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| Wesco International 2003 10-K Report (Partial 10-K shown; subscribers can see the entire 10-K report.) |
0000950128-04-000282.hdr.sgml : 20040315
20040315151413
ACCESSION NUMBER: 0000950128-04-000282
CONFORMED SUBMISSION TYPE: 10-K
PUBLIC DOCUMENT COUNT: 6
CONFORMED PERIOD OF REPORT: 20031231
FILED AS OF DATE: 20040315
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: WESCO INTERNATIONAL INC
CENTRAL INDEX KEY: 0000929008
STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-ELECTRICAL APPARATUS & EQUIPMENT, WIRING SUPPLIES [5063]
IRS NUMBER: 251723345
STATE OF INCORPORATION: DE
FISCAL YEAR END: 1231
FILING VALUES:
FORM TYPE: 10-K
SEC ACT: 1934 Act
SEC FILE NUMBER: 001-14989
FILM NUMBER: 04669247
BUSINESS ADDRESS:
STREET 1: COMMERCE COURT 4 STATION SQUARE
STREET 2: STE 700
CITY: PITTSBURGH
STATE: PA
ZIP: 15219
BUSINESS PHONE: 4124542200
MAIL ADDRESS:
STREET 1: COMMERCE COURT 4 STATION SQUARE
STREET 2: STE 700
CITY: PITTSBURGH
STATE: PA
ZIP: 15219
FORMER COMPANY:
FORMER CONFORMED NAME: CDW HOLDING CORP
DATE OF NAME CHANGE: 19971217
10-K
1
j0500901e10vk.txt
WESCO INTERNATIONAL INC.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2003
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 001-14989
WESCO INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 25-1723342
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
225 WEST STATION SQUARE DRIVE 15219
SUITE 700 (Zip Code)
PITTSBURGH, PENNSYLVANIA
(Address of principal executive offices)
(412) 454-2200
(Registrant's telephone number, including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
TITLE OF CLASS NAME OF EXCHANGE ON WHICH REGISTERED
-------------- ------------------------------------
Common Stock, par value $.01 per share New York Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for at least the past 90 days.
Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.[ ]
Indicate by check mark whether the registrant is an accelerated filer
(as defined in Rule 12b-2 of the Act).
Yes [X] No [ ]
The registrant estimates that the aggregate market value of the voting
shares held by non-affiliates of the registrant was approximately $109.0 million
as of June 30, 2003, the last business day of the registrant's most recently
completed second fiscal quarter, based on the closing price on the New York
Stock Exchange for such stock.
As of February 27, 2004, 41,186,011 shares of Common Stock, par value
$.01 per share of the registrant were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE:
Part III of this Form 10-K incorporates by reference portions of the
registrant's Proxy Statement for its 2004 Annual Meeting of Stockholders.
WESCO INTERNATIONAL, INC.
ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED
DECEMBER 31, 2003
TABLE OF CONTENTS
PAGE
----
PART I
Item 1. Business................................................................... 2
Item 2. Properties................................................................. 16
Item 3. Legal Proceedings.......................................................... 16
Item 4. Submission of Matters to a Vote of Security Holders........................ 16
PART II
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and
Issuer Purchases of Equity Securities...................................... 17
Item 6. Selected Financial Data.................................................... 18
Item 7. Management's Discussion and Analysis of Financial Condition and Results of
Operations................................................................. 19
Item 7A. Quantitative and Qualitative Disclosures About Market Risks................ 29
Item 8. Financial Statements and Supplementary Data................................ 30
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosures................................................................ 57
Item 9A. Controls and Procedures.................................................... 57
PART III
Item 10. Directors and Executive Officers of the Registrant......................... 58
Item 11. Executive Compensation..................................................... 58
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters........................................................ 58
Item 13. Certain Relationships and Related Transactions............................. 58
Item 14. Principal Accountant Fees and Services..................................... 59
PART IV
Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K............ 59
Signatures................................................................. 65
PART I
ITEM 1. BUSINESS.
In this Annual Report on Form 10-K, "WESCO" refers to WESCO
International, Inc., and its subsidiaries and its predecessors unless the
context otherwise requires. References to "we," "us," "our" and the "Company"
refer to WESCO and its subsidiaries. Our subsidiaries include WESCO
Distribution, Inc. ("WESCO Distribution") and WESCO Distribution Canada, Inc.
("WESCO Canada"), both of which are wholly-owned by WESCO.
THE COMPANY
With sales of approximately $3.3 billion in 2003, we are a leading
North American provider of electrical construction products and electrical and
industrial maintenance, repair and operating supplies, commonly referred to as
"MRO." We are the second largest distributor in the estimated $74 billion U.S.
electrical distribution industry, and the largest provider of integrated supply
services. Our integrated supply solutions and outsourcing services are designed
to 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 approximately 350 branches and five
distribution centers located in 48 states, nine Canadian provinces, Puerto Rico,
Mexico, Guam, the United Kingdom, Nigeria and Singapore. We serve over 100,000
customers worldwide, offering over 1,000,000 products from over 24,000
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, experienced workforce, extensive geographic reach,
broad product and service offerings and acquisition program have enabled us to
compete effectively against the companies in our industry.
INDUSTRY OVERVIEW
The electrical distribution industry serves customers in a number of
markets including the industrial, electrical contractors, utilities, government
and institutional markets. Electrical distributors, such as we are, provide
logistical and technical services for customers by bundling 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 they 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 $74 billion in 2003. While overall weakness in the
current economic environment has contributed to static sales since 2000,
industry growth has averaged 5% per year from 1985 to 2003. This long-term
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 highly fragmented. The
four national distributors, including WESCO, account for approximately 17% of
estimated total industry sales.
INTEGRATED SUPPLY. The market for integrated supply services has more
than doubled from $5 billion in 1997 to over $12 billion in 2001, an increase of
25% per year. Industry projections estimate that the integrated supply market
will reach $26 billion by 2005. 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 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.
2
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
industries with intensive use of electrical and MRO products, including
electrical contracting, utilities, original equipment manufacturing, process
manufacturing and other commercial, institutional and governmental entities. We
also have extended 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 logistics 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, project needs and direct
material 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
- Construction National Accounts -- we have a dedicated team of
experienced construction sales management personnel to service the
needs of the regional and national contractors. Top engineering and
construction firms which specialize in major projects such as
airport expansions, power plants and oil and gas facilities are also
a focus group.
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 24,000 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
approximately 350 branches and five distribution centers located in 48 states,
nine Canadian provinces, Mexico, the United Kingdom, Singapore, Puerto Rico,
Nigeria and Guam. This extensive network, which would be extremely difficult and
expensive to duplicate, allows us to:
- maintain local sourcing of customer service, technical support and
sales coverage;
- tailor branch products and services to local customer needs;
- offer multi-site distribution capabilities to large customers and
national accounts; and
- provide same-day deliveries.
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, accounting and
information systems;
- strategically located distribution centers;
- purchasing economies of scale; and
3
- incentive programs that increase productivity and encourage
entrepreneurship.
Our low cost position enables us to generate a significant amount of net cash
flow as the capital investment required to maintain our business is low. This
cash flow is available for debt reduction, continued investment in the growth of
the business and strategic acquisitions.
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 will
continue 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 United States 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 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 2003, revenue from
our national accounts program increased 10% 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 250 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 account customers new products and
services and serving additional locations;
- extending certain established national account 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 CONSTRUCTION NATIONAL ACCOUNTS. We are increasing our focus on
large construction, renovation and institutional projects. We seek to secure new
major project contracts through:
- active national marketing of our demonstrated project management
capabilities;
- further development of relationships with leading regional and
national contractors and engineering firms;
- close coordination with national account customers on their major
project requirements; and
- offering an integrated supply service approach to contractors for
major projects.
4
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 will continue 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 market share in the highly fragmented 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 will continue 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.
LEAN. Our LEAN initiative was launched in the first half of 2003 and
was implemented in approximately 100 branches by the end of the year. LEAN is an
organized series of continuous improvement events focusing on simplification,
elimination of waste and achieving significant improvement throughout the
business enterprise. Although LEAN is most often associated with manufacturing
operations, we are applying LEAN thinking to all of our processes, activities
and systems. Our focus is in seven key areas: sales, margin, warehouse
operations, purchasing, inventory, accounts receivable and accounts payable. Our
objective is to have most branches exposed to some or all of the LEAN activities
by the end of 2004 and to continuously develop improvement processes for all
operations.
PURSUE STRATEGIC ACQUISITIONS. Since 1995, we have completed and
successfully integrated 25 acquisitions, which represented in 2003 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 acquisition opportunities. Our most recent acquisition was completed in
March 2001. We have not been as active in pursuing acquisition candidates given
the weak economy in recent years and the uncertainty of future earnings streams
of potential acquisition candidates. We would expect our acquisition activities
to increase as the economy improves. We expect that any future acquisitions will
be financed out of available internally generated funds, additional debt and/or
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
revolving credit facility. See Part II, Item 7. - "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources" for a further description of the revolving credit facility.
EXPAND PRODUCT AND SERVICE OFFERINGS. We continue to build on our
demonstrated ability to introduce new
5
products and services to meet existing customer demands and capitalize on new
market opportunities. 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. Our
transaction volume via electronic business means continues to increase year over
year. Sales volume generated via the Internet has doubled year over year for the
last four years. We remain focused on our commitment to "E-enable" our existing
customers and to promote our e-commerce capabilities to all potential customers.
We continue to invest in information technology to streamline the supply chain
for customer and supplier alike, and maximize our efficiencies.
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