EXHIBIT 99.1
WESCO DISTRIBUTION, INC.
PUBLICATION DATE: 20-Aug-2002
ANALYST(S): Daniel R Di Senso, New York (1) 212-438-7693
CREDIT RATING: BB-/Negative/--
Rationale
On Aug. 20, 2002, Standard & Poor's Ratings Services revised its outlook on
WESCO Distribution Inc. to negative from stable because of the uncertainties
regarding the timing and magnitude of recovery of its key industrial and
construction markets. Weak markets have caused significant declines in sales and
earnings, notwithstanding cost-reduction actions.
At the same time, Standard & Poor's affirmed its `BB-` corporate credit
rating on WESCO. About $490 million of debt was outstanding at June 30, 2002,
and the firm had $275 million of net securitized accounts receivable
outstanding.
The ratings reflect WESCO's weak financial profile, as evidenced by a
heavy debt burden and thin cash flow protection, which largely offsets the
firm's solid business position.
With annual sales of more than $3 billion, Pittsburgh, Pa.-based WESCO,
the principal operating subsidiary of WESCO International Inc., is one of the
two biggest competitors in the very large but fragmented U.S. electrical
equipment wholesale distribution industry. A well-established network of more
than 350 branches, broad product offerings, and diversified customer base are
important competitive strengths for WESCO. In addition, a large portion of sales
going to more stable replacement markets; value-added service capabilities (such
as its growing presence in integrated supply procurement services); and
multi-year agreements with large, national account customers limit earnings and
cash flow volatility, although pricing flexibility is very restricted.
During the past few years, WESCO has been one of the main consolidators
of this large (estimated sales of $75 billion -$80 billion) but fragmented
industry. Customer outsourcing of non-core functions has driven industry growth.
WESCO's business plan calls for the firm to grow primarily through expansion of
its national accounts and integrated supply programs, supplemented with
occasional niche acquisitions. In the near term, the firm will be focused on
organic growth and optimizing benefits of its restructuring plans, with
acquisitions playing a much diminished role.
For 2001, sales from core operations declined 8.6% and EBITDA declined
by 21% from 2000, reflecting soft industrial, building construction, and
electric utility markets. For the first half of 2002, sales were down by 11%,
and EBITDA was down by 25% from the first half of 2001, and the timing of a
rebound could be delayed until early- to mid-2003. Operating performance should
improve gradually as the economy recovers, and WESCO benefits from its
restructuring program to reduce costs and improve productivity. Debt usage is
expected to diminish during the next one to two years, as free cash flows are
used primarily for debt reduction. Adjusted debt to EBITDA, currently about 6.2
times (x), should diminish during the next 12 months - 18 months to between 5.0x
and 5.5x, and funds from operations to total debt should range between 10%-15%,
levels consistent with the ratings. Financial flexibility is adequate, supported
by availability under its new bank credit facility.
Outlook
Failure to show sufficient progress during the next two to four quarters in
improving operating performance could result in a downgrade.
Ratings Affirmed, Outlook Revised to Negative
WESCO Distribution Inc.
Corporate credit rating BB-
Subordinated debt B
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