Letter to Shareholders
The year 2000 was both a rewarding and challenging year for WESCO.
Throughout the year we were faced with new competitors and new
procurement paradigms. We encountered dozens, if not hundreds, of
new well-funded competitors in the form of “dot.com” Internet start-ups,
procurement specialty firms, auction operators and buying groups.
It seemed that most of these entities were targeting WESCO’s key
market segments and our strategic model of coordinated multi-site
procurement. By year’s end, however, we could confidently say that
WESCO’s leadership positions in integrated supply and national
accounts programs for large, multi-site customers were strengthened,
and our market share in these important product and service arenas
had improved. And, with what we’ve learned and accomplished, we’ll
be even stronger in the years ahead.
Equally as challenging as the onslaught of new competitors have been the shifts occurring in the general economy.
A significant amount of WESCO’s business is associated with new construction or capital projects, new machinery
or equipment installations and the subsequent operation and on-going maintenance of facilities and equipment.
WESCO’s best customers and best opportunities are often found in large, production-driven “old economy”
industries and the capital-intensive segments of the “new economy.” Since the 1998 Asian financial crisis, it
seems that one major industry after another, from mining to petroleum to steel, then autos and now semicon-ductors
has been in a retrenchment phase. As a result, we’ve had to cope with spending cuts, plant closings,
consolidations, downsizing and capital project deferrals. But because a large part of WESCO’s strength results
from our broad scope of industry coverage, geographical diversification and national marketing initiatives, we’ve
been able to add customers and shift resources into growing markets. We were well positioned in major construc-tion
markets, and our sales efforts with large companies seeking improved or re-engineered procurement capabilities
continued to be successful. We’ve also experienced significant growth in technology-driven industries and in
a wide range of commercial operations that have had to expand power and wiring systems to support their data-driven,
24 hours-per-day operations. Through it all, WESCO has been able to deliver. Our marketing strategies are
working. Our organizational breadth has provided stability. And, we continue to grow and prosper.
FINANCIAL RESULTS
Sales for 2000 increased 13% over the prior year to $3.9 billion. Net income before extraordinary items and
restructuring charges increased from $35.1 million in 1999 to $39.4 million in 2000. While net income improved,
it was below our objectives due to restructuring and other non-recurring charges taken in the fourth quarter in
response to the weaker economic environment.
We know that the economy has weakened, but the Company is anticipating that sales will continue to grow in 2001
as a result of new customer programs initiated late in 2000. Perhaps more importantly, we expect to see meaningful
improvements in operating margins. Cost reduction and working capital management initiatives begun
during the fourth quarter will continue to receive attention. I expect that our biggest gains will come from
personnel productivity, which is our number one priority for 2001. While we have a very effective sales
and service organization today, we expect new training and information systems capabilities to drive further
gains in the very important performance measures of sales and margin per employee.
Recognizing the value to our shareholders, we continued our share repurchase program throughout 2000,
purchasing 3.3 million shares. Toward the end of 2000, the opportunity to make strategic and financially
attractive acquisitions of distribution companies began to improve. Accordingly, we’ve shifted resources
away from the share repurchase program to be better positioned to complete additional acquisitions.
ACQUISITIONS
During 2000 WESCO completed three acquisitions that added sales coverage in selected local markets and
added significantly to our product and service offerings. Control Corporation of America (CCA), based in
Richmond, Virginia, has eight sales and service locations in the Southeast. CCA is a specialist in industrial
automation applications, with particular expertise in the marine, food processing and textile industries. KVA
Supply Company is a utility products distributor with unique product and technical support capabilities. This
four-location distributor operating primarily in the Western states, provides high performance and high quality
splicing and termination products for electrical power and telecommunications cables. Orton Utility Supply
added needed local distribution capabilities for utility products in the Southeast. On a combined basis, these
three acquisitions generate annual sales of approximately $90 million.
In March of 2001, we strengthened our premier position in the utility products distribution market by acquiring
Herning Enterprises, Inc. With sales of $110 million and 10 branch locations, Herning serves utility and tele-communications
contractors in key urban areas of California, Washington, Arizona, and Utah.
PRODUCTS AND SERVICES
WESCO is fundamentally a sales driven company, specializing in electrical equipment and a broad range of
maintenance related products. We maintain inventories of hundreds of thousands of items used in the daily
work of contractors, maintenance personnel and service technicians. When electrical equipment and other
maintenance or production materials are needed, WESCO delivers.
In response to customer requests, we have evolved into a services company as well. Customers of all types rely
on WESCO personnel to perform a variety of purchasing-related functions on their behalf. It is routine for us
to identify, locate and procure hard-to-find replacement or spare parts. Similarly, when critical equipment fails
we are called on for troubleshooting advice, technical support or emergency repairs.
The most extensive and comprehensive service package available from WESCO is called Integrated Supply.
Customers utilize this service to outsource some or all of their procurement, inventory control and logistics
coordination activities to WESCO. We handle the paperwork, the purchasing and receiving, the storerooms and
in-plant logistics and the continuous improvement cost reduction programs. We become the single source for
assuring that needed products and services get delivered.
E-COMMERCE
The extraordinary hype surrounding e-Commerce and purchasing via Internet applications has died down. This
is a good thing, because far too many start-up companies were making bold promises, and they simply could not
deliver. Nevertheless, in spite of the demise of many purchasing-oriented “dot.com” companies, e-Commerce
initiatives are strong and growing at WESCO and at many of the industrial, contractor and commercial firms that
we transact business with today. The extraordinary growth expectations for e-business transactions have not yet
materialized, but nothing can stop the progressive advance of technologies so significant and pervasive as tele-communications
and the Internet. We currently have the technology in place to deliver operational efficiencies via
e-Commerce solutions, and our investment program continues at a pace comparable to 2000. Our e-Commerce
and Information Systems teams are highly organized and very proficient at getting customers connected and set
up to use WESCO’s electronic catalogs and Internet procurement capabilities. We have demonstrated good ROI
for customers who have millions of dollars invested in the underlying technologies required for e-Commerce.
Over the past year we’ve deployed our comprehensive electronic catalogs at many customers. We also have
prominent positions with the leading industry trade exchanges and e-procurement portals. We have outstanding
technology, refined customer implementation processes and experienced staff, and we will continue to invest in
this important part of our business. Our commitment in e-Commerce is that we will deliver what our customers
want, how they want it, with a good return in the process.
OFFICERS AND DIRECTORS
George L. Miles, Jr., Chief Executive Officer of WQED Pittsburgh, a public broadcasting network, joined our
Officers and Directors in April. George has both a financial and operating background and brings a variety of
technology, regulatory and community relations experience to our organization. With this addition, our Board
of Directors now consists of eight members.
LOOKING AHEAD
Without a doubt, we are a stronger company today than we were a year ago. In both the “old” and the “new”
economies, we have succeeded through quick response to customer needs and an ongoing flexibility in adapting
to new sales and service models. One of the most positive aspects of our business is that we operate in a large
and fundamentally strong industry that provides multiple channels for growth — and we intend to take full
advantage of the possibilities. With the proven success of our business strategies, a long-standing focus and
cultural commitment to customer service and our continuing selection as preferred supplier by some of the
largest and most sophisticated companies in the world, we look forward to another good year in 2001.
Roy W. Haley
Chairman and Chief Executive Officer
March 20, 2001
