UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): January 28, 2016
WESCO International, Inc.
(Exact name of registrant as specified in its charter)
Commission file number 001-14989
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Delaware (State or other jurisdiction of incorporation or organization) | | 25-1723342 (I.R.S. Employer Identification No.) |
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225 West Station Square Drive Suite 700 Pittsburgh, Pennsylvania (Address of principal executive offices) | | (412) 454-2200 (Registrant's telephone number, including area code) |
N/A
(Former name or former address, if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
¨ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
¨ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
¨ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
¨ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
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Item 2.02. | Results of Operations and Financial Condition. |
The information in this Item 2.02 is being furnished and shall not be deemed “filed” for the purpose of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities of that section. The information in this Item 2.02 shall not be incorporated by reference into any registration statement or other document pursuant to the Securities Act of 1933, as amended.
On January 28, 2016, WESCO International, Inc. (the “Company”) issued a press release announcing its financial results for the fourth quarter of 2015 and for the year ended December 31, 2015. A copy of the press release is attached hereto as Exhibit 99.1.
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Item 7.01. | Regulation FD Disclosure |
The information in this Item 7.01 is being furnished and shall not be deemed “filed” for the purpose of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities of that section. The information in this Item 7.01 shall not be incorporated by reference into any registration statement or other document pursuant to the Securities Act of 1933, as amended.
A slide presentation to be used by senior management of the Company in connection with its discussions with investors regarding the Company's financial results for the fourth quarter of 2015 and for the year ended December 31, 2015 is included in Exhibit 99.2 to this report and is being furnished in accordance with Regulation FD of the Securities and Exchange Commission.
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Item 9.01. | Financial Statements and Exhibits |
(d) Exhibits
The following are furnished as exhibits to this report.
99.1 Press Release issued by WESCO International, Inc., dated January 28, 2016
99.2 Slide presentation for investors
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
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January 28, 2016 | | WESCO INTERNATIONAL, INC. |
(Date) | | | |
| | /s/ Kenneth S. Parks | |
| | Kenneth S. Parks | |
| | Senior Vice President and Chief Financial Officer | |
|
| |
| NEWS RELEASE |
WESCO International, Inc. / Suite 700, 225 West Station Square Drive / Pittsburgh, PA 15219 |
WESCO International, Inc. Reports Fourth Quarter 2015 Results
Fourth quarter results:
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• | Consolidated sales of $1.9 billion |
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• | Operating profit of $90 million |
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• | Earnings per share of $1.03 |
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• | Free cash flow of $102 million, or 209% of net income |
Full year results:
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• | Consolidated sales of $7.5 billion |
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• | Operating profit of $374 million |
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• | Earnings per share of $4.18 |
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• | Free cash flow of $261 million, or 125% of net income |
PITTSBURGH, January 28, 2016 /PRNewswire/ -- WESCO International, Inc. (NYSE: WCC), a leading provider of electrical, industrial, and communications MRO and OEM products, construction materials, and advanced supply chain management and logistics services, today announced its 2015 fourth quarter results.
Mr. John J. Engel, WESCO’s Chairman and Chief Executive Officer, stated, “Our fourth quarter sales declined 7%, reflecting weakness in commodity-driven end markets and continued foreign exchange headwinds. Organic sales were down 8% against a strong prior year quarter, with the U.S. and Canada down 5% and 14%, respectively. Although overall sales were down, our data communications and utility sales grew again in the quarter. We continued to tightly manage our costs and streamline our organization, and the benefits of these actions partially mitigated the impact of lower sales and business mix on earnings per share, which declined versus prior year. Free cash flow generation was very strong at more than two times net income. As anticipated, our leverage ratio ended the year slightly above our target range following the acquisition of Needham Electric Supply during the fourth quarter. With continued strong cash generation, we expect to reduce our leverage ratio back within our target range of 2.0 to 3.5 times EBITDA in the near term.”
The following are results for the three months ended December 31, 2015 compared to the three months ended December 31, 2014:
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• | Net sales were $1,861.5 million for the fourth quarter of 2015, compared to $1,995.5 million for the fourth quarter of 2014, a decrease of 6.7%. Normalized organic sales decreased 7.6%; foreign exchange rates negatively impacted sales by 3.7% and were partially offset by the positive impacts from acquisitions and number of workdays of 3.0% and 1.6%, respectively. |
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• | Gross profit was $363.5 million, or 19.5% of sales, for the fourth quarter of 2015, compared to $402.2 million, or 20.2% of sales, for the fourth quarter of 2014. |
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• | Selling, general & administrative (SG&A) expenses were $256.9 million, or 13.8% of sales, for the fourth quarter of 2015, compared to $260.9 million, or 13.1% of sales, for the fourth quarter of 2014. |
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• | Operating profit was $90.0 million for the current quarter, compared to $124.2 million for the fourth quarter of 2014. Operating profit as a percentage of sales was 4.8% and 6.2% in 2015 and 2014, respectively. |
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• | Interest expense for the fourth quarter of 2015 was $9.9 million, compared to $20.2 million for the fourth quarter of 2014. Non-cash interest expense, which includes convertible debt interest, interest related to uncertain tax |
positions, the amortization of deferred financing fees and accrued interest, for the fourth quarter of 2015 and 2014 was income of $8.1 million and expense of $0.6 million, respectively. The resolution of transfer pricing matters associated with previously filed tax positions resulted in non-cash interest income of $9.4 million for the fourth quarter of 2015.
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• | The effective tax rate for the current quarter was 39.3% compared to 28.8% for the prior year fourth quarter. The resolution of the tax matter described above resulted in incremental income tax expense of $11.7 million, which combined with the effect of the interest income associated with this matter, increased the effective tax rate in the fourth quarter of 2015 by 11.3 percentage points. |
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• | Net income attributable to WESCO International, Inc. of $48.4 million for the current quarter was down 35.0% from $74.5 million for the prior year quarter. |
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• | Earnings per diluted share for the fourth quarter of 2015 were $1.03 per share, based on 47.2 million diluted shares, compared to earnings per diluted share of $1.40 in the fourth quarter of 2014, based on 53.0 million diluted shares. |
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• | Free cash flow for the fourth quarter of 2015 was $101.6 million, or 209% of net income, compared to $106.9 million for the fourth quarter of 2014. |
Mr. Engel continued, “On a full year basis, our results reflect the challenging economic and end market environment. Sales, operating margin and earnings per share declined versus prior year but were in line with the outlook we provided during our third quarter earnings call. We remain clearly focused on executing our One WESCO strategy to deliver above-market sales growth, improve profitability, generate strong cash flow, and increase shareholder value. The free cash flow generation capability of our business supports continued investment in our One WESCO growth initiatives, including acquisitions, while providing a return of capital to shareholders. We reaffirm our expectation of sales in the range of flat to down 5%, EPS of $3.75 to $4.20 per diluted share, and free cash flow generation of at least 90% of net income in 2016, as we outlined in our investor outlook call in December.”
The following results are for the year ended December 31, 2015 compared to the year ended December 31, 2014:
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• | Net sales were $7,518.5 million for 2015, compared to $7,889.6 million for 2014, a decrease of 4.7%. Normalized organic sales decreased 3.3%; foreign exchange rates negatively impacted sales by 3.4% and were partially offset by a positive impact from acquisitions of 2.0%. |
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• | Gross profit was $1,493.7 million, or 19.9% of sales, for 2015 compared to $1,611.0 million, or 20.4% of sales, for 2014. |
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• | SG&A expenses for 2015 were $1,055.0 million, or 14.0% of sales, compared to SG&A expenses of $1,076.8 million, or 13.6% of sales, for 2014. |
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• | Operating profit was $373.7 million for 2015, compared to $466.2 million for 2014. Operating profit as a percentage of sales was 5.0% and 5.9% in 2015 and 2014, respectively. |
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• | Interest expense for 2015 was $69.8 million, compared to $82.1 million for 2014. Non-cash interest expense, which includes convertible debt interest, interest related to uncertain tax positions, the amortization of deferred financing fees and accrued interest, for 2015 and 2014 was $3.5 million and $8.1 million, respectively. The resolution of transfer pricing matters associated with previously filed tax positions resulted in non-cash interest income of $9.4 million in the fourth quarter of 2015. |
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• | The effective tax rate was 31.4% for 2015 compared to 28.3% for 2014. The resolution of the tax matter described above resulted in incremental income tax expense of $11.7 million, which combined with the effect of the interest income associated with this matter, increased the effective tax rate in 2015 by 2.9 percentage points. |
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• | Net income attributable to WESCO International, Inc. of $210.7 million for 2015 was down 23.6% from $275.9 million for 2014. |
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• | Earnings per diluted share for 2015 were $4.18 per share, based on 50.4 million diluted shares, compared to earnings per diluted share of $5.18 per share for 2014, based on 53.3 million diluted shares. |
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• | Free cash flow for 2015 was $261.4 million, or 125% of net income, compared to $230.7 million in 2014. |
Mr. Engel added, “WESCO provides leading supply chain solutions for customers and suppliers supported by a broad and expanding portfolio of products and services. During this period of economic uncertainty and slow market recovery, customers and suppliers are looking for strong value-creating supply chain partners. Our efforts are centered on providing excellent customer service and delivering value to our customers' operations and supply chains. I am very proud of the extra effort demonstrated by all WESCO associates in serving our customers last year, and I am confident in our team’s ability to improve our performance in 2016.”
Webcast and Teleconference Access
WESCO will conduct a webcast and teleconference to discuss the fourth quarter earnings as described in this News Release on Thursday, January 28, 2016, at 11:00 a.m. E.S.T. The call will be broadcast live over the Internet and can be accessed from the Company's website at http://www.wesco.com. The call replay will be available on the WESCO website through 9:00 A.M., February 4, 2016.
WESCO International, Inc. (NYSE: WCC), a publicly traded Fortune 500 holding company headquartered in Pittsburgh, Pennsylvania, is a leading provider of electrical, industrial, and communications maintenance, repair and operating (“MRO”) and original equipment manufacturers (“OEM”) product, construction materials, and advanced supply chain management and logistic services. 2015 annual sales were approximately $7.5 billion. The Company employs approximately 9,300 people, maintains relationships with over 25,000 suppliers, and serves over 80,000 active customers worldwide. Customers include commercial and industrial businesses, contractors, government agencies, institutions, telecommunications providers and utilities. WESCO operates nine fully automated distribution centers and approximately 500 full-service branches in North America and international markets, providing a local presence for customers and a global network to serve multi-location businesses and multi-national corporations.
The matters discussed herein may contain forward-looking statements that are subject to certain risks and uncertainties that could cause actual results to differ materially from expectations. Certain of these risks are set forth in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2014, as well as the Company's other reports filed with the Securities and Exchange Commission.
Contact
Mary Ann Bell, Vice President, Investor Relations
WESCO International, Inc. (412) 454-4220
WESCO INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENT OF INCOME
(dollar amounts in millions, except per share amounts)
(Unaudited)
|
| | | | | | | | | | | | | |
| Three Months Ended | | | | | Three Months Ended | |
| December 31,
2015 | | | | | December 31,
2014 | |
Net sales | $ | 1,861.5 |
| | | | | $ | 1,995.5 |
| |
Cost of goods sold (excluding | 1,498.0 |
| 80.5 | % | | | | 1,593.3 |
| 79.8 | % |
depreciation and amortization below) | | | | | | | |
Selling, general and administrative expenses | 256.9 |
| 13.8 | % | | | | 260.9 |
| 13.1 | % |
Depreciation and amortization | 16.6 |
| | | | | 17.1 |
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Income from operations | 90.0 |
| 4.8 | % | | | | 124.2 |
| 6.2 | % |
Interest expense, net | 9.9 |
| | | | | 20.2 |
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Income before income taxes | 80.1 |
| 4.3 | % | | | | 104.0 |
| 5.2 | % |
Provision for income taxes | 31.5 |
| | | | | 29.9 |
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Net income | 48.6 |
| 2.6 | % | | | | 74.1 |
| 3.7 | % |
Less: Net income (loss) attributable to noncontrolling interest | 0.2 |
| | | | | (0.4 | ) | |
Net income attributable to WESCO International, Inc. | $ | 48.4 |
| 2.6 | % | | | | $ | 74.5 |
| 3.7 | % |
| | | | | | | |
Earnings per diluted common share | $ | 1.03 |
| | | | | $ | 1.40 |
| |
| | | | | | | |
Weighted average common shares outstanding and common share equivalents used in computing earnings per diluted share (in millions) | 47.2 |
| | | | | 53.0 |
| |
WESCO INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENT OF INCOME
(dollar amounts in millions, except per share amounts)
(Unaudited)
|
| | | | | | | | | | | | | |
| Twelve Months Ended | | | | | Twelve Months Ended | |
| December 31,
2015 | | | | | December 31,
2014 | |
Net sales | $ | 7,518.5 |
| | | | | $ | 7,889.6 |
| |
Cost of goods sold (excluding | 6,024.8 |
| 80.1 | % | | | | 6,278.6 |
| 79.6 | % |
depreciation and amortization below) | | | | | | | |
Selling, general and administrative expenses | 1,055.0 |
| 14.0 | % | | | | 1,076.8 |
| 13.6 | % |
Depreciation and amortization | 65.0 |
| | | | | 68.0 |
| |
Income from operations | 373.7 |
| 5.0 | % | | | | 466.2 |
| 5.9 | % |
Interest expense, net | 69.8 |
| | | | | 82.1 |
| |
Income before income taxes | 303.9 |
| 4.0 | % | | | | 384.1 |
| 4.9 | % |
Provision for income taxes | 95.5 |
| | | | | 108.7 |
| |
Net income | 208.4 |
| 2.8 | % | | | | 275.4 |
| 3.5 | % |
Less: Net income (loss) attributable to noncontrolling interest | (2.3 | ) | | | | | (0.5 | ) | |
Net income attributable to WESCO International, Inc. | $ | 210.7 |
| 2.8 | % | | | | $ | 275.9 |
| 3.5 | % |
| | | | | | | |
Earnings per diluted common share | $ | 4.18 |
| | | | | $ | 5.18 |
| |
| | | | | | | |
Weighted average common shares outstanding and common share equivalents used in computing earnings per diluted share (in millions) | 50.4 |
| | | | | 53.3 |
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WESCO INTERNATIONAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
(dollar amounts in millions)
(Unaudited)
|
| | | | | | | |
| December 31,
2015 | | December 31,
2014 |
Assets | | | |
Current Assets | | | |
Cash and cash equivalents | $ | 160.3 |
| | $ | 128.3 |
|
Trade accounts receivable, net | 1,075.3 |
| | 1,117.4 |
|
Inventories, net | 810.1 |
| | 819.5 |
|
Current deferred income taxes | 8.5 |
| | 35.9 |
|
Other current assets | 203.4 |
| | 249.2 |
|
Total current assets | 2,257.6 |
| | 2,350.3 |
|
Other assets | 2,329.9 |
| | 2,404.0 |
|
Total assets | $ | 4,587.5 |
| | $ | 4,754.3 |
|
| | | |
| | | |
Liabilities and Stockholders' Equity | | | |
Current Liabilities | | | |
Accounts payable | $ | 715.5 |
| | $ | 765.1 |
|
Current debt and short-term borrowings | 44.3 |
| | 49.1 |
|
Other current liabilities | 188.0 |
| | 249.6 |
|
Total current liabilities | 947.8 |
| | 1,063.8 |
|
| | | |
Long-term debt | 1,456.8 |
| | 1,366.4 |
|
Other noncurrent liabilities | 409.0 |
| | 396.0 |
|
Total liabilities | 2,813.6 |
| | 2,826.2 |
|
| | | |
Stockholders' Equity | | | |
Total stockholders' equity | 1,773.9 |
| | 1,928.1 |
|
Total liabilities and stockholders' equity | $ | 4,587.5 |
| | $ | 4,754.3 |
|
WESCO INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(dollar amounts in millions)
(Unaudited)
|
| | | | | | | |
| Twelve Months Ended | | Twelve Months Ended |
| December 31,
2015 | | December 31,
2014 |
Operating Activities: | | | |
Net income | $ | 208.4 |
| | $ | 275.4 |
|
Add back (deduct): | | | |
Depreciation and amortization | 65.0 |
| | 68.0 |
|
Deferred income taxes | 42.9 |
| | 5.0 |
|
Change in trade receivables, net | 40.1 |
| | (89.0 | ) |
Change in inventories, net | 2.4 |
| | (36.8 | ) |
Change in accounts payable | (55.9 | ) | | 37.6 |
|
Other | (19.8 | ) | | (9.0 | ) |
Net cash provided by operating activities | 283.1 |
| | 251.2 |
|
| | | |
Investing Activities: | | | |
Capital expenditures | (21.7 | ) | | (20.5 | ) |
Acquisition payments | (151.6 | ) | | (138.6 | ) |
Other | 3.0 |
| | 15.0 |
|
Net cash used in investing activities | (170.3 | ) | | (144.1 | ) |
| | | |
Financing Activities: | | | |
Debt repayments, net of proceeds | 91.8 |
| | (63.7 | ) |
Equity activity, net | (154.2 | ) | | (0.7 | ) |
Other | (5.4 | ) | | (31.2 | ) |
Net cash used in financing activities | (67.8 | ) | | (95.6 | ) |
| | | |
Effect of exchange rate changes on cash and cash equivalents | (13.0 | ) | | (6.9 | ) |
| | | |
Net change in cash and cash equivalents | 32.0 |
| | 4.6 |
|
Cash and cash equivalents at the beginning of the period | 128.3 |
| | 123.7 |
|
Cash and cash equivalents at the end of the period | $ | 160.3 |
| | $ | 128.3 |
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NON-GAAP FINANCIAL MEASURES
This earnings release includes certain non-GAAP financial measures. These financial measures include normalized organic sales growth, gross profit, financial leverage and free cash flow. The Company believes that these non-GAAP measures are useful to investors in order to provide a better understanding of the Company's organic growth trends, capital structure position and liquidity on a comparable basis. Management does not use these non-GAAP financial measures for any purpose other than the reasons stated above.
WESCO INTERNATIONAL, INC.
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
(dollar amounts in millions, except sales growth data)
(Unaudited)
|
| | | | | |
| Three Months Ended | | Twelve Months Ended |
Normalized Organic Sales Growth - Year-Over-Year: | December 31,
2015 | | December 31,
2015 |
| | | |
Change in net sales | (6.7 | )% | | (4.7 | )% |
Impact from acquisitions | 3.0 | % | | 2.0 | % |
Impact from foreign exchange rates | (3.7 | )% | | (3.4 | )% |
Impact from number of workdays | 1.6 | % | | — | % |
Normalized organic sales growth | (7.6 | )% | | (3.3 | )% |
Note: Organic sales growth is provided by the Company as an additional financial measure to provide a better understanding of the Company's sales growth trends. Organic sales growth is calculated by deducting the percentage impact on net sales from acquisitions, foreign exchange rates and number of workdays from the overall percentage change in consolidated net sales.
|
| | | | | | | | | | | | | | | |
| Three Months Ended | | Twelve Months Ended |
Gross Profit: | December 31,
2015 | | December 31,
2014 | | December 31,
2015 | | December 31,
2014 |
| | | | | | | |
Net sales | $ | 1,861.5 |
| | $ | 1,995.5 |
| | $ | 7,518.5 |
| | $ | 7,889.6 |
|
Cost of goods sold (excluding depreciation and amortization) | 1,498.0 |
| | 1,593.3 |
| | 6,024.8 |
| | 6,278.6 |
|
Gross profit | $ | 363.5 |
| | $ | 402.2 |
| | $ | 1,493.7 |
| | $ | 1,611.0 |
|
Gross margin | 19.5 | % | | 20.2 | % | | 19.9 | % | | 20.4 | % |
Note: Gross profit is provided by the Company as an additional financial measure. Gross profit is calculated by deducting cost of goods sold, excluding depreciation and amortization, from net sales. This amount represents a commonly used financial measure within the distribution industry. Gross margin is calculated by dividing gross profit by net sales.
WESCO INTERNATIONAL, INC.
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
(dollar amounts in millions)
(Unaudited)
|
| | | | | | | |
| Twelve Months Ended |
Financial Leverage: | December 31,
2015 | | December 31,
2014 |
| | | |
Income from operations | $ | 373.7 |
| | $ | 466.2 |
|
Depreciation and amortization | 65.0 |
| | 68.0 |
|
EBITDA | $ | 438.7 |
| | $ | 534.2 |
|
| | | |
| December 31,
2015 | | December 31,
2014 |
Current debt | $ | 44.3 |
| | $ | 49.1 |
|
Long-term debt | 1,456.8 |
| | 1,366.4 |
|
Debt discount related to convertible debentures and term loan (1) | 164.3 |
| | 170.4 |
|
Total debt including debt discount | $ | 1,665.4 |
| | $ | 1,585.9 |
|
| | | |
Financial leverage ratio | 3.8 |
| | 3.0 |
|
(1) The convertible debentures and term loan are presented on the condensed consolidated balance sheets in long-term debt, net of the unamortized discount.
Note: Financial leverage is provided by the Company as an indicator of capital structure position. Financial leverage is calculated by dividing total debt, including debt discount, by EBITDA. EBITDA is defined as the trailing twelve months earnings before interest, taxes, depreciation and amortization.
|
| | | | | | | | | | | | | | | |
| Three Months Ended | | Twelve Months Ended |
Free Cash Flow: | December 31,
2015 | | December 31,
2014 | | December 31,
2015 | | December 31,
2014 |
| | | | | | | |
Cash flow provided by operations | $ | 107.1 |
| | $ | 111.4 |
| | $ | 283.1 |
| | $ | 251.2 |
|
Less: Capital expenditures | (5.5 | ) | | (4.5 | ) | | (21.7 | ) | | (20.5 | ) |
Free cash flow | $ | 101.6 |
| | $ | 106.9 |
| | $ | 261.4 |
| | $ | 230.7 |
|
Percent of net income | 209 | % | | 144 | % | | 125 | % | | 84 | % |
Note: Free cash flow is provided by the Company as an additional liquidity measure. Capital expenditures are deducted from operating cash flow to determine free cash flow. Free cash flow is available to fund the Company's financing needs.
Webcast Presentation January 28, 2016 Q4 & Year End 2015 Earnings
2 Q4 & FY 2015 Earnings Webcast, 1/28/16 Safe Harbor Statement Note: All statements made herein that are not historical facts should be considered as “forward- looking statements” within the meaning of the Private Securities Litigation Act of 1995. Such statements involve known and unknown risks, uncertainties and other factors that may cause actual results to differ materially. Such risks, uncertainties and other factors include, but are not limited to: adverse economic conditions; increase in competition; debt levels, terms, financial market conditions or interest rate fluctuations; risks related to acquisitions, including the integration of acquired businesses; disruptions in operations or information technology systems; expansion of business activities; litigation, contingencies or claims; product, labor or other cost fluctuations; exchange rate fluctuations; and other factors described in detail in the Form 10-K for WESCO International, Inc. for the year ended December 31, 2014 and any subsequent filings with the Securities & Exchange Commission. Any numerical or other representations in this presentation do not represent guidance by management and should not be construed as such. The following presentation includes a discussion of certain non-GAAP financial measures. Information required by Regulation G with respect to such non-GAAP financial measures can be found in the appendix and obtained via WESCO’s website, www.wesco.com.
3 Q4 & FY 2015 Earnings Webcast, 1/28/16 2015 Highlights …performance in-line with most recent outlook Q4 • Organic sales were down 5% in the US and down 14% in Canada • Free cash flow of over 200% of net income Full Year • Organic sales were down 2% in the US and down 7% in Canada • Oil and gas sales down approximately 25% • Cost controls partially mitigated sales and margin declines • Completed Hill Country and Needham acquisitions • Repurchased 2.5 million shares 1.6 6.0 6.7 8.1 3.2 (3.0) (5.3) (7.6) Organic Growth (%) Oct (5)% Nov (8)% Dec (10)% Note: Workday adjusted; see appendix for non-GAAP reconciliations. Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2014 2015
4 Q4 & FY 2015 Earnings Webcast, 1/28/16 Industrial End Market • Q4 2015 Sales − Down 17% versus prior year (down 11% in the U.S. and down 22% in Canada in local currency) − Down 2% sequentially − Sales declines driven by oil and gas, metals and mining and OEM customers • Reduced demand outlook, weak commodity prices and strong U.S. dollar weighing on manufacturing sector causing deferred maintenance and project spending. • Global Account and Integrated Supply bidding activity levels increased each quarter throughout 2015. • Customer trends include higher expectations for supply chain process improvements, cost reductions, and supplier consolidation. Industrial Core Sales Growth versus Prior Year 39% Industrial • Global Accounts • Integrated Supply • OEM • General Industrial Renewed a multi-year contract with a global manufacturer of environmental water treatment applications to supply OEM electrical material. 5.0% (4.1%) (10.2%) (14.2%) (16.7%) Note: Excludes acquisitions during the first year of ownership. Workday adjusted. FY 2014 Q3 2015 Q2 2015 Q1 2015 2015 (11.3%) Q4 2015
5 Q4 & FY 2015 Earnings Webcast, 1/28/16 • Q4 2015 Sales − Down 13% versus prior year (down 7% in U.S. and down 9% in Canada in local currency) − Down 5% sequentially − Sales declines driven by weakness with contractors serving industrial market partially offset by growth with commercial construction contractors • Core backlog declined seasonally in Q4 and is down 6% versus prior year, but is up 7% in Canada in local currency • Expecting modest uptrend in U.S. non- residential construction outside of oil and gas, metals and mining. • Non-residential construction market still well below its prior peak in 2008. Construction • Non- Residential • Residential 32% Core Sales Growth versus Prior Year Construction End Market Construction Awarded a contract for a renewable energy upgrade to provide solar modules, lighting and gear for a government medical center. 1.5% 3.9% (7.7%) (10.5%) (12.5%) Note: Excludes acquisitions during the first year of ownership. Workday adjusted. FY 2014 Q2 2015 Q1 2015 Q3 2015 Q4 2015 2015 (7.3%)
6 Q4 & FY 2015 Earnings Webcast, 1/28/16 Utility End Market Core Sales Growth versus Prior Year 15% Utility • Investor Owned • Public Power • Utility Contractors • Q4 2015 Sales − Flat versus prior year (up 4% in U.S. and down 11% in Canada in local currency) − Down 1% sequentially • Fifth consecutive year of year-over-year sales growth. • Scope expansion and value creation with IOU, public power, and generation customers providing utility sales growth. • Continued interest for Integrated Supply solution offerings. • Secular improvement in housing market, renewables growth, and consolidation trend within Utility sector expected to be positive catalyst for future spending. Utility Awarded contract to provide operating materials for the electrical and water systems of a large public utility. Note: Excludes acquisitions during the first year of ownership. Workday adjusted. 6.6% 6.5% 5.7% 1.7% 0.1% FY 2014 Q1 2015 Q2 2015 Q3 2015 Q4 2015 2015 3.4%
7 Q4 & FY 2015 Earnings Webcast, 1/28/16 CIG End Market • Q4 2015 Sales − Down 4% versus prior year (up 7% in US and down 22% in Canada in local currency) − Down 3% sequentially • Strong growth with government customers and bidding activity levels remain high. • Customer focus remains on energy efficiency (lighting, automation, metering) and security. • Opportunities exist to support data center construction and retrofits and cloud technology projects. Government Core Sales Growth versus Prior Year CIG • Commercial • Institutional • Government 14% Awarded a contract with an international telecommunications provider to supply data communication equipment products in Chile. 4.5% 4.3% (0.5%) (3.0%) (3.5%) Note: Excludes acquisitions during the first year of ownership. Workday adjusted. FY 2014 Q2 2015 Q1 2015 Q3 2015 Q4 2015 2015 (0.8%)
8 Q4 & FY 2015 Earnings Webcast, 1/28/16 Q4 2015 Results Outlook Actual YOY Sales (5)% to (8)% $1.86B (6.7)% growth (7.6)% organic, workday adjusted Gross Margin 19.5% Down 70 bps SG&A $257M, 13.8% Down 2%, Up 70 bps Operating Profit $90M Down 28% Operating Margin 5.0% to 5.2% 4.8% Down 140 bps Effective Tax Rate 29% to 30% 39.3% Reported 28.0% Adjusted (1) Down 80 bps, adjusted 300 bps (5.2)% Growth 330 bps 380 bps $1.86B $2.00B Q4 2015 Sales Acquisitions Foreign Exchange Rest of World Canada U.S. Q4 2014 Sales 370 bps 50 bps (14.4)% Growth (8.1)% Growth (7.6)% Organic Growth (6.7)% Growth 160 bps Workday Impact (1) See appendix for reconciliation of adjusted results.
9 Q4 & FY 2015 Earnings Webcast, 1/28/16 Full Year 2015 Results Outlook Actual YOY Sales (4)% to (5)% $7.52B (4.7)% growth (3.3)% organic Gross Margin 19.9% Down 50 bps SG&A $1,055M, 14.0% Down 2%, Up 40 bps Operating Profit $374M Down 20% Operating Margin ~ 5.0% 5.0% Down 90 bps Effective Tax Rate ~ 29% 31.4% Reported 28.5% Adjusted (1) Up 20 bps, adjusted 190 bps (1.5)% Growth 170 bps 110 bps $7.52B $7.89B FY 2015 Sales Acquisitions Foreign Exchange Rest of World Canada U.S. FY 2014 Sales 330 bps 50 bps (7.2)% Growth (8.2)% Growth (3.3)% Organic Growth (4.7)% Growth (1) See appendix for reconciliation of adjusted results.
10 Q4 & FY 2015 Earnings Webcast, 1/28/16 EPS Walk Q4 FY 2014 $1.40) $5.18) Core Operations (0.41) (0.95) Acquisitions (0.05) (0.10) Foreign Exchange Impact (0.08) (0.31) Tax (0.04) (0.06) Share Count 0.11) 0.22) 2015 $1.03) $4.18)
11 Q4 & FY 2015 Earnings Webcast, 1/28/16 1.5 2 2.5 3 3.5 4 4.5 5 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 230.7 261.4 2014 2015 Cash Generation Free Cash Flow ($ Millions) See appendix for non-GAAP reconciliations. 125% of net income 84% of net income > $1B of free cash flow over last 4 years 2013 2014 Target Leverage 2.0x – 3.5x 3.8X Leverage (Total Par Debt to TTM EBITDA) 2015
12 Q4 & FY 2015 Earnings Webcast, 1/28/16 2016 Outlook Q1 FY Sales (4)% to (1)% Flat to (5)% Operating Margin 3.8% to 4.1% 4.8% to 5.0% Effective Tax Rate ~30% ~ 30% EPS $3.75 to $4.20 Free Cash Flow >90% of net income Notes: Excludes unannounced acquisitions. Assumes a CAD/USD exchange rate of 0.70 in Q1.
13 Q4 & FY 2015 Earnings Webcast, 1/28/16 Appendix
14 Q4 & FY 2015 Earnings Webcast, 1/28/16 WESCO Profile 2015 39% 32% 15% 14% 40% 15% 15% 11% 10% 9% Controls & Motors Lighting & Controls General Supplies Data & Broadband Communications Wire, Cable & Conduit Distribution Equipment Note: Markets & Customers and Products & Services percentages reported on a TTM consolidated basis. Products & Services Markets & Customers Utility CIG Industrial Construction Investor Owned | Public Power Utility Contractors Commercial | Institutional | Government Global Accounts | Integrated Supply OEM | General Industrial Non-Residential | Contractors
15 Q4 & FY 2015 Earnings Webcast, 1/28/16 Sales Growth 2013 2014 2015 Q1 Q2 Q3 Q4 FY Q1 Q2 Q3 Q4 FY Q1 Q2 Q3 Q4 FY Consolidated 12.6 13.2 16.6 14.3 14.2 0.2 5.9 7.6 6.1 5.0 0.3 (4.4) (7.4) (6.7) (4.7) Acquisition Impact 16.0 14.6 14.1 13.8 14.6 0.5 1.6 1.8 1.6 1.4 1.2 1.6 2.0 3.0 2.0 Core (3.4) (1.4) 2.5 0.5 (0.4) (0.3) 4.3 5.8 4.5 3.6 (0.9) (6.0) (9.4) (9.7) (6.7) FX Impact 0.0 (0.2) (0.7) (1.0) (0.4) (1.9) (1.7) (0.9) (2.0) (1.6) (2.5) (3.0) (4.1) (3.7) (3.4) Organic (3.4) (1.2) 3.2 1.5 0.0 1.6 6.0 6.7 6.5 5.2 1.6 (3.0) (5.3) (6.0) (3.3) WD Impact (1.6) 1.6 (1.6) (0.4) (1.6) 1.6 Normalized Organic (1.8) (1.2) 1.6 1.5 0.0 1.6 6.0 6.7 8.1 5.6 3.2 (3.0) (5.3) (7.6) (3.3) Estimated Price Impact 1.0 0.0 0.0 0.0 0.2 0.5 0.5 0.5 0.5 0.5 0.0 0.0 0.0 0.0 0.0 (%)
16 Q4 & FY 2015 Earnings Webcast, 1/28/16 Q4 2015 Sales Growth – Geography U.S. Canada International Total Change in net sales 0.8 (26.0) (15.3) (6.7) Impact from acquisitions 4.4 - - 3.0 Impact from foreign exchange rates - (13.2) (8.8) (3.7) Impact from number of workdays 1.6 1.6 1.6 1.6 Normalized organic sales growth (5.2) (14.4) (8.1) (7.6) (%)
17 Q4 & FY 2015 Earnings Webcast, 1/28/16 Note: The prior period end market amounts noted above may contain reclassifications to conform to current period presentation. ($ Millions) Sales Growth-End Markets Full Year 2015 vs. 2014 Q4 2015 vs. Q4 2014 Q4 2015 vs. Q3 2015 Q4 Q4 Q4 Q3 2015 2014 % Growth 2015 2014 % Growth 2015 2015 % Growth Industrial Core 2,940 3,315 (11.3) % 701 825 (15) % 701 726 (3.6)% Construction Core 2,300 2,480 (7.3) % 570 639 (10.8) % 570 608 (6.1)% Utility Core 1,143 1,105 3.4 % 291 286 1.7 % 291 297 (2.0)% CIG Core 1,009 1,017 (0.7) % 247 252 (2.0) % 247 259 (4.6)% Total Core Gross Sales 7,392 7,917 (6.6) % 1,809 2,002 (9.6) % 1,809 1,890 (4.3)% Total Gross Sales from Acquisitions 154 - - 60 - - 60 41 -00 Total Gross Sales 7,546 7,917 (4.7) % 1,869 2,002 (6.7) % 1,869 1,931 (3.2)% Gross Sales Reductions/Discounts (27) (27) - (7) (6) - (7) (7) -00 Total Net Sales 7,519 7,890 (4.7) % 1,862 1,996 (6.7) % 1,862 1,924 (3.2)%
18 Q4 & FY 2015 Earnings Webcast, 1/28/16 Adjusted Tax Rate ($ Millions) Q4 2015 FY 2015 Reported Results Adjustments (1) Adjusted Results Reported Results Adjustments (1) Adjusted Results Income before income taxes 80.1 (9.4) 70.7 303.9 (9.4) 294.5 Provision for income taxes 31.5 (11.7) 19.8 95.5 (11.7) 83.8 Effective tax rate 39.3% 28.0% 31.4% 28.5% (1) Relates to the resolution of transfer pricing matters.
19 Q4 & FY 2015 Earnings Webcast, 1/28/16 Outstanding at December 31, 2014 Outstanding at December 31, 2015 Debt Maturity Schedule AR Revolver (V) 430 525 2018 Inventory Revolver (V) 8 75 2020 Senior Notes (F) 500 500 2021 2019 Term Loans (V) 252 175 2019 2029 Convertible Bonds (F) 345 345 2029 (1) Other (V) 51 45 N/A Total Par Debt 1,586 1,665 Capital Structure Key Financial Metrics YE 2014 YE 2015 Cash 128 160 Capital Expenditures 21 22 Free Cash Flow 231 261 Liquidity (2) 638 546 ($ Millions) V = Variable Rate Debt 1 = No put; first callable date September 2016. F = Fixed Rate Debt 2 = Total availability under asset-backed credit facilities plus invested cash.
20 Q4 & FY 2015 Earnings Webcast, 1/28/16 Financial Leverage Twelve Months Ended December 31, 2015 Financial leverage ratio: Income from operations $ 374 Depreciation and amortization 65 EBITDA $ 439 December 31, 2015 Current debt and short-term borrowings $ 44 Long-term debt 1,457 Debt discount related to convertible debentures and term loan (1) 164 Total debt including debt discount $ 1,665 Financial leverage ratio 3.8X (1)The convertible debentures and term loan are presented in the condensed consolidated balance sheets in long-term debt net of the unamortized discount. ($ Millions)
21 Q4 & FY 2015 Earnings Webcast, 1/28/16 ($ Millions) Maturity Par Value of Debt Debt Discount Debt per Balance Sheet 2029 344.9 (163.3) 181.6 Convertible Debt At December 31, 2015 Non-Cash Interest Expense ($ Millions) 2013 2014 2015 Convertible Debt 4.3 4.1 6.1 Amortization of Deferred Financing Fees 4.9 4.4 6.1 FIN 48 0.6 1.0 (8.7) Accrued Interest 0.4 (1.4) - Total 10.2 8.1 3.5 Convertible Debt and Non-Cash Interest
22 Q4 & FY 2015 Earnings Webcast, 1/28/16 EPS Dilution Weighted Average Quarterly Share Count Stock Price Incremental Shares from 2029 Convertible Debt (in millions)3 Incremental Shares from Equity Awards (in millions) Total Diluted Share Count (in millions)4 $20.00 - 0.11 42.27 $30.00 0.45 0.20 42.82 $40.00 3.33 0.34 45.83 Q4 2015 Average $46.61 4.55 0.45 47.16 $50.00 5.05 0.48 47.70 $60.00 6.20 0.56 48.93 $70.00 7.02 0.75 49.93 2029 Convertible Debt Details Conversion Price $28.8656 Conversion Rate 34.6433 1 Underlying Shares 11,947,533 2 Footnotes: 2029 Convertible Debenture 1 1000/28.8656 2 $344.9 million/1,000 x 34.6433 3 (Underlying Shares x Avg. Quarterly Stock Price) minus $344.9 million Avg. Quarterly Stock Price 4 Basic Share Count of 42.2 million shares
23 Q4 & FY 2015 Earnings Webcast, 1/28/16 Free Cash Flow Reconciliation Q4 2014 Q4 2015 2014 2015 Cash flow provided by operations 111.4 107.1 251.2 283.1 Less: Capital expenditures (4.5) (5.5) (20.5) (21.7) Free Cash Flow 106.9 101.6 230.7 261.4 Note: Free cash flow is provided by the Company as an additional liquidity measure. Capital expenditures are deducted from operating cash flow to determine free cash flow. Free cash flow is available to fund the Company's financing needs. ($ Millions)
24 Q4 & FY 2015 Earnings Webcast, 1/28/16 Work Days Q1 Q2 Q3 Q4 FY 2014 63 64 64 62 253 2015 62 64 64 63 253 2016 64 64 64 62 254
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