds, additional debt and the issuance of equity securities. However,
our ability to make acquisitions will be subject to our compliance with certain
conditions under the terms of our amended revolving credit facility, including a
limitation of the total consideration (including cash and assumed debt but
excluding equity securities) for all acquisitions to $50 million. See
"Description of Other Indebtedness and Receivables Facility -- Revolving Credit
Facility."
WESCO ACQUISITION HISTORY
<Table>
<Caption>
BRANCH ANNUAL
YEAR ACQUISITIONS LOCATIONS SALES(1)
---- ------------ --------- --------
(DOLLARS IN MILLIONS)
1995................................ 2 2 $ 47
1996................................ 7 67 418
1997................................ 2 9 52
1998................................ 6 21 608
1999................................ 4 5 70
2000................................ 3 17 92
2001................................ 1 10 112
-- --- ------
TOTAL............................. 25 131 $1,399
== === ======
</Table>
----------------------------------
(1) Represents our estimate of annual sales of acquired businesses at
the time of acquisition, based on our review of internal and/or
audited statements of the acquired business.
PRODUCTS AND SERVICES
Products
Our network of branches and distribution centers stock over 215,000 product
stock keeping units ("SKUs"). Each branch tailors its inventory to meet the
needs of the customers in its local market, typically stocking approximately
4,000 to 8,000 SKUs. Our integrated supply business allows our customers to
access over 1,000,000 products for direct shipment.
Representative products that we sell include:
- Supplies. Fuses, terminals, connectors, boxes, fittings, tools, lugs,
tape and other MRO supplies
- Distribution. Equipment Circuit breakers, transformers, switchboards,
panelboards and busway
- Lighting. Lamps (light bulbs), fixtures and ballasts
- Wire and Conduit. Wire, cable, metallic and non-metallic conduit
- Control, Automation and Motors. Motor control devices, drives,
programmable logic controllers, pushbuttons and operator interfaces
- Data Communications. Premise wiring, patch panels, terminals, connectors
41
47
We purchase products from a diverse group of over 23,000 suppliers. In
2000, our ten largest suppliers accounted for approximately 32% of our
purchases. The largest of these was Eaton Corporation, through its Cutler-Hammer
division, accounting for approximately 13% of total purchases. No other supplier
accounted for more than 5%.
Our supplier relationships are important to us, providing access to a wide
range of products, technical training and sales and marketing support. We have
preferred supplier agreements with approximately 150 of our suppliers and
purchase approximately 65% of our stock inventory pursuant to these agreements.
Consistent with industry practice, most of our agreements with suppliers,
including both distribution agreements and preferred supplier agreements, are
terminable by either party on 60 days' notice or less.
Services
In conjunction with product sales, we offer customers a wide range of
services and procurement solutions that draw on our product and supply
management expertise and systems capabilities. These services include national
accounts programs, integrated supply programs and major project programs. We are
responding to the needs of our customers, particularly those in processing and
manufacturing industries. To more efficiently manage the MRO process on behalf
of our customers, we offer a range of supply management services, including:
- outsourcing of the entire MRO purchasing process;
- providing manufacturing process improvements using state-of-the-art
automated solutions;
- implementing inventory optimization programs;
- participating in joint cost savings teams;
- assigning our employees as on-site support personnel;
- recommending energy-efficient product upgrades; and
- offering safety and product training for customer employees.
National accounts programs. The typical national account customer is a
Fortune 500 industrial company, a large utility or other major customer, in each
case with multiple locations. Our national accounts programs provide customers
with total supply chain cost reductions by coordinating purchasing activity for
MRO supplies across multiple locations. Comprehensive implementation plans
establish jointly-managed teams at the local and national level to prioritize
activities, identify key performance measures and track progress against
objectives. We involve our preferred suppliers early in the implementation
process, where they can contribute expertise and product knowledge to accelerate
program implementation and the achievement of cost savings and process
improvements.
Integrated supply programs. With our September 1998 acquisition of
Bruckner, a provider of integrated supply procurement services for large
industrial companies, we significantly increased our integrated supply programs.
Bruckner's business consisted primarily of integrated supply and had annual
sales of approximately $222 million in the year prior to its acquisition. Our
integrated supply programs offer customers a variety of services to support
their objectives for improved supply chain management. We integrate our
personnel, product and distribution expertise, electronic technologies and
service capabilities with the customer's own internal resources to meet
particular service requirements. Each integrated supply program is uniquely
configured to deliver a significant reduction in the number of MRO suppliers,
reduce total procurement costs, improve operating controls and lower
administrative expenses. Our solutions range from just-in-time fulfillment to
assuming full responsibility for the entire
42
48
procurement function for all indirect purchases. We believe that customers will
increasingly seek to utilize us as an "integrator," responsible for selecting
and managing the supply of a wide range of MRO and OEM products.
Major projects. We have a major projects group, comprised of our most
experienced construction management personnel, which focuses on serving the
complex needs of North America's largest engineering and construction firms and
the top 50 U.S. electrical contractors on a multi-regional basis. These
contractors typically specialize in building industrial sites, water treatment
plants, airport expansions, healthcare facilities, correctional institutions and
new sports stadiums.
MARKETS AND CUSTOMERS
We have a large base of approximately 130,000 customers diversified across
our principal markets. While one customer accounted for approximately 3% of 2000
sales, no other customer accounted for more than 2%.
Industrial customers. Sales to industrial customers, which include
numerous manufacturing and process industries, and original equipment
manufacturers ("OEMs") accounted for approximately 43% of our sales in 2000.
MRO products are needed to maintain and upgrade the electrical and
communications networks at all industrial sites. Expenditures are greatest in
the heavy process industries, such as food processing, pulp and paper and
petrochemical. Typically, electrical MRO is the first or second ranked product
category by purchase value for total MRO requirements for an industrial site.
Other MRO product categories include, among others, lubricants, pipe, valves and
fittings, fasteners, cutting tools and power transmission products.
OEM customers incorporate electrical components and assemblies into their
own products. OEMs typically require a reliable, high volume supply of a narrow
range of electrical items. Customers in this segment are particularly service
and price sensitive due to the volume and the critical nature of the product
used, and they also expect value-added services such as design and technical
support, just-in-time supply and electronic commerce.
Electrical contractors. Sales to electrical contractors accounted for
approximately 36% of our sales in 2000. These customers range from large
contractors for major industrial and commercial projects, the customer types we
principally serve, to small residential contractors, which represent a small
portion of our sales. Electrical products purchased by electrical sub-
contractors typically account for approximately 40% to 50% of their installed
project cost, and, therefore, accurate cost estimates and competitive material
costs are critical to a contractor's success in obtaining profitable projects.
Utilities. Sales to utilities accounted for approximately 16% of our sales
in 2000. This market includes large investor-owned utilities, rural electric
cooperatives and municipal power authorities. We provide our utility customers
with power line products and an extensive range of supplies to meet their MRO
and capital projects needs. Full materials management and procurement
outsourcing arrangements are also important in this market as cost pressures and
deregulation cause utility customers to streamline purchasing and inventory
control practices.
Commercial, institutional and governmental customers ("CIG"). Sales to CIG
customers accounted for approximately 5% of our sales in 2000. This fragmented
market includes schools, hospitals, property management firms, retailers and
government agencies of all types. Through our WR Controls Division, we now have
a platform to sell integrated lighting control and distribution equipment in a
single package for multi-site specialty retailers, restaurant chains and
department stores.
43
49
DISTRIBUTION NETWORK
Branch network. We have over 360 branches, of which approximately 290 are
located in the United States, approximately 50 are located in Canada and the
remainder are located in Puerto Rico, Mexico, Guam, the United Kingdom and
Singapore. Over the last three years, we have opened approximately seven
branches per year, principally to service national account customers. In
addition to consolidations in connection with acquisitions, we occasionally
close or consolidate existing branch locations to improve operating efficiency.
Distribution centers. To support our branch network, we have five
distribution centers located in the United States and Canada, including
facilities located near Pittsburgh, Pennsylvania, serving the Northeast and
Midwest United States; near Reno, Nevada, serving the Western United States;
near Memphis, Tennessee, serving the Southeast and Central United States; near
Montreal, Quebec, serving Eastern and Central Canada; and near Vancouver,
British Columbia, serving Western Canada.
Our distribution centers add value for our branches and customers through
the combination of a broad and deep selection of inventory, on-line ordering,
same day shipment and central order handling and fulfillment. Our distribution
center network reduces the lead-time and improves the reliability of our supply
chain, giving us a distinct competitive advantage in customer service.
Additionally, the distribution centers reduce the time and cost of supply chain
activities through automated replenishment and warehouse management systems, and
economies of scale in purchasing, inventory management, administration and
transportation.
SALES ORGANIZATION
General sales force. Our general sales force is based at the local
branches and comprises approximately 2,200 of our employees, almost half of whom
are outside sales representatives and the remainder are inside sales personnel.
Outside sales representatives, who have an average of more than eight years of
experience with us, are paid under a compensation structure which is heavily
weighted towards commissions. They are responsible for making direct customer
calls, performing on-site technical support, generating new customer relations
and developing existing territories. The inside sales force is a key point of
contact for responding to routine customer inquiries such as price and
availability requests and for entering and tracking orders.
National accounts. Our national accounts sales force is comprised of an
experienced group of sales executives who negotiate and administer contracts,
coordinate branch participation and identify sales and service opportunities.
National accounts managers' efforts are aligned by targeted customer industries,
including automotive, pulp and paper, petrochemical, steel, mining and food
processing.
Data communications. Sales of premise cable, connectors, hardware, network
electronics and outside plant products are generated by our general sales force
and a dedicated group of outside and inside data communications sales
representatives. They are supported by a centralized customer service center and
additional resources in product management, purchasing, inventory control and
sales management. We also have a training organization that provides our general
sales force and customers with state-of-the-art, industry certified product and
installation training.
Major projects. Since 1995 our group of experienced sales managers have
targeted, on a national basis, the market for large construction projects with
electrical material valued in excess of $1 million. Through the major projects
group, we can meet the needs of contractors for complex construction projects
such as new sports stadiums, industrial sites, water treatment plants, airport
expansions, healthcare facilities and correctional institutions.
44
50
e-Commerce. We established our initial electronic catalog on the Internet
in 1996. Since that time, we have worked with a variety of large customers to
establish customized electronic catalogs for their use in internal systems.
Additionally, in 1999 we began a process of providing electronic catalogs to
multiple e-commerce service providers, trade exchanges and industry specific
electronic commerce portals. Our e-business strategy is to serve existing
customers by tailoring our catalog and Internet-based procurement applications
to their internal systems or through their preferred technology and trading
exchange partnerships. Additionally, we have entered into several e-business
partnerships with leading technology or marketing oriented e-portals that target
selected market segments and will continue to do so. Through these niche
oriented marketing arrangements, we expect to reach thousands of new customers
who were previously not served through our sales force.
We have initiated "WESCO Direct," a new direct ship fulfillment operation,
responsible for supporting smaller customers and select national account
locations. Customers can order over 35,000 electrical and data communications
products stocked in our warehouses through a centralized customer service center
or over the Internet on WESCOdirect.com. A proactive telesales approach
utilizing catalogs, direct mail, e-mail and personal phone selling is used to
provide a high level of customer service. In support of this initiative, we
recently introduced a lighting catalog and are in the process of completing a
new comprehensive electrical catalog.
INTERNATIONAL OPERATIONS
To serve the Canadian market, we operate a network of approximately 50
branches in nine provinces. Branch operations are supported by two distribution
centers located near Montreal and Vancouver. With sales of approximately US$320
million, Canada represented 8.2% of our total sales in 2000. The Canadian market
for electrical distribution is considerably smaller than the U.S. market, with
roughly US$2.9 billion in total sales in 2000, according to industry sources.
We sell internationally through domestic export sales offices located
within North America and sales offices in international locations. We have
operations in Aberdeen, Scotland and London, England to support our sales
efforts in Europe, Africa and the former Soviet Union, and an office in
Singapore to support our sales in Asia. We also have branch operations in
Mexico.
MANAGEMENT INFORMATION SYSTEMS
Our corporate information system, WESNET, provides processing for a full
range of our business operations, such as customer service, inventory and
logistics management, accounting and administrative support. The system utilizes
decision support, executive information system analysis and retrieval
capabilities to provide extensive operational analysis and detailed income
statement and balance sheet variance and trend reporting at the branch level.
The system also provides activity-based costing capabilities for analyzing
profitability by customer, sales representative and shipment type. Sales and
margin trends and variances can be analyzed by branch, customer, product
category, supplier or account representative.
The WESNET system is fully distributed within WESCO, and every branch
(other than our Bruckner Integrated Supply Division and certain newly acquired
branches) utilizes its own computer system to support local business activities.
All branch operations are linked through a wide area network to centralized
information on inventory status in our distribution centers as well as other
branches and an increasing number of on-line suppliers. Recent advances in
WESNET capabilities make it possible to consolidate administrative and
procurement functions, and bring systematic improvement through new pricing
systems and controls. EESCO, one of our largest acquisitions to-date, was
integrated into the WESNET system during the third quarter of 2000.
45
51
We routinely process customer orders, shipping notices, suppliers' purchase
orders, and funds transfer via EDI transactions with our trading partners. Our
e-commerce strategy calls for more effective linkages to both customers and
suppliers through greater use of technological advances, including Internet and
electronic catalogs, enhanced EDI and other innovative improvements.
Our integrated supply services are supported by our proprietary procurement
and inventory management systems. These systems provide a fully integrated,
flexible supply chain platform that currently handles over 95% of our integrated
supply customers' transactions electronically. Our configuration options for a
customer range from on-line linkages to the customer's business and purchasing
systems, to total replacement of a customer's procurement and inventory
management system for MRO supplies.
COMPETITION
We operate in a highly competitive industry. We compete directly with
national, regional and local providers of electrical and other industrial MRO
supplies. Competition is primarily focused on the local service area, and is
generally based on product line breadth, product availability, service
capabilities and price. Another source of competition is buying groups formed by
smaller distributors to increase purchasing power and provide some cooperative
marketing capability. While increased buying power may improve the competitive
position of buying groups locally, we believe these groups have not been able to
compete effectively with us for national account customers due to the difficulty
in coordinating a diverse ownership group. During 1999 and 2000 numerous special
purpose Internet-based procurement service companies, auction businesses, and
trade exchanges were organized. Many of them targeted industrial MRO and
contractor customers of the type served by WESCO. We responded with our own
e-Commerce capabilities and as of year-end 2000, business losses, if any, to
competitors of this type were minimal. We expect that numerous new competitors
will develop over time as Internet-based enterprises become more established and
refine their service capabilities.
EMPLOYEES
As of December 31, 2000, we had approximately 6,000 employees worldwide, of
which approximately 5,200 were located in the United States and approximately
800 in Canada and our other international locations. Less than 5% of our
employees are represented by unions. We believe our labor relations are
generally good.
PROPERTIES
We have over 360 branches, of which approximately 290 are located in the
United States, approximately 50 are located in Canada and the remainder are
located in Puerto Rico, Mexico, Guam, the United Kingdom and Singapore.
Approximately 30% of branches are owned facilities, and the remainder are
leased.
The following table summarizes our distribution centers:
<Table>
<Caption>
LOCATION SQUARE FEET LEASED/ OWNED
-------- ----------- ----------------
Warrendale, PA.................................... 252,700 Owned and Leased
Sparks, NV........................................ 196,800 Leased
Byhalia, MS....................................... 148,000 Owned
Dorval, QE........................................ 90,000 Leased
Burnaby, BC....................................... 34,300 Owned
</Table>
46
52
We also lease our 76,200 square foot headquarters in Pittsburgh,
Pennsylvania. We do not regard the real property associated with any single
branch location as material to our operations. We believe our facilities are in
good operating condition.
INTELLECTUAL PROPERTY
Our trade and service marks, including "WESCO," "the extra effort
people(R)," and the running man design, are filed in the U.S. Patent and
Trademark Office, the Canadian Trademark Office and the Mexican Instituto de la
Propriedad Industrial.
ENVIRONMENTAL MATTERS
Our facilities and operations are subject to federal, state and local laws
and regulations relating to environmental protection and human health and
safety. Some of these laws and regulations may impose strict, joint and several
liability on certain persons for the cost of investigation or remediation of
contaminated properties. These persons may include former, current or future
owners or operators of properties, and persons who arranged for the disposal of
hazardous substances. Our owned and leased real property may give rise to such
investigation, remediation and monitoring liabilities under environmental laws.
In addition, anyone disposing of certain products we distribute, such as
ballasts, fluorescent lighting and batteries, must comply with environmental
laws that regulate certain materials in these products.
We believe that we are in compliance with all material respects with
applicable environmental laws. As a result, we will not make significant capital
expenditures for environmental control matters either in the current year or in
the near future.
LEGAL PROCEEDINGS
We are party to routine litigation incidental to our business. We do not
believe that any legal proceedings to which we are a party or to which any of
our property is subject will have a material adverse effect on our financial
position or results of operations.
47
53
MANAGEMENT
The executive officers and directors of WESCO International and WESCO and
their respective ages and positions are set forth below.
<Table>
<Caption>
NAME AGE TITLE
---- --- -----
Roy W. Haley................................. 54 Chairman and Chief Executive Officer
William M. Goodwin........................... 55 Vice President, Operations
James H. Mehta............................... 46 Vice President, Business Development
Robert B. Rosenbaum.......................... 43 Vice President, Operations
Patrick M. Swed.............................. 58 Vice President, Operations
Donald H. Thimjon............................ 58 Vice President, Operations
Ronald P. Van, Jr............................ 40 Vice President, Operations
Stephen A. Van Oss........................... 47 Vice President and Chief Financial Officer
Daniel A. Brailer............................ 44 Secretary and Treasurer
Michael J. Cheshire.......................... 52 Director
George L. Miles, Jr.......................... 60 Director
James L. Singleton........................... 45 Director
James A. Stern............................... 50 Director
Robert J. Tarr, Jr........................... 57 Director
Anthony D. Tutrone........................... 37 Director
Kenneth L. Way............................... 62 Director
</Table>
Set forth below is certain biographical information for the executive
officers and directors listed above.
ROY W. HALEY became Chairman of the Board in August 1998. Mr. Haley has
been Chief Executive Officer and a director of WESCO International and WESCO
since February 1994. From 1988 to 1993, Mr. Haley was an executive at American
General Corporation, a diversified financial services company, where he served
as Chief Operating Officer and as President and Director. Mr. Haley is also a
director of United Stationers, Inc. and Cambrex Corporation.
WILLIAM M. GOODWIN has been Vice President, Operations of WESCO since March
1994. Since 1987, Mr. Goodwin has served as a branch, district and region
manager for WESCO in various locations and also served as Managing Director of
WESCOSA, a former Westinghouse affiliated manufacturing and distribution
business in Saudi Arabia.
JAMES H. MEHTA has been Vice President, Business Development of WESCO since
November 1995. From 1993 to 1995, Mr. Mehta was a principal with Schroder
Ventures, a private equity investment firm based in London, England.
ROBERT B. ROSENBAUM has been Vice President, Operations of WESCO since
September 1998. From 1982 until 1998, Mr. Rosenbaum was the President of the
Bruckner Supply Company, Inc., an integrated supply company WESCO acquired in
September 1998.
PATRICK M. SWED has been Vice President, Operations of WESCO since March
1994. Mr. Swed had been Vice President of Branch Operations for WESCO from 1991
to 1994.
DONALD H. THIMJON has been Vice President, Operations of WESCO since March
1994. Mr. Thimjon served as Vice President, Utility Group for WESCO from 1991 to
1994 and as Regional Manager from 1980 to 1991.
48
54
RONALD P. VAN, JR. has been Vice President, Operations of WESCO since
October 1998. Mr. Van was a Vice President and Controller of EESCO, an
electrical distributor WESCO acquired in 1996.
STEPHEN A. VAN OSS has been Vice President and Chief Financial Officer of
WESCO since October 2000. Mr. Van Oss served as Director, Information Systems
for WESCO from 1997 to 2000 and as Director, Acquisition Management in 1997.
From 1995 to 1996, Mr. Van Oss served as Chief Operating Officer and Chief
Financial Officer of Paper Back Recycling of America, Inc. From 1979 to 1995,
Mr. Van Oss held various management positions with Reliance Electric
Corporation.
DANIEL A. BRAILER has been Treasurer and Director of Investor Relations of
WESCO since March 1999. During 1999, Mr. Brailer was also appointed to the
position of Corporate Secretary. From 1982 to 1999, Mr. Brailer held various
positions at Mellon Financial Corporation, most recently as Senior Vice
President.
MICHAEL J. CHESHIRE, a director, is Chairman and Chief Executive Officer of
Gerber Scientific, Inc. Prior to joining Gerber Scientific in 1997, Mr. Cheshire
spent 21 years with the General Signal Corporation and was most recently
president of their electrical group.
GEORGE L. MILES, JR., a director, has been President and Chief Executive
Officer of WQED Pittsburgh since September 1994. Mr. Miles is also a director of
Equitable Resources.
JAMES L. SINGLETON, a director, has been a Vice Chairman of Cypress since
its formation in April 1994. Prior to joining Cypress, he was a Managing
Director in the Merchant Banking Group at Lehman Brothers Inc. Mr. Singleton is
also a director of Cinemark USA, Inc., Club Corp, Inc., Danka Business Systems
PLC, Genesis Health Ventures, Inc., HomeRuns.com, Inc. and L.P. Thebault
Company.
JAMES A. STERN, a director, has been Chairman of Cypress since its
formation in April 1994. Prior to joining Cypress, Mr. Stern was a managing
director with Lehman Brothers Inc. and served as head of the Merchant Banking
Group. During his career at Lehman Brothers, he also served as head of that
firm's Investment Banking, High Yield and Primary Capital Markets Groups. Mr.
Stern is also a director of Amtrol, Inc., Cinemark USA, Inc., Frank's Nursery &
Crafts, Inc. and Lear Corporation, and a trustee of Tufts University.
ROBERT J. TARR, JR., a director, has been the Chairman, Chief Executive
Officer and President of HomeRuns.com, Inc. since February 2000. Prior to
joining HomeRuns.com, he worked for more than 20 years in senior executive roles
for Harcourt General, Inc., including six years as President, Chief Executive
Officer and Chief Operating Officer of Harcourt General, Inc. (formerly General
Cinema Corporation) and The Neiman Marcus Group, Inc. Mr. Tarr is also a
director of the John Hancock Financial Services, Inc., Houghton Mifflin & Co.,
and Barneys New York, Inc.
ANTHONY D. TUTRONE, a director, has been a Managing Director of Cypress
since 1998 and has been a member of Cypress since its formation in April 1994.
Prior to joining Cypress, he was a member of the merchant Banking Group at
Lehman Brothers Inc. Mr. Tutrone is also a director of Amtrol, Inc. and Danka
Business Systems PLC.
KENNETH L. WAY, a director, has been Chairman of Lear Corporation since
1988 and has been affiliated with Lear Corporation and its predecessor companies
for 35 years in engineering, manufacturing and general management capacities.
Mr. Way is also a director of Comerica, Inc. and CMS Energy Corporation.
49
55
SECURITY OWNERSHIP BY CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
All of the issued and outstanding capital stock of WESCO Distribution is
owned by WESCO International. The following table sets forth the beneficial
ownership of WESCO International's common stock as of June 30, 2001 by each
person or group known by us to beneficially own more than five percent of the
outstanding common stock, each director and executive officer and by all
directors and executive officers as a group. Unless otherwise indicated, the
holders of all shares shown in the table have sole voting and investment power
with respect to such shares. In determining the number and percentage of shares
beneficially owned by each person, shares that may be acquired by such person
pursuant to options or convertible stock exercisable or convertible within 60
days of the date hereof are deemed outstanding for purposes of determining the
total number of outstanding shares for such person and are not deemed
outstanding for such purpose for all other stockholders. Except as indicated in
the footnotes to this table, WESCO International believes that the persons named
in the table have sole voting and investment power with respect to all shares
shown as beneficially owned by them.
<Table>
<Caption>
SHARES
BENEFICIALLY PERCENT OWNED
NAME OWNED BENEFICIALLY
---- ------------ -------------
Cypress Merchant Banking Partners L.P.(1).................. 18,580,966 41.5%
c/o The Cypress Group L.L.C.
65 East 55th Street
New York, New York 10222
Cypress Offshore Partners L.P.(1).......................... 962,370 2.1%
Bank of Bermuda (Cayman) Limited
P.O. Box 514 G.T. Third Floor
British America Tower
George Town, Grand Cayman
Cayman Islands, B.W.I.
JPMorgan Partners (BHCA), L.P.(2).......................... 4,653,131 10.4%
c/o JPMorgan Partners, L.L.C.
1221 Avenue of the Americas, 39th Floor
New York, New York 10020
Co-Investment Partners, L.P................................ 4,653,189 10.4%
c/o CIP Partners, LLC
660 Madison Avenue
New York, New York 10021
James L. Singleton(1)...................................... 19,543,336 43.6%
James A. Stern(1).......................................... 19,543,336 43.6%
Roy W. Haley............................................... 2,871,200 6.2%
James H. Mehta............................................. 1,055,428 2.3%
Patrick M. Swed............................................ 673,370 1.5%
Donald H. Thimjon.......................................... 352,580 *
William M. Goodwin......................................... 364,440 *
</Table>
50
56
<Table>
<Caption>
SHARES
BENEFICIALLY PERCENT OWNED
NAME OWNED BENEFICIALLY
---- ------------ -------------
Robert J. Tarr, Jr......................................... 51,120 *
Kenneth L. Way............................................. 50,120 *
Michael J. Cheshire........................................ 23,120 *
George L. Miles, Jr........................................ 1,000 *
Anthony D. Tutrone......................................... -0- *
All executive officers and directors as a group (16)
persons(3)............................................... 27,001,246 56.1%
</Table>
* Indicates ownership of less than 1% of WESCO International common stock.
-------------------------
(1) Cypress Merchant Banking Partners L.P. and Cypress Offshore Partners L.P.
are affiliates of Cypress. The general partner of Cypress Merchant Banking
Partners L.P. and Cypress Offshore Partners L.P. is Cypress Associates L.P.,
and The Cypress Group L.L.C. is the general partner of Cypress Associates
L.P. Messrs. Singleton and Stern are members of Cypress and may be deemed to
share beneficial ownership of the shares of common stock shown as
beneficially owned by such Cypress funds. Such individuals disclaim
beneficial ownership of such shares.
(2) These shares constitute shares of non-voting Class B common stock which are
convertible at any time into common stock at the option of the holder.
(3) Included in this figure are 3,303,829 shares that may be acquired by the
executive officers and directors pursuant to options or convertible stock
exercisable or convertible within 60 days of the date hereof.
51
57
DESCRIPTION OF OTHER INDEBTEDNESS AND RECEIVABLES FACILITY
REVOLVING CREDIT FACILITY
In June 1999, we entered into a revolving credit facility with a consortium
of financial institutions. At June 30, 2001, the revolving credit facility,
which matures in June 2004, consisted of up to $344 million of revolving loans
denominated in U.S. dollars and a Canadian sublimit totaling US$35 million.
Borrowings under the revolving credit facility are collateralized by
substantially all of the assets of WESCO Distribution other than the accounts
receivable sold under the receivables facility and are guaranteed by WESCO
International and certain of its subsidiaries.
Borrowings bear rates of interest equal to various indices, at our option,
plus a borrowing margin. At June 30, 2001, the average interest rate on the
revolving credit facility borrowings was 6.62%. A commitment fee of 30 to 50
basis points per year is due on unused portions of the revolving credit
facility.
Our credit agreement contains 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 our assets;
(v) certain transactions among affiliates; (vi) payments by certain subsidiaries
to us; and (vii) capital expenditures. In addition, the agreements require us to
meet certain leverage, working capital and interest coverage ratios. We were in
compliance with all such covenants at June 30, 2001.
In December 2000, WESCO Distribution amended its revolving credit facility,
which provided additional operating flexibility and increased the maximum amount
allowable under the accounts receivable securitization program to $475 million
from $375 million, and also amended certain financial covenants. Receivables
sold under the accounts receivable securitization program in excess of $375
million will permanently reduce the amount available under the revolving credit
facility on a dollar for dollar basis. In January 2001, as a result of
additional advances under the receivables facility the amount available under
the revolving credit facility decreased from $400 million to the currently
available $379 million due to a temporary $21 million increase in the
receivables facility to $396 million.
On August 3, 2001, WESCO Distribution entered into a further amendment to
its revolving credit facility, which, among other things, affected the pricing
of and amounts available under the revolving credit facility. The LIBOR
borrowing margins applicable to advances under the revolving credit facility,
which previously ranged from 100 to 200 basis points depending upon our leverage
ratio on the date that the rate is calculated, were amended to range from 150 to
250 basis points, again depending upon our leverage ratio. The amendment also
provided for an immediate reduction in the maximum amount available under the
revolving credit facility from approximately $379 million to approximately $285
million, which was further reduced by $0.25 for every dollar of net proceeds
that we received from our sale of the original notes. The amendment further
provides for subsequent quarterly decreases in the maximum amount available
under the facility, as follows:
- beginning January 1, 2002 through July 1, 2002, the maximum amount
available will be reduced by $5 million per quarter;
- from October 1, 2002 through January 1, 2004, the maximum amount
available will be reduced by $12.5 million per quarter; and
- on April 1, 2004, the maximum amount available will be reduced by $10
million.
As a result, after receipt of net proceeds of approximately $86.9 million
from our sale of the notes, the maximum amount available under the revolving
credit facility was approximately
52
58
$263 million as of the time of the original notes issuance and will decrease
over the life of the facility as described above to approximately $163 million
at maturity in 2004.
The amendment also amends certain financial and other covenants, including
our covenants with respect to applicable leverage ratios, interest coverage
ratios and working capital ratios. Additionally, the amendment restricts our
ability to make acquisitions and prohibits WESCO International from repurchasing
shares of its common stock under the share repurchase program. Our ability to
make acquisitions will be subject to our compliance with certain conditions,
including a maximum pro forma leverage ratio at the time of the proposed
acquisition. Furthermore, the amendment provides that the total consideration
(including cash and assumed debt, but excluding equity) paid for any individual
acquisition may not exceed $25 million, and the total consideration (including
cash and assumed debt, but excluding equity) for all acquisitions during the
life of the revolving credit facility may not exceed $50 million.
1998 NOTES
We have outstanding $300 million in aggregate principal amount of our 1998
notes. Our 1998 notes are issued under an indenture dated as of June 5, 1998
among WESCO Distribution, WESCO International, as guarantor, and Bank One, N.A.,
as trustee. Our 1998 notes are limited to $500 million aggregate principal
amount outstanding at any given time. Interest on our 1998 notes accrues at an
annual rate of 9 1/8% and is payable semi-annually on June 1 and December 1 of
each year. The 1998 notes are general unsecured obligations subordinated in
right of payment to all of our existing and future senior indebtedness,
including our revolving credit facility. The indenture governing our 1998 notes
contains covenants identical to those that govern the original notes and the
exchange notes being offered pursuant to this prospectus.
The indenture governing our existing 1998 notes permits the issuance of up
to $200 million aggregate principal amount of additional notes having identical
terms and conditions to the 1998 notes, subject to compliance with the covenants
contained in that indenture.
RECEIVABLES FACILITY
We maintain our receivables facility with several financial institutions
under which we sell, on a continuous basis, to WESCO Receivables Corporation, a
wholly-owned SPC an undivided interest in all eligible accounts receivable. The
SPC sells without recourse to a third party conduit all the receivables while
maintaining a subordinated interest in the form of overcollateralization in a
portion of the receivables. The amount available to us under the receivables
facility fluctuates on a monthly basis depending upon the amount of eligible
receivables that we have from time to time. As of June 30, 2001, we had $396
million of maximum allowable advances under the receivables facility, against
which we had $375 million outstanding and as of August 31, 2001, we had $355
million outstanding. As described above, advances in excess of $396 million
under the receivables facility will permanently reduce amounts available to us
under our revolving credit facility on a dollar-for-dollar basis.
53
59
THE EXCHANGE OFFER
GENERAL
We are offering, upon the terms and subject to the conditions set forth in
this prospectus and in the letter of transmittal (which together constitute the
exchange offer), to exchange an aggregate of up to $100,000,000 principal amount
of our exchange notes for an equal principal amount of original notes properly
tendered on or prior to the expiration date and not withdrawn as permitted
pursuant to the procedures described below. The exchange notes will be
unconditionally guaranteed by WESCO International (the "WESCO International
Guarantee") on a senior subordinated basis. The exchange offer is being made
with respect to all of the original notes.
As of the date of this prospectus, $100,000,000 aggregate principal amount
of original notes is outstanding. This prospectus and the letter of transmittal
are first being sent on or about , 2001, to all holders of original
notes known to us. Our obligation to accept original notes for exchange pursuant
to the exchange offer is subject to certain conditions set forth under "Certain
Conditions to the Exchange Offer" below. We currently expect that each of the
conditions will be satisfied and that no waivers will be necessary.
PURPOSE OF THE EXCHANGE OFFER
The original notes were issued on August 23, 2001 in reliance on certain
exemptions from the registration requirements of the Securities Act.
Accordingly, the original notes may not be reoffered, resold, or otherwise
transferred unless so registered or unless an applicable exemption from the
registration and prospectus delivery requirements of the Securities Act is
available.
In connection with the issuance and sale of the original notes, we and
WESCO International entered into an exchange and registration rights agreement,
which requires us to file with the SEC a registration statement relating to the
exchange offer within 90 days after the date of issuance of the original notes
and to use our reasonable best efforts to cause the registration statement
relating to the exchange offer to become effective under the Securities Act not
later than 180 days after the date of issuance of the original notes. In
addition, the exchange and registration rights agreement provides for certain
remedies if the exchange offer is not consummated or a shelf registration
statement with respect to original notes is not made effective within the time
periods specified therein. See "Exchange and Registration Rights Agreement."
We are making the exchange offer to satisfy our obligations under the
exchange and registration rights agreement. The term "holder," with respect to
the exchange offer, means any person in whose name original notes are registered
on the books of the Company or any other person who has obtained a properly
completed bond power from the registered holder, or any person whose original
notes are held of record by the Depository Trust Company or its nominee. Other
than pursuant to the exchange and registration rights agreement, we and WESCO
International are not required to file any registration statement to register
any outstanding original notes. Holders of original notes who do not tender
their original notes or whose original notes are tendered but not accepted would
have to rely on exceptions to the registration requirements under the securities
laws, including the Securities Act, if they wish to sell their original notes.
We are making the exchange offer in reliance on the position of the Staff
of the SEC as set forth in certain interpretive letters addressed to third
parties in other transactions. However, we have not sought our own interpretive
letter and there can be no assurance that the Staff would make a similar
determination with respect to the exchange offer as it has in such interpretive
letters to third parties. Based on these interpretations by the Staff, we
believe that
54
60
the exchange notes issued pursuant to the exchange offer in exchange for
original notes may be offered for resale, resold and otherwise transferred by a
holder (other than any holder who is a broker-dealer or an "affiliate" of us or
of WESCO International within the meaning of Rule 405 of the Securities Act)
without further compliance with the registration and prospectus delivery
requirement of the Securities Act, provided that such outstanding exchange notes
are acquired in the ordinary course of such holder's business and that such
holder is not participating, and has no arrangement or understanding with any
person to participate, in a distribution (within the meaning of the Securities
Act) of such exchange notes. See "- Resale of Exchange Notes." Each
broker-dealer that receives exchange notes for its own account in exchange for
original notes, where such original notes were acquired by such broker-dealer as
a result of market-making activities or other trading activities must
acknowledge that it will deliver a prospectus in connection with any resale of
such exchange notes. See "Plan of Distribution."
TERMS OF THE EXCHANGE
We are offering, subject to the conditions set forth herein and in the
applicable letter of transmittal accompanying this prospectus, to exchange
$1,000 principal amount of exchange notes for each $1,000 principal amount of
our issued and outstanding original notes properly tendered on or prior to the
expiration date and not withdrawn as permitted pursuant to the procedures
described below. The terms of the exchange notes are identical in all material
respects to the terms of the original notes for which they may be exchanged
pursuant to the exchange offer, except that the exchange notes will generally be
freely transferable by holders thereof and will not be subject to any covenant
regarding registration. The exchange notes will evidence the same indebtedness
as the original notes and will be entitled to the benefits of the indenture. See
"Description of the Notes."
The exchange offer is not conditioned upon any minimum aggregate principal
amount of original notes being tendered for exchange.
We have not requested, and do not intend to request, an interpretation by
the Staff of the SEC with respect to whether the exchange notes issued pursuant
to the exchange offer in exchange for the original notes may be offered for
sale, resold or otherwise transferred by any holder without compliance with the
registration and prospectus delivery provisions of the Securities Act. Instead,
based on an interpretation by the Staff of the SEC set forth in a series of
no-action letters issued to third parties, we believe that exchange notes issued
pursuant to the exchange offer in exchange for original notes may be offered for
sale, resold and otherwise transferred by any holder of such exchange notes
(other than any such holder that is a broker-dealer or is an "affiliate" of us
or of WESCO International within the meaning of Rule 405 under the Securities
Act) without compliance with the registration and prospectus delivery provisions
of the Securities Act, provided that such exchange notes are acquired in the
ordinary course of such holder's business and such holder has no arrangement or
understanding with any person to participate in the distribution of such
exchange notes and neither such holder nor any other such person is engaging in
or intends to engage in a distribution of such exchange notes. Since the SEC has
not considered the exchange offer in the context of a no-action letter, there
can be no assurance that the Staff of the SEC would make a similar determination
with respect to the exchange offer. Any holder who is an affiliate of us or of
WESCO International or who tenders in the exchange offer for the purpose of
participating in the distribution of the exchange original notes cannot rely on
such interpretation by the Staff of the SEC and must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any resale transaction. Each holder, other than a broker-
dealer, must acknowledge that it is not engaged in, and does not intend to
engage in, a distribution of exchange notes. Each broker-dealer that receives
exchange notes for its own account in exchange for original notes, where such
original notes were acquired by such
55
61
broker-dealer as a result of market-making activities or other trading
activities, must acknowledge that it will deliver a prospectus in connection
with any resale of such exchange notes. A broker-dealer may not participate in
the exchange offer with respect to original notes acquired other than as a
result of market-making activities or other trading activities. See "Plan of
Distribution."
Interest on the exchange notes will accrue from the last interest payment
date on which interest was paid on the original notes so surrendered or, if no
interest has been paid on such notes, from August 23, 2001.
Tendering holders of the original notes will not be required to pay
brokerage commissions or fees or, subject to the instructions in the letter of
transmittal, transfer taxes with respect to the exchange of the original notes
pursuant to the exchange offer.
EXPIRATION DATE; EXTENSION; TERMINATION; AMENDMENT
The exchange offer will expire at 5:00 p.m., New York City time, on
, 2001 (the expiration date"), unless the exchange offer is
extended, in which case the term "expiration date" means the latest date and
time to which the exchange offer is extended. The expiration date will be at
least 20 business days after the commencement of the exchange offer in
accordance with Rule 14e-1(a) under the Exchange Act. We expressly reserve the
right, at any time or from time to time, to extend the period of time during
which the exchange offer is open, and thereby delay acceptance for exchange of
any original note by giving oral or written notice to the exchange agent and by
timely public announcement no later than 9:00 a.m. New York City time, on the
next business day after the expiration date previously in effect. During any
such extension, all original notes previously tendered will remain subject to
the exchange offer unless properly withdrawn. We do not anticipate extending the
expiration date.
We expressly reserve the right to (i) terminate or amend the exchange offer
and not to accept for exchange any original notes not theretofore accepted for
exchange upon the occurrence of any of the events specified below under "Certain
Conditions to the Exchange Offer" which have not been waived by us and (ii)
amend the terms of the exchange offer in any manner which, in our good faith
judgment, is advantageous to the holders of the original notes, whether before
or after any tender of original notes. If any such termination or amendment
occurs, we will notify the exchange agent and will either issue a press release
or give oral or written notice to the holders of the original notes as promptly
as practicable.
For purposes of the exchange offer, a "business day" means any day other
than Saturday, Sunday or a date on which banking institutions are required or
authorized by New York State law to be closed, and consists of the time period
from 12:01 a.m. through 12:00 midnight, New York City time. Unless we terminate
the exchange offer prior to 5:00 p.m., New York City time, on the expiration
date, we will exchange the exchange notes for original notes on the exchange
date.
PROCEDURES FOR TENDERING ORIGINAL NOTES
The tender of original notes by the holder as set forth below and the
acceptance thereof by us will constitute a binding agreement between the
tendering holder and us upon the terms and subject to the conditions set forth
in this prospectus and in the letter of transmittal.
A holder of original notes may tender the same by (i) properly completing
and signing the letter of transmittal or a facsimile thereof (all references in
this prospectus to a letter of transmittal shall be deemed to include a
facsimile thereof) and delivering the same, together with the certificate or
certificates representing the original notes being tendered and any required
signature guarantees and any other documents required by the letter of
transmittal, to the exchange agent at its address set forth below on or prior to
the expiration date (or
56
62
complying with the procedure for book-entry transfers described below) or (ii)
complying with the guaranteed delivery procedures described below.
The method of delivery of original notes, letters of transmittal and all
other required documents is at the election and risk of the holders. If such
delivery is by mail, it is recommended that registered mail properly insured,
with return receipt requested, be used. In all cases, sufficient time should be
allowed to insure timely delivery. No original notes or letters of transmittal
should be sent to us.
If tendered, original notes are registered in the name of the signer of the
letter of transmittal and the exchange notes to be issued in exchange therefore
are to be issued (and any untendered notes are to be reissued) in the name of
the registered holder (which term, for the purposes described herein, shall
include any participant in The Depository Trust Company (also referred to as a
"book-entry transfer facility") whose name appears on a security listing as the
owner of original notes), the signature of such signer need not be guaranteed.
In any other case, the tendered original notes must be endorsed or accompanied
by written instruments of transfer in form satisfactory to us and duly executed
by the registered holder, and the signature on the endorsement or instrument of
transfer must be guaranteed by a bank, broker, dealer, credit union, savings
association, clearing agency or other institution (each an "eligible
institution") that is a member of a recognized signature guarantee medallion
program within the meaning of Rule 17Ad-15 under the Exchange Act. In addition,
if the exchange notes and/or original notes not exchanged are to be delivered to
an address other than that of the registered holder appearing on the note
register for such original notes, the signature on the letter of transmittal
must be guaranteed by and eligible institution.
The exchange agent will make a request within two business days after the
date of receipt of this prospectus to establish accounts with respect to the
original notes at the book-entry transfer facility for the purpose of
facilitating the exchange offer, and subject to the establishment thereof, any
financial institution that is a participant in the book-entry transfer
facility's system may make book-entry delivery of original notes by causing such
book-entry transfer facility to transfer such original notes into the exchange
agent's account with respect to the original notes in accordance with the
book-entry transfer facility's procedures for such transfer. Although delivery
of original notes may be effected through book-entry transfer into the exchange
agent's account at the book-entry transfer facility, a letter of transmittal
with any required signature guarantee and all other required documents must in
each case be transmitted to and received or confirmed by the exchange agent at
its address set forth below on or prior to the expiration date, or, if the
guaranteed delivery procedures described below are complied with, within the
time period provided under such procedures.
If a holder desires to accept the exchange offer and time will not permit
the letter of transmittal or original notes to reach the exchange agent before
the expiration date or the procedure for book-entry transfer cannot be completed
on a timely basis, a tender may be effected if the exchange agent has received
at its address set forth below on or prior to the expiration date, a letter,
telegram or facsimile transmission (receipt confirmed by telephone and an
original delivered by guaranteed overnight courier) from an eligible institution
setting forth the name and address of the tendering holder, the names in which
the original notes are registered and, if possible, the certificate numbers of
the original notes to be tendered, and stating that the tender is being made
thereby and guaranteeing that within three business days after the expiration
date, the original notes in proper form for transfer (or a confirmation of
book-entry transfer of such original notes into the exchange agent's account at
the book-entry transfer facility), will be delivered by such eligible
institution together with a properly completed and duly executed letter of
transmittal (and any other required documents). Unless original notes being
tendered by the above-described method are deposited with the exchange agent
with the time period set forth above (accompanied or preceded by a properly
completed letter of transmittal and any other required documents), we may, at
our option, reject the
57
63
tender. Copies of the forms of notice of guaranteed delivery ("notice of
guaranteed delivery") relating to the original notes which may be used by
eligible institutions for the purposes described in this paragraph are available
from the exchange agent.
A tender will be deemed to have been received as of the date when (i) the
tendering holder's properly completed and duly signed letter of transmittal
accompanied by the original notes (or a confirmation of book-entry transfer of
such original notes into the exchange agent's account at the book-entry transfer
facility) is received by the exchange agent, or (ii) the notice of guaranteed
delivery or letter, telegram or facsimile transmissions to similar effect (as
provided above) from an eligible institution is received by the exchange agent.
Issuances of exchange notes in exchange for original notes tendered pursuant to
a notice of guaranteed delivery or letter, telegram or facsimile transmission to
similar effect (as provided above) by an eligible institution will be made only
against deposit of the letter of transmittal (and any other required documents)
and the tendered original notes.
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance of original notes tendered for exchange will be
determined by us in our sole discretion, which determination shall be final and
binding. We reserve the absolute right to reject any and all tenders of any
particular original notes not properly tendered or not to accept any particular
original notes which acceptance might, in the judgment of us or our counsel, be
unlawful. We also reserve the absolute right to waive any defects or
irregularities or conditions of the exchange offer as to any particular original
notes either before or after the expiration date (including the right to waive
the ineligibility of any holder who seeks to tender original notes in the
exchange offer). Our interpretation of the terms and conditions of the exchange
offer (including the letter of transmittal and the instructions thereto) shall
be final and binding on all parties. Unless waived, any defects or
irregularities in connection with tenders of original notes for exchange must be
cured within such reasonable period of time as we shall determine. Neither we,
the exchange agent nor any other person shall be under any duty to give
notification of any defect or irregularity with respect to any tender of
original notes for exchange, nor shall any of them incur any liability for
failure to give such notification.
If a letter of transmittal is signed by a person or persons other than the
registered holder or holders of original notes, such original notes must be
endorsed or accompanied by appropriate powers of attorney, in either case signed
exactly as the name or names of the registered holder or holders appear on the
original notes.
If a letter of transmittal or any original notes or powers of attorney are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity, such person should so indicate when signing, and unless waived by us,
proper evidence satisfactory to us of its authority to so act must be submitted.
By tendering, each holder will represent to us that, among other things,
the exchange notes acquired pursuant to the exchange offer are being acquired in
the ordinary course of business of the person receiving such exchange notes,
whether or not such person is the holder, that neither the holder nor any such
other person has an arrangement or understanding with any person to participate
in the distribution of such exchange notes and that neither the holder nor any
such other person is an "affiliate," as defined under Rule 405 of the Securities
Act, of us or of WESCO International, or if it is an affiliate it will comply
with the registration and prospectus requirements of the Securities Act to the
extent applicable.
Each broker-dealer that receives exchange notes for its own account in
exchange for original notes where such original notes were acquired by such
broker-dealer as a result of market-making activities or other trading
activities must acknowledge that it will deliver a prospectus in connection with
any resale of such exchange notes. See "Plan of Distribution."
58
64
TERMS AND CONDITIONS OF THE LETTER OF TRANSMITTAL
The letter of transmittal contains, among other things, the following terms
and conditions, which are part of the exchange offer.
The party tendering notes for exchange (the "transferor") exchanges assigns
and transfers the original notes to us and irrevocably constitutes and appoints
the exchange agent as the transferor's agent and attorney-in-fact to cause the
original notes to be assigned, transferred and exchanged. The transferor
represents and warrants that it has full power and authority to tender,
exchange, assign and transfer the original notes and to acquire exchange notes
issuable upon the exchange of such tendered notes, and that, when the same are
accepted for exchange, we will acquire good and unencumbered title to the
tendered notes, free and clear of all liens, restrictions, charges and
encumbrances and not subject to any adverse claim. The transferor also warrants
that it will, upon request, execute and deliver any additional documents deemed
by the exchange agent or us to be necessary or desirable to complete the
exchange, assignment and transfer of tendered notes or transfer ownership of
such original notes on the account books maintained by a book-entry transfer
facility. The transferor further agrees that acceptance of any tendered original
notes by us and the issuance of exchange notes in exchange therefore shall
constitute performance in full by us of certain of our obligations under the
exchange and registration rights agreement. All authority conferred by the
transferor will survive the death or incapacity of the transferor and every
obligation of the transferor shall be binding upon the heirs, legal
representatives, successors, assigns, executors and administrators of such
transferor.
The transferor certifies that it is not an "affiliate" of us or of WESCO
International within the meaning of Rule 405 under the Securities Act and that
it is acquiring the exchange notes offered hereby in the ordinary course of such
transferor's business and that such transferor has no arrangement with any
person to participate in the distribution of such exchange notes. Each holder,
other than a broker-dealer, must acknowledge that it is not engaged in, and does
not intend to engage in, a distribution of exchange notes. Each transferor which
is a broker-dealer receiving exchange notes for its own account must acknowledge
that it will deliver a prospectus in connection with any resale of such exchange
notes. By so acknowledging and by delivering a prospectus, a broker-dealer will
not be deemed to admit that it is an "underwriter" within the meaning of the
Securities Act. This prospectus, as it may be amended or supplemented from time
to time, may be used by a broker-dealer in connection with resales of exchange
notes received in exchange for original notes where such original notes were
acquired by such broker-dealers as a result of market-making activities or other
trading activities. We will, for a period of 180 days following the consummation
of the exchange offer, make copies of this prospectus available to any
broker-dealer for use in connection with any such resale.
WITHDRAWAL RIGHTS
Tenders of original notes may be withdrawn at any time prior to the
expiration date.
For a withdrawal to be effective, a written notice of withdrawal sent by
telegram, facsimile transmission (receipt confirmed by telephone) or letter must
be received by the exchange agent at the address set forth herein prior to the
expiration date. Any such notice of withdrawal must (i) specify the name of the
person having tendered the original notes to be withdrawn (the "depositor"),
(ii) identify the original notes to be withdrawn (including the certificate
number or numbers and principal amount of such original notes), (iii) specify
the principal amount of original notes to be withdrawn, (iv) include a statement
that such holder is withdrawing his election to have such original notes
exchanged, (v) be signed by the holder, in the same manner as the original
signature on the letter of transmittal by which such original notes were
tendered or as otherwise described above (including any required signature
59
65
guarantees) or be accompanies by documents of transfer sufficient to have the
trustee under the indenture register the transfer of such original notes into
the name of the person withdrawing the tender and (vi) specify the name in which
any such original notes are to be registered, if different from that of the
depositor. The exchange agent will return the properly withdrawn original notes
promptly following receipt of notice of withdrawal.
If original notes have been tendered pursuant to the procedure for
book-entry transfer, any notice of withdrawal must specify the name and number
of the account at the book-entry transfer facility to be credited with the
withdrawn original notes or otherwise comply with the book-entry transfer
facility. All questions as to the validity of notices of withdrawals, including
time of receipt, will be determined by us and such determination will be final
and binding on all parties.
Any original notes so withdrawn will be deemed not to have been validly
tendered for exchange for purposes of the exchange offer. Any original notes
which have been tendered for exchange but which are not exchanged for any reason
will be returned to the holder thereof without cost to such holder (or, in the
case of original notes tendered by book-entry transfer into the exchange agent's
account at the book-entry transfer facility pursuant to the book-entry transfer
procedures described above, such original notes will be credited to an account
with such book-entry transfer facility specified by the holder) as soon as
practicable after withdrawal, rejection of tender or termination of the exchange
offer. Properly withdrawn original notes may be retendered by following one of
the procedures described under "-- Procedures for Tendering Original Notes"
above at any time on or prior to the expiration date.
ACCEPTANCE OF ORIGINAL NOTES FOR EXCHANGE; DELIVERY OF EXCHANGE NOTES
Upon satisfaction or waiver of all of the conditions to the exchange offer,
we will accept, promptly on the exchange date, all original notes properly
tendered and will issue the exchange notes promptly after such acceptance. See
"-- Certain Conditions to the Exchange Offer" below. For purposes of the
exchange offer, we shall be deemed to have accepted properly tendered original
notes for exchange when, as and if we have given oral or written notice thereof
to the exchange agent.
For each original note accepted for exchange, the holder of such original
note will receive an exchange note having a principal amount equal to that of
the surrendered note.
In all cases, issuance of exchange notes for original notes that are
accepted for exchange pursuant to the exchange offer will be made only after
timely receipt by the exchange agent of certificates for such original notes or
a timely book-entry confirmation of such original notes into the exchange
agent's account at the book-entry transfer facility, a properly completed and
duly executed letter of transmittal and all other required documents. If any
tendered original notes are not accepted for any reason set forth in the terms
and conditions of the exchange offer or if original notes are submitted for a
greater principal amount than the holder desires to exchange, such unaccepted or
non-exchanged original notes will be returned without expense to the tendering
holder thereof (or, in the case of original notes tendered by book-entry
transfer into the exchange agent's account at the book-entry transfer facility
pursuant to the book-entry transfer procedures described above, such
non-exchanged original notes will be credited to an account maintained with such
book-entry transfer facility specified by holder) as promptly as practicable
after the expiration of the exchange offer.
CERTAIN CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other provision of the exchange offer, or any extension
of the exchange offer, we shall not be required to accept for exchange, or to
issue exchange notes in exchange for, original notes and may terminate or amend
the exchange offer (by oral or
60
66
written notice to the exchange agent or by a timely press release) if at any
time before the acceptance of such original notes for exchange or the exchange
of the exchange offer for such original notes, any of the following conditions
exist:
(a) any action or proceeding is instituted or threatened in any court or by
or before any governmental agency or regulatory authority or any injunction,
order or decree is issued with respect to the exchange offer which, in our sole
judgment, might materially impair our ability to proceed with the exchange offer
or have a material adverse effect on the contemplated benefits of the exchange
offer to us; or
(b) any change (or any development involving a prospective change) shall
have occurred or be threatened in our business, properties, assets, liabilities,
financial condition, operations, results of operations or prospects that, in our
sole judgment, is or may be adverse to us, or we shall have become aware of
facts that have or may have adverse significance with respect to the value of
the original notes or the exchange notes or that may, in our sole judgment,
materially impair the contemplated benefits of the exchange offer to us; or
(c) any law, rule or regulation or applicable interpretations of the Staff
of the SEC is issued or promulgated which, in our good faith determination, does
not permit us to effect the exchange offer; or
(d) any governmental approval has not been obtained, which approval we, in
our sole discretion, deem necessary for the consummation of the exchange offer;
or
(e) there shall have been proposed, adopted or enacted any law, statute,
rule or regulation (or an amendment to any existing law, statute, rule or
regulation) which, in our sole judgment, might materially impair our ability to
proceed with the exchange offer to have a material adverse effect on the
contemplated benefits of the exchange offer to us; or
(f) there shall occur a change in the current interpretation by the Staff
of the SEC which permits the exchange notes issued pursuant to the exchange
offer in exchange for original notes to be offered for resale, resold and
otherwise transferred by holders thereof (other than any such holder that is an
"affiliate" of us or of WESCO International within the meaning of Rule 405 under
the Securities Act) without compliance with the registration and prospectus
delivery provisions of the Securities Act provided that such exchange notes are
acquired in the ordinary course of such holder's business and such holders have
no arrangement with any person to participate in the distribution of such
exchange offer; or
(g) there shall have occurred
- any general suspension of, shortening of hours for, or limitation on
prices for, trading in securities on any national securities exchange or
in the over-the-counter market (whether or not mandatory);
- any limitation by any governmental agency or authority which may
adversely affect our ability to complete the transactions contemplated by
the exchange offer;
- a declaration of a banking moratorium or any suspension of payments in
respect of banks by Federal or state authorities in the United States
(whether or not mandatory);
- a commencement of a war, armed hostilities or other international or
national crisis directly or indirectly involving the United States;
- any limitation (whether or not mandatory) by any governmental authority
on, or other event having a reasonable likelihood of affecting the
extension of credit by banks or other lending institutions in the United
States; or
- in the case of any of the foregoing existing at the time of the
commencement of the exchange offer, a material acceleration or worsening
thereof.
61
67
We expressly reserve the right to terminate the exchange offer and not
accept for exchange any of the original notes upon the occurrence of any of the
foregoing conditions (which represent all of the material conditions to our
acceptance of the original notes which are properly tendered). In addition, we
may amend the exchange offer at any time prior to the expiration date if any of
the conditions set forth above occurs. Moreover, regardless of whether any of
such conditions has occurred, we may amend the exchange offer in any manner
which, in our good faith judgment, is advantageous to holders of the original
notes.
The foregoing conditions are for our sole benefit and may be asserted by us
regardless of the circumstances giving rise to any such condition or may be
waived by us in whole or in part at any time and from time to time in our sole
discretion. Our failure at any time to exercise any of the foregoing rights
shall not be deemed a waiver of any such right and each such right shall be
deemed an ongoing right which may be asserted at any time and from time to time.
If we waive or amend the foregoing conditions, it will, if required by law,
extend the exchange offer for a minimum of five business days from the date that
we first give notice, by public announcement or otherwise, of such waiver or
amendment, if the exchange offer would otherwise expire within such five
business-day period. Any determination by us concerning the events described
above will be final and binding upon all parties.
In addition, we will not accept for exchange any original notes tendered,
and no exchange notes will be issued in exchange for any such original notes, if
at such time any stop order shall be threatened or in effect with respect to the
registration statement of which this prospectus constitutes a part or the
qualification of the indenture under the Trust Indenture Act of 1939, as
amended. In any such event, we are required to use every reasonable effort to
obtain the withdrawal of any stop order at the earliest possible time.
The exchange offer is not conditioned upon any minimum principal amount of
original notes being tendered for exchange.
EXCHANGE AGENT
Bank One, N.A. has been appointed as the exchange agent for the exchange
offer. All executed letters of transmittal related to the exchange offer should
be directed to the exchange agent at one of the addresses set forth in the
letter of transmittal.
Questions and requests for assistance, requests for additional copies of
this prospectus or of the letter of transmittal related to the original notes
and requests for notices of guaranteed delivery related to the original notes
should be directed to the exchange agent at the address and telephone number set
forth in the letter of transmittal.
DELIVERY TO AN ADDRESS OTHER THAN AS SET FORTH ON THE LETTER OF TRANSMITTAL, OR
TRANSMISSION OF INSTRUCTIONS VIA A FACSIMILE NUMBER OTHER THAN THE ONE SET FORTH
ON THE LETTER OF TRANSMITTAL, WILL NOT CONSTITUTE A VALID DELIVERY.
SOLICITATION OF TENDERS; FEES AND EXPENSES
We have not retained any dealer-manager in connection with the exchange
offer and will not make any payments to broker-dealers or others soliciting
acceptances of the exchange offer. We, however, will pay the exchange agent
reasonable and customary fees for its services and will reimburse it for its
reasonable out-of-pocket expenses in connection therewith. We will also pay
brokerage houses and other custodians, nominees and fiduciaries the reasonable
out-of-pocket expenses incurred by them in forwarding copies of this and other
related documents to the beneficial owners of the original notes and in handling
or forwarding tenders for their customers.
The estimated cash expenses to be incurred in connection with the exchange
offer will be paid by us and are estimated in the aggregate to be approximately
$100,000, including fees
62
68
and expenses of the exchange agent or the trustee, registration fees, and
accounting, legal, printing and related fees and expenses.
No person has been authorized to give any information or to make any
representations in connection with the exchange offer other than those contained
in this prospectus. If given or made, such information or representations should
not be relied upon as having been authorized by us. Neither the delivery of this
prospectus nor any exchange made hereunder shall, under any circumstances,
create any implication that there has been no change in our affairs since the
respective dates as of which information is given herein. The exchange offer is
not being made to (nor will tenders be accepted from or on behalf of) holders of
original notes in any jurisdiction in which the making of the exchange offer or
the acceptance thereof would not be in compliance with the laws of such
jurisdiction. However, we may, at our discretion, take such action as we may
deem necessary to make the exchange offer in any such jurisdiction and extend
the exchange offer to holders of original notes in such jurisdiction. In any
jurisdiction in which the securities or "blue sky" laws require the exchange
offer to be made by a licensed broker or dealer, the exchange offer is being
made on behalf of us by one or more registered brokers or dealers which are
licensed under the laws of such jurisdiction.
TRANSFER TAXES
We will pay all transfer taxes, if any, to the exchange of original notes
pursuant to the exchange offer. If, however, certificates representing exchange
notes or original notes for principal amounts not tendered or accepted for
exchange are to be delivered to, or are to be issued in the name of, any person
other than the registered holder of the original notes tendered, or if tendered
original notes are registered in the name of any person other than the person
signing the letter of transmittal, or if a transfer tax is imposed for any
reason other than the exchange of original notes pursuant to the exchange offer,
then the amount of any such transfer taxes (whether imposed on the registered
holder or any other persons) will be payable by the tendering holder. If
satisfactory evidence of payment of such taxes or exemption therefrom is not
submitted with the letter of transmittal, the amount of such transfer taxes will
be billed directly to such tendering holder.
CONSEQUENCES OF FAILURE TO EXCHANGE
Holders of original notes who do not exchange their original notes for
exchange notes pursuant to the exchange offer will continue to be subject to the
restrictions on transfer of such original notes as set forth in the legend
thereon. Original notes not exchanged pursuant to the exchange offer will
continue to remain outstanding in accordance with their terms. In general, the
original notes may not be offered or sold unless registered under the Securities
Act, except pursuant to an exemption from, or in a transfer not subject to, the
Securities Act and applicable state securities laws. We do not currently
anticipate that we will register the original notes under the Securities Act.
Participation in the exchange offer is voluntary, and holders of original
notes should carefully consider whether to participate. Holders of original
notes are urged to consult their financial and tax advisors in making their own
decision on what action to take.
As a result of the making of, and upon acceptance for exchange of all
validly tendered original notes pursuant to the terms of, the exchange offer, we
will have fulfilled an obligation under the exchange and registration rights
agreement. Holders of original notes who do not tender their original notes in
the exchange offer will continue to hold such original notes and will be
entitled to all the rights and limitations applicable thereto under the
indenture, except for any such rights under the exchange and registration rights
agreement that by their terms terminate or cease to have further effectiveness
as a result of the making of the exchange offer. All untendered original notes
will continue to be subject to the restrictions on transfer
63
69
set forth in the indenture. To the extent that original notes are tendered and
accepted in the exchange offer, the trading market for untendered original notes
could be adversely affected.
We may in the future seek to acquire, subject to the terms of the
indenture, untendered original notes in open-market or privately-negotiated
transactions, through subsequent exchange offers or otherwise. We have no
present plan to acquire any original notes which are not tendered in the
exchange offer.
RESALE OF EXCHANGE NOTES
We are making the exchange offer in reliance on the position of the Staff
of the SEC as set forth in certain interpretive letters addressed to third
parties in other transactions. However, we have not sought our own interpretive
letter and there can be no assurance that the Staff would make a similar
determination with respect to the exchange offer as it has in such interpretive
letters to third parties. Based on these interpretations by the Staff, we
believe that the exchange notes issued pursuant to the exchange offer in
exchange for original notes may be offered for resale, resold and otherwise
transferred by a holder (other than any holder who is a broker-dealer or an
"affiliate" of us or of WESCO International within the meaning of Rule 405 of
the Securities Act) without further compliance with the registration and
prospectus delivery requirements of the Securities Act, provided that such
exchange notes are acquired in the ordinary course of such holder's business and
that such holder is not participating, and has no arrangement or understanding
with any person to participate, in a distribution (within the meaning of the
Securities Act) of such exchange notes. However, any holder who is an
"affiliate" of us or of WESCO International who has an arrangement or
understanding with respect to the distribution of the exchange notes to be
acquired pursuant to the exchange offer, or any broker-dealer who purchased
original notes from us to resell pursuant to Rule 144A or any other available
exemption under the Securities Act (i) could not rely on the applicable
interpretations of the Staff and (ii) must comply with the registration and
prospectus delivery requirements of the Securities Act. A broker-dealer who
holds original notes that were acquired for its own account as a result of
market-making or other trading activities may be deemed to be an "underwriter"
within the meaning of the Securities Act and must, therefore, deliver a
prospectus meeting the requirements of the Securities Act in connection with any
resale of exchange notes. Each such broker-dealer that receives exchange notes
for its own account in exchange for original notes, where such original notes
were acquired by such broker-dealer as a result of market-making activities or
other trading activities, must acknowledge in the letter of transmittal that it
will deliver a prospectus in connection with any resale of such exchange notes.
Upon such notification by a broker-dealer, we have agreed to make this
prospectus, as amended or supplemented, available to any such broker-dealer for
use in connection with any such resales for 180 days following the consummation
of the exchange offer. See "Plan of Distribution."
In addition, to comply with the securities laws of certain jurisdictions,
if applicable, the exchange notes may not be offered or sold unless they have
been registered or qualified for sale in such jurisdiction or an exemption from
registration or qualification is available and is complied with. We have agreed,
pursuant to the exchange and registration rights agreement and subject to
certain specified limitations therein, to register or qualify the exchange notes
for offer or sale under the securities or blue sky laws of such jurisdictions as
any holder of the exchange notes reasonably requests. Such registration or
qualification may require the imposition of restrictions or conditions
(including suitability requirements for offerees or purchasers) in connection
with the offer or sale of any exchange notes.
64
70
DESCRIPTION OF THE NOTES
GENERAL
The original notes were issued, and the exchange notes will be issued under
an indenture dated as of August 23, 2001, among WESCO Distribution, WESCO
International, as guarantor, and Bank One, N.A., as trustee (the "Indenture"),
which has been filed as an exhibit to the registration statement of which this
prospectus is part. Upon the effectiveness of this registration statement
relating to the exchange offer, the Indenture will be subject to and governed by
the TIA. The following summary of certain provisions of the Indenture does not
purport to be complete and is qualified in its entirety by reference to the
Indenture, including the definitions therein of certain terms used below.
Capitalized terms used herein and not otherwise defined have the meanings set
forth below under "-- Certain Definitions." For purposes of this "Description of
the Notes," the term WESCO Distribution refers only to WESCO Distribution, Inc.
and not to any of its Subsidiaries.
On August 23, 2001, we issued $100 million aggregate principal amount of
original notes under the Indenture. The terms of the exchange notes are
identical in all material respects to the original notes, except for certain
transfer restrictions and registration and other rights relating to the exchange
of the original notes for exchange notes. The trustee will authenticate and
deliver exchange notes for original issue only in exchange for a like principal
amount of original notes. Any original notes that remain outstanding after the
consummation of the exchange offer, together with the exchange notes, will be
treated as a single class of securities under the Indenture. Accordingly, all
references herein to specified percentages in aggregate principal amount of the
outstanding original notes shall be deemed to mean, at any time after the
exchange offer is consummated, such percentage in aggregate principal amount of
the original notes and exchange notes then outstanding.
Subject to the covenant described below under "-- Certain Covenants
-- Limitation on Indebtedness," we may issue additional notes from time to time
having identical terms and conditions to the notes (the "Additional Notes"). The
notes and any Additional Notes subsequently issued under the Indenture will be
treated as a single class for all purposes under the Indenture, including,
without limitation, waivers, amendments, redemptions and offers to purchase.
Principal, premium, if any, and interest on the notes will be payable, and
the notes may be exchanged or transferred, at the office or agency of WESCO
Distribution in the Borough of Manhattan, the City of New York (which initially
shall be the corporate trust office of the Trustee in New York, New York),
except that, at our option, payment of interest may be made by check mailed to
the registered holders of the notes at their registered addresses.
We will issue the notes only in fully registered form, without coupons, in
denominations of $1,000 and any integral multiple of $1,000. We will not charge
any service charge for any registration of transfer or exchange of notes, but
may require payment of a sum sufficient to cover any transfer tax, assessment or
other similar governmental charge payable in connection therewith.
TERMS OF THE NOTES
The notes will be unsecured senior subordinated obligations of WESCO
Distribution and will mature on June 1, 2008. Each note will bear interest at a
rate per annum shown on the front cover of this prospectus from August 23, 2001,
or from the most recent date to which interest has been paid or provided for,
payable semiannually to the Noteholders of record at the close of business on
the May 15 or November 15 immediately preceding the interest payment date on
June 1 and December 1 of each year, commencing December 1, 2001.
65
71
OPTIONAL REDEMPTION
Except as set forth in the following paragraph, we will not have the option
to redeem the notes prior to June 1, 2003. After June 1, 2003, we will have the
option to redeem the notes, in whole or in part, on not less than 30 or more
than 60 days prior notice, at the following redemption prices (expressed as
percentages of principal amount), plus accrued and unpaid interest and
liquidated damages (if any) to the redemption date (subject to the right of
holders of record on the relevant record date to receive interest due on the
relevant interest payment date), if we redeem during the 12-month period
commencing on June 1 of the years set forth below:
<Table>
<Caption>
REDEMPTION
YEAR PRICE
---- ----------
2003..................................................... 104.563%
2004..................................................... 103.042%
2005..................................................... 101.521%
2006 and thereafter...................................... 100.000%
</Table>
At any time prior to June 1, 2003, we may redeem the notes in whole but not
in part within 180 days after a Change of Control, at a redemption price equal
to the sum of:
- the principal amount thereof, plus
- accrued and unpaid interest and liquidated damages, if any, to the
redemption date (subject to the right of Noteholders of record on the
relevant record date to receive interest due on the relevant interest
payment date that is on or prior to the date of redemption), plus
- the Applicable Premium.
SELECTION
In the case of any partial redemption, the Trustee will select the notes
for redemption on a pro rata basis or by lot although we will not redeem in part
any note of $1,000 in original principal amount or less. If we are to redeem any
note in part only, the notice of redemption relating to such note must state the
certificate number and the portion of the principal amount of the note that we
will redeem, and we will issue a new note in principal amount equal to the
unredeemed portion thereof upon cancellation of the original note.
RANKING
The indebtedness evidenced by the notes will be unsecured Senior
Subordinated Indebtedness of WESCO Distribution, will be subordinated in right
of payment, as set forth in the Indenture, to all existing and future Senior
Indebtedness of WESCO Distribution, will rank pari passu in right of payment
with all existing and future Senior Subordinated Indebtedness of WESCO
Distribution and will be senior in right of payment to all existing and future
Subordinated Obligations of WESCO Distribution. The notes will also be
effectively subordinated to any Secured Indebtedness of WESCO Distribution and
its Subsidiaries to the extent of the value of the assets securing such
Indebtedness and will also be effectively subordinated to all other obligations
of the Subsidiaries of WESCO Distribution. However, payment from the money or
the proceeds of U.S. Government obligations held in any defeasance trust
described under "-- Defeasance" below is not subordinated to any Senior
Indebtedness or subject to the restrictions described herein.
We conduct certain of our operations through Subsidiaries of WESCO
Distribution. Claims of creditors of such Subsidiaries, including trade
creditors, and claims of preferred stockholders
66
72
(if any) of such Subsidiaries generally will have priority with respect to the
assets and earnings of such Subsidiaries over the claims of creditors of WESCO
Distribution, including the Noteholders. The notes, therefore, will be
effectively subordinated to creditors (including trade creditors) and preferred
stockholders (if any) of Subsidiaries of WESCO Distribution. As of June 30, 2001
on an as adjusted basis, the Subsidiaries of WESCO Distribution had no
Indebtedness, excluding Guarantees of $54.1 million of Indebtedness under the
revolving credit facility, but had trade payables and other liabilities Incurred
in the ordinary course of business. Although the Indenture will limit the
Incurrence of Indebtedness by and the issuance of preferred stock of certain of
WESCO Distribution's Subsidiaries, such limitation is subject to a number of
significant qualifications.
As of June 30, 2001, on an as adjusted basis:
- the outstanding Senior Indebtedness of WESCO Distribution was $60.7
million, of which $54.1 million was Secured Indebtedness (exclusive of
unused commitments under the revolving credit facility); and
- WESCO Distribution had no outstanding Senior Subordinated Indebtedness
(other than the 9 1/8% senior subordinated notes due 2008 (the "1998
Notes")) and no outstanding Indebtedness that is subordinate or junior in
right of repayment to the notes.
Although the Indenture will contain limitations on the amount of additional
Indebtedness which WESCO Distribution may Incur, under certain circumstances the
amount of such Indebtedness could be substantial and, in any case, such
Indebtedness may be Senior Indebtedness. See "-- Certain Covenants -- Limitation
on Indebtedness."
With respect to WESCO Distribution, "Senior Indebtedness" means the
principal of, premium (if any) and accrued and unpaid interest on (including
interest accruing on or after the filing of any petition in bankruptcy or for
reorganization of WESCO Distribution, regardless of whether or not a claim for
post-filing interest is allowed in such proceedings), and fees and other amounts
owing in respect of, Bank Indebtedness and all other Indebtedness of WESCO
Distribution, whether outstanding on the Closing Date or thereafter Incurred,
unless in the instrument creating or evidencing the same or pursuant to which
the same is outstanding it is provided that such obligations are not superior in
right of payment to the notes; provided, however, that Senior Indebtedness does
not include:
- any obligation of WESCO Distribution to any Subsidiary;
- any liability for Federal, state, local or other taxes owed or owing by
WESCO Distribution;
- any accounts payable or other liability to trade creditors arising in the
ordinary course of business (including Guarantees thereof or instruments
evidencing such liabilities);
- any Indebtedness or obligation of WESCO Distribution (and any accrued and
unpaid interest in respect thereof) that by its terms is subordinate or
junior in any respect to any other Indebtedness or obligation of WESCO
Distribution, including any Senior Subordinated Indebtedness of WESCO
Distribution and any Subordinated Obligations of WESCO Distribution;
- any payment obligations with respect to any Capital Stock; or
- any Indebtedness incurred in violation of the Indenture.
"Senior Indebtedness" of WESCO International has a correlative meaning.
Only Indebtedness of WESCO Distribution that is Senior Indebtedness will
rank senior to the notes in accordance with the provisions of the Indenture. The
notes will in all respects rank pari passu with all other Senior Subordinated
Indebtedness of WESCO Distribution. WESCO
67
73
Distribution has agreed in the Indenture that it will not Incur, directly or
indirectly, any Indebtedness which is subordinate or junior in ranking in any
respect to Senior Indebtedness unless such Indebtedness is Senior Subordinated
Indebtedness or is expressly subordinated in right of payment to Senior
Subordinated Indebtedness. Unsecured Indebtedness is not deemed to be
subordinate or junior to Secured Indebtedness merely because it is unsecured.
WESCO Distribution may not pay principal of, premium (if any) or interest
on the notes, or any liquidated damages payable pursuant to the provisions set
forth in the notes and the Exchange and Registration Rights Agreement, or make
any deposit pursuant to the provisions described under "Defeasance" below, and
may not otherwise repurchase, redeem or otherwise retire any notes
(collectively, "pay the notes") if:
- any Designated Senior Indebtedness is not paid in cash or cash
equivalents when due; or
- any other default on Designated Senior Indebtedness occurs and the
maturity of such Designated Senior Indebtedness is accelerated in
accordance with its terms unless, in either case the default has been
cured or waived and any such acceleration has been rescinded or such
Designated Senior Indebtedness has been paid in full in cash or cash
equivalents.
However, WESCO Distribution may pay the notes without regard to the foregoing,
if WESCO Distribution and the Trustee receive written notice approving such
payment from the Representative of the Designated Senior Indebtedness with
respect to which either of the events set forth above has occurred and is
continuing. During the continuance of any default (other than a default
described in the preceding paragraph) with respect to any Designated Senior
Indebtedness pursuant to which the maturity thereof may be accelerated
immediately without further notice (except such notice as may be required to
effect such acceleration) or the expiration of any applicable grace periods,
WESCO Distribution may not pay the notes for a period, referred to as "Payment
Blockage Period," commencing upon the receipt by the Trustee (with a copy to
WESCO Distribution) of written notice, or "Blockage Notice," of such default
from the Representative of such Designated Senior Indebtedness specifying an
election to effect a Payment Blockage Period and ending 179 days thereafter (or
earlier if such Payment Blockage Period is terminated by written notice to the
Trustee and WESCO Distribution from the Person or Persons who gave such Blockage
Notice, by repayment in full in cash or cash equivalents of such Designated
Senior Indebtedness or because the default giving rise to such Blockage Notice
is no longer continuing). Notwithstanding the provisions described in the
immediately preceding sentence (but subject to the provisions contained in the
first sentence of this paragraph), unless the holders of such Designated Senior
Indebtedness or the Representative of such holders have accelerated the maturity
of such Designated Senior Indebtedness, WESCO Distribution may resume payments
on the notes after the end of such Payment Blockage Period. Not more than one
Blockage Notice may be given in any consecutive 360-day period, irrespective of
the number of defaults with respect to Designated Senior Indebtedness during
such period. However, if any Blockage Notice within such 360-day period is given
by or on behalf of any holders of Designated Senior Indebtedness other than the
Bank Indebtedness, the Representative of the Bank Indebtedness may give another
Blockage Notice within such period. In no event, however, may the total number
of days during which any Payment Blockage Period or Periods is in effect exceed
179 days in the aggregate during any 360 consecutive day period. For purposes of
this paragraph, no default or event of default that existed or was continuing on
the date of the commencement of any Payment Blockage Period with respect to the
Designated Senior Indebtedness initiating such Payment Blockage Period shall be,
or be made, the basis of the commencement of a subsequent Payment Blockage
Period by the Representative of such Designated Senior Indebtedness, whether or
not within a period of 360 consecutive days, unless such default or event of
default has been cured or waived for a period of not less than 90 consecutive
days.
68
74
Upon any payment or distribution of the assets of WESCO Distribution to
creditors upon a total or partial liquidation or a total or partial dissolution
of WESCO Distribution or in a bankruptcy, reorganization, insolvency,
receivership or similar proceeding relating to WESCO Distribution or its
property, (1) the holders of Senior Indebtedness of WESCO Distribution will be
entitled to receive payment in full in cash or cash equivalents of such Senior
Indebtedness before the Noteholders are entitled to receive any payment of
principal of, interest, premium (if any) or liquidated damages on the notes and
(2) until such Senior Indebtedness is paid in full in cash or cash equivalents,
any payment or distribution to which Noteholders would be entitled but for the
subordination provisions of the Indenture will be made to holders of such Senior
Indebtedness as their interests may appear. If a distribution is made to
Noteholders that due to the subordination provisions of the Indenture should not
have been made to them, such Noteholders are required to hold it in trust for
the holders of Senior Indebtedness of WESCO Distribution and pay it over to them
as their interests may appear.
If payment of the notes is accelerated because of an Event of Default,
WESCO Distribution or the Trustee shall promptly notify the holders of the
Designated Senior Indebtedness (or their Representative) of the acceleration. If
any Designated Senior Indebtedness is outstanding, WESCO Distribution may not
pay the notes until five Business Days after such holders or the Representative
of the Designated Senior Indebtedness receive notice of such acceleration and,
thereafter, may pay the notes only if the subordination provisions of the
Indenture otherwise permit payment at that time.
By reason of these subordination provisions contained in the Indenture, in
the event of insolvency, creditors of WESCO Distribution who are holders of
Senior Indebtedness of WESCO Distribution may recover more, ratably, than the
Noteholders, and creditors of WESCO Distribution who are not holders of Senior
Indebtedness of WESCO Distribution or of Senior Subordinated Indebtedness of
WESCO Distribution (including the notes) may recover less, ratably, than holders
of Senior Indebtedness of WESCO Distribution and may recover more, ratably, than
the holders of Senior Subordinated Indebtedness of WESCO Distribution.
WESCO INTERNATIONAL GUARANTEE
WESCO International, as primary obligor and not merely as surety, will
irrevocably and unconditionally Guarantee on an unsecured senior subordinated
basis the performance and full and punctual payment when due, whether at Stated
Maturity, by acceleration or otherwise, of all obligations of WESCO Distribution
under the Indenture and the notes, whether for payment of principal of or
interest on or liquidated damages in respect of the notes, expenses,
indemnification or otherwise (all such obligations guaranteed by WESCO
International are referred to herein as the "Guaranteed Obligations"). WESCO
International has agreed to pay, in addition to the amount stated above, any and
all costs and expenses (including reasonable counsel fees and expenses) incurred
by the Trustee or the Noteholders in enforcing any rights under the WESCO
International Guarantee. The WESCO International Guarantee will be limited in
amount to an amount not to exceed the maximum amount that can be Guaranteed by
WESCO International without rendering the Indenture, as it relates to WESCO
International, voidable under applicable law relating to fraudulent conveyance
or fraudulent transfer or similar laws affecting the rights of creditors
generally.
The obligations of WESCO International under its Guarantee are senior
subordinated obligations. As such, the rights of Noteholders to receive payment
by WESCO International pursuant to the Guarantee will be subordinated in right
of payment to the rights of holders of Senior Indebtedness of WESCO
International. WESCO Investors should not rely on the WESCO International
Guarantee in evaluating an investment in the notes. The terms of the
subordination provisions described above with respect to WESCO Distribution's
obligations under the notes apply equally to WESCO International and the
obligations of WESCO International under the WESCO International Guarantee.
69
75
CHANGE OF CONTROL
Upon the occurrence of any of the following events, each of which is a
"Change of Control," unless all notes have been called for redemption pursuant
to the provisions described above under "-- Optional Redemption," each
Noteholder will have the right to require WESCO Distribution to repurchase all
or any part of such Noteholder's notes at a purchase price in cash equal to 101%
of the principal amount thereof, plus accrued and unpaid interest and liquidated
damages, if any, to the date of repurchase (subject to the right of Noteholders
of record on the relevant record date to receive interest due on the relevant
interest payment date):
- (A) any "person" (as such term is used in Sections 13 (d) and 14 (d) of
the Exchange Act), other than one or more Permitted Holders, is or
becomes the "beneficial owner," as that term is defined in Rules 13d-3
and 13d-5 of the Exchange Act (except that for purposes of this clause,
such person shall be deemed to have "beneficial ownership" of all shares
that any such person has the right to acquire, whether such right is
exercisable immediately or only after the passage of time), directly or
indirectly, of more than 35% of the total voting power of the Voting
Stock of WESCO Distribution or WESCO International and (B) the Permitted
Holders "beneficially own" (as defined in Rules 13d-3 and 13d-5 of the
Exchange Act), directly or indirectly, in the aggregate a lesser
percentage of the total voting power of the Voting Stock of WESCO
Distribution or WESCO International than such other person and do not
have the right or ability by voting power, contract or otherwise to elect
or designate for election a majority of the board of directors of WESCO
Distribution or WESCO International, as the case may be (for the purposes
of this paragraph, (x) such other person shall be deemed to beneficially
own any Voting Stock of a specified corporation held by a parent
corporation, if such other person is the "beneficial owner" (as defined
in subparagraph (A) above), directly or indirectly, of more than 35% of
the voting power of the Voting Stock of such parent corporation and the
Permitted Holders "beneficially own" (as defined in Rules 13d-3 and 13d-5
of the Exchange Act), directly or indirectly, in the aggregate a lesser
percentage of the voting power of the Voting Stock of such parent
corporation and do not have the right or ability by voting power,
contract or otherwise to elect or designate for election a majority of
the board of directors of such parent corporation and (y) the Permitted
Holders shall be deemed to beneficially own any Voting Stock of an entity
(the "specified entity") held by any other entity (the "parent entity")
so long as the Permitted Holders beneficially own (as so defined),
directly or indirectly, in the aggregate a majority of the voting power
of the Voting Stock of the parent entity);
- during any period of two consecutive years commencing on June 5, 1998,
individuals who at the beginning of such period constituted the board of
directors of WESCO Distribution or WESCO International, as the case may
be (together with any new directors whose election by such board of
directors of WESCO Distribution or WESCO International, as the case may
be, or whose nomination for election by the shareholders of WESCO
Distribution or WESCO International, as the case may be, was approved by
a vote of 66 2/3% of the directors of WESCO Distribution or WESCO
International, as the case may be, then still in office who were either
directors at the beginning of such period or whose election or nomination
for election was previously so approved) cease for any reason to
constitute a majority of the board of directors of WESCO Distribution or
WESCO International, as the case may be, then in office; or
- the merger or consolidation of WESCO Distribution or WESCO International
with or into another Person or the merger of another Person with or into
WESCO Distribution or WESCO International, or the sale of all or
substantially all the assets of WESCO Distribution or WESCO International
to another Person (other than a Person that is controlled by the
Permitted Holders), and, in the case of any such merger or
70
76
consolidation, the securities of WESCO Distribution or WESCO
International that are outstanding immediately prior to such transaction
and which represent 100% of the aggregate voting power of the Voting
Stock of WESCO Distribution or WESCO International are changed into or
exchanged for cash, securities or property, unless pursuant to such
transaction such securities are changed into or exchanged for, in
addition to any other consideration, securities of the surviving Person
that represent immediately after such transaction, at least a majority of
the aggregate voting power of the Voting Stock of the surviving Person;
provided, however, that any sale of accounts receivable in connection
with a Qualified Receivables Transaction will not constitute a Change of
Control.
Within 30 days following any Change of Control, unless all notes have been
called for redemption pursuant to the provisions described above under
"-- Optional Redemption," WESCO Distribution will, except as described below,
mail a notice, referred to as a "Change in Control Offer," to each Noteholder
with a copy to the Trustee stating:
- that a Change of Control has occurred and that such Noteholder has the
right to require WESCO Distribution to purchase such Noteholder's notes
at a purchase price in cash equal to 101% of the principal amount
thereof, plus accrued and unpaid interest and liquidated damages, if any,
to the date of repurchase (subject to the right of Noteholders of record
on the relevant record date to receive interest on the relevant interest
payment date);
- the circumstances and relevant facts regarding such Change of Control;
- the repurchase date (which can be no earlier than 30 days nor later than
60 days from the date such notice is mailed); and
- the instructions determined by WESCO Distribution, consistent with this
covenant, that a Noteholder must follow in order to have its notes
purchased.
WESCO Distribution will not be required to make a Change of Control Offer
upon a Change of Control if a third party makes the Change of Control Offer in
the manner, at the times and otherwise in compliance with the requirements set
forth in the Indenture applicable to a Change of Control Offer made by WESCO
Distribution and purchases all notes validly tendered and not withdrawn under
such Change of Control Offer.
The phrase "all or substantially all," as used with respect to a sale of
assets in the definition in the Indenture of "Change of Control," varies
according to the facts and circumstances of the subject transaction, has no
clearly established meaning under New York law (the law governing such
Indenture) and is subject to judicial interpretation. Accordingly, in certain
circumstances, there may be a degree of uncertainty in ascertaining whether a
particular transaction would involve a disposition of "all or substantially all"
of the assets of a Person and therefore it may be unclear whether a Change of
Control has occurred.
WESCO Distribution will comply, to the extent applicable, with the
requirements of Section 14 (e) of the Exchange Act and any other securities laws
or regulations in connection with the repurchase of notes pursuant to this
covenant. To the extent that the provisions of any securities laws or
regulations conflict with provisions of this covenant, WESCO Distribution will
comply with the applicable securities laws and regulations and will not be
deemed to have breached its obligations under this covenant by virtue thereof.
Our management has no present intention to engage in a transaction
involving a Change of Control, although it is possible that we would decide to
do so in the future. Subject to the limitations discussed below, we could, in
the future, enter into certain transactions, including acquisitions,
refinancings or other recapitalizations, that would not constitute a Change of
Control under the Indenture, but that could increase the amount of Indebtedness
outstanding
71
77
at such time or otherwise affect WESCO Distribution's capital structure or
credit ratings. Restrictions on the ability of WESCO Distribution to incur
additional Indebtedness are contained in the covenants described under
"-- Certain Covenants -- Limitation on Indebtedness" and "-- Limitation on
Liens." Such restrictions can only be waived with the consent of the holders of
at least a majority in principal amount of the notes then outstanding. Except
for the limitations contained in such covenants, however, the Indenture will not
contain any covenants or provisions that may afford holders of the notes
protection in the event of a highly leveraged transaction.
The occurrence of certain of the events which would constitute a Change of
Control would constitute a default under the Credit Agreement. Future Senior
Indebtedness of WESCO Distribution may contain prohibitions of certain events
which would constitute a Change of Control or require such Senior Indebtedness
to be repurchased upon a Change of Control. Prior to the mailing of the notice
referred to above, but in any event within 30 days following the date on which
WESCO Distribution becomes aware that a Change of Control has occurred, if the
purchase of the notes would violate or constitute a default under any other
Indebtedness of WESCO Distribution, then WESCO Distribution must, to the extent
needed to permit such purchase of notes, either repay all such Indebtedness and
terminate all commitments outstanding thereunder or request the holders of such
Indebtedness to give the requisite consents to permit the purchase of the notes
as provided above. Until such time as WESCO Distribution is able to repay all
such Indebtedness and terminate all commitments outstanding thereunder or such
time as such requisite consents are obtained, WESCO Distribution will not be
required to make the Change of Control Offer or purchase the notes pursuant to
the provisions described above. Finally, WESCO Distribution's ability to pay
cash to the Noteholders upon a repurchase may be limited by its then existing
financial resources. We can make no assurance that sufficient funds will be
available when necessary to make any required repurchases. See "-- Ranking." The
provisions under the Indenture relative to WESCO Distribution's obligation to
make an offer to repurchase the notes as a result of a Change of Control, if
WESCO Distribution is permitted by the terms of the Credit Agreement and any
other Indebtedness to make such offer and repurchase, may only be waived or
modified with the written consent of the holders of a majority in principal
amount of the notes.
CERTAIN COVENANTS
The Indenture contains covenants including, among others, the following:
Limitation on Indebtedness. (a) WESCO Distribution will not, and will not
permit any Restricted Subsidiary to, Incur, directly or indirectly, any
Indebtedness; provided, however, that WESCO Distribution may Incur Indebtedness
if on the date of such Incurrence and after giving effect thereto the
Consolidated Coverage Ratio would be greater than 2.00:1.00.
(b) Notwithstanding the foregoing paragraph (a), WESCO Distribution and its
Restricted Subsidiaries may Incur the following Indebtedness:
(i) Indebtedness Incurred pursuant to the Credit Agreement or any
other Credit Facility in an aggregate principal amount at any time
outstanding not to exceed $400 million;
(ii) Indebtedness of WESCO Distribution owed to and held by any Wholly
Owned Subsidiary or Indebtedness of a Restricted Subsidiary owed to and
held by WESCO Distribution or any Wholly Owned Subsidiary; provided,
however, that (A) any subsequent issuance or transfer of any Capital Stock
or any other event that results in any such Wholly Owned Subsidiary ceasing
to be a Wholly Owned Subsidiary or any subsequent transfer of any such
Indebtedness (except to WESCO Distribution or a Wholly Owned Subsidiary)
will be deemed, in each case, to constitute the Incurrence of such
Indebtedness by the issuer thereof and (B) if WESCO Distribution is the
obligor on such Indebtedness, such
72
78
Indebtedness is expressly subordinated to the prior payment in full in cash
of all obligations with respect to the notes;
(iii) Indebtedness (A) represented by the notes (not including any
Additional Notes) and the 1998 Notes, (B) outstanding on June 5, 1998
(other than the Indebtedness described in clauses (i) and (ii) above and
Indebtedness Incurred prior to the Closing Date and outstanding pursuant to
the provisions of the 1998 Notes Indenture corresponding to clause (a) of
this covenant), (C) consisting of Refinancing Indebtedness Incurred in
respect of any Indebtedness described in this clause (iii) (including
Indebtedness that Refinances any Refinancing Indebtedness) or the foregoing
paragraph (a) and (D) consisting of Guarantees of any Indebtedness
permitted under clauses (i) and (ii) of this paragraph (b);
(iv) (A) Indebtedness of a Restricted Subsidiary Incurred and
outstanding on or prior to the date on which such Restricted Subsidiary was
acquired by WESCO Distribution (other than Indebtedness Incurred as
consideration in, or to provide all or any portion of the funds or credit
support utilized to consummate, the transaction or series of related
transactions pursuant to which such Restricted Subsidiary became a
Subsidiary of or was otherwise acquired by WESCO Distribution); provided,
however, if the aggregate amount of all such Indebtedness of all such
Restricted Subsidiaries would exceed $20.0 million, that on the date that
such Restricted Subsidiary is acquired by WESCO Distribution, it would have
been able to Incur $1.00 of additional Indebtedness pursuant to the
foregoing paragraph (a) after giving effect to the Incurrence of such
Indebtedness pursuant to this clause (iv) and (B) Refinancing Indebtedness
Incurred by a Restricted Subsidiary in respect of Indebtedness Incurred by
such Restricted Subsidiary pursuant to this clause (iv);
(v) Indebtedness (A) in respect of performance bonds, bankers'
acceptances, letters of credit and surety or appeal bonds provided by WESCO
Distribution and the Restricted Subsidiaries in the ordinary course of
their business, and (B) under Hedging Obligations consisting of Interest
Rate Agreements directly related (as determined in good faith by WESCO
Distribution) to Indebtedness permitted to be Incurred by WESCO
Distribution and its Restricted Subsidiaries pursuant to the Indenture and
Currency Agreements Incurred in the ordinary course of business;
(vi) Indebtedness Incurred by WESCO Distribution or any Restricted
Subsidiary (including Capitalized Lease Obligations) financing the
purchase, lease or improvement of property (real or personal) or equipment
(whether through the direct purchase of assets or the Capital Stock of the
Person owning such assets), in each case Incurred no more than 180 days
after such purchase, lease or improvement of such property and any
Refinancing Indebtedness in respect of such Indebtedness; provided,
however, that at the time of the Incurrence of such Indebtedness and after
giving effect thereto, the aggregate principal amount of all such
Indebtedness Incurred pursuant to this clause (vi) (or, prior to the
Closing Date, pursuant to the corresponding provision of the 1998 Notes
Indenture) and then outstanding shall not exceed the greater of $25.0
million and 5% of Adjusted Consolidated Assets;
(vii) Indebtedness Incurred by WESCO Distribution in connection with
the acquisition of a Related Business and any Refinancing Indebtedness in
respect of such Indebtedness; provided, however, that the aggregate amount
of all such Indebtedness Incurred and outstanding pursuant to this clause
(vii) (or, prior to the Closing Date, pursuant to the corresponding
provision of the 1998 Notes Indenture) shall not exceed $50.0 million at
any one time;
(viii) Attributable Debt Incurred by WESCO Distribution in respect of
Sale/Leaseback Transactions; provided, however, that the aggregate amount
of any such Attributable Debt Incurred and outstanding pursuant to this
clause (viii) (or, prior to the Closing Date,
73
79
pursuant to the corresponding provision of the 1998 Notes Indenture) shall
not exceed $75.0 million at any one time;
(ix) Indebtedness arising from agreements of WESCO Distribution or a
Restricted Subsidiary providing for indemnification, purchase price
adjustment or similar obligations, in each case, Incurred or assumed in
connection with the disposition of any business, assets or a Subsidiary,
other than Guarantees of Indebtedness Incurred by any Person acquiring all
or any portion of such business, assets or a Subsidiary for the purpose of
financing such acquisition; provided, however, that the maximum assumable
liability in respect of all such Indebtedness shall at no time exceed the
gross proceeds actually received by WESCO Distribution and its Restricted
Subsidiaries in connection with such disposition;
(x) any Guarantee by WESCO Distribution of Indebtedness or other
obligations of any of its Restricted Subsidiaries so long as the Incurrence
of such Indebtedness Incurred by such Restricted Subsidiary is permitted
under the terms of the Indenture;
(xi) Indebtedness arising from Guarantees to suppliers, lessors,
licensees, contractors, franchisees or customers Incurred in the ordinary
course of business;
(xii) Indebtedness Incurred by a Receivables Entity in a Qualified
Receivables Transaction that is not recourse to WESCO Distribution or any
other Restricted Subsidiary of WESCO Distribution (except for Standard
Securitization Undertakings); and
(xiii) Indebtedness (other than Indebtedness permitted to be Incurred
pursuant to the foregoing paragraph (a) or any other clause of this
paragraph (b)) in an aggregate principal amount on the date of Incurrence
that, when added to all other such Indebtedness Incurred pursuant to this
clause (xiii) (or, prior to the Closing Date, pursuant to the corresponding
provision of the 1998 Notes Indenture) and then outstanding, shall not
exceed $50.0 million.
(c) WESCO Distribution will not Incur any Indebtedness if such Indebtedness
is subordinate or junior in ranking in any respect to any Senior Indebtedness
unless such Indebtedness is Senior Subordinated Indebtedness or is expressly
subordinated in right of payment to Senior Subordinated Indebtedness.
(d) Notwithstanding any other provision of this covenant, the maximum
amount of Indebtedness that WESCO Distribution or any Restricted Subsidiary may
Incur pursuant to this covenant shall not be deemed to be exceeded solely as a
result of fluctuations in the exchange rates of currencies. For purposes of
determining the outstanding principal amount of any particular Indebtedness
Incurred pursuant to this covenant, (i) Indebtedness permitted by this covenant
need not be permitted solely by reference to one provision permitting such
Indebtedness but may be permitted in part by one such provision and in part by
one or more other provisions of this covenant permitting such Indebtedness and
(ii) in the event that Indebtedness meets the criteria of more than one of the
types of Indebtedness described in this covenant, WESCO Distribution, in its
sole discretion, shall classify or reclassify such Indebtedness and only be
required to include the amount of such Indebtedness in one of such clauses.
Limitation on Restricted Payments. (a) WESCO Distribution will not, and
will not permit any Restricted Subsidiary, directly or indirectly, to (i)
declare or pay any dividend or make any distribution on or in respect of its
Capital Stock (including any payment in connection with any merger or
consolidation involving WESCO Distribution) or similar payment to the direct or
indirect holders of its Capital Stock except dividends or distributions payable
solely in its Capital Stock (other than Disqualified Stock) and except dividends
or distributions payable to WESCO Distribution or another Restricted Subsidiary
(and, if such Restricted Subsidiary has equity holders other than WESCO
Distribution or other Restricted Subsidiaries, to its other equity holders on a
pro rata basis), (ii) purchase, redeem, retire or otherwise acquire for value
any Capital Stock of WESCO International, WESCO Distribution or any Restricted
Subsidiary held by
74
80
Persons other than WESCO Distribution or another Restricted Subsidiary, (iii)
purchase, repurchase, redeem, defease or otherwise acquire or retire for value,
prior to scheduled maturity, scheduled repayment or scheduled sinking fund
payment any Subordinated Obligations (other than the purchase, repurchase or
other acquisition of Subordinated Obligations purchased in anticipation of
satisfying a sinking fund obligation, principal installment or final maturity,
in each case due within one year of the date of acquisition) or (iv) make any
Investment (other than a Permitted Investment) in any Person (any such dividend,
distribution, purchase, redemption, repurchase, defeasance, other acquisition,
retirement or Investment being herein referred to as a "Restricted Payment") if
at the time WESCO Distribution or such Restricted Subsidiary makes such
Restricted Payment: (1) a Default will have occurred and be continuing (or would
result therefrom); (2) WESCO Distribution could not Incur at least $1.00 of
additional Indebtedness under paragraph (a) of the covenant described under
"Limitation on Indebtedness"; or (3) the aggregate amount of such Restricted
Payment and all other Restricted Payments (the amount so expended, if other than
in cash, to be determined in good faith by the Board of Directors, whose
determination will be conclusive and evidenced by a resolution of the Board of
Directors) declared or made subsequent to June 5, 1998 would exceed the sum of:
(A) 50% of the Consolidated Net Income accrued during the period (treated as one
accounting period) from the beginning of the fiscal quarter beginning July 1,
1998 to the end of the most recent fiscal quarter for which internal financial
statements are available prior to the date of such Restricted Payment (or, in
case such Consolidated Net Income will be a deficit, minus 100% of such
deficit); (B) the aggregate Net Cash Proceeds or fair market value of assets or
property received by WESCO Distribution as a contribution to its equity capital
or from the issue or sale of its Capital Stock (in each case other than
Disqualified Stock and Excluded Contributions) subsequent to June 5, 1998 (other
than an issuance or sale to (x) a Subsidiary of WESCO Distribution or (y) an
employee stock ownership plan or other trust established by WESCO Distribution
or any of its Subsidiaries); (C) the amount by which Indebtedness or
Disqualified Stock of WESCO Distribution or its Restricted Subsidiaries is
reduced on WESCO Distribution's balance sheet upon the conversion or exchange
(other than by a Subsidiary of WESCO Distribution) subsequent to June 5, 1998 of
any Indebtedness or Disqualified Stock of WESCO Distribution or its Restricted
Subsidiaries issued after June 5, 1998 for Capital Stock (other than
Disqualified Stock) of WESCO Distribution (less the amount of any cash or the
fair market value of other property distributed by WESCO Distribution or any
Restricted Subsidiary upon such conversion or exchange); and (D) the amount
equal to the net reduction in Investments in any Person (other than a Restricted
Subsidiary) since June 5, 1998 resulting from (i) payments of dividends,
repayments of the principal of loans or advances or other transfers of assets to
WESCO Distribution or any Restricted Subsidiary from such Person, (ii) the sale
or liquidation for cash of such Investment or (iii) the redesignation of
Unrestricted Subsidiaries as Restricted Subsidiaries (valued in each case as
provided in the definition of "Investment") not to exceed, in the case of any
Unrestricted Subsidiary, the amount of Investments previously made by WESCO
Distribution or any Restricted Subsidiary in such Unrestricted Subsidiary, which
amount was included in the calculation of the amount of Restricted Payments.
(b) The provisions of the foregoing paragraph (a) will not prohibit: (i)
any Restricted Payment made by exchange for, or out of the proceeds of the
substantially concurrent sale of, Capital Stock of WESCO Distribution (other
than Disqualified Stock and other than Capital Stock issued or sold to a
Subsidiary of WESCO Distribution or an employee stock ownership plan or other
trust established by WESCO Distribution or any of its Subsidiaries); provided,
however, that (A) such Restricted Payment will be excluded in the calculation of
the amount of Restricted Payments and (B) the Net Cash Proceeds from such sale
applied in the manner set forth in this clause (i) will be excluded from the
calculation of amounts under clause (3)(B) of paragraph (a) above; (ii) any
purchase, repurchase, redemption, defeasance or other acquisition or retirement
for value of Subordinated Obligations of WESCO Distribution made by exchange
75
81
for, or out of the proceeds of the substantially concurrent sale of,
Indebtedness of WESCO Distribution that is permitted to be Incurred pursuant to
paragraph (b) of the covenant described under "-- Limitation on Indebtedness";
provided, however, that such purchase, repurchase, redemption, defeasance or
other acquisition or retirement for value will be excluded in the calculation of
the amount of Restricted Payments; (iii) any purchase or redemption of
Subordinated Obligations from Net Available Cash to the extent permitted by the
covenant described under "-- Limitation on Sales of Assets and Subsidiary
Stock"; provided, however, that such purchase or redemption will be excluded in
the calculation of the amount of Restricted Payments; (iv) dividends paid within
60 days after the date of declaration thereof if at such date of declaration
such dividend would have complied with this covenant; provided, however, that
such dividend will be included in the calculation of the amount of Restricted
Payments; (v) any Restricted Payment made for the repurchase, redemption or
other acquisition or retirement for value of any Capital Stock of WESCO
International, WESCO Distribution or any of their respective Subsidiaries held
by any employee, former employee, director or former director of WESCO
International, WESCO Distribution or any of their respective Subsidiaries (and
any permitted transferees thereof) pursuant to any equity subscription
agreement, stock option agreement or plan or other similar agreement; provided,
however, that the aggregate amount of such Restricted Payments shall not exceed
$5.0 million in any calendar year and $20.0 million in the aggregate, in each
case since June 5, 1998; provided further, however, that such Restricted
Payments shall be included in the calculation of the amount of Restricted
Payments; (vi) payment of dividends, other distributions or other amounts by
WESCO Distribution for the purposes set forth in clauses (A) through (E) below;
provided, however, that such dividend, distribution or amount shall be excluded
in the calculation of the amount of Restricted Payments: (A) to WESCO
International in amounts equal to the amounts required for WESCO International
to pay franchise taxes and other fees required to maintain its corporate
existence and provide for other operating costs of up to $2.0 million per
calendar year; (B) to WESCO International in amounts equal to amounts required
for WESCO International to pay Federal, state and local income taxes that are
then actually due and owing by WESCO International to the extent such items
relate to WESCO Distribution and its Subsidiaries; (C) to WESCO International to
permit WESCO International to pay financial advisory, financing, underwriting or
placement fees to Cypress and its Affiliates; (D) to WESCO International to
permit WESCO International to pay any employment, noncompetition, compensation
or confidentiality arrangements entered into with its employees in the ordinary
course of business to the extent such employees are primarily engaged in
activities which relate to WESCO Distribution and its Subsidiaries; and (E) to
WESCO International to permit WESCO International to pay customary fees and
indemnities to directors and officers of WESCO International to the extent such
directors and officers are primarily engaged in activities which relate to WESCO
Distribution and its Subsidiaries; (vii) following the initial Equity Offering
by WESCO International, any payment of dividends or common stock buybacks by
WESCO Distribution in an aggregate amount in any year not to exceed 6% of the
aggregate Net Cash Proceeds actually received by WESCO Distribution in
connection with such initial Equity Offering and any subsequent Equity Offering
by WESCO Distribution or WESCO International; provided, however, that no Default
or Event of Default shall have occurred and be continuing immediately before or
after any such payment; provided further, however, that such dividends or common
stock buybacks shall be included in the calculation of the amount of Restricted
Payments; (viii) any repurchase of Capital Stock deemed to occur upon exercise
of stock options if such Capital Stock represents a portion of the exercise
price of such option; provided, however, that such repurchase shall be included
in the calculation of the amount of Restricted Payments; (ix) the payment of any
dividend or the making of any distribution to WESCO International in amounts
sufficient to permit WESCO International (A) to pay interest when due on the
11 1/8% senior discount notes due 2008 and (B) to make any mandatory
redemptions, repurchases or principal or accreted value payments in respect of
such senior discount notes; provided, however, that such payments, dividends and
distributions shall be excluded in the
76
82
calculation of the amount of Restricted Payments; (x) the declaration and
payment of dividends to holders of any class or series of Disqualified Stock of
WESCO Distribution issued in accordance with the covenant described under
"-- Limitation on Indebtedness" to the extent such dividends are included in the
definition of Consolidated Interest Expense; provided, however, that such
dividends shall be included in the calculation of the amount of Restricted
Payments; (xi) Investments made with Excluded Contributions; provided, however,
that such Investments shall be excluded in the calculation of the amount of
Restricted Payments; (xii) any Restricted Payment made to fund the
Recapitalization (including fees and expenses); provided, however, that such
Restricted Payment shall be excluded in the calculation of the amount of
Restricted Payments; or (xiii) other Restricted Payments in an aggregate amount
not to exceed $10.0 million since June 5, 1998; provided, however, that such
payments shall be included in the calculation of the amount of Restricted
Payments.
Limitation on Restrictions on Distributions from Restricted
Subsidiaries. WESCO Distribution will not, and will not permit any Restricted
Subsidiary to, create or otherwise cause or permit to exist or become effective
any consensual encumbrance or restriction on the ability of any Restricted
Subsidiary to (i) pay dividends or make any other distributions on its Capital
Stock or pay any Indebtedness or other obligations owed to WESCO Distribution,
(ii) make any loans or advances to WESCO Distribution or (iii) transfer any of
its property or assets to WESCO Distribution, except: (1) any encumbrance or
restriction pursuant to an agreement in effect at or entered into on June 5,
1998; (2) any encumbrance or restriction with respect to a Restricted Subsidiary
pursuant to an agreement relating to any Indebtedness Incurred by such
Restricted Subsidiary on or prior to the date on which such Restricted
Subsidiary was acquired by WESCO Distribution (other than Indebtedness Incurred
as consideration in, in contemplation of, or to provide all or any portion of
the funds or credit support utilized to consummate the transaction or series of
related transactions pursuant to which such Restricted Subsidiary became a
Restricted Subsidiary or was otherwise acquired by WESCO Distribution) and
outstanding on such date; (3) any encumbrance or restriction pursuant to an
agreement effecting a Refinancing of Indebtedness Incurred pursuant to an
agreement referred to in clause (1) or (2) of this covenant or this clause (3)
or contained in any amendment to an agreement referred to in clause (1) or (2)
of this covenant or this clause (3); provided, however, that the encumbrances
and restrictions contained in any such Refinancing agreement or amendment are no
less favorable to the Noteholders than the encumbrances and restrictions
contained in such predecessor agreements; (4) in the case of clause (iii), any
encumbrance or restriction (A) that restricts in a customary manner the
subletting, assignment or transfer of any property or asset that is subject to a
lease, license or similar contract, (B) contained in security agreements or
mortgages securing Indebtedness of a Restricted Subsidiary to the extent such
encumbrance or restriction restricts the transfer of the property subject to
such security agreements or mortgages or (C) in connection with purchase money
obligations for property acquired in the ordinary course of business; (5) with
respect to a Restricted Subsidiary, any restriction imposed pursuant to an
agreement entered into for the sale or disposition of all or substantially all
the Capital Stock or assets of such Restricted Subsidiary pending the closing of
such sale or disposition; (6) any encumbrance or restriction of a Receivables
Entity effected in connection with a Qualified Receivables Transaction;
provided, however, that such restrictions apply only to such Receivables Entity;
and (7) any encumbrance or restriction existing pursuant to other Indebtedness
permitted to be Incurred subsequent to the Closing Date pursuant to the
provisions of the covenant described under "-- Limitations on Indebtedness";
provided, however, that any such encumbrance or restrictions are ordinary and
customary with respect to the type of Indebtedness being Incurred (under the
relevant circumstances).
Limitation on Sales of Assets and Subsidiary Stock. (a) WESCO Distribution
will not, and will not permit any Restricted Subsidiary to, make any Asset
Disposition unless (i) WESCO Distribution or such Restricted Subsidiary receives
consideration (including by way of relief from, or by any other Person assuming
sole responsibility for, any liabilities, contingent or
77
83
otherwise) at the time of such Asset Disposition at least equal to the fair
market value (as determined in good faith by WESCO Distribution) of the shares
and assets subject to such Asset Disposition, (ii) at least 75% of the
consideration thereof received by WESCO Distribution or such Restricted
Subsidiary is in the form of cash or cash equivalents (provided that the amount
of (w) any liabilities (as shown on WESCO Distribution's or such Restricted
Subsidiary's most recent balance sheet or in the notes thereto) of WESCO
Distribution or any Restricted Subsidiary (other than liabilities that are by
their terms subordinated to the notes) that are assumed by the transferee of any
such assets without recourse to WESCO Distribution or any of the Restricted
Subsidiaries, (x) any notes or other obligations received by WESCO Distribution
or such Restricted Subsidiary from such transferee that are converted by WESCO
Distribution or such Restricted Subsidiary into cash (to the extent of the cash
received) within 180 days following the closing of such Asset Disposition, (y)
any Designated Noncash Consideration received by WESCO Distribution or any of
its Restricted Subsidiaries in such Asset Disposition having an aggregate fair
market value, taken together with all other Designated Noncash Consideration
received pursuant to this clause (y) and the corresponding provision of the 1998
Notes Indenture that is at that time outstanding, not to exceed 5% of Adjusted
Consolidated Assets at the time of the receipt of such Designated Noncash
Consideration (with the fair market value of each item of Designated Noncash
Consideration being measured at the time received and without giving effect to
subsequent changes in value) and (z) any assets received in exchange for assets
related to a Related Business of comparable market value in the good faith
determination of the Board of Directors shall be deemed to be cash for purposes
of this provision) and (iii) an amount equal to 100% of the Net Available Cash
from such Asset Disposition is applied by WESCO Distribution (or such Restricted
Subsidiary, as the case may be) (A) first, to the extent WESCO Distribution
elects (or is required by the terms of any Indebtedness), to prepay, repay,
redeem or purchase Senior Indebtedness of WESCO Distribution or Indebtedness
(other than any Disqualified Stock and other than any Preferred Stock) of a
Wholly Owned Subsidiary (in each case other than Indebtedness owed to WESCO
Distribution or an Affiliate of WESCO Distribution) within 365 days after the
later of the date of such Asset Disposition or the receipt of such Net Available
Cash; (B) second, to the extent of the balance of Net Available Cash after
application in accordance with clause (A), to the extent WESCO Distribution or
such Restricted Subsidiary elects, to reinvest in Additional Assets (including
by means of an Investment in Additional Assets by a Restricted Subsidiary with
Net Available Cash received by WESCO Distribution or another Restricted
Subsidiary) within 365 days from the later of such Asset Disposition or the
receipt of such Net Available Cash; and (C) third, to the extent of the balance
of such Net Available Cash after application in accordance with clauses (A) and
(B), to make an Offer (as defined below) to purchase notes pursuant to and
subject to the conditions set forth in section (b) of this covenant; provided,
however, that if WESCO Distribution elects (or is required by the terms of any
other Senior Subordinated Indebtedness), such Offer may be made ratably to
purchase the notes and other Senior Subordinated Indebtedness of WESCO
Distribution; provided, however, that in connection with any prepayment,
repayment or purchase of Indebtedness pursuant to clause (A) or (C) above, WESCO
Distribution or such Restricted Subsidiary will retire such Indebtedness and
will cause the related loan commitment (if any) to be permanently reduced in an
amount equal to the principal amount so prepaid, repaid or purchased.
Notwithstanding the foregoing provisions of this covenant, WESCO Distribution
and the Restricted Subsidiaries will not be required to apply any Net Available
Cash in accordance with this covenant except to the extent that the aggregate
Net Available Cash from all Asset Dispositions that is not applied in accordance
with this covenant exceeds $20.0 million (provided that such amount shall be
reduced by the aggregate Net Available Cash from all Asset Dispositions not
applied in accordance with the corresponding provision of the 1998 Notes
Indenture prior to the Closing Date).
(b) In the event of an Asset Disposition that requires the purchase of
notes (and other Senior Subordinated Indebtedness) pursuant to clause
(a)(iii)(C) of this covenant, WESCO
78
84
Distribution will be required to purchase notes (and other Senior Subordinated
Indebtedness) tendered pursuant to an offer by WESCO Distribution for the notes
(and other Senior Subordinated Indebtedness) (the "Offer") at a purchase price
of 100% of their principal amount plus accrued and unpaid interest and
liquidated damages, if any, to the date of purchase in accordance with the
procedures (including prorating in the event of oversubscription), set forth in
the Indenture. If the aggregate purchase price of notes (and other Senior
Subordinated Indebtedness) tendered pursuant to the Offer is less than the Net
Available Cash allotted to the purchase of the notes (and other Senior
Subordinated Indebtedness), WESCO Distribution may apply the remaining Net
Available Cash for any purpose permitted by the terms of the Indenture. WESCO
Distribution will not be required to make an Offer for notes (and other Senior
Subordinated Indebtedness) pursuant to this covenant if the Net Available Cash
available therefor (after application of the proceeds as provided in clauses (A)
and (B) of paragraph (a)(iii)) of this covenant is less than $10.0 million for
any particular Asset Disposition (which lesser amount will be carried forward
for purposes of determining whether an Offer is required with respect to the Net
Available Cash from any subsequent Asset Disposition).
(c) WESCO Distribution will comply, to the extent applicable, with the
requirements of Section 14 (e) of the Exchange Act and any other securities laws
or regulations in connection with the repurchase of notes pursuant to this
covenant. To the extent that the provisions of any securities laws or
regulations conflict with provisions of this covenant, WESCO Distribution will
comply with the applicable securities laws and regulations and will not be
deemed to have breached its obligations under this covenant by virtue thereof.
Limitations on Transactions with Affiliates. (a) WESCO Distribution will
not, and will not cause or permit any of its Restricted Subsidiaries to, make
any payment to, or sell, lease, transfer or otherwise dispose of any of its
properties or assets to, or purchase any property or assets from, or enter into
or make or amend any transaction, contract, agreement, understanding, loan,
advance or Guarantee with, or for the benefit of, any Affiliate (each of the
foregoing, an "Affiliate Transaction") involving aggregate consideration in
excess of $5.0 million, unless (i) such Affiliate Transaction is on terms that
are not materially less favorable to WESCO Distribution or the relevant
Restricted Subsidiary than those that would have been obtained in a comparable
transaction by WESCO Distribution or such Restricted Subsidiary with an
unrelated Person and (ii) with respect to any Affiliate Transaction or series of
related Affiliate Transactions involving aggregate consideration in excess of
$10.0 million, WESCO Distribution delivers to the Trustee a resolution adopted
by the majority of the Board of Directors, approving such Affiliate Transaction
and set forth in an Officers' Certificate certifying that such Affiliate
Transaction complies with clause (i) above.
(b) The provisions of the foregoing paragraph (a) will not prohibit (i) any
Restricted Payment permitted to be paid pursuant to the covenant described under
"-- Limitation on Restricted Payments", (ii) any issuance of securities, or
other payments, Guarantees, awards or grants in cash, securities or otherwise
pursuant to, or the funding of, employment arrangements, stock options and stock
ownership plans approved by the Board of Directors, (iii) the grant of stock
options or similar rights to employees and directors of WESCO Distribution
pursuant to plans approved by the Board of Directors, (iv) loans or advances to
employees in the ordinary course of business in accordance with past practices
of WESCO Distribution, but in any event not to exceed $5.0 million in the
aggregate outstanding at any one time, (v) the payment of reasonable fees to
directors of WESCO Distribution and its Restricted Subsidiaries who are not
employees of WESCO Distribution or its Subsidiaries, (vi) any transaction
between WESCO Distribution and a Restricted Subsidiary or between Restricted
Subsidiaries, (vii) any transaction effected as part of a Qualified Receivables
Transaction, (viii) any payment by WESCO Distribution to WESCO International to
permit WESCO International to pay any Federal, state, local or other taxes that
are then actually due and owing by WESCO International, (ix) indemnification
agreements with, and the payment of
79
85
fees and indemnities to, directors, officers and employees of WESCO Distribution
and its Restricted Subsidiaries, in each case, in the ordinary course of
business, (x) any employment, compensation, noncompetition or confidentiality
agreement entered into by WESCO Distribution and its Restricted Subsidiaries
with its employees in the ordinary course of business, (xi) the payment by WESCO
Distribution of fees, expenses and other amounts to Cypress and its Affiliates
in connection with the Recapitalization, (xii) payments by WESCO Distribution or
any of its Restricted Subsidiaries to Cypress and its Affiliates made pursuant
to any financial advisory, financing, underwriting or placement agreement, or in
respect of other investment banking activities, in each case, as determined by
the Board of Directors in good faith, (xiii) any issuance of Capital Stock of
WESCO Distribution (other than Disqualified Stock), (xiv) any agreement as in
effect as of June 5, 1998 or any amendment or replacement thereto so long as any
such amendment or replacement agreement is not more disadvantageous to the
Noteholders of the notes in any material respect than the original agreement as
in effect on June 5, 1998 and (xv) transactions in which WESCO Distribution or
any of its Restricted Subsidiaries, as the case may be, delivers to the Trustee
a letter from an Independent Financial Advisor stating that such transaction is
fair to WESCO Distribution or such Restricted Subsidiary from a financial point
of view or meets the requirements of clause (a) of the preceding paragraph.
Limitation on the Sale or Issuance of Capital Stock of Restricted
Subsidiaries. WESCO Distribution will not sell or otherwise dispose of any
shares of Capital Stock of a Restricted Subsidiary, and will not permit any
Restricted Subsidiary, directly or indirectly, to issue or sell or otherwise
dispose of any shares of its Capital Stock except: (i) to WESCO Distribution or
a Wholly Owned Subsidiary or to any director of a Restricted Subsidiary to the
extent required as director's qualifying shares; (ii) if, immediately after
giving effect to such issuance, sale or other disposition, neither WESCO
Distribution nor any of its Subsidiaries own any Capital Stock of such
Restricted Subsidiary or (iii) if, immediately after giving effect to such
issuance or sale, such Restricted Subsidiary would no longer constitute a
Restricted Subsidiary and any Investment in such Person remaining after giving
effect thereto would have been permitted to be made under the covenant described
under "-- Limitation on Restricted Payments" if made on the date of such
issuance, sale or other disposition. The provisions of this covenant will not
prohibit any transaction effected as part of a Qualified Receivables
Transaction. The proceeds of any sale of such Capital Stock permitted hereby
will be treated as Net Available Cash from an Asset Disposition and must be
applied in accordance with the terms of the covenant described under
"-- Limitation on Sales of Assets and Subsidiary Stock."
Limitation on Liens. WESCO Distribution will not, and will not permit any
Restricted Subsidiary to, directly or indirectly, Incur or permit to exist any
Lien of any nature whatsoever that secures Senior Subordinated Indebtedness or
Subordinated Obligations on any of its property or assets (including capital
Stock of a Restricted Subsidiary), whether owned at the Closing Date or
thereafter acquired, other than Permitted Liens, without effectively providing
that the notes shall be secured equally and ratably with (or on a senior basis
to in the case of Subordinated Obligations) the obligations so secured for so
long as such obligations are so secured.
SEC Reports. WESCO International shall continue to file with the SEC and
provide the Trustee and any Noteholder or prospective Noteholder (upon the
request of such Noteholder or prospective Noteholder) with such annual reports
and such information, documents and other reports as are specified in Sections
13 and 15 (d) of the Exchange Act and applicable to a U.S. corporation subject
to such Sections, such information, documents and other reports to be so filed
and provided at the times specified for the filing of such information,
documents and reports under such Sections.
80
86
MERGER AND CONSOLIDATION
WESCO Distribution will not consolidate with or merge with or into, or
convey, transfer or lease all or substantially all its assets to, any Person,
unless: (i) the resulting, surviving or transferee Person (the "Successor
Company") will be a corporation organized and existing under the laws of the
United States of America, any State thereof or the District of Columbia and the
Successor Company (if not WESCO Distribution) will expressly assume, by an
indenture supplemental hereto, executed and delivered to the Trustee, in form
satisfactory to the Trustee, all the obligations of WESCO Distribution under the
notes and the Indenture; (ii) immediately after giving effect to such
transaction (and treating any Indebtedness which becomes an obligation of the
Successor Company or any Restricted Subsidiary as a result of such transaction
as having been Incurred by the Successor Company or such Restricted Subsidiary
at the time of ouch transaction), no Default will have occurred and be
continuing; (iii) immediately after giving effect to such transaction, (A) the
Successor Company would be able to Incur an additional $1.00 of Indebtedness
under paragraph (a) of the covenant described under "-- Certain
Covenants -- Limitation on Indebtedness" or (B) the Consolidated Coverage Ratio
for the Successor Company and its Restricted Subsidiaries would be greater than
such ratio for WESCO Distribution and its Restricted Subsidiaries immediately
prior to such transaction; (iv) immediately after giving effect to such
transaction, the Successor Company will have Consolidated Net Worth in an amount
which is not less than the Consolidated Net Worth of WESCO Distribution
immediately prior to such transaction; and (v) WESCO Distribution will have
delivered to the Trustee an Officers' Certificate and an Opinion of Counsel,
each stating that such consolidation, merger or transfer and such supplemental
indenture (if any) comply with the Indenture. Notwithstanding clause (iii)
above, a Wholly Owned Subsidiary may be consolidated with or merged into WESCO
Distribution and WESCO Distribution may consolidate with or merge with or into
(A) another Person, if such Person is a single purpose corporation that has not
conducted any business or incurred any Indebtedness or other liabilities and
such transaction is being consummated solely to change the state of
incorporation of WESCO Distribution and (B) WESCO International; provided,
however, that, in the case of clause (B), (x) WESCO International shall not have
owned any assets other than the Capital Stock of WESCO Distribution (and other
immaterial assets incidental to its ownership of such Capital Stock) or
conducted any business other than owning the Capital Stock of WESCO
Distribution, (y) WESCO International shall not have any Indebtedness or other
liabilities (other than ordinary course liabilities incidental to its ownership
of the Capital Stock of WESCO Distribution) and (z) immediately after giving
effect to such consolidation or merger, the Successor Company shall have a pro
forma Consolidated Coverage Ratio that is not less than the Consolidated
Coverage Ratio of WESCO Distribution immediately prior to such consolidation or
merger.
The Successor Company will succeed to, and be substituted for, and may
exercise every right and power of, WESCO Distribution under the notes indenture,
but the predecessor Company in the case of a conveyance, transfer or lease of
all or substantially all its assets will not be released from the obligation to
pay the principal of and interest on the notes.
DEFAULTS
An Event of Default is defined in the Indenture as (i) a default in any
payment of interest on any note when due and payable, whether or not prohibited
by the provisions described under "-- Ranking", continued for 30 days, (ii) a
default in the payment of principal of any note when due and payable at its
Stated Maturity, upon required redemption or repurchase, upon declaration or
otherwise, whether or not such payment is prohibited by the provisions described
under "-- Ranking", (iii) the failure by WESCO Distribution to comply with its
obligations under the covenant described under "-- Merger and Consolidation",
(iv) the failure by WESCO Distribution to comply for 30 days after notice with
any of its obligations under the
81
87
covenants described under "-- Change of Control" or "-- Certain Covenants" (in
each case, other than a failure to purchase notes), (v) the failure by WESCO
Distribution to comply for 60 days after notice with any other agreements
contained in the notes or the Indenture, (vi) the failure by WESCO Distribution
or any Significant Subsidiary to pay any Indebtedness within any applicable
grace period after final maturity or the acceleration of any such Indebtedness
by the holders thereof because of a default if the total amount of such
Indebtedness unpaid or accelerated exceeds $25 million or its foreign currency
equivalent (the "cross acceleration provision") and such failure continues for
10 days after receipt of the notice specified in the Indenture, (vii) certain
events of bankruptcy, insolvency or reorganization of WESCO Distribution or a
Significant Subsidiary (the "bankruptcy provisions") or (viii) the rendering of
any judgment or decree for the payment of money in excess of $25 million or its
foreign currency equivalent against WESCO Distribution or a Significant
Subsidiary if (A) an enforcement proceeding thereon is commenced by any creditor
or (B) such judgment or decree remains outstanding for a period of 60 days
following such judgment and is not discharged, waived or stayed within 10 days
after notice (the "judgment default provision").
The foregoing will constitute Events of Default whatever the reason for any
such Event of Default and whether it is voluntary or involuntary or is effected
by operation of law or pursuant to any judgment, decree or order of any court or
any order, rule or regulation of any administrative or governmental body.
However, a default under clauses (iv), (v), (vi) or (viii) will not
constitute an Event of Default until the Trustee or the Noteholders of at least
25% in principal amount of the outstanding notes notify WESCO Distribution of
the default and WESCO Distribution does not cure such default within the time
specified in clauses (iv), (v), (vi) or (viii) hereof after receipt of such
notice.
If an Event of Default (other than an Event of Default relating to certain
events of bankruptcy, insolvency or reorganization of WESCO Distribution) occurs
and is continuing, the Trustee or the Noteholders of at least 25% in principal
amount of the outstanding notes by notice to WESCO Distribution may declare the
principal of and accrued but unpaid interest on all the notes to be due and
payable. Upon such a declaration, such principal and interest will be due and
payable immediately. If an Event of Default relating to certain events of
bankruptcy, insolvency or reorganization of WESCO Distribution occurs, the
principal of and interest on all the notes will become immediately due and
payable without any declaration or other act on the part of the Trustee or any
Noteholders. Under certain circumstances, the Noteholders of a majority in
principal amount of the outstanding notes may rescind any such acceleration with
respect to the notes and its consequences.
Subject to the provisions of the Indenture relating to the duties of the
Trustee, in case an Event of Default occurs and is continuing, the Trustee will
be under no obligation to exercise any of the rights or powers under the
Indenture at the request or direction of any of the Noteholders unless such
Noteholders have offered to the Trustee reasonable indemnity or security against
any loss, liability or expense. Except to enforce the right to receive payment
of principal, premium (if any) or interest when due, no Noteholder may pursue
any remedy with respect to the Indenture or the notes unless (i) such Noteholder
has previously given the Trustee notice that an Event of Default is continuing,
(ii) Noteholders of at least 25% in principal amount of the outstanding notes
have requested the Trustee in writing to pursue the remedy, (iii) such
Noteholders have offered the Trustee reasonable security or indemnity against
any loss, liability or expense, (iv) the Trustee has not complied with such
request within 60 days after the receipt of the request and the offer of
security or indemnity and (v) the Noteholders of a majority in principal amount
of the outstanding notes have not given the Trustee a direction inconsistent
with such request within such 60-day period. Subject to certain restrictions,
the Noteholders of a majority in principal amount of the outstanding notes are
given the right to direct the time, method and place of conducting any
proceeding for any
82
88
remedy available to the Trustee or of exercising any trust or power conferred on
the Trustee. The Trustee, however, may refuse to follow any direction that
conflicts with law or the Indenture or that the Trustee determines is unduly
prejudicial to the rights of any other Noteholder or that would involve the
Trustee in personal liability. Prior to taking any action under the Indenture,
the Trustee will be entitled to indemnification satisfactory to it in its sole
discretion against all losses and expenses caused by taking or not taking such
action.
The Indenture provides that if a Default occurs and is continuing and is
known to the Trustee, the Trustee must mail to each Noteholder notice of the
Default within the earlier of 90 days after it occurs or 30 days after it is
known to a Trust Officer or written notice of it is received by the Trustee.
Except in the case of a Default in the payment of principal of, premium (if any)
or interest on any note (including payments pursuant to the redemption
provisions of such note), the Trustee may withhold notice if and so long as a
committee of its Trust Officers in good faith determines that withholding notice
is in the interests of the Noteholders. In addition, WESCO Distribution is
required to deliver to the Trustee, within 120 days after the end of each fiscal
year of WESCO Distribution, a certificate indicating whether the signers thereof
know of any Default that occurred during the previous year. WESCO Distribution
also is required to deliver to the Trustee, within 30 days after the occurrence
thereof, written notice of any event which would constitute certain Events of
Default, their status and what action WESCO Distribution is taking or proposes
to take in respect thereof.
AMENDMENTS AND WAIVERS
Subject to certain exceptions, the Indenture or the notes may be amended
with the written consent of the Noteholders of at least a majority in principal
amount of the notes then outstanding and any past default or compliance with any
provisions may be waived with the consent of the Noteholders of a majority in
principal amount of the notes then outstanding. However, without the consent of
each Noteholder of an outstanding note affected, no amendment may, among other
things, (i) reduce the principal amount of notes whose Noteholders must consent
to an amendment, (ii) reduce the rate of or extend the time for payment of
interest or any liquidated damages on any note, (iii) reduce the principal of or
extend the Stated Maturity of any note, (iv) reduce the premium payable upon the
redemption of any note or change the time at which any note may be redeemed as
described under "-- Optional Redemption", (v) make any note payable in money
other than that stated in the note, (vi) make any change to the subordination
provisions of the Indenture that adversely affects the rights of any Noteholder,
or (vii) make any change in the amendment provisions which require each
Noteholder's consent or in the waiver provisions.
Without the consent of any Noteholder, WESCO Distribution, WESCO
International and the Trustee may amend the Indenture to cure any ambiguity,
omission, defect or inconsistency, to provide for the assumption by a successor
corporation of the obligations of WESCO Distribution under the Indenture, to
provide for uncertificated notes in addition to or in place of certificated
notes (provided that the uncertificated notes are issued in registered form for
purposes of Section 163 (f) of the Code, or in a manner such that the
uncertificated notes are described in Section 163 (f)(2)(B) of the Code), to
make any change in the subordination provisions of the Indenture that would
limit or terminate the benefits available to any holder of Senior Indebtedness
of WESCO Distribution (or any representative thereof) under such subordination
provisions, to add additional Guarantees with respect to the notes, to secure
the notes, to add to the covenants of WESCO Distribution for the benefit of the
Noteholders or to surrender any right or power conferred upon WESCO
Distribution, to make any change that does not adversely affect the rights of
any Noteholder, subject to the provisions of the Indenture, to provide for the
issuance of the exchange notes or Additional Notes or to comply with any
requirement of the SEC in connection with the qualification of the Indenture
under
83
89
the TIA. However, no amendment may be made to the subordination provisions of
the Indenture that adversely affects the rights of any holder of Senior
Indebtedness of WESCO Distribution then outstanding unless the holders of such
Senior Indebtedness (or any group or representative thereof authorized to give a
consent) consent to such change.
The consent of the Noteholders is not necessary under the Indenture to
approve the particular form of any proposed amendment. It is sufficient if such
consent approves the substance of the proposed amendment.
After an amendment under the Indenture becomes effective, WESCO
Distribution is required to mail to Noteholders a notice briefly describing such
amendment. However, the failure to give such notice to all Noteholders, or any
defect therein, will not impair or affect the validity of the amendment.
TRANSFER AND EXCHANGE
A Noteholder may transfer or exchange notes in accordance with the
Indenture. Upon any transfer or exchange, the Registrar and the Trustee may
require a Noteholder, among other things, to furnish appropriate endorsements
and transfer documents and to pay any taxes required by law or permitted by the
Indenture. The Registrar is not required to register the transfer of or exchange
any note selected for redemption (except, in the case of a note to be redeemed
in part, the portion of the note not to be redeemed) or to transfer or exchange
any note for a period of 15 days prior to a selection of notes to be redeemed or
15 days before an interest payment date. The notes will be issued in registered
form and the registered holder of a note will be treated as the owner of such
note for all purposes.
DEFEASANCE
WESCO Distribution at any time may terminate all its obligations under the
notes and the Indenture ("legal defeasance"), except for certain obligations,
including those respecting the defeasance trust and obligations to register the
transfer or exchange of the notes, to replace mutilated, destroyed, lost or
stolen notes and to maintain a registrar and paying agent in respect of the
notes. WESCO Distribution at any time may terminate its obligations under the
covenants described under "-- Certain Covenants", the operation of the cross
acceleration provision, the bankruptcy provisions with respect to Significant
Subsidiaries and the judgment default provision described under "-- Defaults"
and the limitations contained in clauses (iii) and (iv) under the first
paragraph of "-- Merger and Consolidation" ("covenant defeasance"). In the event
that WESCO Distribution exercises its legal defeasance option or its covenant
defeasance option, WESCO International will be released from all of its
obligations with respect to its WESCO International Guarantee.
WESCO Distribution may exercise its legal defeasance option notwithstanding
its prior exercise of its covenant defeasance option. If WESCO Distribution
exercises its legal defeasance option, payment of the notes may not be
accelerated because of an Event of Default with respect thereto. If WESCO
Distribution exercises its covenant defeasance option, payment of the notes may
not be accelerated because of an Event of Default specified under "-- Defaults"
in clause (iv), (vi), (vii) (with respect only to Significant Subsidiaries) or
(viii)(with respect only to Significant Subsidiaries) or because of the failure
of WESCO Distribution to comply with clause (iii) or (iv) under the first
paragraph of "-- Merger and Consolidation."
In order to exercise either defeasance option, WESCO Distribution must
irrevocably deposit in trust with the Trustee money or U.S. Government
Obligations for the payment of principal, premium (if any) and interest on the
notes to redemption or maturity, as the case may be, and must comply with
certain other conditions, including delivery to the Trustee of an Opinion of
Counsel to the effect that holders of the notes will not recognize income, gain
or loss for Federal income tax purposes as a result of such deposit and
defeasance and will be subject to
84
90
Federal income tax on the same amounts and in the same manner and at the same
times as would have been the case if such deposit and defeasance had not
occurred (and, in the case of legal defeasance only, such Opinion of Counsel
must be based on a ruling of the Internal Revenue Service or other change in
applicable Federal income tax law).
CONCERNING THE NOTES TRUSTEE
Bank One, N.A. is the Trustee under the Indenture and has been appointed by
WESCO Distribution as Registrar and Paying Agent with regard to the notes.
GOVERNING LAW
The Indenture provides that it and the notes will be governed by, and
construed in accordance with, the laws of the State of New York without giving
effect to applicable principles of conflicts of law to the extent that the
application of the law of another jurisdiction would be required thereby.
CERTAIN DEFINITIONS
"Additional Assets" means (i) any property or assets (other than
Indebtedness and Capital Stock) to be used by WESCO Distribution or a Restricted
Subsidiary in a Related Business; (ii) the Capital Stock of a Person that
becomes a Restricted Subsidiary as a result of the acquisition of such Capital
Stock by WESCO Distribution or another Restricted Subsidiary; or (iii) Capital
Stock constituting a minority interest in any Person that at such time is a
Restricted Subsidiary; provided, however, that any such Restricted Subsidiary
described in clauses (ii) or (iii) above is primarily engaged in a Related
Business.
"Adjusted Consolidated Assets" means at any time the total amount of assets
of WESCO Distribution and its Restricted Subsidiaries (less applicable
depreciation, amortization and other valuation reserves), after deducting
therefrom all current liabilities of WESCO Distribution and its Restricted
Subsidiaries (excluding intercompany items), all as set forth on the
Consolidated balance sheet of WESCO Distribution and its Restricted Subsidiaries
as of the end of the most recent fiscal quarter for which financial statements
are available prior to the date of determination.
"Affiliate" of any specified Person means any other Person, directly or
indirectly, controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control" when used with respect to any Person means the power to direct the
management and policies of such Person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise; and the terms
"controlling" and "controlled" have meanings correlative to the foregoing.
"Applicable Premium" means, with respect to a note at any redemption date,
the greater of (i) 1.0% of the principal amount of such note and (ii) the excess
of (A) the present value at such time of (1) the redemption price of such note
at June 1, 2003 (such redemption price being set forth in the table set forth
under "-- Optional Redemption") plus (2) all required interest payments due on
such note through June 1, 2003 (excluding accrued but unpaid interest), computed
using a discount rate equal to the Treasury Rate plus 50 basis points, over (B)
the then-outstanding principal amount of such note.
"Asset Disposition" means any sale, lease, transfer or other disposition
(or series of related sales, leases, transfers or dispositions) by WESCO
Distribution or any Restricted Subsidiary, including any disposition by means of
a merger, consolidation, or similar transaction (each referred to for the
purposes of this definition as a "disposition"), of (i) any shares of Capital
Stock of a Restricted Subsidiary (other than directors' qualifying shares or
shares required by applicable law to be held by a Person other than WESCO
Distribution or a Restricted
85
91
Subsidiary), (ii) all or substantially all the assets of any division or line of
business of WESCO Distribution or any Restricted Subsidiary or (iii) any other
assets of WESCO Distribution or any Restricted Subsidiary outside the ordinary
course of business of WESCO Distribution or such Restricted Subsidiary (other
than, in the case of (i), (ii) and (iii) above, (A) a disposition by a
Restricted Subsidiary to WESCO Distribution or by WESCO Distribution or a
Restricted Subsidiary to a Wholly Owned Subsidiary, (B) for purposes of the
provisions described under "Certain Covenants -- Limitation on Sales of Assets
and Subsidiary Stock" only, a disposition subject to the covenant described
under "-- Certain Covenants -- Limitation on Restricted Payments", (C) a
disposition of assets with a fair market value of leas than $1,000,000, (D) a
sale of accounts receivables and related assets of the type specified in the
definition of "Qualified Receivables Transaction" to a Receivables Entity in a
Qualified Receivables Transaction, (E) a transfer of accounts receivables and
related assets of the type specified in the definition of "Qualified Receivables
Transaction" (or a fractional undivided interest therein) by a Receivables
Entity in a Qualified Receivables Transaction, (F) the disposition of all or
substantially all of the assets of WESCO Distribution in a manner permitted
pursuant to the provisions described above under "Merger and Consolidation" or
any disposition that constitutes a Change of Control pursuant to the Indenture,
(G) any exchange of like property pursuant to Section 1031 of the Internal
Revenue Code of 1986, as amended, for use in a Related Business, and (H) any
sale of Capital Stock in, or Indebtedness or other securities of, an
Unrestricted Subsidiary).
"Attributable Debt" in respect of a Sale/Leaseback Transaction means, as at
the time of determination, the present value (discounted at the interest rate
borne by the notes, compounded annually) of the total obligations of the lessee
for rental payments during the remaining term of the lease included in such
Sale/Leaseback Transaction (including any period for which such lease has been
extended).
"Average Life" means, as of the date of determination, with respect to any
Indebtedness or Preferred Stock, the quotient obtained by dividing (i) the sum
of the products of the numbers of years from the date of determination to the
dates of each successive scheduled principal payment of such Indebtedness or
redemption or similar payment with respect to such Preferred Stock multiplied by
the amount of such payment by (ii) the sum of all such payments.
"Bank Indebtedness" means any and all amounts payable under or in respect
of the Credit Agreement and any Refinancing Indebtedness with respect thereto,
as amended from time to time, including principal, premium (if any), interest
(including interest accruing on or after the filing of any petition in
bankruptcy or for reorganization relating to WESCO Distribution whether or not a
claim for post-filing interest is allowed in such proceedings), fees, charges,
expenses, reimbursement obligations, Guarantees and all other amounts payable
thereunder or in respect thereof.
"Board of Directors" means the Board of Directors of WESCO Distribution or
any committee thereof duly authorized to act on behalf of such Board.
"Business Day" means each day which is not a Legal Holiday.
"Capital Stock" of any Person means any and all shares, interests, rights
to purchase, warrants, options, participations or other equivalents of or
interests in (however designated) equity of such Person, including any Preferred
Stock, but excluding any debt securities convertible into such equity.
"Capitalized Lease Obligations" means an obligation that is required to be
classified and accounted for as a capitalized lease for financial reporting
purposes in accordance with GAAP, and the amount of Indebtedness represented by
such obligation shall be the capitalized amount of such obligation determined in
accordance with GAAP; and the Stated Maturity thereof shall be the date of the
last payment of rent or any other amount due under such
86
92
lease prior to the first date upon which such lease may be prepaid by the lessee
without payment of a penalty.
"Closing Date" means the date of the Indenture.
"Code" means the Internal Revenue Code of 1986, as amended.
"Consolidated Coverage Ratio" as of any date of determination means the
ratio of (i) the aggregate amount of EBITDA for the period of the most recent
four consecutive fiscal quarters for which internal financial statements are
available prior to the date of such determination to (ii) Consolidated Interest
Expense for such four fiscal quarters; provided, however, that (A) if WESCO
Distribution or any Restricted Subsidiary has Incurred any Indebtedness since
the beginning of such period that remains outstanding on such date of
determination or if the transaction giving rise to the need to calculate the
Consolidated Coverage Ratio is an Incurrence of Indebtedness, EBITDA and
Consolidated Interest Expense for such period shall be calculated after giving
effect on a pro forma basis to such Indebtedness as if such Indebtedness had
been Incurred on the first day of such period and the discharge of any other
Indebtedness repaid, repurchased, defeased or otherwise discharged with the
proceeds of such new Indebtedness as if such discharge had occurred on the first
day of such period (except that, in making such computation, the amount of
Indebtedness under any revolving credit facility outstanding on the date of such
calculation shall be computed based on (1) the average daily balance of such
Indebtedness (and any Indebtedness under a revolving credit facility replaced by
such Indebtedness) during such four fiscal quarters or such shorter period when
such facility and any replaced facility was outstanding or (2) if such facility
was created after the end of such four fiscal quarters, the average daily
balance of such Indebtedness (and any Indebtedness under a revolving credit
facility replaced by such Indebtedness) during the period from the date of
creation of such facility to the date of the calculation), (B) if WESCO
Distribution or any Restricted Subsidiary has repaid, repurchased, defeased or
otherwise discharged any Indebtedness since the beginning of such period or if
any Indebtedness is to be repaid, repurchased, defeased or otherwise discharged
(in each case other than Indebtedness Incurred under any revolving credit
facility unless such Indebtedness has been permanently repaid and has not been
replaced) on the date of the transaction giving rise to the need to calculate
the Consolidated Coverage Ratio, EBITDA and Consolidated Interest Expense for
such period shall be calculated on a pro forma basis as if such discharge had
occurred on the first day of such period and as if WESCO Distribution or such
Restricted Subsidiary has not earned the interest income actually earned during
such period in respect of cash or Temporary Cash Investments used to repay,
repurchase, defease or otherwise discharge such Indebtedness, (C) if since the
beginning of such period WESCO Distribution or any Restricted Subsidiary shall
have made any Asset Disposition, the EBITDA for such period shall be reduced by
an amount equal to the EBITDA (if positive) directly attributable to the assets
that are the subject of such Asset Disposition for such period or increased by
an amount equal to the EBITDA (if negative) directly attributable thereto for
such period and Consolidated Interest Expense for such period shall be reduced
by an amount equal to the Consolidated Interest Expense directly attributable to
any Indebtedness of WESCO Distribution or any Restricted Subsidiary repaid,
repurchased, defeased or otherwise discharged with respect to WESCO Distribution
and its continuing Restricted Subsidiaries in connection with such Asset
Disposition for such period (or, if the Capital Stock of any Restricted
Subsidiary is sold, the Consolidated Interest Expense for such period directly
attributable to the Indebtedness of such Restricted Subsidiary to the extent
WESCO Distribution and its continuing Restricted Subsidiaries are no longer
liable for such Indebtedness after such sale), (D) if since the beginning of
such period WESCO Distribution or any Restricted Subsidiary (by merger or
otherwise) shall have made an Investment in any Restricted Subsidiary (or any
Person that becomes a Restricted Subsidiary) or an acquisition of assets,
including any acquisition of assets occurring in connection with a transaction
causing a calculation to be made hereunder, which constitutes all or
substantially all of an operating unit
87
93
of a business, EBITDA and Consolidated Interest Expense for such period shall be
calculated after giving pro forma effect thereto (including the Incurrence of
any Indebtedness) as if such Investment or acquisition occurred on the first day
of such period and (E) if since the beginning of such period any Person (that
subsequently became a Restricted Subsidiary or was merged with or into WESCO
Distribution or any Restricted Subsidiary since the beginning of such period)
shall have made any Asset Disposition or any Investment or acquisition of assets
that would have required an adjustment pursuant to clause (C) or (D) above if
made by WESCO Distribution or a Restricted Subsidiary during such period, EBITDA
and Consolidated Interest Expense for such period shall be calculated after
giving pro forma effect thereto as if such Asset Disposition, Investment or
acquisition of assets occurred on the first day of such period. For purposes of
this definition, whenever pro forma effect is to be given to an acquisition of
assets, the amount of income or earnings relating thereto and the amount of
Consolidated Interest Expense associated with any Indebtedness Incurred in
connection therewith, the pro forma calculations shall be determined in good
faith by a responsible financial or accounting Officer of WESCO Distribution,
and such pro forma calculations shall include (A)(x) the savings in cost of
goods sold that would have resulted from using WESCO Distribution's actual costs
for comparable goods and services during the comparable period and (y) other
savings in cost of goods sold or eliminations of selling, general and
administrative expenses as determined by a responsible financial or accounting
officer of WESCO Distribution in good faith in connection with WESCO
Distribution's consideration of such acquisition and consistent with WESCO
Distribution's experience in acquisitions of similar assets, less (B) the
incremental expenses that would be included in cost of goods sold and selling,
general and administrative expenses that would have been incurred by WESCO
Distribution in the operation of such acquired assets during such period. If any
Indebtedness bears a floating rate of interest and is being given pro forma
effect, the interest expense on such Indebtedness shall be calculated as if the
rate in effect on the date of determination had been the applicable rate for the
entire period (taking into account any Interest Rate Agreement applicable to
such Indebtedness if such Interest Rate Agreement has a remaining term as at the
date of determination in excess of 12 months).
"Consolidated Interest Expense" means, for any period, the total interest
expense (net of interest income) of WESCO Distribution and its Consolidated
Restricted Subsidiaries, plus, to the extent Incurred by WESCO Distribution and
its Restricted Subsidiaries in such period but not included in such interest
expense, (i) interest expense attributable to Capitalized Lease Obligations and
the interest expense attributable to leases constituting part of a
Sale/Leaseback Transaction, (ii) amortization of debt discount, (iii)
capitalized interest, (iv) non-cash interest expense, (v) commissions, discounts
and other fees and charges attributable to letters of credit and bankers'
acceptance financing, (vi) interest accruing on any Indebtedness of any other
Person to the extent such Indebtedness is Guaranteed by WESCO Distribution or
any Restricted Subsidiary, (vii) net costs associated with Hedging Obligations
(including amortization of fees), (viii) dividends in respect of all Preferred
Stock of WESCO Distribution and any of the Restricted Subsidiaries of WESCO
Distribution (other than pay in kind dividends and accretions to liquidation
value) to the extent held by Persons other than WESCO Distribution or a Wholly
Owned Subsidiary, (ix) interest Incurred in connection with investments in
discontinued operations and (x) the cash contributions to any employee stock
ownership plan or similar trust to the extent such contributions are used by
such plan or trust to pay interest or fees to any Person (other than WESCO
Distribution) in connection with Indebtedness Incurred by such plan or trust,
less, to the extent included in such total interest expense, the amortization
during such period of capitalized financing costs. Notwithstanding anything to
the contrary contained herein, interest expense, commissions, discounts, yield
and other fees and charges Incurred in connection with any Qualified Receivables
Transaction pursuant to which WESCO Distribution or any Subsidiary may sell,
convey or otherwise transfer or grant a security interest in any accounts
receivable or related assets of the type specified in the definition of
"Qualified Receivables Transaction" shall not be included in Consolidated
Interest Expense; provided that
88
94
any interest expense, commissions, discounts, yield and other fees and charges
Incurred in connection with any receivables financing or securitization that
does not constitute a Qualified Receivables Transaction shall be included in
Consolidated Interest Expense.
"Consolidated Net Income" means, for any period, the net income of WESCO
Distribution and its Consolidated Subsidiaries for such period; provided,
however, that there shall not be included in such Consolidated Net Income: (i)
any net income of any Person (other than WESCO Distribution) if such Person is
not a Restricted Subsidiary, except that (A) subject to the limitations
contained in clause (iv) below, WESCO Distribution's equity in the net income of
any such Person for such period shall be included in such Consolidated Net
Income up to the aggregate amount of cash actually distributed by such Person
during such period to WESCO Distribution or a Restricted Subsidiary as a
dividend or other distribution (subject, in the case of a dividend or other
distribution made to a Restricted Subsidiary, to the limitations contained in
clause (iii) below) and (B) WESCO Distribution's equity in a net loss of any
such Person for such period shall be included in determining such Consolidated
Net Income; (ii) any net income (or loss) of any person acquired by WESCO
Distribution or a Subsidiary in a pooling of interests transaction for any
period prior to the date of such acquisition; (iii) any net income (or loss) of
any Restricted Subsidiary if such Restricted Subsidiary is subject to
restrictions, directly or indirectly, on the payment of dividends or the making
of distributions by such Restricted Subsidiary, directly or indirectly, to WESCO
Distribution, except that (A) subject to the limitations contained in clause
(iv) below, WESCO Distribution's equity in the net income of any such Restricted
Subsidiary for such period shall be included in such Consolidated Net Income up
to the aggregate amount of cash which could have been distributed by such
Restricted Subsidiary during such period to WESCO Distribution or another
Restricted Subsidiary as a dividend or other distribution (subject, in the case
of a dividend or other distribution made to another Restricted Subsidiary, to
the limitation contained in this clause) and (B) WESCO Distribution's equity in
a net loss of any such Restricted Subsidiary for such period shall be included
in determining such Consolidated Net Income; (iv) any gain (or loss) realized
upon the sale or other disposition of any asset of WESCO Distribution or its
Consolidated Subsidiaries (including pursuant to any Sale/Leaseback Transaction)
that is not sold or otherwise disposed of in the ordinary course of business and
any gain (or loss) realized upon the sale or other disposition of any Capital
Stock of any Person; (v) any extraordinary gain or loss; (vi) the cumulative
effect of a change in accounting principles; and (vii) any expenses or charges
paid to third parties related to any Equity Offering, Permitted Investment,
acquisition, recapitalization or Indebtedness permitted to be Incurred by the
Indenture (whether or not successful) (including such fees, expenses, or charges
related to the Recapitalization). Notwithstanding the foregoing, for the purpose
of the covenant described under "Certain Covenants -- Limitation on Restricted
Payments" only, there shall be excluded from Consolidated Net Income any
dividends, repayments of loans or advances or other transfers of assets from
Unrestricted Subsidiaries to WESCO Distribution or a Restricted Subsidiary to
the extent such dividends, repayments or transfers increase the amount of
Restricted Payments permitted under such covenant pursuant to clause (a)(3)(D)
thereof.
"Consolidated Net Worth" means the total of the amounts shown on the
balance sheet of WESCO Distribution and its Restricted Subsidiaries, determined
on a Consolidated basis, as of the end of the most recent fiscal quarter of
WESCO Distribution for which internal financial statements are available, as (i)
the par or stated value of all outstanding Capital Stock of WESCO Distribution
plus (ii) paid-in capital or capital surplus relating to such Capital Stock plus
(iii) any retained earnings or earned surplus less (A) any accumulated deficit
and (B) any amounts attributable to Disqualified Stock.
"Consolidation" means the consolidation of the amounts of each of the
Restricted Subsidiaries with those of WESCO Distribution in accordance with GAAP
consistently applied; provided, however, that "Consolidation" will not include
consolidation of the accounts of any
89
95
Unrestricted Subsidiary, but the interest of WESCO Distribution or any
Restricted Subsidiary in an Unrestricted Subsidiary will be accounted for as an
investment. The term "Consolidated" has a correlative meaning.
"Credit Agreement" means the credit agreement dated as of June 29, 1999, as
amended, waived or otherwise modified from time to time, among WESCO
International, WESCO Distribution, WESCO Distribution -- Canada, Inc., certain
financial institutions to be party thereto, The Chase Manhattan Bank, as U.S.
administrative agent, syndication agent and U.S. collateral agent, The Chase
Manhattan Bank of Canada, as Canadian administrative agent and Canadian
collateral agent, and Lehman Commercial Paper Inc., as documentation agent.
"Credit Facilities" means, with respect to WESCO Distribution, one or more
debt facilities, or commercial paper facilities with banks or other
institutional lenders or indentures providing for revolving credit loans, term
loans, receivables financing (including through the sale of receivables to such
lenders or to special purpose entities formed to borrow from such lenders
against receivables), letters of credit or other long-term Indebtedness, in each
case, as amended, restated, modified, renewed, refunded, replaced or refinanced
in whole or in part from time to time.
"Currency Agreement" means with respect to any Person any foreign exchange
contract, currency swap agreement or other similar agreement or arrangement to
which such Person is a party or of which it is a beneficiary.
"Default" means any event which is, or after notice or passage of time or
both would be, an Event of Default.
"Designated Noncash Consideration" means the fair market value of noncash
consideration received by WESCO Distribution or any of its Restricted
Subsidiaries in connection with an Asset Disposition that is so designated as
Designated Noncash Consideration pursuant to an officers, Certificate, setting
forth the basis of such valuation, less the amount of cash or cash equivalents
received in connection with a subsequent sale of such Designated Noncash
Consideration.
"Designated Senior Indebtedness" of WESCO Distribution means (i) the Bank
Indebtedness and (ii) any other Senior Indebtedness of WESCO Distribution that,
at the date of determination, has an aggregate principal amount outstanding of,
or under which, at the date of determination, the holders thereof are committed
to lend up to at least $25.0 million and is specifically designated by WESCO
Distribution in the instrument evidencing or governing such Senior Indebtedness
as "Designated Senior Indebtedness" for purposes of the Indenture. "Designated
Senior Indebtedness" of WESCO International has a correlative meaning.
"Disqualified Stock" means, with respect to any Person, any Capital Stock
which by its terms (or by the terms of any security into which it is convertible
or for which it is exchangeable or exercisable) or upon the happening of any
event (i) matures or is mandatorily redeemable pursuant to a sinking fund
obligation or otherwise, (ii) is convertible or exchangeable for Indebtedness or
Disqualified Stock or (iii) is redeemable at the option of the holder thereof,
in whole or in part, in each case on or prior to the 91st day following the
Stated Maturity of the notes; provided, however, that any Capital Stock that
would not constitute Disqualified Stock but for provisions thereof giving
holders thereof the right to require such Person to repurchase or redeem such
Capital Stock upon the occurrence of an "asset sale" or "change of control"
occurring prior to the first anniversary of the Stated Maturity of the
Securities shall not constitute Disqualified Stock if the "asset sale" or
"change of control" provisions applicable to such Capital Stock are not more
favorable to the holders of such Capital Stock than the provisions of the
covenants described under "-- Change of Control" and "-- Certain
Covenants -- Limitation on Sale of Assets and Subsidiary Stock."
90
96
"EBITDA" for any period means the Consolidated Net Income for such period,
plus the following to the extent deducted in calculating such Consolidated Net
Income: (i) income tax expense of WESCO Distribution and its Consolidated
Restricted Subsidiaries, (ii) Consolidated Interest Expense, (iii) depreciation
expense of WESCO Distribution and its Consolidated Restricted Subsidiaries, (iv)
amortization expense of WESCO Distribution and its Consolidated Restricted
Subsidiaries (excluding amortization expense attributable to a prepaid cash item
that was paid in a prior period), (v) all other non-cash charges of WESCO
Distribution and its Consolidated Restricted Subsidiaries (excluding any such
non-cash charge to the extent it represents an accrual of or reserve for cash
expenditures in any future period) in each case for such period and (vi) income
attributable to discontinued operations. Notwithstanding the foregoing, the
provision for taxes based on the income or profits of, and the depreciation and
amortization and non-cash charges of, a Restricted Subsidiary of WESCO
Distribution shall be added to Consolidated Net Income to compute EBITDA only to
the extent (and in the same proportion) that the net income of such Restricted
Subsidiary was included in calculating Consolidated Net Income and only if a
corresponding amount would be permitted at the date of determination to be
dividended to WESCO Distribution by such Restricted Subsidiary without prior
approval (that has not been obtained), pursuant to the terms of its charter and
all agreements, instruments, judgments, decrees, orders, statutes, rules and
governmental regulations applicable to such Restricted Subsidiary or its
stockholders.
"Equity Offering" means a private sale or public offering of Capital Stock
(other than Disqualified Stock) of WESCO Distribution or WESCO International.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Excluded Contribution" means the Net Cash Proceeds received by WESCO
Distribution from (a) contributions to its common equity capital and (b) the
sale (other than to a Subsidiary or to any Company or Subsidiary management
equity plan or stock option plan or any other management or employee benefit
plan or agreement) of Capital Stock (other than Disqualified Stock) of WESCO
Distribution, in each case designated as Excluded Contributions pursuant to an
Officers' Certificate executed by the principal executive officer and the
principal financial officer of WESCO Distribution on the date such capital
contributions are made or the date such Capital Stock is sold.
"GAAP" means generally accepted accounting principles in the United States
of America as in effect as of June 5, 1998, including those set forth in (i) the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants, (ii) statements and pronouncements of
the Financial Accounting Standards Board, (iii) such other statements by such
other entity as approved by a significant segment of the accounting profession
and (iv) the rules and regulations of the SEC governing the inclusion of
financial statements (including pro forma financial statements) in periodic
reports required to be filed pursuant to Section 13 of the Exchange Act,
including opinions and pronouncements in staff accounting bulletins and similar
written statements from the accounting staff of the SEC. All ratios and
computations based on GAAP contained in the Indenture shall be computed in
conformity with GAAP.
"Guarantee" means any obligation, contingent or otherwise, of any Person
directly or indirectly guaranteeing any Indebtedness of any other Person and any
obligation, direct or indirect, contingent or otherwise, of such Person (i) to
purchase or pay (or advance or supply funds for the purchase or payment of) such
Indebtedness of such other Person (whether arising by virtue of partnership
arrangements, or by agreement to keep-well, to purchase assets, goods,
securities or services, to take-or-pay, or to maintain financial statement
conditions or otherwise) or (ii) entered into for purposes of assuring in any
other manner the obligee of such Indebtedness of the payment thereof or to
protect such obligee against loss in respect thereof (in whole or in part);
provided, however, that the term "Guarantee" shall not include
91
97
endorsements for collection or deposit in the ordinary course of business. The
term "Guarantee" used as a verb has a corresponding meaning. The term
"Guarantor" shall mean any Person Guaranteeing any obligation.
"Hedging Obligations" of any Person means the obligations of such Person
pursuant to any Interest Rate Agreement or Currency Agreement.
"Incur" means issue, assume, Guarantee, incur or otherwise become liable
for; provided, however, that any Indebtedness or Capital Stock of a Person
existing at the time such Person becomes a Subsidiary (whether by merger,
consolidation, acquisition or otherwise) shall be deemed to be Incurred by such
Person at the time it becomes a Subsidiary. The term "Incurrence" when used as a
noun shall have a correlative meaning. The accretion of principal of a
non-interest bearing or other discount security shall not be deemed the
Incurrence of Indebtedness.
"Indebtedness" means, with respect to any Person on any date of
determination (without duplication), (i) the principal of and premium (if any)
in respect of indebtedness of such Person for borrowed money; (ii) the principal
of and premium (if any) in respect of obligations of such Person evidenced by
bonds, debentures, notes or other similar instruments; (iii) all obligations of
such Person in respect of letters of credit or other similar instruments
(including reimbursement obligations with respect thereto) (other than
obligations with respect to letters of credit securing obligations (other than
obligations described in clauses (i), (ii), (iv) and (v) hereof) to the extent
such letters of credit are not drawn upon or, if and to the extent drawn upon,
such drawing is reimbursed no later than the 30th day following payment on the
letter of credit so long as such letter of credit is entered into in the
ordinary course of business); (iv) all obligations of such Person to pay the
deferred and unpaid purchase price of property or services (except Trade
Payables), which purchase price is due more than six months after the date of
placing such property in service or taking delivery and title thereto or the
completion of such services; (v) all Capitalized Lease Obligations and all
Attributable Debt of such Person; (vi) the amount of all obligations of such
Person with respect to the redemption, repayment or other repurchase of any
Disqualified Stock or, with respect to any Subsidiary of such Person, any
Preferred Stock (but excluding, in each case, any accrued dividends); (vii) all
Indebtedness of other Persons secured by a Lien on any asset of such Person,
whether or not such Indebtedness is assumed by such Person; provided, however,
that the amount of Indebtedness of such Person shall be the lesser of (A) the
fair market value of such asset at such date of determination and (B) the amount
of such Indebtedness of such other Persons; (viii) to the extent not otherwise
included in this definition, Hedging Obligations of such Person; and (ix) all
obligations of the type referred to in clauses (i) through (viii) of other
Persons and all dividends of other Persons for the payment of which, in either
case, such Person is responsible or liable, directly or indirectly, as obligor,
guarantor or otherwise, including by means of any Guarantee. The amount of
Indebtedness of any Person at any date shall be the outstanding balance at such
date of all unconditional obligations as described above and the maximum
liability, upon the occurrence of the contingency giving rise to the obligation,
of any contingent obligations at such date; provided, however, that the amount
outstanding at any time of any Indebtedness Incurred with original issue
discount is the face amount of such Indebtedness leas the remaining unamortized
portion of the original issue discount of such Indebtedness at such time as
determined in conformity with GAAP. Any "Qualified Receivables Transaction",
whether or not such transfer constitutes a sale for the purposes of GAAP, shall
not constitute Indebtedness hereunder; provided that any receivables financing
or securitization that does not constitute a Qualified Receivables Transaction
and does not qualify as a sale under GAAP shall constitute Indebtedness
hereunder.
"Independent Financial Advisor" means an accounting, appraisal, investment
banking firm or consultant of nationally recognized standing that is, in the
good faith determination of WESCO Distribution, qualified to perform the task
for which it has been engaged.
92
98
"Interest Rate Agreement" means with respect to any Person any interest
rate protection agreement, interest rate future agreement, interest rate option
agreement, interest rate swap agreement, interest rate cap agreement, interest
rate collar agreement, interest rate hedge agreement or other similar agreement
or arrangement as to which such Person is party or a beneficiary.
"Investment" in any Person means any direct or indirect advance, loan
(other than advances to customers in the ordinary course of business that are
recorded as accounts receivable on the balance sheet of the lender) or other
extension of credit (including by way of Guarantee or similar arrangement) or
capital contribution to (by means of any transfer of cash or other property to
others or any payment for property or services for the account or use of
others), or any purchase or acquisition of Capital Stock, Indebtedness or other
similar instruments issued by such Person. For purposes of the definition of
"Unrestricted Subsidiary" and the covenant described under "-- Certain
Covenants -- Limitation on Restricted Payments", (i) "Investment" shall include
the portion (proportionate to WESCO Distribution's equity interest in such
Subsidiary) of the fair market value of the net assets of any Subsidiary of
WESCO Distribution at the time that such Subsidiary is designated an
Unrestricted Subsidiary; provided, however, that upon a redesignation of such
Subsidiary as a Restricted Subsidiary, WESCO Distribution shall be deemed to
continue to have a permanent "Investment" in an Unrestricted Subsidiary in an
amount (if positive) equal to (x) WESCO Distribution's "Investment" in such
Subsidiary at the time of such redesignation less (y) the portion (proportionate
to WESCO Distribution's equity interest in such Subsidiary) of the fair market
value of the net assets of such Subsidiary at the time of such redesignation;
and (ii) any property transferred to or from an Unrestricted Subsidiary shall be
valued at its fair market value at the time of such transfer, in each case as
determined in good faith by the Board of Directors.
"Lien" means any mortgage, pledge, security interest, encumbrance, lien or
charge of any kind (including any conditional sale or other title retention
agreement or lease in the nature thereof).
"Net Available Cash" from an Asset Disposition means cash payments received
(including (a) any cash payments received upon the sale or other disposition of
any Designated Noncash Consideration received in any Asset Disposition, (b) any
cash proceeds received by way of deferred payment of principal pursuant to a
note or installment receivable or otherwise and (c) any cash proceeds from the
sale or other disposition of any securities received as consideration, but only
as and when received, but excluding any other consideration received in the form
of assumption by the acquiring Person of Indebtedness or other obligations
relating to the properties or assets that are the subject of such Asset
Disposition or received in any other non-cash form) therefrom, in each case net
of (i) all legal, title and recording tax expenses, commissions and other fees
and expenses incurred (including, without limitation, all broker's and finder's
fees and expenses, all investment banking fees and expenses, employee severance
and termination costs, and trade payable and similar liabilities solely related
to the assets sold or otherwise disposed of and required to be paid by the
seller as a result thereof), and all Federal, state, provincial, foreign and
local taxes required to be paid or accrued as a liability under GAAP, as a
consequence of such Asset Disposition, (ii) all relocation expenses incurred as
a result thereof, (iii) all payments made on any Indebtedness which is secured
by any assets subject to such Asset Disposition, in accordance with the terms of
any Lien upon or other security agreement of any kind with respect to such
assets, or which must by its terms, or in order to obtain a necessary consent to
such Asset Disposition, or by applicable law be repaid out of the proceeds from
such Asset Disposition, (iv) all distributions and other payments required to be
made to minority interest holders in Subsidiaries or joint ventures as a result
of such Asset Disposition and (v) appropriate amounts to be provided by the
seller as a reserve, in accordance with GAAP, against any liabilities associated
with the property or other assets
93
99
disposed of in such Asset Disposition and retained by WESCO Distribution or any
Restricted Subsidiary after such Asset Disposition.
"Net Cash Proceeds", with respect to any issuance or sale of Capital Stock,
means the cash proceeds of such issuance or sale net of attorneys' fees,
accountants' fees, underwriters' or placement agents' fees, discounts or
commissions and brokerage, consultant and other fees actually incurred in
connection with such issuance or sale and net of taxes paid or payable as a
result thereof.
"1998 Notes" means the $300,000,000 aggregate principal amount of WESCO
Distribution's 9 1/8% Senior Subordinated Notes due 2008 issued under the 1998
Notes Indenture.
"1998 Notes Indenture" means the indenture dated as of June 5, 1998, among
WESCO Distribution, Inc., WESCO International, Inc. and Bank One, N.A., under
which the 1998 Notes were issued.
"Noteholder" means the Person in whose name a note is registered on the
registrar's books.
"Officer" means the Chairman of the Board, the Chief Executive Officer, the
Chief Financial Officer, the President, any Vice President, the Treasurer, any
Assistant Treasurer, the Secretary or any Assistant Secretary of WESCO
Distribution.
"Officers' Certificate" means a certificate signed by two Officers.
"Opinion of Counsel" means a written opinion from legal counsel who is
acceptable to the Trustee. The counsel may be an employee of or counsel to WESCO
Distribution or the Trustee.
"Permitted Holders" means: (i) The Cypress Group L.L.C., Cypress Merchant
Banking Partners L.P., Cypress Offshore Partners L.P., Chase Equity Associates,
L.P., Co-Investment Partners, L.P. and any Person who on June 5, 1998 was an
Affiliate of any of the foregoing; (ii) any Person who is a member of the senior
management of WESCO Distribution or WESCO International and a stockholder of
WESCO International on June 5, 1998; and (iii) any Person acting in the capacity
of an underwriter in connection with a public or private offering of WESCO
Distribution's or WESCO International's Capital Stock.
"Permitted Investment" means an Investment by WESCO Distribution or any
Restricted Subsidiary in (i) WESCO Distribution, a Restricted Subsidiary or a
Person that will, upon the making of such Investment, become a Restricted
Subsidiary; (ii) another Person if as a result of such Investment such other
Person is merged or consolidated with or into, or transfers or conveys all or
substantially all its assets to, WESCO Distribution or a Restricted Subsidiary;
(iii) Temporary Cash Investments; (iv) receivables owing to WESCO Distribution
or any Restricted Subsidiary if created or acquired in the ordinary course of
business and payable or dischargeable in accordance with customary trade terms;
provided, however, that such trade terms may include such concessionary trade
terms as WESCO Distribution or any such Restricted Subsidiary deems reasonable
under the circumstances; (v) payroll, travel and similar advances to cover
matters that are expected at the time of such advances ultimately to be treated
as expenses for accounting purposes and that are made in the ordinary course of
business; (vi) loans or advances to employees made in the ordinary course of
business consistent with past practices of WESCO Distribution or such Restricted
Subsidiary and not exceeding $5.0 million in the aggregate outstanding at any
one time; (vii) stock, obligations or securities received in settlement of debts
created in the ordinary course of business and owing to WESCO Distribution or
any Restricted Subsidiary or in satisfaction of judgments; (viii) any Person to
the extent such Investment represents the non-cash portion of the consideration
received for an Asset Disposition that was made pursuant to and in compliance
with the covenant described under "-- Certain Covenants -- Limitation on Sale of
Assets and Subsidiary Stock"; (ix) Investments made in connection with any Asset
Disposition or other sale, lease, transfer or
94
100
other disposition permitted under the Indenture; (x) a Receivables Entity or any
Investment by a Receivables Entity in any other Person in connection with a
Qualified Receivables Transaction, including Investments of funds held in
accounts permitted or required by the arrangements governing such Qualified
Receivables Transaction or any related Indebtedness; provided that any
Investment in a Receivables Entity is in the form of a Purchase Money Note,
contribution of additional receivables or an equity interest; (xi) Investments
in a Related Business having an aggregate fair market value, taken together with
all other Investments made pursuant to this clause (xi) that are at that time
outstanding (and not including any Investments outstanding on the Closing Date,
but including Investments made on or after June 5, 1998 pursuant to the
corresponding clause of the definition of "Permitted Investment" in the 1998
Notes Indenture), not to exceed 5% of Adjusted Consolidated Assets at the time
of such Investments (with the fair market value of each Investment being
measured at the time made and without giving effect to subsequent changes in
value); and (xii) additional Investments in an aggregate amount which, together
with all other Investments made pursuant to this clause that are then
outstanding, does not exceed $10.0 million (provided that such amount shall be
reduced by all outstanding Investments made pursuant to the corresponding clause
of the definition of "Permitted Investment" in the 1998 Notes Indenture prior to
the Closing Date).
"Permitted Liens" means (a) Liens of WESCO Distribution and its Restricted
Subsidiaries securing Indebtedness of WESCO Distribution or any of its
Restricted Subsidiaries Incurred under the Credit Agreement or other Credit
Facilities to the extent permitted to be Incurred under clause (b)(i) and (xiii)
of the description of the "Limitation on Indebtedness" covenant; (b) Liens in
favor of WESCO Distribution or its Wholly Owned Restricted Subsidiaries; (c)
Liens on property of a Person existing at the time such Person becomes a
Restricted Subsidiary of WESCO Distribution or is merged into or consolidated
with WESCO Distribution or any Restricted Subsidiary of WESCO Distribution;
provided that such Liens were not Incurred in connection with, or in
contemplation of, such merger or consolidation and such Liens do not extend to
or cover any property other than such property, improvements thereon and any
proceeds therefrom; (d) Liens of WESCO Distribution securing Indebtedness of
WESCO Distribution Incurred under clause (b)(v) of the description of the
"-- Limitation on Indebtedness" covenant; (e) Liens of WESCO Distribution and
its Restricted Subsidiaries securing Indebtedness of WESCO Distribution or any
of its Restricted Subsidiaries (including under a Sale/ Leaseback Transaction)
permitted to be Incurred under clause (b)(vi), (vii) and (viii) of the
description of the "-- Limitation on Indebtedness" covenant so long as the
Capital Stock, property (real or personal) or equipment to which such Lien
attaches solely consists of the Capital Stock, property or equipment which is
the subject of such acquisition, purchase, lease, improvement, Sale/Leaseback
Transaction and additions and improvements thereto (and the proceeds therefrom);
(f) Liens on property existing at the time of acquisition thereof by WESCO
Distribution or any Restricted Subsidiary of WESCO Distribution; provided that
such Liens were not Incurred in connection with, or in contemplation of, such
acquisition and such Liens do not extend to or cover any property other than
such property, additions and improvements thereon and any proceeds therefrom;
(g) Liens Incurred or deposits made to secure the performance of tenders, bids,
leases, statutory obligations, surety or appeal bonds, government contracts,
performance and return of money bonds or other obligations of a like nature
Incurred in the ordinary course of business; (h) Liens existing on June 5, 1998
and any additional Liens created under the terms of the agreements relating to
such Liens existing on June 5, 1998; (i) Liens for taxes, assessments or
governmental charges or claims that are not yet delinquent or that are being
contested in good faith by appropriate proceedings; provided that any reserve or
other appropriate provision as shall be required in conformity with GAAP shall
have been made therefor; (j) Liens Incurred in the ordinary course of business
of WESCO Distribution or any Restricted Subsidiary with respect to obligations
that do not exceed $20.0 million in the aggregate at any one time outstanding
and that (1) are not Incurred in connection with or in contemplation of the
borrowing of money or the obtaining of advances
95
101
or credit (other than trade credit in the ordinary course of business) and (2)
do not in the aggregate materially detract from the value of the property or
materially impair the use thereof in the operation of the business by WESCO
Distribution or such Restricted Subsidiary; (k) statutory Liens of landlords and
warehousemen's, carrier's, mechanics', suppliers', materialmen's, repairmen's or
other like Liens (including contractual landlords' liens) arising in the
ordinary course of business of WESCO Distribution and its Restricted
Subsidiaries; (l) Liens Incurred or deposits made in the ordinary course of
business of WESCO Distribution and its Restricted Subsidiaries in connection
with workers' compensation, unemployment insurance and other types of social
security; (m) easements, rights of way, restrictions, minor defects or
irregularities in title and other similar charges or encumbrances not
interfering in any material respect with the business of WESCO Distribution or
any of its Restricted Subsidiaries; (n) Liens securing reimbursement obligations
with respect to letters of credit permitted under the covenant entitled
"Limitation on Indebtedness" which encumber only cash and marketable securities
and documents and other property relating to such letters of credit and the
products and proceeds thereof; (o) judgment and attachment Liens not giving rise
to an Event of Default; (p) any interest or title of a lessor in the property
subject to any Capitalized Lease Obligation permitted under the covenant
entitled "Limitation on Indebtedness"; (q) Liens on accounts receivable and
related assets of the type specified in the definition of "Qualified Receivables
Transaction" Incurred in connection with a Qualified Receivables Transaction;
(r) Liens securing Refinancing Indebtedness to the extent such Liens do not
extend to or cover any property of WESCO Distribution not previously subjected
to Liens relating to the Indebtedness being refinanced; or (s) Liens on pledges
of the capital stock of any Unrestricted Subsidiary securing any Indebtedness of
such Unrestricted Subsidiary.
"Person" means any individual, corporation, partnership, limited liability
company, joint venture, association, joint-stock company, trust, unincorporated
organization, government or any agency or political subdivision thereof or any
other entity.
"Preferred Stock", as applied to the Capital Stock of any Person, means
Capital Stock of any class or classes (however designated) that is preferred as
to the payment of dividends, or as to the WESCO Distribution of assets upon any
voluntary or involuntary liquidation or dissolution of such Person, over shares
of Capital Stock of any other class of such Person.
"principal" of a note means the principal of the note plus the premium, if
any, payable on the note which is due or overdue or is to become due at the
relevant time.
"Purchase Money Note" means a promissory note of a Receivables Entity
evidencing a line of credit, which may be irrevocable, from WESCO Distribution
or any Subsidiary of WESCO Distribution in connection with a Qualified
Receivables Transaction to a Receivables Entity, which note (a) shall be repaid
from cash available to the Receivables Entity, other than (i) amounts required
to be established as reserves pursuant to agreements, (ii) amounts paid to
investors in respect of interest, (iii) principal and other amounts owing to
such investors and amounts owing to such investors, (iv) amounts required to pay
expenses in connection with such Qualified Receivables Transaction and (v)
amounts paid in connection with the purchase of newly generated receivables and
(b) may be subordinated to the payments described in (a).
"Qualified Receivables Transaction" means any financing by WESCO
Distribution or any of its Subsidiaries of accounts receivable in any
transaction or series of transactions that may be entered into by WESCO
Distribution or any of its Subsidiaries pursuant to which (a) WESCO Distribution
or any of its Subsidiaries sells, conveys or otherwise transfers to a
Receivables Entity and (b) a Receivables Entity sells, conveys or otherwise
transfers to any other Person or grants a security interest to any Person in,
any accounts receivable (whether now existing or arising in the future) of WESCO
Distribution or any of its Subsidiaries, and any assets related thereto
including, without limitation, all collateral securing such accounts receivable,
all contracts and all Guarantees or other obligations in respect of such
accounts receivable,
96
102
proceeds of such accounts receivable and other assets which are customarily
transferred or in respect of which security interests are customarily granted in
connection with asset securitization transactions involving accounts receivable;
provided that (i) the Board of Directors shall have determined in good faith
that such Qualified Receivables Transaction is economically fair and reasonable
to WESCO Distribution and the Receivables Entity and (ii) all sales of accounts
receivable and related assets to the Receivables Entity are made at fair market
value (as determined in good faith by WESCO Distribution). The grant of a
security interest in any accounts receivable of WESCO Distribution or any of its
Restricted Subsidiaries to secure Bank Indebtedness shall not be deemed a
Qualified Receivables Transaction.
"Receivables Entity" means any Wholly Owned Subsidiary of WESCO
Distribution (or another Person in which WESCO Distribution or any Subsidiary of
WESCO Distribution makes an Investment and to which WESCO Distribution or any
Subsidiary of WESCO Distribution transfers accounts receivable and related
assets) (i) which engages in no activities other than in connection with the
financing of accounts receivable, all proceeds thereof and all rights
(contractual or other), collateral and other assets relating thereto, and any
business or activities incidental or related to such business, (ii) which is
designated by the Board of Directors (as provided below) as a Receivables Entity
and (iii) no portion of the Indebtedness or any other obligations (contingent or
otherwise) of which (A) is Guaranteed by WESCO Distribution or any other
Subsidiary of WESCO Distribution (excluding Guarantees of obligations (other
than the principal of, and interest on, Indebtedness) pursuant to Standard
Securitization Undertakings), (B) is recourse to or obligates WESCO Distribution
or any other Subsidiary of WESCO Distribution in any way other than pursuant to
Standard Securitization Undertakings or (C) subjects any property or asset of
WESCO Distribution or any other Subsidiary of WESCO Distribution, directly or
indirectly, contingently or otherwise, to the satisfaction thereof, other than
pursuant to Standard Securitization Undertakings. Any such designation by the
Board of Directors shall be evidenced to the Trustee by filing with the Trustee
a certified copy of the resolution of the Board of Directors giving effect to
such designation and an Officers' Certificate certifying that such designation
complied with the foregoing conditions.
"Refinance" means, in respect of any Indebtedness, to refinance, extend,
renew, refund, repay, prepay, redeem, defease or retire, or to issue other
Indebtedness exchange or replacement for, such Indebtedness. "Refinanced" and
"Refinancing" shall have correlative meanings.
"Refinancing Indebtedness" means Indebtedness that is Incurred to refund,
refinance, replace, renew, repay or extend (including pursuant to any defeasance
or discharge mechanism) any Indebtedness of WESCO Distribution or any Restricted
Subsidiary existing on June 5, 1998 or Incurred in compliance with the Indenture
(including Indebtedness of WESCO Distribution that Refinances Refinancing
Indebtedness); provided, however, that (i) the Refinancing Indebtedness has a
Stated Maturity no earlier than the Stated Maturity of the Indebtedness being
Refinanced, (ii) the Refinancing Indebtedness has an Average Life at the time
such Refinancing Indebtedness is Incurred that is equal to or greater than the
Average Life of the Indebtedness being refinanced and (iii) such Refinancing
Indebtedness is Incurred in an aggregate principal amount (or if issued with
original issue discount, an aggregate issue price) that is equal to or less than
the aggregate principal amount (or if issued with original issue discount, the
aggregate accreted value) then outstanding of the Indebtedness being Refinanced
(plus any accrued interest and premium thereon and reasonable expenses Incurred
in connection therewith); provided further, however, that Refinancing
Indebtedness shall not include (x) Indebtedness of a Restricted Subsidiary that
Refinances Indebtedness of WESCO Distribution or (y) Indebtedness of WESCO
Distribution or a Restricted Subsidiary that Refinances Indebtedness of an
Unrestricted Subsidiary.
"Related Business" means any businesses of WESCO Distribution and the
Restricted Subsidiaries on June 5, 1998 and any business related, ancillary or
complementary thereto.
97
103
"Representative" means the trustee, agent or representative (if any) for an
issue of Senior Indebtedness of WESCO Distribution.
"Restricted Subsidiary" means any Subsidiary of WESCO Distribution other
than an Unrestricted Subsidiary.
"Sale/Leaseback Transaction" means an arrangement relating to property now
owned or hereafter acquired by WESCO Distribution or a Restricted Subsidiary
whereby WESCO Distribution or a Restricted Subsidiary transfers such property to
a Person and WESCO Distribution or such Restricted Subsidiary leases it from
such Person, other than leases between WESCO Distribution and a Wholly Owned
Subsidiary or between Wholly Owned Subsidiaries.
"SEC" means the Securities and Exchange Commission.
"Secured Indebtedness" means any indebtedness of WESCO Distribution secured
by a Lien. "Secured Indebtedness" of WESCO International has a correlative
meaning.
"Securities Act" means the Securities Act of 1933, as amended.
"Senior Subordinated Indebtedness" of WESCO Distribution means the 1998
Notes, the notes and any other Indebtedness of WESCO Distribution that
specifically provides that such Indebtedness is to rank pari passu with the
notes in right of payment and is not subordinated by its terms in right of
payment to any Indebtedness or other obligation of WESCO Distribution which is
not Senior Indebtedness. "Senior Subordinated Indebtedness" of WESCO
International has a correlative meaning.
"Significant Subsidiary" means any Restricted Subsidiary that would be a
"Significant Subsidiary" of WESCO Distribution within the meaning of Rule 1-02
under Regulation S-X promulgated by the SEC, but shall in no event include a
Receivables Entity.
"Standard Securitization Undertakings" means representations, warranties,
covenants and indemnities entered into by WESCO Distribution or any Subsidiary
of WESCO Distribution which WESCO Distribution has determined in good faith to
be customary in an accounts receivable transaction including, without
limitation, those relating to the servicing of the assets of a Receivables
Entity.
"Stated Maturity" means, with respect to any security, the date specified
in such security as the fixed date on which the final payment of principal of
ouch security is due and payable, including pursuant to any mandatory redemption
provision (but excluding any provision providing for the repurchase of such
security at the option of the holder thereof upon the happening of any
contingency beyond the control of the issuer unless such contingency has
occurred).
"Subordinated Obligation" means any Indebtedness of WESCO Distribution
(whether outstanding on the Closing Date or thereafter Incurred) that is
subordinate or junior in right of payment to the notes pursuant to a written
agreement. "Subordinated Obligation" of WESCO International has a correlative
meaning.
"Subsidiary" of any Person means any corporation, association, partnership
or other business entity of which more than 50% of the total voting power of
shares of Capital Stock or other interests (including partnership interests)
entitled (without regard to the occurrence of any contingency) to vote in the
election of directors, managers or trustees thereof is at the time owned or
controlled, directly or indirectly, by (i) such Person, (ii) such Person and one
or more Subsidiaries of such Person or (iii) one or more Subsidiaries of such
Person.
"Temporary Cash Investments" means any of the following: (i) any investment
in direct obligations of the United States of America or any agency thereof or
obligations Guaranteed by the United States of America or any agency thereof,
(ii) investments in time deposit accounts, certificates of deposit and money
market deposits maturing within one year of the
98
104
date of acquisition thereof issued by a bank or trust company that is organized
under the laws of the United States of America, any state thereof or any foreign
country recognized by the United States of America having capital, surplus and
undivided profits aggregating in excess of $100,000,000 (or the foreign currency
equivalent thereof) and whose long-term debt is rated "A" (or such similar
equivalent rating) or higher by at least one nationally recognized statistical
rating organization (as defined in Rule 436 under the Securities Act) or any
money market fund sponsored by a registered broker-dealer or mutual fund
distributor, (iii) repurchase obligations with a term of not more than 30 days
for underlying securities of the types described in clause (i) above entered
into with a financial institution meeting the qualifications described in clause
(ii) above, (iv) investments in commercial paper, maturing not more than one
year after the date of acquisition, issued by a corporation (other than an
Affiliate of WESCO Distribution) organized and in existence under the laws of
the United States of America or any foreign country recognized by the United
States of America with a rating at the time as of which any investment therein
is made of "P-1" (or higher) according to Moody's Investors Service, Inc. or
"A-1" (or higher) according to Standard and Poor's Ratings Service, a division
of The McGraw-Hill Companies, Inc. ("S&P"), and (v) investments in securities
with maturities of one year or less from the date of acquisition issued or fully
Guaranteed by any state, commonwealth or territory of the United States of
America, or by any political subdivision or taxing authority thereof, and rated
at least "A" by S&P or "A" by Moody's Investors Service, Inc.
"TIA" means the Trust Indenture Act of 1939 (15 U.S.C.
sec.sec. 77aaa-77bbbb) as in effect on the date of the Indenture.
"Trade Payables" means, with respect to any Person, any accounts payable or
any indebtedness or monetary obligation to trade creditors created, assumed or
Guaranteed by such Person arising in the ordinary course of business in
connection with the acquisition of goods or services.
"Treasury Rate" means the yield to maturity at the time of computation of
United States Treasury securities with a constant maturity (as compiled by, and
published in, the moat recent Federal Reserve Statistical Release H.15 (519)
which has become publicly available at least two Business Days prior to the date
fixed for redemption of the notes following a Change of Control (or, if such
Statistical Release is no longer published, any publicly available source of
similar market data)) most nearly equal to the period from the redemption date
to June 1, 2003; provided, however, that if the period from the redemption date
to June 1, 2003 is not equal to the constant maturity of a United States
Treasury security for which a weekly average yield is given, the Treasury Rate
shall be obtained by linear interpolation (calculated to the nearest one-twelfth
of a year) from the weekly average yields of United States Treasury securities
for which such yields are given, except that if the period from the redemption
date to June 1, 2003 is less than one year, the weekly average yield on actually
traded United States Treasury securities adjusted to a constant maturity of one
year shall be used.
"Trustee" means the party named as such in the Indenture until a successor
replaces it and, thereafter, means the successor.
"Trust Officer" means the Chairman of the Board, the President or any other
officer or assistant officer of the Trustee assigned by the Trustee to
administer its corporate trust matters.
"Unrestricted Subsidiary" means (i) any Subsidiary of WESCO Distribution
that at the time of determination shall be designated an Unrestricted Subsidiary
by the Board of Directors in the manner provided below and (ii) any Subsidiary
of an Unrestricted Subsidiary. The Board of Directors may designate any
Subsidiary of WESCO Distribution (including any newly acquired or newly formed
Subsidiary of WESCO Distribution) to be an Unrestricted Subsidiary unless such
Subsidiary or any of its Subsidiaries owns any Capital Stock or Indebtedness of,
or owns or holds any Lien on any property of, WESCO Distribution or any other
Subsidiary of WESCO Distribution that is not a Subsidiary of the Subsidiary to
be so designated; provided, however,
99
105
that either (A) the Subsidiary to be so designated has total Consolidated assets
of $1,000 or less or (B) if such Subsidiary has Consolidated assets greater than
$1,000, then such designation would be permitted under the covenant entitled
"Certain Covenants -- Limitation on Restricted Payments." The Board of Directors
may designate any Unrestricted Subsidiary to be a Restricted Subsidiary;
provided, however, that immediately after giving effect to such designation (x)
WESCO Distribution could Incur $1.00 of additional Indebtedness under paragraph
(a) of the covenant described under "Certain Covenants -- Limitation on
Indebtedness" and (y) no Default shall have occurred and be continuing. Any such
designation of a Subsidiary as a Restricted Subsidiary or Unrestricted
Subsidiary by the Board of Directors shall be evidenced to the Trustee by
promptly filing with the Trustee a copy of the resolution of the Board of
Directors giving effect to ouch designation and an Officers' Certificate
certifying that such designation complied with the foregoing provisions.
"U.S. Government Obligations" means direct obligations (or certificates
representing an ownership interest in such obligations) of the United States of
America (including any agency or instrumentality thereof) for the payment of
which the full faith and credit of the United States of America is pledged and
which are not callable or redeemable at the issuer's option.
"Voting Stock" of a Person means all classes of Capital Stock or other
interests (including partnership interests) of such Person then outstanding and
normally entitled (without regard to the occurrence of any contingency) to vote
in the election of directors, managers or trustees thereof.
"WESCO International Guarantee" means the Guarantee of WESCO International
of the obligations with respect to the notes issued by WESCO Distribution
pursuant to the terms of the Indenture. Such WESCO International Guarantee will
have subordination provisions equivalent to those contained in the Indenture and
will be substantially in the form prescribed in the Indenture.
"Wholly Owned Subsidiary" means a Restricted Subsidiary of WESCO
Distribution all the Capital Stock of which (other than directors' qualifying
shares) is owned by WESCO Distribution or another Wholly Owned Subsidiary.
100
106
BOOK-ENTRY; DELIVERY AND FORM
THE GLOBAL NOTES
The certificates representing the exchange notes will be issued in fully
registered form. The exchange notes will initially be represented by a single,
permanent global exchange note, in definitive, fully registered form without
interest coupons (each a "global exchange note") and will be deposited with the
trustee as custodian for The Depository Trust Company, New York, New York
("DTC") and registered in the name of a nominee of DTC.
BOOK-ENTRY PROCEDURES FOR THE GLOBAL NOTES
The descriptions of the operations and procedures of DTC, Euroclear and
Clearstream set forth below are provided solely as a matter of convenience.
These operations and procedures are solely within the control of the respective
settlement systems and are subject to change by them from time to time. Neither
we nor any of the initial purchasers takes any responsibility for these
operations or procedures, and investors are urged to contact the relevant system
or its participants directly to discuss these matters.
DTC has advised us that it is (i) a limited purpose trust company organized
under the laws of the State of New York; (ii) a "banking organization" within
the meaning of the New York Banking Law; (iii) a member of the Federal Reserve
System; (iv) a "clearing corporation" within the meaning of the Uniform
Commercial Code, as amended; and (v) a "clearing agency" registered pursuant to
Section 17A of the Exchange Act. DTC was created to hold securities for its
participants (collectively, the "participants") and facilitates the clearance
and settlement of securities transactions between participants through
electronic book-entry changes to the accounts of its participants, thereby
eliminating the need for physical transfer and delivery of certificates. DTC's
participants include securities brokers and dealers (including the initial
purchasers), banks and trust companies, clearing corporations and certain other
organizations. Indirect access to DTC's system is also available to other
entities such as banks, brokers, dealers and trust companies (collectively, the
"indirect participants") that clear through or maintain a custodial relationship
with a participant, either directly or indirectly. Investors who are not
participants may beneficially own securities held by or on behalf of DTC only
through participants or indirect participants.
We expect that pursuant to procedures established by DTC (i) upon deposit
of the global exchange note, DTC will credit the accounts of participants
designated by the initial purchasers with an interest in the global exchange
note and (ii) ownership of the exchange notes will be shown on, and the transfer
of ownership thereof will be effected only through, records maintained by DTC
(with respect to the interests of participants) and the records of participants
and the indirect participants (with respect to the interests of persons other
than participants).
The laws of some jurisdictions may require that certain purchasers of
securities take physical delivery of such securities in definitive form.
Accordingly, the ability to transfer interests in the exchange notes represented
by a global exchange note to such persons may be limited. In addition, because
DTC can act only on behalf of its participants, who in turn act on behalf of
persons who hold interests through participants, the ability of a person having
an interest in exchange notes represented by a global exchange note to pledge or
transfer such interest to persons or entities that do not participate in DTC's
system, or to otherwise take actions in respect of such interest, may be
affected by the lack of a physical definitive security in respect of such
interest.
So long as DTC or its nominee is the registered owner of a global exchange
note, DTC or such nominee, as the case may be, will be considered the sole owner
or holder of the exchange notes represented by the global exchange note for all
purposes under the indenture. Except as provided below, owners of beneficial
interests in a global exchange note will not be entitled to
101
107
have exchange notes represented by such global exchange note registered in their
names, will not receive or be entitled to receive physical delivery of
certificated exchange notes, and will not be considered the owners or holders
thereof under the indenture for any purpose, including with respect to the
giving of any direction, instruction or approval to the trustee thereunder.
Accordingly, each holder owning a beneficial interest in a global exchange note
must rely on the procedures of DTC and, if such holder is not a participant or
an indirect participant, on the procedures of the participant through which such
holder owns its interest, to exercise any rights of a holder of notes under the
indenture or such global exchange note. We understand that under existing
industry practice, in the event that we request any action of holders of
exchange notes, or a holder that is an owner of a beneficial interest in a
global exchange note desires to take any action that DTC, as the holder of such
global exchange note, is entitled to take, DTC would authorize the participants
to take such action and the participants would authorize holders owning through
such participants to take such action or would otherwise act upon the
instruction of such holders. Neither we nor the trustee will have any
responsibility or liability for any aspect of the records relating to or
payments made on account of exchange notes by DTC, or for maintaining,
supervising or reviewing any records of DTC relating to such exchange notes.
Payments with respect to the principal of, and premium, if any, liquidated
damages, if any, and interest on, any exchange notes represented by a global
exchange note registered in the name of DTC or its nominee on the applicable
record date will be payable by the trustee to or at the direction of DTC or its
nominee in its capacity as the registered holder of the global exchange note
representing such exchange notes under the indenture. Under the terms of the
indenture, we and the trustee may treat the persons in whose names the exchange
notes, including the global exchange notes, are registered as the owners thereof
for the purpose of receiving payment thereon and for any and all other purposes
whatsoever. Accordingly, neither we nor the trustee has or will have any
responsibility or liability for the payment of such amounts to owners of
beneficial interests in a global exchange note (including principal, premium, if
any, liquidated damages, if any, and interest). Payments by the participants and
the indirect participants to the owners of beneficial interests in a global
exchange note will be governed by standing instructions and customary industry
practice and will be governed by standing instructions and customary industry
practice and will be the responsibility of the participants or the indirect
participants and DTC.
Transfers between participants in DTC will be effected in accordance with
DTC's procedures, and will be settled in same-day funds. Transfers between
participants in Euroclear or Clearstream will be effected in the ordinary way in
accordance with their respective rules and operating procedures.
Subject to compliance with the transfer restrictions applicable to the
exchange notes, cross-market transfers between the participants in DTC, on the
one hand, and Euroclear or Clearstream participants, on the other hand, will be
effected through DTC in accordance with DTC's rules on behalf of Euroclear or
Clearstream, as the case may be, by its respective depositary; however, such
cross-market transactions will require delivery of instructions to Euroclear or
Clearstream, as the case may be, by the counterparty in such system in
accordance with the rules and procedures and within the established deadlines
(Brussels time) of such system. Euroclear or Clearstream, as the case may be,
will, if the transaction meets its settlement requirements, deliver instructions
to its respective depositary to take action to effect final settlement on its
behalf by delivering or receiving interests in the relevant global exchange
notes in DTC, and making or receiving payment in accordance with normal
procedures for same-day funds settlement applicable to DTC. Euroclear
participants and Clearstream participants may not deliver instructions directly
to the depositaries for Euroclear or Clearstream.
102
108
Because of the time zone differences, the securities account of a Euroclear
or Clearstream participant purchasing an interest in a global exchange note from
a participant in DTC will be credited, and any crediting will be reported to the
relevant Euroclear or Clearstream participant, during the securities settlement
processing day (which must be a business day for Euroclear and Clearstream)
immediately following the settlement date of DTC. Cash received in Euroclear or
Clearstream as a result of sales of interest in a global exchange note by or
through a Euroclear or Clearstream participant to a participant in DTC will be
received with value on the settlement date of DTC but will be available in the
relevant Euroclear or Clearstream cash account only as of the business day for
Euroclear or Clearstream following DTC's settlement date.
Although DTC, Euroclear and Clearstream have agreed to the foregoing
procedures to facilitate transfers of interests in the global exchange notes
among participants in DTC, Euroclear and Clearstream, they are under no
obligation to perform or to continue to perform such procedures, and such
procedures may be discontinued at any time. Neither we nor the trustee will have
any responsibility for the performance by DTC, Euroclear or Clearstream or their
respective participants or indirect participants of their respective obligations
under the rules and procedures governing their operations.
CERTIFICATED NOTES
If (i) we notify the trustee in writing that DTC is no longer willing or
able to act as a depositary or DTC ceases to be registered as a clearing agency
under the Exchange Act and a successor depositary is not appointed within 90
days of such notice or cessation; (ii) we, at our option, notify the trustee in
writing that we elect to cause the issuance of the exchange notes in definitive
form under the indenture; or (iii) upon the occurrence of certain other events
as provided in the indenture, then, upon surrender by DTC of such global
exchange note, certificated notes will be issued to each person that DTC
identifies a s the beneficial owner of the exchange notes represented by the
global exchange note. Upon any such issuance, the trustee is required to
register the certificated notes in the name of that person or persons (or their
nominee) and cause the certificated notes to be delivered thereto.
Neither we nor the trustee shall be liable for any delay by DTC or any
participant or indirect participant in identifying the beneficial owners of the
related exchange notes and each such person may conclusively rely on, and shall
be protected in relying on, instructions from DTC for all purposes, principal
amounts, of the exchange notes to be issued.
103
109
EXCHANGE AND REGISTRATION RIGHTS AGREEMENT
We and WESCO International entered into an exchange and registration rights
agreement with the initial purchasers concurrently with the issuance of the
original notes. Pursuant to the exchange and registration rights agreement, we
and WESCO International have agreed to (i) file with the Commission within 90
days after the date of issuance of the original notes (the "issue date") a
registration statement on an appropriate form under the Securities Act (the
"exchange offer registration statement"), to register under the Securities Act
the exchange notes offered in this prospectus in exchange for the outstanding
notes pursuant to the exchange offer and (ii) use our reasonable best efforts to
cause the exchange offer registration statement to be declared effective under
the Securities Act within 180 days after the issue date. As soon as practicable
after the effectiveness of this exchange offer registration statement, we and
WESCO International will offer to the holders of transfer restricted securities
(as defined below) who are not prohibited by any law or policy of the SEC from
participating in the exchange offer the opportunity to exchange their transfer
restricted securities for the exchange notes. We and WESCO International will
keep the exchange offer open for not less than 20 business days (or longer, if
required by applicable law) after the date on which notice of the exchange offer
is mailed to the holders of the original notes.
If (i) because of any change in law or applicable interpretations thereof
by the staff of the SEC, we and WESCO International are not permitted to effect
the exchange offer as contemplated hereby, (ii) any notes validly tendered
pursuant to the exchange offer are not exchanged for exchange notes prior to 225
days after the issue date, (iii) any initial purchaser so requests with respect
to notes not eligible to be exchanged for exchange notes in the exchange offer,
(iv) any applicable law or interpretations do not permit any holder of notes to
participate in the exchange offer, (v) any holder of notes that participates in
an exchange offer does not receive freely transferable exchange notes in
exchange for tendered notes, or (vi) we and WESCO International so elect, then
we and WESCO International will file with the SEC a shelf registration statement
(a "shelf registration statement") to cover sales of transfer restricted
securities by such holders who satisfy certain conditions relating to the
provision of information in connection with such shelf registration statement.
For purposes of the foregoing, "transfer restricted securities" means each note
until (i) the date on which such note has been exchanged for a freely
transferable exchange note in the exchange offer, (ii) the date on which such
note has been effectively registered under the securities act and disposed of in
accordance with a shelf registration statement; or (iii) the date on which such
note is distributed to the public pursuant to Rule 144 under the Securities Act
or is salable pursuant to Rule 144(k) under the Securities Act.
We and WESCO International will each use our reasonable best efforts to
have the exchange offer registration statement or, if applicable, the shelf
registration statement (each a "registration statement") declared effective by
the SEC as promptly as practicable after the filing thereof. Unless the exchange
offer would not be permitted by a policy of the SEC, we and WESCO International
will commence the exchange offer and will each use our reasonable best efforts
to consummate the exchange offer as promptly as practicable, but in any event
prior to 225 days after the issue date of the original notes. If applicable, we
and WESCO International will each use our reasonable best efforts to keep the
shelf registration statement effective for a period of two years after the issue
date.
If (i) the registration statement is not filed with the SEC within 90 days
after the issue date (or, in the case of a shelf registration statement required
to be filed in response to a change in law or applicable interpretations of the
SEC's staff, if later, within 45 days after publication of the change in law or
interpretations, but in no event before 90 days after the issue date); (ii) the
exchange offer registration statement or the shelf registration statement, as
the case may be, is not declared effective within 180 days after the issue date
(or in the case of a shelf registration statement required to be filed in
response to a change in law or the
104
110
interpretations of the SEC's staff, if later, within 90 days after publication
of the change in law or interpretation, but in no event before 180 days after
the issue date); (iii) the exchange offer is not consummated prior to 225 days
after the issue date (other than in the event we and WESCO International file a
shelf registration statement); or (iv) the shelf registration statement is filed
and declared effective within 180 days after the issue date (or in the case of a
shelf registration statement required to be filed in response to a change in law
or the applicable interpretations of the SEC's staff, if later, within 90 days
after publication of the change in law or interpretation, but in no event before
180 days after the issue date) but shall thereafter cease to be effective (at
any time that the issuer is obligated to maintain the effectiveness thereof)
without being succeeded within 90 days by an additional registration statement
filed and declared effective (each such event referred to in clauses (i) through
(iv), a "registration default"), we and WESCO International will be obligated to
pay liquidated damages to each holder of transfer restricted securities, during
the period of one or more such registration defaults, in an amount equal to
$.0192 per week per $1,000 principal amount of the notes constituting transfer
restricted securities held by such holder until the registration statement is
filed, the exchange offer registration statement is declared effective and the
exchange offer is consummated or the shelf registration statement is declared
effective or again becomes effective, as the case may be. All accrued liquidated
damages shall be paid to holders in the same manner as interest payment on the
notes on semi-annual payment dates which correspond to interest payment dates
for the notes. Following the cure of all registration defaults, the accrual of
liquidated damages will cease. Notwithstanding the foregoing, we and WESCO
International may issue a notice that the shelf registration statement is
unusable pending the announcement of a material development or event and may
issue any notice suspending use of the shelf registration statement required
under securities laws to be issued and, in the event that the aggregate number
of days in any consecutive twelve-month period for which all such notices are
issued and effective exceeds 45 days in the aggregate, we and WESCO
International will be obligated to pay liquidated damages to each holder of
transfer restricted securities in an amount equal to $.0192 per week per $1,000
principal amount of transfer restricted securities held by such holder. Upon the
issuer declaring that the shelf registration statement is usable after the
period of time described in the preceding sentence the accrual of liquidated
damages shall cease; provided, however, that if after any such cessation of the
accrual of liquidated damages the shelf registration statement again ceases to
be usable beyond the period permitted above, liquidated damages will again
accrue pursuant to the foregoing provisions.
By filing this registration statement with the SEC within the time period
prescribed in the exchange and registration rights agreement, we have satisfied
that obligation under the exchange and registration rights agreement and there
will be no liquidated damages payable by us with respect to such obligation.
The exchange and registration rights agreement also provides that we and
WESCO International (i) shall make available for a period of 180 days following
the consummation of the exchange offer a prospectus meeting the requirements of
the Securities Act to any broker-dealer for use in connection with any resale of
any exchange notes and (ii) shall pay all expenses incident to the exchange
offer (including the expense of one counsel to the holders of the notes) and
will indemnify certain holders of the notes (including any broker-dealer)
against certain liabilities, including liabilities under the Securities Act. A
broker-dealer which delivers such a prospectus to purchasers in connection with
such resales will be subject to certain of the civil liability provisions under
the Securities Act and will be bound by the provisions of the exchange and
registration rights agreement (including certain indemnification rights and
obligations).
Each holder of notes who wishes to exchange such notes for exchange notes
in the exchange offer will be required to make certain representations,
including representations that
105
111
(i) any exchange notes to be received by it will be acquired in the ordinary
course of its business; (ii) it has no arrangement or understanding with any
person to participate in the distribution of the exchange notes; and (iii) it is
not an "affiliate" (as defined in Rule 405 under the Securities Act) of us or
WESCO International, or if it is an affiliate, that it will comply with the
registration and prospectus delivery requirements of the Securities Act to the
extent applicable.
If the holder is not a broker-dealer, it will be required to represent that
it is not engaged in, and does not intend to engage in, the distribution of the
exchange notes. If the holder is a broker-dealer that will receive exchange
notes for its own account in exchange for notes that were acquired as a result
of the market-making activities or other trading activities, it will be required
to acknowledge that it will deliver a prospectus in connection with any resale
of such exchange notes.
Holders of the notes will be required to make certain representations to us
and WESCO International (as described above) in order to participate in the
exchange offer and will be required to deliver information to be used in
connection with a shelf registration statement in order to have their notes
included in such shelf registration statement and benefit from the provisions
regarding liquidated damages set forth in the preceding paragraphs. A holder who
sells notes pursuant to a shelf registration statement generally will be
required to be named as a selling security holder in the related prospectus and
to deliver a prospectus to purchasers, will be subject to certain of the civil
liability provisions under the Securities Act in connection with such sales and
will be bound by the provisions of the exchange and registration rights
agreement which are applicable to such a holder (including certain
indemnification obligations).
For so long as the notes are outstanding, we and WESCO International will
continue to provide to holders of the notes and to prospective purchasers of the
notes the information required by Rule 144(d)(4) under the Securities Act.
The foregoing description of the exchange and registration rights agreement
is a summary only, does not purport to be complete and is qualified in its
entirety by reference to all provisions of the exchange and registration rights
agreement, which has been filed as an exhibit to the registration statement of
which this prospectus is a part.
106
112
CERTAIN U.S. FEDERAL INCOME TAX CONSIDERATIONS
The following discussion is based upon the provisions of the Internal
Revenue Code of 1986, as amended (the "Code"), the applicable treasury
regulations promulgated and proposed thereunder, judicial authority and current
administrative rulings and practice, all of which are subject to change,
possibly with retroactive effect. The following general discussion summarizes
certain material U.S. federal income tax aspects of the acquisition, ownership,
and disposition of the notes and the exchange of notes for exchange notes
pursuant to the exchange offer as of the date hereof. This discussion is a
summary for general information only and does not consider all aspects of U.S.
federal income taxation that may be relevant to the acquisition, ownership, and
disposition of the notes by a prospective investor in light of his or her or its
own personal circumstances. This discussion is limited to the U.S. federal
income tax consequences to persons who are beneficial owners of the notes, who
acquired the notes upon their initial issuance and who will hold the notes as
capital assets within the meaning of Section 1221 of the Code. This discussion
does not purport to deal with all aspects of U.S. federal income taxation that
might be relevant to particular holders in light of their personal investment
circumstances or status, nor does it discuss the U.S. federal income tax
consequences to certain types of holders subject to special treatment under the
U.S. federal income tax laws (for example, financial institutions, insurance
companies, dealers in securities or foreign currency, tax-exempt organizations,
banks, thrifts, insurance companies, taxpayers holding the notes through a
partnership or similar pass-through entity or as part of a "straddle," "hedge"
or "conversion transaction," or taxpayers that have a "functional currency"
other than the U.S. dollar). The Company will treat the notes as indebtedness
for U.S. federal income tax purposes, and the balance of the discussion is based
on the assumption that such treatment will be respected . We have not obtained a
ruling from the Internal Revenue Service or an opinion of counsel regarding the
tax treatment of the notes.
PROSPECTIVE HOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS REGARDING
THE FEDERAL, STATE, LOCAL AND OTHER TAX CONSIDERATIONS OF THE ACQUISITION,
OWNERSHIP AND DISPOSITION OF THE NOTES AND THE EXCHANGE OF NOTES FOR EXCHANGE
NOTES PURSUANT TO THE EXCHANGE OFFER AS OF THE DATE HEREOF.
U.S. HOLDERS
The following discussion is limited to the U.S. federal income tax
consequences to a holder of a note that is:
- a citizen or resident of the United States, including an alien resident
who is a lawful permanent resident of the United States or who meets the
"substantial presence" test under Section 7701 (b) of the Code;
- a corporation created or organized under the laws of the United States,
or any political subdivision thereof;
- an estate whose income is subject to United States federal income
taxation regardless of its source; and
- a trust, if a U.S. court is able to exercise primary supervision over the
administration of the trust and one or more U.S. persons have the
authority to control all substantial decisions of the trust (each a "U.S.
Holder").
Exchange Offer
The exchange of the notes for publicly registered exchange notes pursuant
to the exchange offer should not constitute a material modification of the terms
of the notes and therefore should not constitute a taxable event for U.S.
federal income tax purposes. Consequently, the exchange should have no U.S.
federal income tax consequences to a U.S.
107
113
Holder so that the U.S. Holder's holding period and adjusted tax basis for a
note should not be affected, and the U.S. Holder should continue to take into
account income (including OID) in respect of a note in the same manner as before
the exchange.
Stated Interest and OID
The stated interest on the notes will be treated as "qualified stated
interest" and will be included in income by a U.S. Holder in accordance with
such holder's usual method of accounting for U.S. federal income tax purposes.
Because the stated redemption price at maturity of the notes (which amount is
the face amount of the notes) exceeds the issue price of the notes (which equals
the price paid by the holder for the note), the notes will be treated as
obligations that have original issue discount ("OID") in an amount equal to such
excess. The tax rules that govern debt instruments that are issued with OID are
complex and holders are urged to consult their tax advisor about the application
of these rules to the holder.
U.S. Holders of the notes will be required to include the OID in ordinary
income for U.S. federal income tax purposes as it accrues regardless of whether
the U.S. Holder uses the cash or accrual method of accounting. The OID will
accrue daily in accordance with a constant yield method based on a compounding
of interest. The OID allocable to any accrual period will equal the product of
the adjusted issue price of the notes as of the beginning of such period and the
notes' yield to maturity, less any qualified stated interest allocable to that
accrual period. The "adjusted issue price" of the notes as of the beginning of
any accrual period will equal the issue price of the notes increased by the
amount of OID previously includible in the gross income of any holder and
decreased by the amount of any payment made on the notes other than payments of
qualified stated interest. Because OID will accrue and be includible in income
at least annually and no payments other than stated interest will be made on the
notes, the adjusted issue price of the notes will increase throughout their
life. OID includible in income, if any, will, therefore, increase during each
accrual period.
Liquidated Damages
Any liquidated damages payable to a U.S. Holder of the notes in the event
of a registration default should be includible in the gross income of such
holder at the time such payment is paid or accrued as ordinary income in
accordance with such holder's usual method of accounting for U.S. income tax
purposes. Liquidated Damages are payable with respect to the notes in certain
circumstances as further described under "Exchange and Registration Rights
Agreement."
Sale, Exchange, Redemption or Repayment
Upon the disposition of a note by sale, exchange or redemption, a U.S.
Holder will generally recognize gain or loss equal to the difference between the
amount realized on the disposition, other than amounts attributable to accrued
interest not yet taken into income which will be taxed as ordinary income, and
the U.S. Holder's tax basis in the note. A U.S. Holder's adjusted tax basis in a
note generally will equal the cost of the note to such holder increased by any
OID previously accrued by the U.S. Holder, less any principal payments or
payments of accrued OID received by such holder.
Assuming the note is held as a capital asset, any gain, except to the
extent that the market discount rules otherwise provide, will generally
constitute capital gain, and will be long-term capital gain if the U.S. Holder
has held the note for longer than 12 months. Long-term capital gain is taxed, in
the case of non-corporate taxpayers, at a maximum statutory rate of 20%. Any
loss will be long-term capital loss if the U.S. Holder has held the note for
longer than 12 months. The deductibility of capital losses is subject to
limitations.
108
114
Backup Withholding and Information Reporting
Under the Code, U.S. Holders of notes may be subject, under certain
circumstances, to information reporting and "backup withholding" at a rate of up
to 30.5% (or 30% with respect to cash payments made after December 31, 2001)
with respect to cash payments in respect of principal (and premium, if any),
OID, interest, and the gross proceeds from dispositions thereof. Backup
withholding applies only if the U.S. Holder (i) fails to furnish its social
security or other taxpayer identification number ("TIN") within a reasonable
time after a request therefor, (ii) furnishes an incorrect TIN, (iii) fails to
report properly interest or dividends, or (iv) fails under certain
circumstances, to provide a certified statement, signed under penalty of
perjury, that the TIN provided is its correct number and that it is not subject
to backup withholding. Any amount withheld from a payment to a U.S. Holder under
the backup withholding rules is allowable as a credit (and may entitle such
holder to a refund) against such U.S. Holder's U.S. federal income tax
liability, provided that the required information is furnished to the Internal
Revenue Service. Certain persons are exempt from backup withholding including
corporations and financial institutions. U.S. Holders of notes should consult
their tax advisors as to their qualification for exemption from backup
withholding and the procedure for obtaining such exemption.
NON-U.S. HOLDERS
The following discussion is limited to the U.S. federal income and estate
tax consequences to a holder of a note that is a beneficial owner of a note and
that is an individual, corporation, estate or trust other than a U.S. Holder (a
"Non-U.S. Holder"). For purposes of the discussion below, interest (including
OID and Liquidated Damages) and gain on the sale, exchange or other disposition
of notes will be considered to be "U.S. trade or business income" if such income
or gain is:
- effectively connected with the conduct of a U.S. trade or business or
- in the case of a treaty resident, attributable to a U.S. permanent
establishment (or, in the case of an individual, a fixed base) in the
United States.
Interest
Generally, interest (including OID and Liquidated Damages) paid to a
Non-U.S. Holder will not be subject to United States federal income or
withholding tax if such interest is not U.S. trade or business income and is
"portfolio interest." Generally, interest on the notes will qualify as portfolio
interest if the Non-U.S. Holder:
- does not actually or constructively own 10% or more of the total combined
voting power of all classes of our stock;
- is not a controlled foreign corporation with respect to which we are a
"related person" within the meaning of the Code;
- is not a bank receiving interest on the extension of credit made pursuant
to a loan agreement made in the ordinary course of its trade or business;
and
- certifies, under penalties of perjury, that such holder is not a United
States person and provides such holder's name and address.
The gross amount of payments of interest that do not qualify for the
portfolio interest exception and that are not U.S. trade or business income will
be subject to U.S. withholding tax at a rate of 30% unless a treaty applies to
reduce or eliminate withholding. U.S. trade or business income will be taxed at
regular graduated U.S. rates rather than the 30% gross rate. In the case of a
Non-U.S. Holder that is a corporation, such U.S. trade or business income also
may be subject to the branch profits tax. To claim an exemption from withholding
in the case of U.S. trade or business income, or to claim the benefits of a
treaty, a Non-U.S. Holder must
109
115
provide a properly executed Form W-ECI (in the case of U.S. trade or business
income) or Form W-8BEN (in the case of a treaty), or any successor form, as
applicable, prior to the payment of interest. These forms must be periodically
updated. A Non-U.S. Holder who is claiming the benefits of a treaty may be
required, in certain instances, to obtain a U.S. taxpayer identification number
and to provide certain documentary evidence issued by foreign governmental
authorities to prove residence in the foreign country. Also, special procedures
are provided under applicable regulations for payments through qualified
intermediaries.
Sale, Exchange or Redemption of Notes
Except as described below and subject to the discussion concerning backup
withholding, any gain realized by a Non-U.S. Holder on the sale, exchange or
redemption of notes generally will not be subject to U.S. federal income tax,
unless:
- such gain is U.S. trade or business income;
- subject to certain exceptions, the Non-U.S. Holder is an individual who
holds the notes as a capital asset and is present in the United States
for 183 days or more in the taxable year of the disposition; or
- the Non-U.S. Holder is subject to tax pursuant to the provisions of U.S.
tax law applicable to certain U.S. expatriates.
Upon a sale, exchange or redemption of a note, no U.S. tax withholding will
apply to accrued and unpaid interest or OID to the extent that such interest or
OID qualifies as portfolio interest as described above under the heading
"Interest." If the accrued and unpaid interest or OID does not so qualify, U.S.
tax withholding will apply in the manner described above under the heading
"Interest" upon a redemption of a note, and in certain circumstances, upon a
sale or exchange of a note.
Federal Estate Tax
The notes held (or treated as held) by an individual who is a Non-U.S.
Holder at the time of his death will not be subject to U.S. federal estate tax,
provided that the individual does not actually or constructively own 10% or more
of the total voting power of our voting stock and income on the notes was not
U.S. trade or business income.
Information Reporting and Backup Withholding
We must report annually to the IRS and to each Non-U.S. Holder any interest
that is subject to U.S. withholding tax or that is exempt from withholding
pursuant to a tax treaty or the portfolio interest exception. Copies of these
information returns may also be made available under the provisions of a
specific treaty or agreement to the tax authorities of the country in which the
Non-U.S. Holder resides.
Backup withholding and information reporting will not apply to payments of
principal on the notes to a Non-U.S. Holder, if the holder certifies as to its
non-U.S. status under penalties of perjury or otherwise establishes an
exemption, provided that neither we nor its paying agent has actual knowledge
that the holder is a U.S. Holder or that the conditions of any other exemption
are not, in fact, satisfied.
Payments of the proceeds from the sale of the notes to or through a foreign
office or broker will not be subject to information reporting or backup
withholding, except that if the broker is (i) a United States person, (ii) a
foreign person that derives 50% or more of its gross income for certain periods
from activities that are effectively connected with the conduct of a trade or
business in the United States, (iii) a controlled foreign corporation for United
States federal income tax purposes or (iv) a foreign partnership more than 50%
of the capital or
110
116
profits of which is owned by one or more U.S. persons or which engages in a U.S.
trade or business. Payment of the proceeds of any such sale effected outside the
United States by a foreign office of any broker that is described in (i), (ii),
(iii), or (iv) of the preceding sentence may be subject to backup withholding
tax, and will be subject to information reporting requirements unless such
broker has documentary evidence in its records that the beneficial owner is a
non-U.S. Holder and certain other conditions are met, or the beneficial owner
otherwise establishes an exemption. Payment of the proceeds of any such sale to
or through the United States office of a broker is subject to information
reporting and backup withholding requirements, unless the broker has documentary
evidence in its files that the owner is a Non-U.S. Holder and the broker has no
knowledge to the contrary.
Any amounts withheld under the backup withholding rules from a payment to a
Non-U.S. Holder will be allowed as a refund or a credit against such Non-U.S.
Holder's U.S. federal income tax liability, provided that the requisite
procedures are followed.
THE PRECEDING DISCUSSION OF CERTAIN FEDERAL INCOME TAX CONSEQUENCES IS FOR
GENERAL INFORMATION ONLY AND IS NOT TAX ADVICE. ACCORDINGLY, EACH INVESTOR
SHOULD CONSULT HIS, HER OR ITS OWN TAX ADVISOR AS TO PARTICULAR TAX CONSEQUENCES
TO IT OF PURCHASING, HOLDING AND DISPOSING OF NOTES AND THE EXCHANGE NOTES,
INCLUDING THE APPLICABILITY AND EFFECT OF ANY STATE, LOCAL OR FOREIGN TAX LAWS,
AND OF ANY PROPOSED CHANGES IN APPLICABLE LAW.
111
117
PLAN OF DISTRIBUTION
Each broker-dealer that receives exchange notes for its own account
pursuant to the exchange officer must acknowledge that it will deliver a
prospectus in connection with any resale of such exchange notes. This
prospectus, as it may be amended or supplemented from time to time, may be used
by a broker-dealer in connection with resale of exchange notes received in
exchange for notes where such original notes were acquired as a result of
market-making activities or other trading activities. A broker-dealer may not
participate in the exchange offer with respect to original notes acquired other
than as a result of market-making activities or other trading activities. To the
extent any such broker-dealer participates in the exchange offer and so notifies
us, or causes us to be so notified in writing, we have agreed that for a period
of 180 days following the consummation of the exchange offer we will make this
prospectus, as amended or supplemented, available to such broker-dealer for use
in connection with any such resale, and will promptly send additional copies of
this prospectus and any amendment or supplement to this prospectus to any
broker-dealer that requests such documents in the applicable Letter of
Transmittal. In addition, until (90 days after the date of this prospectus), all
dealers effecting transactions in the exchange notes may be required to deliver
a prospectus.
We will not receive any proceeds from any sale of exchange notes by
broker-dealers. Exchange notes received by broker-dealers for their own account
pursuant to the exchange offer may be sold from time to time in one or more
transactions in the over-the-counter market, in negotiated transactions, through
the writing of options on the exchange notes or a combination of such methods of
resale, at prevailing market prices at the time of resale, at prices related to
such prevailing market prices or at negotiated prices. Any such resale may be
made directly to purchasers or to or through brokers or dealers who may receive
compensation in the form of commissions or concessions from any such
broker-dealer or the purchasers of any such exchange notes. Any broker-dealer
that resells exchange notes that were received by it for its own account
pursuant to the exchange offer and any broker or dealer that participates in a
distribution of such exchange notes may be deemed to be an "underwriter" within
the meaning of the Securities Act, and any profit on any such resale of exchange
notes and any commissions or concessions received by any such persons may be
deemed to be underwriting compensation under the Securities Act. Each Letter of
Transmittal states that, by acknowledging that it will deliver and by delivering
a prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
We have agreed to pay all expenses incident to the exchange offer (other
than commissions and concessions of any broker-dealers), subject to certain
prescribed limitations, and will indemnify the holders of the original notes
against certain liabilities, including certain liabilities that may arise under
the Securities Act.
By its acceptance of the exchange offer, any broker-dealer that receives
exchange notes pursuant to the exchange offer hereby agrees to notify us prior
to using the prospectus in connection with the sale of transfer of exchange
notes, and acknowledges and agrees that, upon receipt of notice from us of the
happening of any event which makes any statement in the prospectus untrue in any
material respect or which requires the making of any changes in the prospectus
in order to make the statements therein not misleading or which may impose upon
us disclosure obligations that may have a material adverse effect on us (which
notice we agree to deliver promptly to such broker-dealer), such broker-dealer
will suspend use of the prospectus until we have notified such broker-dealer
that delivery of the prospectus may resume and have furnished copies of any
amendment or supplement to the prospectus to such broker-dealer.
112
118
LEGAL MATTERS
Certain legal matters with respect to the exchange offer will be passed
upon for us by Kirkpatrick & Lockhart LLP, Pittsburgh, Pennsylvania.
EXPERTS
The consolidated balance sheets of WESCO International as of December 31,
1999 and 2000 and the consolidated statements of income, stockholders' equity
and cash flows of WESCO International for each of the three years in the period
ended December 31, 2000 included in this prospectus have been included herein in
reliance on the report of PricewaterhouseCoopers LLP, independent accountants,
given on the authority of that firm as experts in accounting and auditing.
113
119
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<Table>
<Caption>
PAGE
----
Report of Independent Accountants........................... F-2
Consolidated Balance Sheets as of December 31, 2000 and
1999...................................................... F-3
Consolidated Statements of Operations for the years ended
December 31, 2000, 1999 and 1998.......................... F-4
Consolidated Statements of Stockholders' Equity for the
years ended December 31, 2000, 1999 and 1998.............. F-5
Consolidated Statements of Cash Flows for the years ended
December 31, 2000, 1999 and 1998.......................... F-6
Notes to Consolidated Financial Statements.................. F-7
Condensed Consolidated Balance Sheets as of June 30, 2001
(unaudited) and December 31, 2000......................... F-30
Condensed Consolidated Statements of Operations for the
three and six month periods ended June 30, 2001 and 2000
(unaudited)............................................... F-31
Condensed Consolidated Statements of Cash Flows for the six
month periods ended June 30, 2001 and 2000 (unaudited).... F-32
Notes to Condensed Consolidated Financial Statements
(unaudited)............................................... F-33
</Table>
F-1
120
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and Board of Directors
of WESCO International, Inc.:
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations, stockholders' equity and
redeemable common stock and cash flows present fairly, in all material respects,
the financial position of WESCO International, Inc. and its subsidiaries at
December 31, 2000 and 1999, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 2000 in
conformity with accounting principles generally accepted in the United States of
America. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with auditing standards generally accepted in the United States of
America, which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
/s/ PricewaterhouseCoopers LLP
600 Grant Street
Pittsburgh, Pennsylvania
February 9, 2001
F-2
121
WESCO INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<Table>
<Caption>
DECEMBER 31
-----------------------
2000 1999
---------- ----------
(DOLLARS IN THOUSANDS,
EXCEPT SHARE DATA)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents............................... $ 21,079 $ 8,819
Trade accounts receivable, net of allowance for doubtful
accounts of $9,794 and $7,023 in 2000 and 1999,
respectively (Note 6).................................. 259,988 188,307
Other accounts receivable............................... 31,365 31,829
Inventories............................................. 421,083 397,669
Income taxes receivable................................. 10,951 10,667
Prepaid expenses and other current assets............... 5,602 4,930
Deferred income taxes (Note 12)......................... 14,157 11,580
---------- ----------
Total current assets............................... 764,225 653,801
Property, buildings and equipment, net (Note 9)............. 123,477 116,638
Goodwill and other intangibles, net of accumulated
amortization of $29,053 and $18,956 in 2000 and 1999,
respectively (Note 7)..................................... 277,763 249,240
Other assets................................................ 4,568 9,114
---------- ----------
Total assets....................................... $1,170,033 $1,028,793
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable........................................ $ 460,535 $ 406,963
Accrued payroll and benefit costs....................... 27,027 18,171
Current portion of long-term debt....................... 585 3,831
Other current liabilities............................... 35,695 25,820
---------- ----------
Total current liabilities.......................... 523,842 454,785
Long-term debt (Note 10).................................... 482,740 422,539
Other noncurrent liabilities................................ 6,823 7,504
Deferred income taxes (Note 12)............................. 31,641 26,660
---------- ----------
Total liabilities.................................. 1,045,046 911,488
Commitments and contingencies (Note 16)
STOCKHOLDERS' EQUITY (Notes 3 and 11):
Preferred stock, $.01 par value; 20,000,000 shares
authorized, no shares issued or outstanding............ -- --
Common stock, $.01 par value; 210,000,000 shares
authorized, 44,093,664 and 43,291,319 shares issued in
2000 and 1999, respectively............................ 441 433
Class B nonvoting convertible common stock, $.01 par
value; 20,000,000 shares authorized, 4,653,131 issued
in 2000 and 1999....................................... 46 46
Additional capital...................................... 569,288 565,897
Retained earnings (deficit)............................. (410,144) (443,582)
Treasury stock, at cost; 3,976,897 and 637,259 shares in
2000 and 1999, respectively............................ (33,406) (4,790)
Accumulated other comprehensive income (loss)........... (1,238) (699)
---------- ----------
Total stockholders' equity......................... 124,987 117,305
---------- ----------
Total liabilities and stockholders' equity......... $1,170,033 $1,028,793
========== ==========
</Table>
The accompanying notes are an integral part of the consolidated financial
statements.
F-3
122
WESCO INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<Table>
<Caption>
YEAR ENDED DECEMBER 31
--------------------------------------
2000 1999 1998
---------- ---------- ----------
(IN THOUSANDS, EXCEPT SHARE DATA)
Net sales......................................... $3,881,096 $3,423,858 $3,025,439
Cost of goods sold................................ 3,196,952 2,807,240 2,487,780
---------- ---------- ----------
Gross profit.................................... 684,144 616,618 537,659
Selling, general and administrative expenses...... 524,309 471,275 415,028
Depreciation and amortization..................... 24,993 20,350 14,805
Restructuring charge (Note 4)..................... 9,404 -- --
Recapitalization costs (Note 5)................... -- -- 51,800
---------- ---------- ----------
Income from operations.......................... 125,438 124,993 56,026
Interest expense, net............................. 43,780 46,968 45,121
Other expenses (Note 6)........................... 24,945 19,547 10,122
---------- ---------- ----------
Income before income taxes and extraordinary
item......................................... 56,713 58,478 783
Provision for income taxes (Note 12).............. 23,275 23,333 8,519
---------- ---------- ----------
Income (loss) before extraordinary item......... 33,438 35,145 (7,736)
Extraordinary item, net of tax benefit of $6,711
(Note 10)....................................... -- (10,507) --
---------- ---------- ----------
Net income (loss)............................... $ 33,438 $ 24,638 $ (7,736)
========== ========== ==========
Earnings (loss) per share (Note 13)
Basic:
Income (loss) before extraordinary item......... $ 0.74 $ 0.82 $ (0.17)
Extraordinary item.............................. -- (0.25) --
---------- ---------- ----------
Net income (loss)............................... $ 0.74 $ 0.57 $ (0.17)
========== ========== ==========
Diluted:
Income (loss) before extraordinary item......... $ 0.70 $ 0.75 $ (0.17)
Extraordinary item.............................. -- (0.22) --
---------- ---------- ----------
Net income (loss)............................... $ 0.70 $ 0.53 $ (0.17)
========== ========== ==========
</Table>
The accompanying notes are an integral part of the consolidated financial
statements.
F-4
123
WESCO INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
AND REDEEMABLE COMMON STOCK
<Table>
<Caption>
COMMON
STOCK ACCUMULATED
TO BE OTHER
CLASS B RETAINED ISSUED COMPREHENSIVE REDEEMABLE
COMPREHENSIVE COMMON COMMON ADDITIONAL EARNINGS UNDER TREASURY INCOME COMMON
INCOME STOCK STOCK CAPITAL (DEFICIT) OPTION STOCK (LOSS) STOCK
------------- ------ ------- ---------- --------- ------- -------- ------------- ----------
(IN THOUSANDS)
BALANCE, DECEMBER 31,
1997.................. $ 539 $-- $ 92,789 $ 89,366 $2,500 $ -- $ (659) $ 8,978
Recapitalization,
net................... (287) 46 231,326 (549,143) (2,500) 1,271
Issuance of common
stock................. 16,759
Repurchase of common
stock................. (707) (1,427)
Exercise of stock
options, including tax
benefit............... 888
Forfeiture and
repurchase of stock
options............... 1,780 (4,075)
Net loss............... $(7,736) (7,736)
Translation
adjustment............ (763) (763)
-------
Comprehensive income... $(8,499)
======= ----- --- -------- --------- ------- -------- ------- --------
BALANCE, DECEMBER 31,
1998.................. 252 46 326,783 (468,220) -- -- (1,422) 21,506
Issuance of common
stock................. 112 186,662
Termination of
redemption rights..... 49 21,457 (21,506)
Conversion of
convertible notes..... 17 29,574
Repurchase of common
stock................. (4,756)
Exercise of stock
options, including tax
benefit............... 3 1,421 (34)
Net income............. $24,638 24,638
Translation
adjustment............ 723 723
-------
Comprehensive income... $25,361
======= ----- --- -------- --------- ------- -------- ------- --------
BALANCE, DECEMBER 31,
1999.................. 433 46 565,897 (443,582) -- (4,790) (699) --
Repurchase of common
stock................. (28,064)
Exercise of stock
options, including tax
benefit............... 8 3,391 (552)
Net income............. $33,438 33,438
Translation
adjustment............ (539) (539)
-------
Comprehensive income... $32,899
======= ----- --- -------- --------- ------- -------- ------- --------
BALANCE, DECEMBER 31,
2000.................. $ 441 $46 $569,288 $(410,144) $ -- $(33,406) $(1,238) $ --
===== === ======== ========= ======= ======== ======= ========
</Table>
The accompanying notes are an integral part of the consolidated financial
statements.
F-5
124
WESCO INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<Table>
<Caption>
YEAR ENDED DECEMBER 31
------------------------------------
2000 1999 1998
--------- --------- ----------
(IN THOUSANDS)
OPERATING ACTIVITIES:
Net income (loss)........................................... $ 33,438 $ 24,638 $ (7,736)
Adjustments to reconcile net income (loss) to net cash
provided (used) by operating activities:
Restructuring charge...................................... 9,404 -- --
Extraordinary item, net of tax benefits................... -- 10,507 --
Recapitalization costs.................................... -- -- 40,500
Depreciation and amortization............................. 24,993 20,350 14,805
Accretion of original issue and amortization of purchase
discounts............................................... 1,147 4,441 6,300
Amortization of debt issuance and interest rate cap
costs................................................... 608 1,153 1,276
(Gain) loss on sale of property, buildings and
equipment............................................... (841) 314 (1,404)
Deferred income taxes..................................... 2,760 13,718 2,370
Changes in assets and liabilities, excluding the effects
of acquisitions:
Sale of trade accounts receivable....................... 40,000 60,000 274,245
Trade and other receivables............................. (97,570) (66,725) (23,644)
Inventories............................................. (16,047) (44,964) (5,645)
Prepaid expenses and other current assets............... 151 2,553 (2,151)
Other assets............................................ (99) 417 191
Accounts payable........................................ 39,345 41,788 (8,445)
Accrued payroll and benefit costs....................... 8,488 (1,443) (8,380)
Other current and noncurrent liabilities................ 1,134 (391) (5,428)
--------- --------- ----------
Net cash provided by operating activities.......... 46,911 66,356 276,854
INVESTING ACTIVITIES:
Capital expenditures........................................ (21,552) (21,230) (10,694)
Proceeds from the sale of property, buildings and
equipment................................................. 1,543 650 2,039
Receipts from (advances to) affiliate....................... 224 8,667 (1,461)
Acquisitions, net of cash acquired.......................... (40,904) (59,983) (173,976)
--------- --------- ----------
Net cash used by investing activities.............. (60,689) (71,896) (184,092)
FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt.................... 724,038 683,772 1,064,288
Repayments of long-term debt................................ (670,734) (858,072) (797,555)
Debt issuance costs......................................... (475) (2,160) (10,693)
Proceeds from issuance of common stock, net of offering
costs, and exercise of options............................ 1,273 187,482 332,795
Repurchase of common stock.................................. (28,064) (4,756) (657,956)
Recapitalization costs...................................... -- -- (28,974)
Proceeds from contributed capital........................... -- -- 5,806
--------- --------- ----------
Net cash provided (used) by financing activities... 26,038 6,266 (92,289)
--------- --------- ----------
Net change in cash and cash equivalents..................... 12,260 726 473
Cash and cash equivalents at the beginning of period........ 8,819 8,093 7,620
--------- --------- ----------
Cash and cash equivalents at the end of period.............. $ 21,079 $ 8,819 $ 8,093
========= ========= ==========
</Table>
The accompanying notes are an integral part of the consolidated financial
statements.
F-6
125
WESCO INTERNATIONAL, INC. AND SUBSIDIARIES
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 supplies and equipment and is a provider of integrated supply
procurement services. WESCO currently operates over 350 branch locations and
five distribution centers in the United States, Canada, Mexico, Puerto Rico,
Guam, the United Kingdom and Singapore.
2. ACCOUNTING POLICIES
Basis of Presentation
The consolidated financial statements include the accounts of WESCO
International, Inc. and all of its subsidiaries. All significant intercompany
accounts and transactions have been eliminated in consolidation.
The preparation of the consolidated financial statements in conformity with
generally accepted accounting principles requires management to make certain
estimates and assumptions. These may affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities at the date
of the consolidated financial statements. They may also affect the reported
amounts of revenues and expenses during the reported period. Actual results
could differ from these estimates upon subsequent resolution of some matters.
Revenue Recognition
Revenues are recognized when title, ownership and risk of loss pass to the
customer, or services are rendered.
Shipping and Handling Costs and Fees
WESCO records all costs and fees associated with transporting its products
to customers as a component of selling, general and administrative expenses.
Cash Equivalents
Cash equivalents are defined as highly liquid investments with original
maturities of 90 days or less when purchased.
Asset Securitization
WESCO accounts for the securitization of accounts receivable in accordance
with Statement of Financial Accounting Standards ("SFAS") No. 125, "Accounting
for Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities", as amended by SFAS No. 140. At the time the receivables are sold
the balances are removed from the balance sheet. SFAS No. 125 also requires
retained interests in the transferred assets to be measured by allocating the
previous carrying amount between the assets sold and retained interests based on
their relative fair values at the date of transfer. The Company estimates fair
value based on the present value of expected future cash flows discounted at a
rate commensurate with the risks involved.
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.
F-7
126
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 buildings and leasehold
improvements, three to seven years for furniture, fixtures and equipment and two
to five years for software costs.
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.
Intangible Assets
Goodwill arising from acquisitions and other intangible assets are
amortized on a straight-line basis over periods ranging from 25 to 35 years. The
carrying values of individual components of intangible assets are regularly
reviewed by evaluating the estimated future undiscounted cash flows to determine
recoverability of the assets. Any decrease in value is recognized on a current
basis.
Income Taxes
Income taxes are accounted for under the liability method. 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 a portion
or all of a deferred tax asset may not be realized.
Foreign Currency Translation
The local currency is the functional currency for all 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
stockholders' equity. Gains and losses from foreign currency transactions are
included in net income for the period.
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 on the weighted average cost basis.
Financial Instruments
WESCO's current financial instruments include cash and cash equivalents,
accounts receivable and accounts payable. Due to their short-term nature,
carrying value approximates fair value for these financial instruments. The fair
value of WESCO's long-term debt approximates its carrying value at December 31,
2000, with the exception of the senior subordinated notes. At December 31, 2000,
the carrying amount of the senior subordinated notes was $291.5 million compared
to an approximate fair value based on quoted market prices of $264.0 million.
F-8
127
Additionally, WESCO periodically enters into interest rate cap, floor and
collar agreements to mitigate the exposure that changes in interest rates have
on variable-rate borrowings. If the requirements for hedge accounting are met,
amounts paid or received under these agreements are recognized over the life of
the agreements as adjustments to interest expense. Otherwise, the instruments
are marked to market and the gains and losses from changes in the market value
of the contracts are recorded in the current period. The market value of the
interest rate caps in effect at December 31, 2000 approximated the carrying
value. These agreements did not have a material impact on WESCO's consolidated
financial statements for any of the three years ended December 31, 2000.
Environmental Expenditures
WESCO has facilities and operations which 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 which do not contribute to
future revenue, are expensed. Liabilities are recorded when remedial efforts are
probable and the costs can be reasonably estimated.
Reclassifications
Certain prior period amounts have been reclassified to conform with the
current year presentation. Pursuant to Emerging Issues Task Force Issue ("EITF")
No. 00-10, "Accounting for Shipping and Handling Fees and Costs", WESCO has
reclassified freight billed to customers from selling, general and
administrative expenses to net sales for all periods presented.
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities." This
statement, as amended by SFAS No. 138, was adopted by WESCO on January 1, 2001.
This statement requires the recognition of the fair value of any derivative
financial instrument on the balance sheet. Changes in fair value of the
derivative and, in certain instances, changes in the fair value of an underlying
hedged asset or liability, are recognized through either income or as a
component of other comprehensive income. The adoption of this statement did not
have a material impact on the results of operations or financial position of
WESCO.
In December 1999, the staff of the Securities and Exchange Commission (SEC)
issued Staff Accounting Bulletin (SAB) No. 101, "Revenue Recognition in
Financial Statements". SAB No. 101 outlines the basic criteria that must be met
to recognize revenue, and provides guidelines for disclosure related to revenue
recognition policies. The application of this guidance did not have a material
impact on WESCO's consolidated financial statements in 2000.
In September 2000, the FASB issued SFAS No. 140, a modification of SFAS No.
125. SFAS No. 140 is effective for transfers after March 31, 2001 and is
effective for disclosures about securitizations and collateral and for
recognition and reclassification of collateral for fiscal years ending after
December 15, 2000. The disclosure provisions of this statement have been
adopted. The adoption of this statement for future transfers is not expected to
have a material impact on the results of operations or financial position of
WESCO.
3. INITIAL PUBLIC OFFERING
On May 17, 1999, WESCO completed its initial public offering of 11,183,750
shares of common stock ("Offering") at $18.00 per share. In connection with the
Offering, certain employee rights to require WESCO to repurchase outstanding
redeemable common stock were terminated and approximately $31.5 million of
convertible notes were converted into 1,747,228 shares of common stock. Proceeds
from the Offering (after deducting Offering costs of
F-9
128
$14.5 million) totaling $186.8 million and borrowings of approximately $65
million were used to redeem all of the 11 1/8% senior discount notes ($62.8
million) and to repay the existing revolving credit and term loan facilities
($188.8 million).
In connection with the Offering, the Board of Directors approved a 57.8 to
one stock split effected in the form of a stock dividend of WESCO's common
stock. The Board of Directors also reclassified the Class A common stock into
common stock, increased the authorized common stock to 210,000,000 shares and
the authorized Class B common stock to 20,000,000 shares and authorized
20,000,000 shares of $.01 par value preferred stock, all effective May 11, 1999.
In this report, all share and per share data have been restated to reflect the
stock split.
4. RESTRUCTURING CHARGE
In the fourth quarter of 2000, WESCO commenced certain programs to reduce
costs, improve productivity and exit certain operations. Total costs under these
programs were $9.4 million, and were comprised of $5.4 million related to the
closure of fourteen branch operations in the United States, Canada and the
Balkans, and $4.0 million related to the write-down of an investment in an
affiliate. The $5.4 million charge related to the closure of fourteen branch
operations is principally comprised of an inventory write-down of approximately
$4.0 million and lease termination costs of approximately $1.0 million, the
majority of which will be paid in 2001. The $4.0 million investment write-down
is a result of management's decision to no longer pursue its business strategy
with an affiliate.
5. RECAPITALIZATION
On June 5, 1998, WESCO repurchased and retired all of the common stock of
WESCO held by Clayton, Dubilier & Rice ("CD&R") (48,163,584 shares), the former
Westinghouse Electric Corporation ("Westinghouse") (11,560,000 shares), and
certain other management and nonmanagement stockholders (2,138,484 shares). All
shares were issued and repurchased at $10.75 per share for net consideration of
approximately $653.5 million ("Equity Consideration"). In addition, WESCO repaid
approximately $379.1 million of then outstanding indebtedness, and sold
29,604,351 shares of common stock to an investor group led by affiliates of the
Cypress Group LLC ("Cypress") representing approximately 88.7% of WESCO at that
time for an aggregate cash consideration of $318.1 million ("Cash Equity
Contribution") (collectively, "Recapitalization"). Existing management retained
approximately an 11.3% interest in WESCO immediately following the
Recapitalization. WESCO funded the Equity Consideration and the repayment of
indebtedness from proceeds of the Cash Equity Contribution, issuance of
approximately $351 million of senior subordinated and senior discount notes, a
$170 million credit facility and the sale of approximately $250 million of
accounts receivable. Given the 11.3% retained ownership, the transaction was
treated as a recapitalization for financial reporting purposes and, accordingly,
the historical bases of WESCO's assets and liabilities were not affected.
In connection with the Recapitalization, WESCO recorded a one-time charge
of $51.8 million related to investment banking fees of $13.8 million,
compensation charges of $11.3 million associated with one-time bonuses paid to
certain members of management, transaction fees of $9.5 million paid to Cypress,
compensation charges of $6.2 million associated with the cash settlement of
certain stock options, compensation charges of $4.1 million associated with the
acceleration of vesting of one former executive's stock options issued at a
discount and other non-capitalized transaction fees and expenses amounting to
$6.9 million.
In connection with the Recapitalization, WESCO paid Cypress $9.5 million in
transaction fees and WESCO received $5.8 million from CD&R as contributed
capital.
F-10
129
6. ACCOUNTS RECEIVABLE SECURITIZATION
In June 1999, WESCO and certain of its subsidiaries terminated its previous
accounts receivable securitization program and entered into a new $350 million
accounts receivable securitization program ("Receivables Facility"), which was
subsequently increased to $375 million. Under the Receivables Facility, WESCO
sells, on a continuous basis, to WESCO Receivables Corporation, a wholly-owned,
special purpose company ("SPC"), an undivided interest in all eligible accounts
receivable. The SPC sells without recourse to a third-party conduit all the
receivables while maintaining a subordinated interest, in the form of
overcollateralization, in a portion of the receivables. WESCO has agreed to
continue servicing the sold receivables for the financial institution at market
rates; accordingly, no servicing asset or liability has been recorded.
As of December 31, 2000 and 1999, securitized accounts receivable totaled
approximately $479 million and $391 million, respectively, of which the
subordinated retained interest was approximately $101 million and $53 million,
respectively. Accordingly, approximately $378 million and $338 million of
accounts receivable balances were removed from the consolidated balance sheets
at December 31, 2000 and 1999, respectively. Net proceeds from the transactions
totaled $40.0 million and $60.0 million in 2000 and 1999, respectively. Costs
associated with the Receivables Facility totaled $24.9 million and $19.5 million
in 2000 and 1999, respectively. These amounts are recorded as other expenses in
the consolidated statement of operations and are primarily related to the
discount and loss on the sale of accounts receivables, partially offset by
related servicing revenue.
The key economic assumptions used to measure the retained interest at the
date of the securitization for securitizations completed in 2000 were a discount
rate of 7% and an estimated life of 1.5 months. At December 31, 2000, an
immediate adverse change in the discount rate or estimated life of 10% and 20%
would result in a reduction in the fair value of the retained interest of $0.4
million and $0.7 million, respectively. These sensitivities are hypothetical and
should be used with caution. As the figures indicate, changes in fair value
based on a 10% variation in assumptions generally cannot be extrapolated because
the relationship of the change in assumption to the change in fair value may not
be linear. Also, in this example, the effect of a variation in a particular
assumption on the fair value of the retained interest is calculated without
changing any other assumption. In reality, changes in one factor may result in
changes in another.
7. ACQUISITIONS
On September 11, 1998, WESCO acquired substantially all the assets and
assumed substantially all liabilities and obligations relating to the operations
of Bruckner Supply Company, Inc. ("Bruckner"), a privately owned company
headquartered in Port Washington, New York. Bruckner is a provider of integrated
supply procurement and outsourcing activities for large industrial companies.
The Bruckner purchase price was $105.1 million, consisting of $78.5 million
in cash and a non-interest bearing convertible note discounted to a value of
$26.6 million for financial reporting purposes, resulting in goodwill of $94.0
million. In connection with the Offering, the note was converted into WESCO
common stock.
The Bruckner purchase agreement provides for additional contingent
consideration, not to exceed $130 million, of which $30 million was paid in
1999. Additional contingent consideration, if any, is to be paid based on a
multiple of increases in earnings before interest, taxes, depreciation and
amortization of Bruckner with respect to calendar years 2001 through 2004. Up to
50% of the additional future contingent consideration, if any, may be converted
at the election of the holder into common stock at the then market value.
F-11
130
The following unaudited pro forma information assumes that the Bruckner
acquisition had occurred at the beginning of the period presented. Adjustments
to arrive at the pro forma information include, among others, those related to
acquisition financing, amortization of goodwill and the related tax effects of
such adjustments at an assumed rate of 39%.
<Table>
<Caption>
YEAR ENDED DECEMBER 31, 1998
----------------------------------
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE DATA)
Net sales................................................... $3,205,333
Net income (loss)........................................... (3,102)
Basic earnings (loss) per share............................. (0.07)
Diluted earnings (loss) per share........................... (0.07)
</Table>
The pro forma financial information does not purport to present what
WESCO's results of operations would have been if the Bruckner acquisition had
actually occurred at the beginning of the period, or to project WESCO's results
of operations for any future period.
In addition to the Bruckner acquisition, WESCO acquired five other
distributors in 1998, the largest of which were Avon Electric Supply (acquired
January 1998), Brown Wholesale Electric Company (acquired January 1998) and
Reily Electric Supply, Inc. (acquired May 1998). In 2000 and 1999, WESCO
acquired three and four electrical distributors, respectively. Certain
acquisitions also contain contingent consideration provisions that are not
material to the consolidated financial statements of WESCO. A summary of certain
information with respect to all acquisitions follows:
<Table>
<Caption>
YEAR ENDED DECEMBER 31
------------------------------
2000 1999 1998
------- ------- --------
(IN THOUSANDS)
Aggregate purchase price, including contingent
consideration.......................................... $47,801 $40,076 $250,218
Recorded goodwill........................................ 38,223 25,455 162,743
</Table>
All of the acquisitions were accounted for under the purchase method of
accounting for business combinations. The results of operations of these
companies are included in the consolidated financial statements prospectively
from the acquisition dates. Pro forma results of these acquisitions, excluding
Bruckner, assuming they had been made at the beginning of each year presented,
would not be materially different from the consolidated results reported herein.
8. 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 and manufactured
structures markets. In addition, one supplier accounted for approximately 13%,
13% and 15% of WESCO's purchases for each of the three years, 2000, 1999 and
1998, respectively.
F-12
131
9. PROPERTY, BUILDINGS AND EQUIPMENT
The following table sets forth the components of property, buildings and
equipment:
<Table>
<Caption>
DECEMBER 31
--------------------
2000 1999
-------- --------
(IN THOUSANDS)
Land........................................................ $ 18,699 $ 19,210
Buildings and leasehold improvements........................ 62,905 59,485
Furniture, fixtures and equipment........................... 67,210 51,680
Software costs.............................................. 18,406 14,409
-------- --------
167,220 144,784
Accumulated depreciation and amortization................... (55,984) (42,714)
-------- --------
111,236 102,070
Construction in progress.................................... 12,241 14,568
-------- --------
$123,477 $116,638
======== ========
</Table>
10. LONG TERM DEBT
The following table sets forth WESCO's outstanding indebtedness:
<Table>
<Caption>
DECEMBER 31
--------------------
2000 1999
-------- --------
(IN THOUSANDS)
Revolving credit facility................................... $189,624 $132,033
Senior subordinated notes (1)............................... 291,489 290,342
Other....................................................... 2,212 3,995
-------- --------
483,325 426,370
Less current portion........................................ (585) (3,831)
-------- --------
$482,740 $422,539
======== ========
</Table>
-------------------------
(1) Net of original issue discount of $723 and $820 and purchase discount of
$7,788 and $8,838 in 2000 and 1999, respectively.
During the second quarter of 1999, WESCO completed the Offering and
refinanced the majority of its long-term debt facilities. The proceeds of the
Offering of $186.8 million and additional borrowings of $65 million were used to
redeem the $62.8 million senior discount notes and repay the existing revolving
credit and term loan facilities of $188.8 million. In conjunction with these
transactions and the termination of its previous accounts receivable
securitization program, approximately $8.9 million of deferred financing and
other related charges were written off and redemption costs of $8.3 million were
incurred which resulted in an extraordinary loss of $10.5 million, net of income
tax benefits of $6.7 million. Additionally, $31.5 million of convertible notes
were converted into 1,747,228 shares of WESCO common stock.
Revolving Credit Facility
In June 1999, WESCO Distribution, Inc., a wholly-owned subsidiary of WESCO,
entered into a $400 million revolving credit facility with certain financial
institutions. The revolving credit facility, which matures in June 2004,
consists of up to $365 million of revolving loans
F-13
132
denominated in U.S. dollars and a Canadian sublimit totaling $35 million.
Borrowings under the revolving credit facility are collateralized by
substantially all the assets, excluding real property, of WESCO Distribution,
Inc. and are guaranteed by WESCO International, Inc. and certain subsidiaries.
Borrowings bear rates of interest equal to various indices, at WESCO's
option, such as LIBOR, Prime Rate or the Federal Funds Rate, plus a borrowing
margin based on WESCO's financial performance. At December 31, 2000, the
interest rate on revolving credit facility borrowings was 8.4%. A commitment fee
of 30 to 50 basis points per year is due on unused portions of the revolving
credit facility.
At December 31, 2000, WESCO had three interest rate cap agreements with
aggregate notional amounts of $125 million that expire in May and August 2001.
The aggregate cost of these agreements is being amortized to interest expense on
a straight-line basis over the period of the agreements. The agreements
effectively provide a ceiling for LIBOR at rates between 7.0% and 7.25%.
Senior Subordinated Notes
The senior subordinated notes in an aggregate principal amount of $300
million were issued by WESCO Distribution, Inc. The notes are unsecured
obligations and are fully and unconditionally guaranteed by WESCO International,
Inc.
The senior subordinated notes bear interest at a stated rate of 9 1/8%
payable semiannually on June 1 and December 1 through June 1, 2008. The
effective interest rate for the senior subordinated notes is 9.2%.
The senior subordinated notes are redeemable by WESCO Distribution, Inc. at
any time prior to June 1, 2001, up to a maximum of 35% of the original aggregate
principal amount of the senior subordinated notes, with proceeds of an equity
offering at a redemption price equal to 109.125% of the principal amount
provided plus accrued and unpaid interest. In addition, the senior subordinated
notes are redeemable at the option of WESCO Distribution, Inc. in whole or in
part, at any time after June 1, 2003 at the following prices:
<Table>
<Caption>
REDEMPTION PRICE
----------------
2003...................................................... 104.563%
2004...................................................... 103.042
2005...................................................... 101.521
2006 and thereafter....................................... 100.000
</Table>
At any time prior to June 1, 2003, the senior subordinated notes may be
redeemed, in whole but not in part, at the option of the Company at any time
within 180 days after a change of control, at a redemption price equal to the
principal amount thereof plus accrued and unpaid interest and the then
applicable premium. In addition, the noteholders have the right to require
WESCO, upon a change of control, to repurchase all or any part of the senior
subordinated notes at a redemption price equal to 101% of the principal amount
provided plus accrued and unpaid interest.
Other
At December 31, 2000 and 1999, other borrowings primarily consisted of
notes issued to sellers in connection with acquisitions.
F-14
133
The following table sets forth the aggregate principal repayment
requirements for all indebtedness for the next five years:
<Table>
<Caption>
(IN THOUSANDS)
--------------
2001...................................................... $ 585
2002...................................................... 1,530
2003...................................................... 30
2004...................................................... 189,654
2005...................................................... 30
</Table>
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
agreements require WESCO to meet certain leverage, working capital and interest
coverage ratios.
In December 2000, WESCO amended its revolving credit facility which
provided additional operating flexibility and increased the maximum amount
allowable under the accounts receivable securitization program to $475 million
from $375 million and also amended certain financial covenants. Receivables sold
under the accounts receivable securitization program in excess of $375 million
will permanently reduce the amount available under the revolving credit facility
on a dollar for dollar basis.
WESCO is permitted to pay dividends under certain limited circumstances. At
December 31, 2000 and 1999, no retained earnings were available for dividend
payments.
WESCO had $0.5 million and $4.2 million of outstanding letters of credit at
December 31, 2000 and 1999, respectively. These letters of credit are used as
collateral for performance and bid bonds. The fair value of the letters of
credit approximates the contract value.
11. CAPITAL STOCK
Preferred Stock
There are 20,000,000 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 210,000,000 shares of common stock and 20,000,000 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.
Redeemable Common Stock
Prior to the Offering, certain employees and key management of WESCO held
common stock and options that required WESCO to repurchase, under certain
conditions, death,
F-15
134
disability or termination without cause during the term of employment, all of
the shares and the exercisable portion of the options held. In connection with
these redemption features, WESCO had classified outside of permanent equity, an
amount representing the initial fair value of the redeemable shares. These
shares and exercisable options were not marked to market since the events of
redemption were considered remote. This repurchase right terminated upon the
consummation of the Offering and as a result, the redeemable shares were
reclassified to stockholders' equity.
The following table sets forth capital stock share activity:
<Table>
<Caption>
CLASS B REDEEMABLE
COMMON STOCK TREASURY STOCK COMMON STOCK COMMON STOCK
------------ -------------- ------------ ------------
December 31, 1997.............. 53,943,584 -- -- 5,161,887
Recapitalization, net.......... (28,816,421) -- 4,653,131 (1,621,059)
Shares issued.................. -- -- -- 1,559,675
Shares repurchased............. -- -- -- (556,961)
Options exercised.............. 82,654 -- -- 358,360
----------- ---------- --------- ----------
December 31, 1998.............. 25,209,817 -- 4,653,131 4,901,902
Shares issued.................. 11,183,750 -- -- --
Termination of redemption
rights....................... 4,901,902 -- -- (4,901,902)
Conversion of convertible
notes........................ 1,747,228 -- -- --
Treasury shares purchased...... -- (632,700) -- --
Options exercised.............. 248,622 (4,559) -- --
----------- ---------- --------- ----------
December 31, 1999.............. 43,291,319 (637,259) 4,653,131 --
Treasury shares purchased...... -- (3,265,300) -- --
Options exercised.............. 802,345 (74,338) -- --
----------- ---------- --------- ----------
December 31, 2000.............. 44,093,664 (3,976,897) 4,653,131 --
=========== ========== ========= ==========
</Table>
In May 2000, WESCO's board of directors authorized an additional $25
million to be added to its existing $25 million share repurchase program which
was authorized in November 1999. WESCO's common stock may be purchased at
management's discretion, subject to certain financial ratios, in open market
transactions and the program may be discontinued at any time. As of December 31,
2000, the Company had purchased 3,898,000 shares of its common stock for $32.8
million pursuant to this program.
F-16
135
12. INCOME TAXES
The following table sets forth the components of the provision for income
taxes before extraordinary item:
<Table>
<Caption>
YEAR ENDED DECEMBER 31
----------------------------
2000 1999 1998
------- ------- ------
(IN THOUSANDS)
Current taxes:
Federal................................................... $19,097 $ 8,850 $4,843
State..................................................... 1,030 (311) 1,229
Foreign................................................... 388 1,076 77
------- ------- ------
Total current.......................................... 20,515 9,615 6,149
Deferred taxes:
Federal................................................... 1,332 10,767 1,926
State..................................................... 183 2,779 431
Foreign................................................... 1,245 172 13
------- ------- ------
Total deferred......................................... 2,760 13,718 2,370
------- ------- ------
$23,275 $23,333 $8,519
======= ======= ======
</Table>
The following table sets forth the components of income before income taxes
and extraordinary item by jurisdiction:
<Table>
<Caption>
YEAR ENDED DECEMBER 31
--------------------------
2000 1999 1998
------- ------- ----
(IN THOUSANDS)
United States............................................... $52,963 $54,070 $ 71
Foreign..................................................... 3,750 4,408 712
------- ------- ----
$56,713 $58,478 $783
======= ======= ====
</Table>
The following table sets forth the reconciliation between the federal
statutory income tax rate and the effective rate:
<Table>
<Caption>
YEAR ENDED DECEMBER 31
---------------------------
2000 1999 1998
---- ---- -------
Federal statutory rate...................................... 35.0% 35.0% 35.0%
State taxes, net of federal tax benefit..................... 1.4 2.7 137.8
Nondeductible expenses...................................... 3.4 2.9 206.2
Recapitalization costs...................................... -- -- 657.8
Foreign taxes............................................... 0.3 (0.3) (51.1)
Other(1).................................................... 0.9 (0.4) 102.3
---- ---- -------
41.0% 39.9% 1,088.0%
==== ==== =======
</Table>
-------------------------
(1) Includes the impact of adjustments for certain tax liabilities and the
effect of differences between the recorded provision and the final filed tax
return for the prior year.
F-17
136
The following table sets forth deferred tax assets and liabilities:
<Table>
<Caption>
DECEMBER 31
--------------------
2000 1999
-------- --------
(IN THOUSANDS)
Accounts receivable......................................... $ 6,512 $ 5,185
Inventory................................................... 6,077 5,591
Other....................................................... 1,568 804
-------- --------
Deferred tax assets....................................... 14,157 11,580
-------- --------
Intangibles................................................. (14,539) (11,874)
Property, buildings and equipment........................... (8,497) (6,203)
Other....................................................... (8,605) (8,583)
-------- --------
Deferred tax liabilities.................................. (31,641) (26,660)
-------- --------
$(17,484) $(15,080)
======== ========
</Table>
13. EARNINGS PER SHARE
Basic earnings per share is 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.
The following table sets forth the details of basic and diluted earnings
per share:
<Table>
<Caption>
YEAR ENDED DECEMBER 31
-----------------------------------------
2000 1999 1998
----------- ----------- -----------
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
Income (loss) before extraordinary item......... $ 33,438 $ 35,145 $ (7,736)
Interest on convertible debt.................... -- 595 --
----------- ----------- -----------
Earnings (loss) used in diluted earnings (loss)
per share..................................... $ 33,438 $ 35,740 $ (7,736)
Weighted average common shares outstanding used
in computing basic earnings (loss) per
share......................................... 45,326,475 43,057,894 45,051,632
Common shares issuable upon exercise of dilutive
stock options................................. 2,420,132 3,516,733 --
Assumed conversion of convertible debt.......... -- 949,912 --
----------- ----------- -----------
Weighted average common shares outstanding and
common share equivalents used in computing
diluted earnings (loss) per share............. 47,746,607 47,524,539 45,051,632
=========== =========== ===========
Earnings (loss) per share before extraordinary
item
Basic......................................... $ 0.74 $ 0.82 $ (0.17)
Diluted....................................... 0.70 0.75 (0.17)
</Table>
Options to purchase 3.8 million shares of common stock at a weighted
average exercise price of $10.62 per share were outstanding as of December 31,
2000 but were not included in
F-18
137
the computation of diluted earnings per share because the option exercise prices
were greater than the average market price of WESCO common stock.
Interest on convertible debt of $1.3 million and common share equivalents
outstanding of 6,630,180 were anti-dilutive and, accordingly, were not
considered in the computation of diluted loss per share for the year ended
December 31, 1998.
14. 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. U.S. employee contributions of not more than 6% of eligible
compensation are matched 50% by WESCO. WESCO's contributions for Canadian
employees range from 1% to 6% of eligible compensation based on years of
service.
In addition, employer contributions may be made at the discretion of the
Board of Directors and can be based on WESCO's current year performance. For the
years ended December 31, 2000, 1999 and 1998, WESCO contributed $7.6 million,
$6.0 million and $14.1 million, respectively, which was charged to expense.
15. STOCK INCENTIVE PLANS
Stock Purchase Plans
In connection with the Recapitalization, WESCO established a stock purchase
plan ("1998 Stock Purchase Plan") under which certain employees may be granted
an opportunity to purchase WESCO's common stock. The maximum number of shares
available for purchase may not exceed 427,720. During 1998, 291,890 shares were
issued at a weighted average share price of $10.75. There were no shares issued
in 2000 or 1999.
In 1994, WESCO established a stock purchase plan ("1994 Stock Purchase
Plan") under which certain employees were granted an opportunity to purchase
WESCO's common stock. Future purchases of shares under the 1994 Stock Purchase
Plan were terminated in conjunction with the establishment of the 1998 Stock
Purchase Plan. During 1998, 132,478 shares were issued at a weighted average
share price of $10.75.
Other Stock Purchases
In addition, certain key management employees of WESCO, nonemployee
directors and other investors may be granted an opportunity to purchase WESCO's
common stock. At December 31, 1998, and 1999, 4,265,178 shares had been
purchased. During 1998, 1,135,308 shares were purchased at a weighted average
share price of $10.75. There were no shares purchased in 2000 or 1999.
Stock Option Plans
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. Outstanding options under prior plans will
continue to be governed by their existing terms, which are substantially similar
to the LTIP. Any remaining shares reserved for future issuance under the prior
plans are available for issuance under the LTIP. The LTIP is 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
F-19
138
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.
Options granted vest and become exercisable over periods ranging from four
to five years or earlier based on WESCO achieving certain financial performance
criteria. All options vest immediately in the event of a change in control. Each
option terminates on the tenth anniversary of its grant date unless terminated
sooner under certain conditions.
In connection with the Recapitalization, all options granted under the 1994
Stock Option Plan became fully vested.
All awards under WESCO's stock incentive plans are designed to be issued at
fair market value.
The following sets forth shares of common stock reserved for future
issuance at December 31, 2000:
<Table>
Stock Purchase Plan......................................... 135,830
LTIP........................................................ 7,466,000
</Table>
The following table sets forth a summary of stock option activity and
related information for the years indicated:
<Table>
<Caption>
2000 1999 1998
-------------------------- -------------------------- ---------------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
OPTIONS EXERCISE PRICE OPTIONS EXERCISE PRICE OPTIONS EXERCISE PRICE
--------- -------------- --------- -------------- ---------- --------------
Beginning of year.... 9,254,770 $5.44 9,527,290 $5.34 6,926,983 $2.20
Granted(1)........... 1,606,000 9.21 14,675 18.00 4,121,140 9.76
Exercised............ (802,345) 2.27 (248,622) 2.31 (1,134,383) 2.68
Canceled............. (470,119) 9.54 (38,573) 3.38 (386,450) 3.83
--------- --------- ----------
End of year.......... 9,588,306 6.13 9,254,770 5.44 9,527,290 5.34
========= ========= ==========
Exercisable at end of
year............... 6,043,337 $4.33 6,193,150 $3.33 5,133,912 $2.05
</Table>
-------------------------
(1) Options granted in 1998 include 635,800 options that were issued at a
discount, resulting in approximately $4.1 million of compensation expense.
Of these options, 358,360 were subsequently exercised. The remaining 277,440
were canceled and the associated costs were classified as additional
capital.
F-20
139
The following table sets forth exercise prices for options outstanding as
of December 31, 2000:
<Table>
<Caption>
OPTIONS OPTIONS WEIGHTED AVERAGE
EXERCISE PRICE OUTSTANDING EXERCISABLE REMAINING CONTRACTUAL LIFE
-------------- ----------- ----------- --------------------------
$ 1.73...... 2,976,432 2,976,432 3.5
1.98...... 689,959 689,959 5.0
3.38...... 1,152,768 749,089 6.0
4.34...... 82,654 82,654 7.0
7.75...... 488,500 -- 9.2
9.31...... 22,500 -- 9.8
9.88...... 1,079,500 -- 9.4
10.75...... 3,081,318 1,540,659 7.6
18.00...... 14,675 4,544 8.4
--------- ---------
9,588,306 6,043,337
</Table>
In connection with the implementation of SFAS No. 123, "Accounting for
Stock-Based Compensation," WESCO has elected to continue to account for
stock-based compensation arrangements under the provisions of Accounting
Principles Board (APB) Opinion No. 25.
If compensation costs had been determined based on the fair value at the
grant dates according to SFAS No. 123, WESCO's net income and earnings per share
would have been as follows:
<Table>
<Caption>
YEAR ENDED DECEMBER 31
-----------------------------
2000 1999 1998
------- ------- -------
(IN THOUSANDS, EXCEPT SHARE
DATA)
Net income (loss)
As reported............................................... $33,438 $24,638 $(7,736)
Pro forma................................................. 30,979 22,912 (8,629)
Basic earnings (loss) per share
As reported............................................... $ 0.74 $ 0.57 $ (0.17)
Pro forma................................................. 0.68 0.53 (0.19)
Diluted earnings (loss) per share
As reported............................................... $ 0.70 $ 0.53 $ (0.17)
Pro forma................................................. 0.65 0.49 (0.19)
</Table>
The weighted average fair value per option granted was $4.82, $8.00 and
$3.86, for the years ended December 31, 2000, 1999 and 1998, respectively.
For purposes of presenting pro forma results, the fair value of each option
grant is estimated on the date of grant using the Black-Scholes option pricing
model and the following assumptions:
<Table>
<Caption>
YEAR ENDED DECEMBER 31
------------------------------
2000 1999 1998
---- ---- ----
Risk-free interest rate..................................... 6.0% 6.0% 5.0%
Expected life (years)....................................... 6.0 7.0 7.0
Stock price volatility...................................... 45.0% 30.0% --
</Table>
F-21
140
16. 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, 2000, are as follows:
<Table>
<Caption>
(IN THOUSANDS)
--------------
2001........................................................ $21,421
2002........................................................ 16,102
2003........................................................ 12,503
2004........................................................ 9,574
2005........................................................ 5,440
Thereafter.................................................. 10,044
</Table>
Rental expense for the years ended December 31, 2000, 1999 and 1998, was
$30.3 million, $33.3 million and $29.1 million, respectively.
WESCO has litigation arising from time to time in the normal course of
business. In management's opinion, any present litigation WESCO is aware of will
not materially affect WESCO's consolidated financial position, results of
operations or cash flows.
17. SEGMENTS AND RELATED INFORMATION
WESCO is engaged principally in one line of business -- the sale of
electrical products and maintenance repair and operating supplies -- which
represents more than 90% of the consolidated net sales, income from operations
and assets, for 2000, 1999 and 1998. There were no material amounts of sales or
transfers among geographic areas and no material amounts of export sales.
The following table sets forth information about WESCO by geographic area:
<Table>
<Caption>
YEAR ENDED DECEMBER 31
----------------------------------------------------------------------
NET SALES LONG-LIVED ASSETS
------------------------------------ ------------------------------
2000 1999 1998 2000 1999 1998
---------- ---------- ---------- -------- -------- --------
(IN THOUSANDS)
United States.......... $3,494,527 $3,059,901 $2,713,213 $392,820 $357,696 $344,481
Canada................. 319,823 288,203 272,463 11,286 11,157 10,483
Other Foreign.......... 66,746 75,754 39,763 1,702 1,881 1,889
---------- ---------- ---------- -------- -------- --------
$3,881,096 $3,423,858 $3,025,439 $405,808 $370,734 $356,853
========== ========== ========== ======== ======== ========
</Table>
F-22
141
18. SUPPLEMENTAL CASH FLOW INFORMATION
The following table sets forth supplemental cash flow information:
<Table>
<Caption>
YEAR ENDED DECEMBER 31
-------------------------------
2000 1999 1998
-------- ------- --------
(IN THOUSANDS)
Details of acquisitions:
Fair value of assets acquired........................... $ 63,764 $47,425 $307,056
Deferred acquisition payment............................ 3,353 30,000 --
Liabilities assumed..................................... (15,963) (7,349) (56,838)
Notes issued to seller.................................. (2,500) (1,500) (46,242)
Deferred acquisition payable............................ (7,750) (8,593) (30,000)
-------- ------- --------
Cash paid for acquisitions.............................. $ 40,904 $59,983 $173,976
======== ======= ========
Cash paid for interest.................................... $ 41,676 $42,817 $ 35,093
Cash paid for income taxes................................ 19,589 5,249 9,470
</Table>
Noncash investing activities not reflected in the consolidated statement of
cash flows for 2000, consisted of the write-off of a $4.0 million investment in
an affiliate. Noncash financing activities not reflected in the consolidated
statement of cash flows for 1999 consisted of the conversion of $31.5 million of
notes payable to common stock. Noncash investing and financing activities not
reflected in the consolidated statement of cash flows for 1998 consisted of the
$5.8 million use of restricted cash to reduce long-term debt, $5.2 million of
capital expenditures included in accounts payable and the conversion of $1.6
million of notes payable to redeemable common stock.
F-23
142
19. OTHER FINANCIAL INFORMATION
In June 1998, WESCO Distribution, Inc. issued $300 million of 9 1/8% senior
subordinated notes. The senior subordinated notes are fully and unconditionally
guaranteed by WESCO International, Inc. on a subordinated basis to all existing
and future senior indebtedness of WESCO International, Inc. Condensed
consolidating financial information for WESCO International, Inc., WESCO
Distribution, Inc. and the non-guarantor subsidiaries are as follows:
CONDENSED CONSOLIDATING BALANCE SHEETS
<Table>
<Caption>
DECEMBER 31, 2000
------------------------------------------------------------------------------------
(IN THOUSANDS)
WESCO CONSOLIDATING
INTERNATIONAL, WESCO NON-GUARANTOR AND ELIMINATING
INC. DISTRIBUTION, INC. SUBSIDIARIES ENTRIES CONSOLIDATED
-------------- ------------------ ------------- --------------- ------------
Cash and cash equivalents... $ 10 $ 14,911 $ -- $ 6,158 $ 21,079
Trade accounts receivable... -- 43,790 216,198 -- 259,988
Inventories................. -- 383,025 38,058 -- 421,083
Other current assets........ -- 63,212 18,768 (19,905) 62,075
-------- ---------- -------- ----------- ----------
Total current assets.... 10 504,938 273,024 (13,747) 764,225
Intercompany receivables,
net....................... -- 317,818 32,364 (350,182) --
Property, buildings and
equipment, net............ -- 53,280 70,197 -- 123,477
Goodwill and other
intangibles, net.......... -- 271,690 6,073 -- 277,763
Investments in affiliates
and other noncurrent
assets.................... 482,026 295,094 117 (772,669) 4,568
-------- ---------- -------- ----------- ----------
Total assets............ $482,036 $1,442,820 $381,775 $(1,136,598) $1,170,033
======== ========== ======== =========== ==========
Accounts payable............ $ -- $ 410,171 $ 44,206 $ 6,158 $ 460,535
Other current liabilities... 5,629 54,828 22,755 (19,905) 63,307
-------- ---------- -------- ----------- ----------
Total current
liabilities.......... 5,629 464,999 66,961 (13,747) 523,842
Intercompany payables, net.. 350,182 -- -- (350,182) --
Long-term debt.............. -- 460,416 22,324 -- 482,740
Other noncurrent
liabilities............... -- 35,379 3,085 -- 38,464
Stockholders' equity........ 126,225 482,026 289,405 (772,669) 124,987
-------- ---------- -------- ----------- ----------
Total liabilities and
stockholders'
equity............... $482,036 $1,442,820 $381,775 $(1,136,598) $1,170,033
======== ========== ======== =========== ==========
</Table>
F-24
143
<Table>
<Caption>
DECEMBER 31, 1999
------------------------------------------------------------------------------------
(IN THOUSANDS)
WESCO CONSOLIDATING
INTERNATIONAL, WESCO NON-GUARANTOR AND ELIMINATING
INC. DISTRIBUTION, INC. SUBSIDIARIES ENTRIES CONSOLIDATED
-------------- ------------------ ------------- --------------- ------------
Cash and cash
equivalents.............. $ 10 $ -- $ 26,812 $ (18,003) $ 8,819
Trade accounts
receivable............... -- 23,781 164,526 -- 188,307
Inventories................ -- 359,481 38,188 -- 397,669
Other current assets....... -- 48,552 13,069 (2,615) 59,006
-------- ---------- -------- ----------- ----------
Total current
assets.............. 10 431,814 242,595 (20,618) 653,801
Intercompany receivables,
net...................... -- 342,405 -- (342,405) --
Property, buildings and
equipment, net........... -- 46,709 69,929 -- 116,638
Goodwill and other
intangibles, net......... -- 242,834 6,406 -- 249,240
Investments in affiliates
and other noncurrent
assets................... 459,042 243,328 179 (693,435) 9,114
-------- ---------- -------- ----------- ----------
Total assets.......... $459,052 $1,307,090 $319,109 $(1,056,458) $1,028,793
======== ========== ======== =========== ==========
Accounts payable........... $ 1,457 $ 374,938 $ 48,571 $ (18,003) $ 406,963
Other current
liabilities.............. 2,615 41,056 6,766 (2,615) 47,822
-------- ---------- -------- ----------- ----------
Total current
liabilities......... 4,072 415,994 55,337 (20,618) 454,785
Intercompany payables,
net...................... 336,976 -- 5,429 (342,405) --
Long-term debt............. -- 398,455 24,084 -- 422,539
Other noncurrent
liabilities.............. -- 33,599 565 -- 34,164
Stockholders' equity....... 118,004 459,042 233,694 (693,435) 117,305
-------- ---------- -------- ----------- ----------
Total liabilities and
stockholders'
equity.............. $459,052 $1,307,090 $319,109 $(1,056,458) $1,028,793
======== ========== ======== =========== ==========
</Table>
F-25
144
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
<Table>
<Caption>
YEAR ENDED DECEMBER 31, 2000
------------------------------------------------------------------------------------
(IN THOUSANDS)
WESCO CONSOLIDATING
INTERNATIONAL, WESCO NON-GUARANTOR AND ELIMINATING
INC. DISTRIBUTION, INC. SUBSIDIARIES ENTRIES CONSOLIDATED
-------------- ------------------ ------------- --------------- ------------
Net sales................... $ -- $3,497,076 $384,020 $ -- $3,881,096
Cost of goods sold.......... -- 2,882,626 314,326 -- 3,196,952
Selling, general and
administrative expenses... -- 476,680 47,629 -- 524,309
Depreciation and
amortization.............. -- 21,951 3,042 -- 24,993
Restructuring charge........ -- 9,094 310 -- 9,404
Results of affiliates'
operations................ 22,984 56,250 -- (79,234) --
Interest expense (income),
net....................... (16,083) 68,164 (8,301) -- 43,780
Other (income) expense...... -- 85,005 (60,060) -- 24,945
Provision for income
taxes..................... 5,629 (13,178) 30,824 -- 23,275
------- ---------- -------- -------- ----------
Net income (loss)......... $33,438 $ 22,984 $ 56,250 $(79,234) $ 33,438
======= ========== ======== ======== ==========
</Table>
<Table>
<Caption>
YEAR ENDED DECEMBER 31, 1999
------------------------------------------------------------------------------------
(IN THOUSANDS)
WESCO CONSOLIDATING
INTERNATIONAL, WESCO NON-GUARANTOR AND ELIMINATING
INC. DISTRIBUTION, INC. SUBSIDIARIES ENTRIES CONSOLIDATED
-------------- ------------------ ------------- --------------- ------------
Net sales................... $ -- $3,083,173 $340,685 $ -- $3,423,858
Cost of goods sold.......... -- 2,528,631 278,609 -- 2,807,240
Selling, general and
administrative expenses... -- 426,181 45,094 -- 471,275
Depreciation and
amortization.............. -- 17,733 2,617 -- 20,350
Results of affiliates'
operations................ 26,446 52,047 -- (78,493) --
Interest expense (income),
net....................... (5,075) 60,729 (8,686) -- 46,968
Other (income) expense...... -- 79,595 (60,048) -- 19,547
Provision for income
taxes..................... 1,776 (7,195) 28,752 -- 23,333
------- ---------- -------- -------- ----------
Income (loss) before
extraordinary item........ 29,745 29,546 54,347 (78,493) 35,145
Extraordinary item, net of
tax benefit............... (5,107) (3,100) (2,300) -- (10,507)
------- ---------- -------- -------- ----------
Net income (loss)......... $24,638 $ 26,446 $ 52,047 $(78,493) $ 24,638
======= ========== ======== ======== ==========
</Table>
F-26
145
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
<Table>
<Caption>
YEAR ENDED DECEMBER 31, 2000
------------------------------------------------------------------------------------
(IN THOUSANDS)
WESCO CONSOLIDATING
INTERNATIONAL, WESCO NON-GUARANTOR AND ELIMINATING
INC. DISTRIBUTION, INC. SUBSIDIARIES ENTRIES CONSOLIDATED
-------------- ------------------ ------------- --------------- ------------
Net cash provided (used)
by operating
activities............. $ 13,585 $ 32,332 $(23,167) $ 24,161 $ 46,911
Investing activities:
Capital expenditures... -- (18,167) (3,385) -- (21,552)
Acquisitions........... -- (40,904) -- -- (40,904)
Other.................. -- 267 1,500 -- 1,767
-------- -------- -------- -------- --------
Net cash used in
investing
activities.......... -- (58,804) (1,885) -- (60,689)
Financing activities:
Net borrowings
(repayments)........ 13,206 41,858 (1,760) -- 53,304
Equity transactions.... (26,791) -- -- -- (26,791)
Other.................. -- (475) -- -- (475)
-------- -------- -------- -------- --------
Net cash (used in)
provided by
financing
activities.......... (13,585) 41,383 (1,760) -- 26,038
-------- -------- -------- -------- --------
Net change in cash and
cash equivalents....... -- 14,911 (26,812) 24,161 12,260
Cash and cash equivalents
at beginning of year... 10 -- 26,812 (18,003) 8,819
-------- -------- -------- -------- --------
Cash and cash equivalents
at end of period....... $ 10 $ 14,911 $ -- $ 6,158 $ 21,079
======== ======== ======== ======== ========
</Table>
F-27
146
<Table>
<Caption>
YEAR ENDED DECEMBER 31, 1999
------------------------------------------------------------------------------------
(IN THOUSANDS)
WESCO CONSOLIDATING
INTERNATIONAL, WESCO NON-GUARANTOR AND ELIMINATING
INC. DISTRIBUTION, INC. SUBSIDIARIES ENTRIES CONSOLIDATED
-------------- ------------------ ------------- --------------- ------------
Net cash provided (used)
by operating
activities............. $ (36) $ 84,962 $ (567) $(18,003) $ 66,356
Investing activities:
Capital expenditures... -- (17,452) (3,778) -- (21,230)
Acquisitions........... -- (59,983) -- -- (59,983)
Other.................. -- 8,717 600 -- 9,317
--------- -------- ------- -------- ---------
Net cash used in
investing
activities.......... -- (68,718) (3,178) -- (71,896)
Financing activities:
Net borrowings
(repayments)........ (182,680) (14,084) 22,464 -- (174,300)
Equity transactions.... 182,726 -- -- -- 182,726
Other.................. -- (2,160) -- -- (2,160)
--------- -------- ------- -------- ---------
Net cash (used in)
provided by
financing
activities.......... 46 (16,244) 22,464 -- 6,266
--------- -------- ------- -------- ---------
Net change in cash and
cash equivalents....... 10 -- 18,719 (18,003) 726
Cash and cash equivalents
at beginning of year... -- -- 8,093 -- 8,093
--------- -------- ------- -------- ---------
Cash and cash equivalents
at end of period....... $ 10 $ -- $26,812 $(18,003) $ 8,819
========= ======== ======= ======== =========
</Table>
F-28
147
20. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
The following table sets forth selected quarterly financial data for the
years ended December 31, 2000 and 1999:
<Table>
<Caption>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER(2) QUARTER QUARTER(1)
-------- ---------- -------- ----------
(In thousands, except share data)
2000
Net sales(3).............................. $925,022 $990,931 $976,332 $988,811
Gross profit(3)........................... 165,018 173,872 178,951 166,303
Income from operations.................... 31,374 38,077 42,354 13,633
Income (loss) before income taxes......... 15,233 21,350 24,314 (4,184)
Net income (loss)......................... 9,155 12,831 14,603 (3,151)
Basic earnings (loss) per share........... 0.20 0.28 0.32 (0.07)
Diluted earnings (loss) per share......... 0.19 0.27 0.31 (0.07)
1999
Net sales(3).............................. $777,630 $864,669 $904,703 $876,856
Gross profit(3)........................... 139,008 157,519 157,845 162,246
Income from operations.................... 23,914 36,527 38,240 26,312
Income before income taxes and
extraordinary item...................... 4,841 19,262 22,865 11,510
Income before extraordinary item.......... 2,917 11,548 13,757 6,923
Net income................................ 2,917 1,041 13,757 6,923
Basic earnings per share before
extraordinary item...................... 0.08 0.28 0.29 0.14
Diluted earnings per share before
extraordinary item...................... 0.08 0.25 0.27 0.14
Basic earnings per share.................. 0.08 0.03 0.29 0.14
Diluted earnings per share................ 0.08 0.03 0.27 0.14
</Table>
-------------------------
(1) The fourth quarter of 2000 includes a restructuring charge of $9.4 (see Note
4).
(2) The second quarter of 1999 includes an extraordinary charge of $10.5
million, net of tax, in connection with the early extinguishment of certain
debt and refinancing of its credit agreement (see Note 10).
(3) All quarters include the impact of the reclassification of freight billed to
customers in accordance with EITF No. 00-10. The impact was $1.7 million,
$1.6 million, $1.7 million and $1.4 million for each of the quarters in 2000
and $0.2 million, $0.5 million, $1.5 million and $1.5 million for each of
the quarters in 1999.
F-29
148
WESCO INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<Table>
<Caption>
JUNE 30 DECEMBER 31
2001 2000
----------- -----------
(UNAUDITED)
(DOLLARS IN THOUSANDS,
EXCEPT SHARE DATA)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents............................... $ 4,891 $ 21,079
Trade accounts receivable, net of allowance for doubtful
accounts of $11,984 and $9,794 in 2001 and 2000,
respectively........................................... 247,295 259,988
Other accounts receivable............................... 18,912 31,365
Inventories............................................. 433,336 421,083
Income taxes receivable................................. 7,984 10,951
Prepaid expenses and other current assets............... 6,583 5,602
Deferred income taxes................................... 14,310 14,157
---------- ----------
Total current assets............................... 733,311 764,225
Property, buildings and equipment, net...................... 124,278 123,477
Goodwill and other intangibles, net of accumulated
amortization of $34,928 and $29,053 in 2001 and 2000,
respectively.............................................. 310,745 277,763
Other assets................................................ 5,252 4,568
---------- ----------
Total assets....................................... $1,173,586 $1,170,033
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable........................................ $ 512,786 $ 460,535
Accrued payroll and benefit costs....................... 14,966 27,027
Current portion of long-term debt....................... 1,530 585
Other current liabilities............................... 27,926 35,695
---------- ----------
Total current liabilities.......................... 557,208 523,842
Long-term debt.............................................. 438,200 482,740
Other noncurrent liabilities................................ 8,143 6,823
Deferred income taxes....................................... 33,771 31,641
---------- ----------
Total liabilities.................................. 1,037,322 1,045,046
Commitments and contingencies
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value; 20,000,000 shares
authorized, no shares issued or outstanding............ -- --
Common stock, $.01 par value; 210,000,000 shares
authorized, 44,224,409 and 44,093,664 shares issued in
2001 and 2000, respectively............................ 443 441
Class B nonvoting convertible common stock, $.01 par
value; 20,000,000 shares authorized, 4,653,131 issued
in 2001 and 2000....................................... 46 46
Additional capital...................................... 569,770 569,288
Retained earnings (deficit)............................. (399,139) (410,144)
Treasury stock, at cost; 3,976,897 shares in 2001 and
2000................................................... (33,406) (33,406)
Accumulated other comprehensive income (loss)........... (1,450) (1,238)
---------- ----------
Total stockholders' equity......................... 136,264 124,987
---------- ----------
Total liabilities and stockholders' equity......... $1,173,586 $1,170,033
========== ==========
</Table>
The accompanying notes are an integral part of the consolidated financial
statements.
F-30
149
WESCO INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<Table>
<Caption>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
-------------------- ------------------------
2001 2000 2001 2000
-------- -------- ---------- ----------
(IN THOUSANDS, EXCEPT SHARE DATA)
Net sales................................ $944,136 $990,931 $1,872,193 $1,915,953
Cost of goods sold....................... 779,305 817,059 1,540,243 1,577,063
-------- -------- ---------- ----------
Gross profit........................... 164,831 173,872 331,950 338,890
Selling, general and administrative
expenses............................... 129,187 129,809 266,012 257,928
Depreciation and amortization............ 7,636 5,986 14,999 11,511
-------- -------- ---------- ----------
Income from operations................. 28,008 38,077 50,939 69,451
Interest expense, net.................... 10,937 10,741 21,934 21,619
Other expense............................ 4,599 5,986 10,664 11,249
-------- -------- ---------- ----------
Income before income taxes............. 12,472 21,350 18,341 36,583
Provision for income taxes............... 4,959 8,519 7,336 14,597
-------- -------- ---------- ----------
Net income............................. $ 7,513 $ 12,831 $ 11,005 $ 21,986
======== ======== ========== ==========
Earnings per share:
Basic.................................. $ 0.17 $ 0.28 $ 0.25 $ 0.48
======== ======== ========== ==========
Diluted................................ $ 0.16 $ 0.27 $ 0.23 $ 0.45
======== ======== ========== ==========
</Table>
The accompanying notes are an integral part of the consolidated financial
statements.
F-31
150
WESCO INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<Table>
<Caption>
SIX MONTHS ENDED
JUNE 30
---------------------
2001 2000
--------- ---------
(IN THOUSANDS)
OPERATING ACTIVITIES:
Net income.................................................. $ 11,005 $ 21,986
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization............................. 14,999 11,511
Accretion of original issue and amortization of purchase
discounts.............................................. 557 574
Amortization of debt issuance costs and interest rate
caps................................................... 357 306
Loss (gain) on sale of property, buildings and
equipment.............................................. (447) 15
Deferred income taxes..................................... 1,977 (56)
Changes in assets and liabilities, excluding the effects
of acquisitions:
Sale of trade accounts receivable...................... -- 15,000
Trade and other receivables............................ 39,473 (78,950)
Inventories............................................ (4,348) (33,953)
Other current and noncurrent assets.................... (1,680) 9,820
Accounts payable....................................... 44,149 73,892
Accrued payroll and benefit costs...................... (12,061) 3,207
Other current and noncurrent liabilities............... (1,826) 3,319
--------- ---------
Net cash provided by operating activities......... 92,155 26,671
INVESTING ACTIVITIES:
Capital expenditures........................................ (7,972) (7,645)
Proceeds from the sale of property, buildings and
equipment................................................. 534 17
Receipts from (advances to) affiliate....................... -- 224
Acquisitions, net of cash acquired.......................... (52,052) (14,061)
--------- ---------
Net cash used for investing activities............ (59,490) (21,465)
FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt.................... 298,263 378,719
Repayments of long-term debt................................ (347,415) (355,079)
Repurchase of common stock.................................. -- (21,538)
Exercise of stock options................................... 299 1,112
--------- ---------
Net cash provided by/(used for) financing
activities...................................... (48,853) 3,214
--------- ---------
Net change in cash and cash equivalents................... (16,188) 8,420
Cash and cash equivalents at the beginning of period...... 21,079 8,819
--------- ---------
Cash and cash equivalents at the end of period............ $ 4,891 $ 17,239
========= =========
</Table>
The accompanying notes are an integral part of the consolidated financial
statements.
F-32
151
WESCO INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. ORGANIZATION
WESCO International, Inc. and its subsidiaries (collectively, "WESCO"),
headquartered in Pittsburgh, Pennsylvania, is a full-line distributor of
electrical supplies and equipment and is a provider of integrated supply
procurement services. WESCO is engaged principally in one line of
business -- the sale of electrical products and maintenance, repair and
operating supplies. WESCO currently operates approximately 360 branches and five
distribution centers in the United States, Canada, Mexico, Puerto Rico, Guam,
the United Kingdom and Singapore.
2. ACCOUNTING POLICIES
Basis of Presentation
The unaudited condensed consolidated financial statements include the
accounts of WESCO and all of its subsidiaries and have been prepared in
accordance with Rule 10-01 of the Securities and Exchange Commission. The
unaudited condensed consolidated financial statements should be read in
conjunction with the audited consolidated financial statements and notes thereto
included in WESCO's 2000 Annual Report on Form 10-K filed with the Securities
and Exchange Commission.
The unaudited condensed consolidated balance sheet as of June 30, 2001, the
unaudited condensed consolidated statements of operations for the three months
and six months ended June 30, 2001 and 2000, and the unaudited condensed
consolidated statements of cash flows for the six months ended June 30, 2001 and
2000, in the opinion of management, have been prepared on the same basis as the
audited consolidated financial statements and include all adjustments necessary
for the fair presentation of the results of the interim periods. All adjustments
reflected in the condensed consolidated financial statements are of a normal
recurring nature. Results for the interim periods presented are not necessarily
indicative of the results to be expected for the full year.
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities." This
statement, as amended by SFAS No. 138, was adopted by WESCO on January 1, 2001.
This statement requires the recognition of the fair value of any derivative
financial instrument on the balance sheet. Changes in fair value of the
derivative and, in certain instances, changes in the fair value of an underlying
hedged asset or liability, are recognized through either income or as a
component of other comprehensive income. The adoption of this statement did not
have a material impact on the results of operations or financial position of
WESCO.
In September 2000, the FASB issued SFAS No. 140, a modification of SFAS No.
125. SFAS No. 140 is effective for transfers after March 31, 2001 and is
effective for disclosures about securitizations and collateral and for
recognition and reclassification of collateral for fiscal years ending after
December 15, 2000. The disclosure provisions of this statement have been
adopted. The adoption of this statement for future transfers is not expected to
have a material impact on the results of operations or financial position of
WESCO.
In July 2001, the FASB issued SFAS No. 141, "Business Combinations" and
SFAS No. 142, "Goodwill and other Intangible Assets." Under SFAS No. 141, all
business combinations will be accounted for under the purchase method. Under
SFAS No. 142, goodwill will no longer be amortized, but will be reduced only if
it was found to be impaired. Goodwill would be tested
F-33
152
for impairment annually or more frequently when events or circumstances occur
indicating that goodwill might be impaired. A fair-value based impairment test
would be used to measure goodwill for impairment. As goodwill is measured as a
residual amount in an acquisition, it is not possible to directly measure the
fair value of goodwill. Under this statement, the net assets of a reporting unit
are subtracted from the fair value of that reporting unit to determine the
implied fair value of goodwill. An impairment loss would be recognized to the
extent the carrying amount of goodwill exceeds the implied fair value. The
provisions of this statement are effective for all business combinations
completed after July 1, 2001 and fiscal years beginning after December 15, 2001
for existing goodwill. Management believes the adoption of this standard, will
have a material non-cash impact on the financial statements. For the six months
ended June 30, 2001, goodwill amortization was $5.8 million.
3. ACQUISITIONS
In March 2001, WESCO completed its acquisition of all of the outstanding
common stock of Herning Underground Supply, Inc. and Alliance Utility Products,
Inc. (collectively "Herning") headquartered in Hayward, California. Herning, a
distributor of gas, lighting and communication utility products, reported net
sales of approximately $112 million in 2000. This acquisition was accounted for
under the purchase method of accounting (See Note 7).
4. EARNINGS PER SHARE
The following tables set forth the details of basic and diluted earnings
per share:
<Table>
<Caption>
THREE MONTHS ENDED
JUNE 30
----------------------------------------
2001 2000
---------------- ----------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE
AMOUNTS)
Net income................................................. $ 7,513 $ 12,831
Weighted average common shares outstanding used in
computing basic earnings per share....................... 44,872,816 45,451,376
Common shares issuable upon exercise of dilutive stock
options.................................................. 2,153,061 2,537,751
----------- -----------
Weighted average common shares outstanding and common share
equivalents used in computing diluted earnings per
share.................................................... 47,025,877 47,989,127
=========== ===========
Earnings per share
Basic.................................................... $ 0.17 $ 0.28
Diluted.................................................. $ 0.16 $ 0.27
</Table>
F-34
153
<Table>
<Caption>
SIX MONTHS ENDED JUNE 30
----------------------------------
2001 2000
--------------- ---------------
(DOLLARS IN THOUSANDS, EXCEPT PER
SHARE AMOUNTS)
Net income.................................................. $ 11,005 $ 21,986
Weighted average common shares outstanding used in computing
basic earnings per share.................................. 44,839,917 45,848,936
Common shares issuable upon exercise of dilutive stock
options................................................... 2,201,155 2,518,123
----------- -----------
Weighted average common shares outstanding and common share
equivalents used in computing diluted earnings
per share................................................. 47,041,072 48,367,059
=========== ===========
Earnings per share:
Basic..................................................... $ 0.25 $ 0.48
Diluted................................................... $ 0.23 $ 0.45
</Table>
5. ACCOUNTS RECEIVABLE SECURITIZATION
In June 1999, WESCO and certain of its subsidiaries terminated its previous
accounts receivable securitization program and entered into a new $350 million
accounts receivable securitization program ("Receivables Facility"), which was
subsequently increased to $375 million. Under the Receivables Facility, WESCO
sells, on a continuous basis, to WESCO Receivables Corporation, a wholly-owned,
special purpose company ("SPC"), an undivided interest in all eligible accounts
receivable. The SPC sells without recourse to a third-party conduit all the
receivables while maintaining a subordinated interest, in the form of
overcollateralization, in a portion of the receivables. WESCO has agreed to
continue servicing the sold receivables for the financial institution at market
rates; accordingly, no servicing asset or liability has been recorded.
As of June 30, 2001 and December 31, 2000, securitized accounts receivable
totaled approximately $452 million and $479 million, respectively, of which the
subordinated retained interest was approximately $75 million and $101 million,
respectively. Accordingly, approximately $377 million and $378 million of
accounts receivable balances were removed from the consolidated balance sheets
at June 30, 2001 and December 31, 2000, respectively. Net proceeds from the
transactions totaled $40.0 million in 2000. Costs associated with the
Receivables Facility totaled $10.7 million and $11.2 million for the six months
ended June 30, 2001 and 2000, respectively. These amounts are recorded as other
expenses in the consolidated statements of operations and are primarily related
to the discount and loss on the sale of accounts receivable, partially offset by
related servicing revenue.
The key economic assumptions used to measure the retained interest at the
date of the securitization or securitizations completed in 2001 were a discount
rate of 5% and an estimated life of 1.5 months. At June 30, 2001, an immediate
adverse change in the discount rate or estimated life of 10% and 20% would
result in a reduction in the fair value of the retained interest of $0.3 million
and $0.5 million, respectively. These sensitivities are hypothetical and should
be used with caution. As the figures indicate, changes in fair value based on a
10% variation in assumptions generally cannot be extrapolated because the
relationship of the change in assumption to the change in fair value may not be
linear. Also, in this example, the effect of a variation in a particular
assumption on the fair value of the retained interest is calculated without
changing any other assumption. In reality, changes in one factor may result in
changes in another.
F-35
154
6. COMPREHENSIVE INCOME
The following tables set forth comprehensive income and its components:
<Table>
<Caption>
THREE MONTHS ENDED
JUNE 30
-------------------
2001 2000
------- --------
(IN THOUSANDS)
Net income.................................................. $7,513 $12,831
Foreign currency translation adjustment..................... 360 (364)
------ -------
Comprehensive income........................................ $7,873 $12,467
====== =======
</Table>
<Table>
<Caption>
SIX MONTHS ENDED
JUNE 30
------------------
2001 2000
------- -------
(IN THOUSANDS)
Net income.................................................. $11,005 $21,986
Foreign currency translation adjustment..................... (212) (384)
------- -------
Comprehensive income........................................ $10,793 $21,602
======= =======
</Table>
7. CASH FLOW STATEMENT
Supplemental cash flow information with respect to acquisitions was as
follows:
<Table>
<Caption>
SIX MONTHS ENDED
JUNE 30
-------------------
2001 2000
-------- -------
(IN THOUSANDS)
Details of acquisitions:
Fair value of assets acquired............................. $ 61,678 $28,787
Deferred acquisition payment.............................. 10,639 --
Liabilities assumed....................................... (15,265) (7,726)
Deferred acquisition payable.............................. (5,000) (7,000)
-------- -------
Cash paid for acquisitions.................................. $ 52,052 $14,061
======== =======
</Table>
8. OTHER FINANCIAL INFORMATION (UNAUDITED)
In June 1998, WESCO Distribution, Inc. issued $300 million of 9 1/8% senior
subordinated notes. The senior subordinated notes are fully and unconditionally
guaranteed by WESCO International, Inc. on a subordinated basis to all existing
and future senior indebtedness of
F-36
155
WESCO International, Inc. Condensed consolidating financial information for
WESCO International, Inc., WESCO Distribution, Inc. and the non-guarantor
subsidiaries are as follows:
WESCO INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEETS
<Table>
<Caption>
JUNE 30, 2001
----------------------------------------------------------------------------------
CONSOLIDATING
WESCO AND
INTERNATIONAL, WESCO NON-GUARANTOR ELIMINATING
INC. DISTRIBUTION, INC. SUBSIDIARIES ENTRIES CONSOLIDATED
-------------- ------------------ ------------- ------------- ------------
(IN THOUSANDS)
Cash and cash
equivalents............ $ 6 $ -- $ -- $ 4,885 $ 4,891
Trade accounts
receivable............. -- 43,386 203,909 -- 247,295
Inventories.............. -- 390,403 42,933 -- 433,336
Other current assets..... -- 49,246 19,562 (21,019) 47,789
-------- ---------- -------- ----------- ----------
Total current
assets............ 6 483,035 266,404 (16,134) 733,311
Intercompany receivables,
net.................... -- 345,017 60,158 (405,175) --
Property, buildings and
equipment, net......... -- 52,241 72,037 -- 124,278
Goodwill and other
intangibles, net....... -- 268,342 42,403 -- 310,745
Investments in affiliates
and other noncurrent
assets................. 490,399 321,432 90 (806,669) 5,252
-------- ---------- -------- ----------- ----------
Total assets........ $490,405 $1,470,067 $441,092 $(1,227,978) $1,173,586
======== ========== ======== =========== ==========
Accounts payable......... $ -- $ 490,824 $ 17,077 $ 4,885 $ 512,786
Other current
liabilities............ 9,662 37,284 18,495 (21,019) 44,422
-------- ---------- -------- ----------- ----------
Total current
liabilities....... 9,662 528,108 35,572 (16,134) 557,208
Intercompany payables,
net.................... 343,029 810 61,336 (405,175) --
Long-term debt........... -- 412,173 26,027 -- 438,200
Other noncurrent
liabilities............ -- 38,577 3,337 -- 41,914
Stockholders' equity..... 137,714 490,399 314,820 (806,669) 136,264
-------- ---------- -------- ----------- ----------
Total liabilities
and stockholders'
equity............ $490,405 $1,470,067 $441,092 $(1,227,978) $1,173,586
======== ========== ======== =========== ==========
</Table>
F-37
156
<Table>
<Caption>
DECEMBER 31, 2000
-----------------------------------------------------------------------------
CONSOLIDATING
WESCO WESCO AND
INTERNATIONAL, DISTRIBUTION, NON-GUARANTOR ELIMINATING
INC. INC. SUBSIDIARIES ENTRIES CONSOLIDATED
-------------- ------------- ------------- ------------- ------------
(IN THOUSANDS)
Cash and cash
equivalents.............. $ 10 $ 14,911 $ -- $ 6,158 $ 21,079
Trade accounts
receivable............... -- 43,790 216,198 -- 259,988
Inventories................ -- 383,025 38,058 -- 421,083
Other current assets....... -- 63,212 18,768 (19,905) 62,075
-------- ---------- -------- ----------- ----------
Total current
assets.............. 10 504,938 273,024 (13,747) 764,225
Intercompany receivables,
net...................... -- 317,818 32,364 (350,182) --
Property, buildings and
equipment, net........... -- 53,280 70,197 -- 123,477
Goodwill and other
intangibles, net......... -- 271,690 6,073 -- 277,763
Investments in affiliates
and other noncurrent
assets................... 482,026 295,094 117 (772,669) 4,568
-------- ---------- -------- ----------- ----------
Total assets.......... $482,036 $1,442,820 $381,775 $(1,136,598) $1,170,033
======== ========== ======== =========== ==========
Accounts payable........... $ -- $ 410,171 $ 44,206 $ 6,158 $ 460,535
Other current
liabilities.............. 5,629 54,828 22,755 (19,905) 63,307
-------- ---------- -------- ----------- ----------
Total current
liabilities......... 5,629 464,999 66,961 (13,747) 523,842
Intercompany payables,
net...................... 350,182 -- -- (350,182) --
Long-term debt............. -- 460,416 22,324 -- 482,740
Other noncurrent
liabilities.............. -- 35,379 3,085 -- 38,464
Stockholders' equity....... 126,225 482,026 289,405 (772,669) 124,987
-------- ---------- -------- ----------- ----------
Total liabilities and
stockholders'
equity.............. $482,036 $1,442,820 $381,775 $(1,136,598) $1,170,033
======== ========== ======== =========== ==========
</Table>
F-38
157
WESCO INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
<Table>
<Caption>
THREE MONTHS ENDED JUNE 30, 2001
----------------------------------------------------------------------------------
CONSOLIDATING
WESCO AND
INTERNATIONAL, WESCO NON-GUARANTOR ELIMINATING
INC. DISTRIBUTION, INC. SUBSIDIARIES ENTRIES CONSOLIDATED
-------------- ------------------ ------------- ------------- ------------
(IN THOUSANDS)
Net sales................ $ -- $829,454 $114,682 $ -- $944,136
Cost of goods sold....... -- 686,148 93,157 -- 779,305
Selling, general and
administrative
expenses............... 11 109,801 19,375 -- 129,187
Depreciation and
amortization........... -- 6,484 1,152 -- 7,636
Results of affiliates'
operations............. 6,299 10,197 -- (16,496) --
Interest expense
(income), net.......... (1,879) 15,899 (3,083) -- 10,937
Other (income) expense... -- 22,205 (17,606) -- 4,599
Provision for income
taxes.................. 654 (7,185) 11,490 -- 4,959
------- -------- -------- -------- --------
Net income (loss)...... $ 7,513 $ 6,299 $ 10,197 $(16,494) $ 7,513
======= ======== ======== ======== ========
</Table>
<Table>
<Caption>
THREE MONTHS ENDED JUNE 30, 2000
----------------------------------------------------------------------------------
CONSOLIDATING
WESCO AND
INTERNATIONAL, WESCO NON-GUARANTOR ELIMINATING
INC. DISTRIBUTION, INC. SUBSIDIARIES ENTRIES CONSOLIDATED
-------------- ------------------ ------------- ------------- ------------
(IN THOUSANDS)
Net sales................ $ -- $897,980 $92,951 $ -- $990,931
Cost of goods sold....... -- 740,400 76,659 -- 817,059
Selling, general and
administrative
expenses............... -- 127,146 2,663 -- 129,809
Depreciation and
amortization........... -- 5,224 762 -- 5,986
Results of affiliates'
operations............. 10,208 21,815 -- (32,023) --
Interest expense
(income), net.......... (4,036) 17,591 (2,814) -- 10,741
Other (income) expense... -- 23,966 (17,980) -- 5,986
Provision for income
taxes.................. 1,413 (4,740) 11,846 -- 8,519
------- -------- ------- -------- --------
Net income (loss)...... $12,831 $ 10,208 $21,815 $(32,023) $ 12,831
======= ======== ======= ======== ========
</Table>
F-39
158
<Table>
<Caption>
SIX MONTHS ENDED JUNE 30, 2001
----------------------------------------------------------------------------------
CONSOLIDATING
WESCO AND
INTERNATIONAL, WESCO NON-GUARANTOR ELIMINATING
INC. DISTRIBUTION, INC. SUBSIDIARIES ENTRIES CONSOLIDATED
-------------- ------------------ ------------- ------------- ------------
(IN THOUSANDS)
Net sales................ $ -- $1,655,384 $216,809 $ -- $1,872,193
Cost of goods sold....... -- 1,364,146 176,097 -- 1,540,243
Selling, general and
administrative
expenses............... 11 229,828 36,173 -- 266,012
Depreciation and
amortization........... -- 12,917 2,082 -- 14,999
Results of affiliates'
operations............. 8,373 25,627 -- (34,000) --
Interest expense
(income), net.......... (4,061) 32,025 (6,030) -- 21,934
Other (income) expense... -- 48,288 (37,624) -- 10,664
Provision for income
taxes.................. 1,418 (14,566) 20,484 -- 7,336
------- ---------- -------- -------- ----------
Net income (loss)...... $11,005 $ 8,373 $ 25,627 $(34,000) $ 11,005
======= ========== ======== ======== ==========
</Table>
<Table>
<Caption>
SIX MONTHS ENDED JUNE 30, 2000
----------------------------------------------------------------------------------
CONSOLIDATING
WESCO AND
INTERNATIONAL, WESCO NON-GUARANTOR ELIMINATING
INC. DISTRIBUTION, INC. SUBSIDIARIES ENTRIES CONSOLIDATED
-------------- ------------------ ------------- ------------- ------------
(IN THOUSANDS)
Net sales................ $ -- $1,729,206 $186,747 $ -- $1,915,953
Cost of goods sold....... -- 1,424,168 152,895 -- 1,577,063
Selling, general and
administrative
expenses............... -- 241,666 16,262 -- 257,928
Depreciation and
amortization........... -- 9,996 1,515 -- 11,511
Results of affiliates'
operations............. 16,759 37,483 -- (54,242) --
Interest expense
(income), net.......... (8,042) 34,335 (4,674) -- 21,619
Other (income) expense... -- 48,577 (37,328) -- 11,249
Provision for income
taxes.................. 2,815 (8,812) 20,594 -- 14,597
------- ---------- -------- -------- ----------
Net income (loss)...... $21,986 $ 16,759 $ 37,483 $(54,242) $ 21,986
======= ========== ======== ======== ==========
</Table>
F-40
159
WESCO INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
<Table>
<Caption>
SIX MONTHS ENDED JUNE 30, 2001
----------------------------------------------------------------------------------
CONSOLIDATING
WESCO AND
INTERNATIONAL, WESCO NON-GUARANTOR ELIMINATING
INC. DISTRIBUTION, INC. SUBSIDIARIES ENTRIES CONSOLIDATED
-------------- ------------------ ------------- ------------- ------------
(IN THOUSANDS)
Net cash provided (used) by
operating activities..... $6,848 $ 34,248 $ 52,332 $(1,273) $ 92,155
Investing activities:
Capital expenditures..... -- (4,773) (3,199) -- (7,972)
Acquisitions and other... -- 534 (52,052) -- (51,518)
------ -------- -------- ------- --------
Net cash used in
investing activities... -- (4,239) (55,251) -- (59,490)
Financing activities:
Net borrowings
(repayments)........... (7,151) (44,920) 2,919 -- (49,152)
Equity transactions...... 299 -- -- -- 299
------ -------- -------- ------- --------
Net cash (used in)
provided by financing
activities............. (6,852) (44,920) 2,919 -- (48,853)
------ -------- -------- ------- --------
Net change in cash and cash
equivalents.............. (4) (14,911) -- (1,273) (16,188)
Cash and cash equivalents
at beginning of year..... 10 14,911 -- 6,158 21,079
------ -------- -------- ------- --------
Cash and cash equivalents
at end of period......... $ 6 $ -- $ -- $ 4,885 $ 4,891
====== ======== ======== ======= ========
</Table>
F-41
160
<Table>
<Caption>
SIX MONTHS ENDED JUNE 30, 2000
----------------------------------------------------------------------------------
CONSOLIDATING
WESCO AND
INTERNATIONAL, WESCO NON-GUARANTOR ELIMINATING
INC. DISTRIBUTION, INC. SUBSIDIARIES ENTRIES CONSOLIDATED
-------------- ------------------ ------------- ------------- ------------
(IN THOUSANDS)
Net cash provided (used) by
operating activities..... $ 3,804 $ 33,928 $(29,064) $ 18,003 $ 26,671
Investing activities:
Capital expenditures..... -- (6,178) (1,467) -- (7,645)
Acquisitions and other... -- (13,820) -- -- (13,820)
-------- -------- -------- -------- --------
Net cash used in
investing activities... -- (19,998) (1,467) -- (21,465)
Financing activities:
Net borrowings
(repayments)........... 17,658 853 6,165 (1,036) 23,640
Equity transactions...... (21,462) -- -- 1,036 (20,426)
-------- -------- -------- -------- --------
Net cash (used in)
provided by financing
activities............. (3,804) 853 6,165 -- 3,214
-------- -------- -------- -------- --------
Net change in cash and cash
equivalents.............. -- 14,783 (24,366) 18,003 8,420
Cash and cash equivalents
at beginning of year..... 10 -- 26,812 (18,003) 8,819
-------- -------- -------- -------- --------
Cash and cash equivalents
at end of period......... $ 10 $ 14,783 $ 2,446 $ -- $ 17,239
======== ======== ======== ======== ========
</Table>
F-42
161
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Under Section 145 of the Delaware General Corporation Law (the "Delaware
Law"), a corporation may indemnify its directors, officers, employees and agents
and its former directors, officers, employees and agents and those who serve, at
the corporation's request, in such capacity with another enterprise, against
expenses (including attorney's fees), as well as judgments, fines and
settlements in nonderivative lawsuits, actually and reasonably incurred in
connection with the defense of any action, suit or proceeding in which they or
any of them were or are made parties or are threatened to be made parties by
reason of their serving or having served in such capacity. The Delaware General
Corporation Law provides, however, that such person must have acted in good
faith and in a manner such person reasonably believed to be in (or not opposed
to) the best interests of the corporation and, in the right of the corporation,
where such person has been adjudged liable to the corporation, unless, and only
to the extent that a court determines that such person fairly and reasonably is
entitled to indemnity for costs the court deems proper in light of liability
adjudication. Indemnity is mandatory to the extent a claim, issue or matter has
been successfully defended.
The Certificate of Incorporation and By-Laws of each Issuer provide for
mandatory indemnification of directors and officers on generally the same terms
as permitted by the Delaware General Corporation Law.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits:
The following is a list of all the exhibits filed as part of the
Registration Statement.
<Table>
<Caption>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
2.1 Recapitalization Agreement, dated as of March 27, 1998,
among Thor Acquisitions L.L.C., WESCO International, Inc.
(formerly known as CDW Holding Corporation) and certain
securityholders of WESCO International, Inc. (incorporated
herein by reference to Exhibit 2.1 to WESCO's Registration
Statement on Form S-4 (No. 333-43225)).
2.2 Purchase Agreement, dated as of May 29, 1998, among WESCO
International, Inc., WESCO Distribution, Inc., Chase
Securities Inc. and Lehman Brothers, Inc. (incorporated
herein by reference to Exhibit 2.2 to WESCO's Registration
Statement on Form S-4 (No. 333-43225)).
2.3 Asset Purchase Agreement, dated as of September 11, 1998,
among Bruckner Supply Company, Inc. and WESCO Distribution,
Inc. (incorporated herein by reference to Exhibit 2.01 to
WESCO's Current Report on Form 8-K, dated September 11,
1998).
2.4 Purchase Agreement, dated August 16, 2001, among WESCO
International, Inc., WESCO Distribution, Inc. and the
initial purchasers listed therein (filed herewith).
3.1 Restated Certificate of Incorporation of WESCO
International, Inc. (filed herewith).
3.2 By-Laws of WESCO International, Inc. (filed herewith).
4.1 Indenture, dated as of June 5, 1998, among WESCO
International, Inc., WESCO Distribution, Inc. and Bank One,
N.A. (incorporated herein by reference herein to Exhibit 4.1
to WESCO's Registration Statement on Form S-4 (No.
333-43225)).
</Table>
II-1
162
<Table>
<Caption>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
4.2 Form of 9 1/8% Senior Subordinated Note Due 2008, Series A
(included in Exhibit 4.1) (incorporated herein by reference
herein to Exhibit 4.2 to WESCO's Registration Statement on
Form S-4 (No. 333-43225)).
4.3 Form of 9 1/8% Senior Subordinated Note Due 2008, Series B
(included in Exhibit 4.1) (incorporated herein by reference
herein to Exhibit 4.3 to WESCO's Registration Statement on
Form S-4 (No. 333-43225)).
4.4 Exchange and Registration Rights Agreement, dated as of June
5, 1998, among the Company, WESCO International, Inc. and
The Initial Purchasers (as defined therein) (incorporated
herein by reference herein to Exhibit 4.4 to WESCO's
Registration Statement on Form S-4 (No. 333-43225)).
4.5 Exchange and Registration Rights Agreement, dated as of June
5, 1998, among WESCO International, Inc. and the initial
purchasers (as defined therein) (incorporated herein by
reference herein to Exhibit 4.8 to WESCO's Registration
Statement on Form S-4 (No. 333-43225)).
4.6 Indenture, dated as of August 23, 2001, among WESCO
International, Inc., WESCO Distribution, Inc. and Bank One
N.A. (filed herewith).
4.7 Exchange and Registration Rights Agreement, dated August 23,
2001, among WESCO International, Inc., WESCO Distribution,
Inc. and the initial purchasers listed therein (filed
herewith).
4.8 Form of 9 1/8% Original Senior Subordinated Note Due 2008
(included in Exhibit 4.6).
4.9 Form of 9 1/8% Exchange Senior Subordinated Note Due 2008
(included in Exhibit 4.6).
5.1 Opinion of Kirkpatrick & Lockhart LLP regarding the validity
of the securities being registered (filed herewith).
10.1 CDW Holding Corporation Stock Purchase Plan (incorporated
herein by reference herein to Exhibit 10.1 to WESCO's
Registration Statement on Form S-4 (No. 333-43225)).
10.2 Form of Stock Subscription Agreement (incorporated herein by
reference herein to Exhibit 10.2 to WESCO's Registration
Statement on Form S-4 (No. 333-43225)).
10.3 CDW Holding Corporation Stock Option Plan (incorporated
herein by reference herein to Exhibit 10.3 to WESCO's
Registration Statement on Form S-4 (No. 333-43225)).
10.4 Form of Stock Option Agreement (incorporated herein by
reference herein to Exhibit 10.4 to WESCO's Registration
Statement on Form S-4 (No. 333-43225)).
10.5 CDW Holding Corporation Stock Option Plan for Branch
Employees (incorporated herein by reference herein to
Exhibit 10.3 to WESCO's Registration Statement on Form S-4
(No. 333-43225)).
10.6 Form of Branch Stock Option Agreement (incorporated herein
by reference herein to Exhibit 10.6 to WESCO's Registration
Statement on Form S-4 (No. 333-43225)).
10.7 Non-Competition Agreement, dated as of February 28, 1996,
between Westinghouse, WESCO International, Inc. and WESCO
Distribution, Inc. (incorporated herein by reference herein
to Exhibit 10.8 to WESCO's Registration Statement on Form
S-4 (No. 333-43225)).
</Table>
II-2
163
<Table>
<Caption>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
10.8 Lease, dated as of May 24, 1995, as amended by Amendment
One, dated as of June 1995, and by Amendment Two, dated as
of December 24, 1995, by and between WESCO Distribution,
Inc. as Tenant and Opal Investors, L.P. and Mural GEM
Investors as Landlord (incorporated herein by reference
herein to Exhibit 10.10 to WESCO's Registration Statement on
Form S-4 (No. 333-43225)).
10.9 Lease, dated as of April 1, 1992, as renewed by Letter of
Notice of Intent to Renew, dated as of December 13, 1996, by
and between the Company as successor in interest to
Westinghouse Electric Corporation as tenant and Utah State
Retirement Fund as Landlord (incorporated herein by
reference herein to Exhibit 10.11 to WESCO's Registration
Statement on Form S-4 (No. 333-43225)).
10.10 Lease, dated as of September 4, 1997, between WESCO
Distribution, Inc. as Tenant and The Buncher Company as
Landlord (incorporated herein by reference herein to Exhibit
10.12 to WESCO's Registration Statement on Form S-4 (No.
333-43225)).
10.11 Lease, dated as of March 1995, by and between WESCO
Distribution-Canada, Inc. as Tenant and Atlantic
Construction, Inc. as Landlord (incorporated herein by
reference herein to Exhibit 10.13 to WESCO's Registration
Statement on Form S-4 (No. 333-43225)).
10.12 Amended and Restated Registration and Participation
Agreement, dated as of June 5, 1998, among WESCO
International, Inc. and certain securityholders of WESCO
International, Inc. named therein (incorporated herein by
reference herein to Exhibit 10.19 to WESCO's Registration
Statement on Form S-4 (No. 333-43225)).
10.13 Employment Agreement between WESCO Distribution, Inc. and
Roy W. Haley (incorporated herein by reference herein to
Exhibit 10.20 to WESCO's Registration Statement on Form S-4
(No. 333-43225)).
10.14 WESCO International, Inc. 1998 Stock Option Plan
(incorporated herein by reference to Exhibit 10.1 to WESCO's
Quarterly Report on Form 10-Q for the quarter ended
September 30, 1998).
10.15 Form of Management Stock Option Agreement (incorporated
herein by reference to Exhibit 10.1 to WESCO's Quarterly
Report on Form 10-Q for the quarter ended September 30,
1998).
10.16 1999 Deferred Compensation Plan for Non-Employee Directors
(incorporated herein by reference to Exhibit 10.22 to
WESCO's Annual Report on Form 10-K for the year ended
December 31, 1998).
10.17 Credit Agreement, dated as of June 29, 1999, among WESCO
Distribution Inc., WESCO Distribution-Canada, Inc., WESCO
International, Inc. and the Lenders identified therein
(incorporated herein by reference to Exhibit 10.1 to WESCO's
Quarterly Report on Form 10-Q for the quarter ended June 30,
1999).
10.18 Amendment, dated as of December 20, 2000, to the Credit
Agreement, dated as of June 29, 1999, among WESCO
Distribution, Inc., WESCO Distribution-Canada, Inc., WESCO
International, Inc. and the Lenders identified therein
(incorporated herein by reference to Exhibit 10.24 to
WESCO's Annual Report on Form 10-K for the year ended
December 31, 2000).
10.19 Amendment, dated as of August 3, 2001, to the Credit
Agreement, dated as of June 29, 1999, among WESCO
Distribution, Inc., WESCO Distribution-Canada, Inc., WESCO
International, Inc. and the Lenders identified therein
(filed herewith).
</Table>
II-3
164
<Table>
<Caption>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
10.20 Receivables Purchase Agreement, dated as of June 30, 1999,
among WESCO Receivables Corp., WESCO Distribution, Inc.,
Market Street Capital Corp. and PNC Bank, National
Association (incorporated herein by reference to Exhibit
10.2 to WESCO's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1999).
10.21 Amended and Restated Receivables Purchase Agreement, dated
as of September 28, 1999, among WESCO Receivables Corp.,
WESCO Distribution, Inc. and PNC Bank, National Association
(incorporated herein by reference to Exhibit 10.1 to WESCO's
Quarterly Report on Form 10-Q for the quarter ended
September 30, 1999).
10.22 1999 Long-Term Incentive Plan (incorporated herein by
reference to Exhibit 10.22 to WESCO's Registration Statement
on Form S-1 (No. 333-73299)).
12.1 Statement Regarding Computation of Ratio of Earnings to
Fixed Charges (filed herewith).
21.1 Subsidiaries of WESCO (filed herewith).
23.1 Consent of PricewaterhouseCoopers LLP, Independent
Accountants (filed herewith).
23.2 Consent of Kirkpatrick & Lockhart LLP (included in Exhibit
5.1).
25.1 Statement of Eligibility and Qualification of Trustee on
Form T-1 of Bank One, N.A., under the Trust Indenture Act of
1939 (filed herewith).
99.1 Form of Letter of Transmittal (filed herewith).
99.2 Form of Notice of Guaranteed Delivery (filed herewith).
99.3 Form of Exchange Agent Agreement (filed herewith).
</Table>
---------------
* The registrants hereby agree to furnish supplementally to the Commission, upon
request, a copy of any omitted schedule to any exhibit hereto.
(b) Financial Statement Schedules:
Schedules are omitted since the information required to be submitted has
been included in the Supplemental Consolidated Financial Statements of the
Company or the notes thereto, or the required information is not applicable.
ITEM 22. UNDERTAKINGS
The undersigned Registrants hereby undertake:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereto), which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total increase or decrease
in volume of securities offered (if the total dollar value of securities
offered would not exceed that which was registered) and any deviation from
the low or high end of the estimated maximum offering range may be
reflected in the form of prospectus filed with the Commission pursuant to
Rule 424(b) if, in the aggregate, the changes in volume and price represent
no more than a 20% change in the maximum aggregate offering price set forth
in the "Calculation of Registration Fee" table in the effective
registration statement);
II-4
165
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement.
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
The undersigned Registrants hereby undertake that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrants' annual reports pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and each filing of an employee benefit plan's
annual report pursuant to Section 15(d) of the Securities Exchange Act of 1934)
that is incorporated by reference in the registration statement shall be deemed
to be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
The undersigned Registrants hereby undertake as follows: that prior to any
public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed to be underwriters, in addition to the information
called for by the other Items of the applicable form.
The undersigned Registrants undertake that every prospectus: (i) that is
filed pursuant to the immediately preceding undertaking or (ii) that purports to
meet the requirements of section 10(a)(3) of the Act and is used in connection
with an offering of securities subject to Rule 415, will be filed as a part of
an amendment to the registration statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
The undersigned Registrants hereby undertake to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11, or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
The undersigned Registrants hereby undertake to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-5
166
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrants
have duly caused this registration statement on Form S-4 to be signed on their
behalf by the undersigned, thereunto duly authorized, in the City of Pittsburgh,
Commonwealth of Pennsylvania, on the 25th day of September, 2001.
<Table>
WESCO INTERNATIONAL, INC. WESCO DISTRIBUTION, INC.
By: /s/ ROY W. HALEY By: /s/ ROY W. HALEY
------------------------------------------- -------------------------------------------
Name: Roy W. Haley Name: Roy W. Haley
Title: Chairman of the Board Title: Chairman of the Board
and Chief Executive Officer and Chief Executive Officer
</Table>
POWER OF ATTORNEY
We, the undersigned directors and officers of WESCO International, Inc. and
WESCO Distribution, Inc., do hereby constitute and appoint Roy W. Haley and
Stephen A. Van Oss, or either of them, our true and lawful attorneys and agents,
to do any and all acts and things in our name and on our behalf in our
capacities as directors and officers and to execute any and all instruments for
us and in our names in the capacities indicated below, which said attorneys and
agents, or either or them, may deem necessary or advisable to enable said
corporation to comply with the Securities Act of 1933, as amended, and any
rules, regulations and requirements of the Securities and Exchange Commission,
in connection with this Registration statement, including specifically, but
without limitation, power and authority to sign for us or any of us in our names
in the capacities indicated below, any and all amendments (including
post-effective amendments) hereto and we do hereby ratify and confirm all that
said attorneys and agents, or either of them, shall do or cause to be done by
virtue hereof.
II-6
167
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed below by the following persons in the
capacities and on the date indicated.
<Table>
<Caption>
SIGNATURE TITLE DATE
--------- ----- ----
/s/ ROY W. HALEY Chairman and Chief Executive Officer September 25, 2001
------------------------------------ (Principal Executive Officer)
Roy W. Haley
/s/ STEPHEN A. VAN OSS Vice President and Chief Financial September 25, 2001
------------------------------------ Officer (Principal Financial and
Stephen A. Van Oss Accounting Officer)
/s/ MICHAEL J. CHESHIRE Director September 25, 2001
------------------------------------
Michael J. Cheshire
/s/ GEORGE L. MILES, JR. Director September 25, 2001
------------------------------------
George L. Miles, Jr.
/s/ JAMES L. SINGLETON Director September 25, 2001
------------------------------------
James L. Singleton
/s/ JAMES A. STERN Director September 25, 2001
------------------------------------
James A. Stern
/s/ ROBERT J. TARR, JR. Director September 25, 2001
------------------------------------
Robert J. Tarr, Jr.
/s/ ANTHONY D. TUTRONE Director September 25, 2001
------------------------------------
Anthony D. Tutrone
/s/ KENNETH L. WAY Director September 25, 2001
------------------------------------
Kenneth L. Way
</Table>
II-7
168
EXHIBIT INDEX
<Table>
<Caption>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
2.1 Recapitalization Agreement, dated as of March 27, 1998,
among Thor Acquisitions L.L.C., WESCO International, Inc.
(formerly known as CDW Holding Corporation) and certain
securityholders of WESCO International, Inc. (incorporated
herein by reference to Exhibit 2.1 to WESCO's Registration
Statement on Form S-4 (No. 333-43225)).
2.2 Purchase Agreement, dated as of May 29, 1998, among WESCO
International, Inc., WESCO Distribution, Inc., Chase
Securities Inc. and Lehman Brothers, Inc. (incorporated
herein by reference to Exhibit 2.2 to WESCO's Registration
Statement on Form S-4 (No. 333-43225)).
2.3 Asset Purchase Agreement, dated as of September 11, 1998,
among Bruckner Supply Company, Inc. and WESCO Distribution,
Inc. (incorporated herein by reference to Exhibit 2.01 to
WESCO's Current Report on Form 8-K, dated September 11,
1998).
2.4 Purchase Agreement, dated August 16, 2001, among WESCO
International, Inc., WESCO Distribution, Inc. and the
initial purchasers listed therein (filed herewith).
3.1 Restated Certificate of Incorporation of WESCO
International, Inc. (filed herewith).
3.2 By-Laws of WESCO International, Inc. (filed herewith).
4.1 Indenture, dated as of June 5, 1998, among WESCO
International, Inc., WESCO Distribution, Inc. and Bank One,
N.A. (incorporated herein by reference herein to Exhibit 4.1
to WESCO's Registration Statement on Form S-4 (No.
333-43225)).
4.2 Form of 9 1/8% Senior Subordinated Note Due 2008, Series A
(included in Exhibit 4.1) (incorporated herein by reference
herein to Exhibit 4.2 to WESCO's Registration Statement on
Form S-4 (No. 333-43225)).
4.3 Form of 9 1/8% Senior Subordinated Note Due 2008, Series B
(included in Exhibit 4.1) (incorporated herein by reference
herein to Exhibit 4.3 to WESCO's Registration Statement on
Form S-4 (No. 333-43225)).
4.4 Exchange and Registration Rights Agreement, dated as of June
5, 1998, among the Company, WESCO International, Inc. and
The Initial Purchasers (as defined therein) (incorporated
herein by reference herein to Exhibit 4.4 to WESCO's
Registration Statement on Form S-4 (No. 333-43225)).
4.5 Exchange and Registration Rights Agreement, dated as of June
5, 1998, among WESCO International, Inc. and the initial
purchasers (as defined therein) (incorporated herein by
reference herein to Exhibit 4.8 to WESCO's Registration
Statement on Form S-4 (No. 333-43225)).
4.6 Indenture, dated as of August 23, 2001, among WESCO
International, Inc., WESCO Distribution, Inc. and Bank One
N.A. (filed herewith).
4.7 Exchange and Registration Rights Agreement, dated August 23,
2001, among WESCO International, Inc., WESCO Distribution,
Inc. and the initial purchasers listed therein (filed
herewith).
4.8 Form of 9 1/8% Original Senior Subordinated Note Due 2008
(included in Exhibit 4.6).
4.9 Form of 9 1/8% Exchange Senior Subordinated Note Due 2008
(included in Exhibit 4.6).
5.1 Opinion of Kirkpatrick & Lockhart LLP regarding the validity
of the securities being registered (filed herewith).
</Table>
II-8
169
<Table>
<Caption>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
10.1 CDW Holding Corporation Stock Purchase Plan (incorporated
herein by reference herein to Exhibit 10.1 to WESCO's
Registration Statement on Form S-4 (No. 333-43225)).
10.2 Form of Stock Subscription Agreement (incorporated herein by
reference herein to Exhibit 10.2 to WESCO's Registration
Statement on Form S-4 (No. 333-43225)).
10.3 CDW Holding Corporation Stock Option Plan (incorporated
herein by reference herein to Exhibit 10.3 to WESCO's
Registration Statement on Form S-4 (No. 333-43225)).
10.4 Form of Stock Option Agreement (incorporated herein by
reference herein to Exhibit 10.4 to WESCO's Registration
Statement on Form S-4 (No. 333-43225)).
10.5 CDW Holding Corporation Stock Option Plan for Branch
Employees (incorporated herein by reference herein to
Exhibit 10.3 to WESCO's Registration Statement on Form S-4
(No. 333-43225)).
10.6 Form of Branch Stock Option Agreement (incorporated herein
by reference herein to Exhibit 10.6 to WESCO's Registration
Statement on Form S-4 (No. 333-43225)).
10.7 Non-Competition Agreement, dated as of February 28, 1996,
between Westinghouse, WESCO International, Inc. and WESCO
Distribution, Inc. (incorporated herein by reference herein
to Exhibit 10.8 to WESCO's Registration Statement on Form
S-4 (No. 333-43225)).
10.8 Lease, dated as of May 24, 1995, as amended by Amendment
One, dated as of June 1995, and by Amendment Two, dated as
of December 24, 1995, by and between WESCO Distribution,
Inc. as Tenant and Opal Investors, L.P. and Mural GEM
Investors as Landlord (incorporated herein by reference
herein to Exhibit 10.10 to WESCO's Registration Statement on
Form S-4 (No. 333-43225)).
10.9 Lease, dated as of April 1, 1992, as renewed by Letter of
Notice of Intent to Renew, dated as of December 13, 1996, by
and between the Company as successor in interest to
Westinghouse Electric Corporation as tenant and Utah State
Retirement Fund as Landlord (incorporated herein by
reference herein to Exhibit 10.11 to WESCO's Registration
Statement on Form S-4 (No. 333-43225)).
10.10 Lease, dated as of September 4, 1997, between WESCO
Distribution, Inc. as Tenant and The Buncher Company as
Landlord (incorporated herein by reference herein to Exhibit
10.12 to WESCO's Registration Statement on Form S-4 (No.
333-43225)).
10.11 Lease, dated as of March 1995, by and between WESCO
Distribution-Canada, Inc. as Tenant and Atlantic
Construction, Inc. as Landlord (incorporated herein by
reference herein to Exhibit 10.13 to WESCO's Registration
Statement on Form S-4 (No. 333-43225)).
10.12 Amended and Restated Registration and Participation
Agreement, dated as of June 5, 1998, among WESCO
International, Inc. and certain securityholders of WESCO
International, Inc. named therein (incorporated herein by
reference herein to Exhibit 10.19 to WESCO's Registration
Statement on Form S-4 (No. 333-43225)).
10.13 Employment Agreement between WESCO Distribution, Inc. and
Roy W. Haley (incorporated herein by reference herein to
Exhibit 10.20 to WESCO's Registration Statement on Form S-4
(No. 333-43225)).
10.14 WESCO International, Inc. 1998 Stock Option Plan
(incorporated herein by reference to Exhibit 10.1 to WESCO's
Quarterly Report on Form 10-Q for the quarter ended
September 30, 1998).
</Table>
II-9
170
<Table>
<Caption>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
10.15 Form of Management Stock Option Agreement (incorporated
herein by reference to Exhibit 10.1 to WESCO's Quarterly
Report on Form 10-Q for the quarter ended September 30,
1998).
10.16 1999 Deferred Compensation Plan for Non-Employee Directors
(incorporated herein by reference to Exhibit 10.22 to
WESCO's Annual Report on Form 10-K for the year ended
December 31, 1998).
10.17 Credit Agreement, dated as of June 29, 1999, among WESCO
Distribution Inc., WESCO Distribution-Canada, Inc., WESCO
International, Inc. and the Lenders identified therein
(incorporated herein by reference to Exhibit 10.1 to WESCO's
Quarterly Report on Form 10-Q for the quarter ended June 30,
1999).
10.18 Amendment, dated as of December 20, 2000, to the Credit
Agreement, dated as of June 29, 1999, among WESCO
Distribution, Inc., WESCO Distribution-Canada, Inc., WESCO
International, Inc. and the Lenders identified therein
(incorporated herein by reference to Exhibit 10.24 to
WESCO's Annual Report on Form 10-K for the year ended
December 31, 2000).
10.19 Amendment, dated as of August 3, 2001, to the Credit
Agreement, dated as of June 29, 1999, among WESCO
Distribution, Inc., WESCO Distribution-Canada, Inc., WESCO
International, Inc. and the Lenders identified therein
(filed herewith).
10.20 Receivables Purchase Agreement, dated as of June 30, 1999,
among WESCO Receivables Corp., WESCO Distribution, Inc.,
Market Street Capital Corp. and PNC Bank, National
Association (incorporated herein by reference to Exhibit
10.2 to WESCO's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1999).
10.21 Amended and Restated Receivables Purchase Agreement, dated
as of September 28, 1999, among WESCO Receivables Corp.,
WESCO Distribution, Inc. and PNC Bank, National Association
(incorporated herein by reference to Exhibit 10.1 to WESCO's
Quarterly Report on Form 10-Q for the quarter ended
September 30, 1999).
10.22 1999 Long-Term Incentive Plan (incorporated herein by
reference to Exhibit 10.22 to WESCO's Registration Statement
on Form S-1 (No. 333-73299)).
12.1 Statement Regarding Computation of Ratio of Earnings to
Fixed Charges (filed herewith).
21.1 Subsidiaries of WESCO (filed herewith).
23.1 Consent of PricewaterhouseCoopers LLP, Independent
Accountants (filed herewith).
23.2 Consent of Kirkpatrick & Lockhart LLP (included in Exhibit
5.1).
25.1 Statement of Eligibility and Qualification of Trustee on
Form T-1 of Bank One, N.A., under the Trust Indenture Act of
1939 (filed herewith).
99.1 Form of Letter of Transmittal (filed herewith).
99.2 Form of Notice of Guaranteed Delivery (filed herewith).
99.3 Form of Exchange Agent Agreement (filed herewith).
</Table>
---------------
* The registrants hereby agree to furnish supplementally to the Commission, upon
request, a copy of any omitted schedule to any exhibit hereto.
II-10