Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of WESCO International, Inc.
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of WESCO International, Inc. and its subsidiaries (the “Company”) as of December 31, 2018 and 2017, and the related consolidated statements of income and comprehensive income, of stockholders’ equity and of cash flows for each of the three years in the period ended December 31, 2018, including the related notes and schedule of valuation and qualifying accounts for each of the three years in the period ended December 31, 2018 listed in the index appearing under Item 15(a)(2) (collectively referred to as the “consolidated financial statements”). We also have audited the Company's internal control over financial reporting as of December 31, 2018, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2018 and 2017, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2018 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2018, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.
Basis for Opinions
The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Report on Internal Control over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ PricewaterhouseCoopers LLP
Pittsburgh, Pennsylvania
February 27, 2019
We have served as the Company’s auditor since 1994.
WESCO INTERNATIONAL, INC. AND SUBSIDIARIES
|
|
|
|
|
|
|
|
|
CONSOLIDATED BALANCE SHEETS
|
|
As of December 31,
|
|
2018
|
|
2017
|
|
(In thousands,
except share data)
|
Assets
|
|
|
|
Current assets:
|
|
|
|
Cash and cash equivalents
|
$
|
96,343
|
|
|
$
|
117,953
|
|
Trade accounts receivable, net of allowance for doubtful accounts of $24,468 and $21,313
|
|
|
|
in 2018 and 2017, respectively
|
1,166,607
|
|
|
1,170,080
|
|
Other accounts receivable
|
96,984
|
|
|
101,229
|
|
Inventories
|
948,726
|
|
|
956,148
|
|
Income taxes receivable
|
24,873
|
|
|
23,250
|
|
Prepaid expenses and other current assets
|
52,107
|
|
|
40,189
|
|
Total current assets
|
2,385,640
|
|
|
2,408,849
|
|
Property, buildings and equipment, net (Note 8)
|
160,878
|
|
|
156,445
|
|
Intangible assets, net (Note 5)
|
316,016
|
|
|
367,104
|
|
Goodwill (Note 5)
|
1,722,603
|
|
|
1,771,877
|
|
Deferred income taxes (Note 11)
|
16,374
|
|
|
24,203
|
|
Other assets
|
3,525
|
|
|
6,990
|
|
Total assets
|
$
|
4,605,036
|
|
|
$
|
4,735,468
|
|
Liabilities and Stockholders’ Equity
|
|
|
|
Current liabilities:
|
|
|
|
Accounts payable
|
$
|
794,348
|
|
|
$
|
799,520
|
|
Accrued payroll and benefit costs (Note 13)
|
88,105
|
|
|
72,686
|
|
Short-term debt (Note 9)
|
30,785
|
|
|
34,075
|
|
Current portion of long-term debt, net of debt discount and debt issuance costs
|
|
|
|
of $488 in 2018 (Note 9)
|
25,429
|
|
|
1,224
|
|
Bank overdrafts
|
17,818
|
|
|
37,644
|
|
Other current liabilities (Note 2)
|
105,461
|
|
|
95,820
|
|
Total current liabilities
|
1,061,946
|
|
|
1,040,969
|
|
Long-term debt, net of debt discount and debt issuance costs of $9,243 and $14,224
|
|
|
|
in 2018 and 2017, respectively (Note 9)
|
1,167,311
|
|
|
1,313,261
|
|
Deferred income taxes (Notes 2 and 11)
|
143,967
|
|
|
136,858
|
|
Other noncurrent liabilities
|
102,086
|
|
|
128,237
|
|
Total liabilities
|
$
|
2,475,310
|
|
|
$
|
2,619,325
|
|
Commitments and contingencies (Note 16)
|
|
|
|
Stockholders’ Equity:
|
|
|
|
Preferred stock, $.01 par value; 20,000,000 shares authorized, no shares issued or outstanding (Note 10)
|
—
|
|
|
—
|
|
Common stock, $.01 par value; 210,000,000 shares authorized, 59,157,696 and 59,045,762 shares issued and 45,106,085 and 47,009,540 shares outstanding in 2018 and 2017, respectively (Note 10)
|
592
|
|
|
591
|
|
Class B nonvoting convertible common stock, $.01 par value; 20,000,000 shares authorized, 4,339,431 issued and no shares outstanding in 2018 and 2017, respectively
|
43
|
|
|
43
|
|
Additional capital (Note 2)
|
993,666
|
|
|
999,156
|
|
Retained earnings
|
2,307,462
|
|
|
2,079,697
|
|
Treasury stock, at cost; 18,391,042 and 16,375,653 shares in 2018 and 2017, respectively
|
(758,018
|
)
|
|
(647,158
|
)
|
Accumulated other comprehensive loss
|
(408,435
|
)
|
|
(312,590
|
)
|
Total WESCO International, Inc. stockholders' equity
|
2,135,310
|
|
|
2,119,739
|
|
Noncontrolling interests
|
(5,584
|
)
|
|
(3,596
|
)
|
Total stockholders’ equity
|
2,129,726
|
|
|
2,116,143
|
|
Total liabilities and stockholders’ equity
|
$
|
4,605,036
|
|
|
$
|
4,735,468
|
|
The accompanying notes are an integral part of the consolidated financial statements.
WESCO INTERNATIONAL, INC. AND SUBSIDIARIES
|
|
|
|
|
|
|
|
|
|
|
|
|
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
|
|
|
|
Year Ended December 31,
|
|
2018
|
|
2017
|
|
2016
|
|
(In thousands, except per share data)
|
Net sales
|
$
|
8,176,601
|
|
|
$
|
7,679,021
|
|
|
$
|
7,336,017
|
|
Cost of goods sold (excluding depreciation and amortization)
|
6,609,220
|
|
|
6,194,366
|
|
|
5,887,814
|
|
Selling, general and administrative expenses (Note 13)
|
1,151,944
|
|
|
1,101,598
|
|
|
1,050,799
|
|
Depreciation and amortization
|
62,997
|
|
|
64,017
|
|
|
66,858
|
|
Income from operations
|
352,440
|
|
|
319,040
|
|
|
330,546
|
|
Net interest and other (Notes 13 and 15)
|
71,415
|
|
|
66,600
|
|
|
75,062
|
|
Loss on debt redemption (Note 9)
|
—
|
|
|
—
|
|
|
123,933
|
|
Income before income taxes
|
281,025
|
|
|
252,440
|
|
|
131,551
|
|
Provision for income taxes (Note 11)
|
55,670
|
|
|
89,307
|
|
|
30,431
|
|
Net income
|
225,355
|
|
|
163,133
|
|
|
101,120
|
|
Less: Net loss attributable to noncontrolling interests
|
(1,988
|
)
|
|
(327
|
)
|
|
(468
|
)
|
Net income attributable to WESCO International, Inc.
|
$
|
227,343
|
|
|
$
|
163,460
|
|
|
$
|
101,588
|
|
Other comprehensive income (loss):
|
|
|
|
|
|
Foreign currency translation adjustments
|
(99,643
|
)
|
|
85,762
|
|
|
38,275
|
|
Post retirement benefit plan adjustments, net of tax (Note 13)
|
3,798
|
|
|
(6,381
|
)
|
|
(2,485
|
)
|
Comprehensive income attributable to WESCO International, Inc.
|
$
|
131,498
|
|
|
$
|
242,841
|
|
|
$
|
137,378
|
|
|
|
|
|
|
|
Earnings per share attributable to WESCO International, Inc. (Note 12)
|
|
|
|
|
|
Basic
|
$
|
4.87
|
|
|
$
|
3.42
|
|
|
$
|
2.30
|
|
Diluted
|
$
|
4.82
|
|
|
$
|
3.38
|
|
|
$
|
2.10
|
|
The accompanying notes are an integral part of the consolidated financial statements.
WESCO INTERNATIONAL, INC. AND SUBSIDIARIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated Other
|
|
|
|
|
|
|
Class B
|
|
|
|
Retained
|
|
|
|
|
|
|
|
Comprehensive
|
|
|
Common Stock
|
|
Common Stock
|
|
Additional
|
|
Earnings
|
|
Treasury Stock
|
|
Noncontrolling
|
|
Income
|
(In thousands)
|
|
Amount
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Capital
|
|
(Deficit)
|
|
Amount
|
|
Shares
|
|
Interests
|
|
(Loss)
|
Balance, December 31, 2015
|
|
$
|
586
|
|
|
58,597,380
|
|
|
$
|
43
|
|
|
4,339,431
|
|
|
$
|
1,117,421
|
|
|
$
|
1,812,681
|
|
|
$
|
(772,679
|
)
|
|
(20,763,021
|
)
|
|
$
|
(2,801
|
)
|
|
$
|
(427,761
|
)
|
Exercise of stock-based awards, including tax benefit of $67
|
|
2
|
|
|
230,464
|
|
|
|
|
|
|
(2,876
|
)
|
|
|
|
(3,224
|
)
|
|
(44,191
|
)
|
|
|
|
|
Stock-based compensation expense
|
|
|
|
|
|
|
|
|
|
12,493
|
|
|
|
|
|
|
|
|
|
|
|
Redemption of convertible debentures, net of tax
|
|
—
|
|
|
7,295
|
|
|
|
|
|
|
(139,765
|
)
|
|
|
|
233,366
|
|
|
6,261,497
|
|
|
|
|
|
Tax withholding related to vesting of restricted stock units and retirement of common stock
|
|
—
|
|
|
(17,358
|
)
|
|
|
|
|
|
(1,253
|
)
|
|
488
|
|
|
|
|
|
|
|
|
|
Noncontrolling interests
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(468
|
)
|
|
|
Net income attributable to WESCO
|
|
|
|
|
|
|
|
|
|
|
|
101,588
|
|
|
|
|
|
|
|
|
|
Translation adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
38,275
|
|
Benefit plan adjustments, net of tax effect of $302
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,485
|
)
|
Balance, December 31, 2016
|
|
$
|
588
|
|
|
58,817,781
|
|
|
$
|
43
|
|
|
4,339,431
|
|
|
$
|
986,020
|
|
|
$
|
1,914,757
|
|
|
$
|
(542,537
|
)
|
|
(14,545,715
|
)
|
|
$
|
(3,269
|
)
|
|
$
|
(391,971
|
)
|
Exercise of stock-based awards
|
|
3
|
|
|
243,361
|
|
|
|
|
|
|
(407
|
)
|
|
|
|
(4,583
|
)
|
|
(51,401
|
)
|
|
|
|
|
Stock-based compensation expense
|
|
|
|
|
|
|
|
|
|
14,809
|
|
|
|
|
|
|
|
|
|
|
|
Repurchases of common stock
|
|
|
|
|
|
|
|
|
|
38
|
|
|
|
|
(100,038
|
)
|
|
(1,778,537
|
)
|
|
|
|
|
Tax withholding related to vesting of restricted stock units and retirement of common stock
|
|
—
|
|
|
(15,380
|
)
|
|
|
|
|
|
(1,304
|
)
|
|
1,480
|
|
|
|
|
|
|
|
|
|
Noncontrolling interests
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(327
|
)
|
|
|
Net income attributable to WESCO
|
|
|
|
|
|
|
|
|
|
|
|
163,460
|
|
|
|
|
|
|
|
|
|
Translation adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
85,762
|
|
Benefit plan adjustments, net of tax effect of $2,361
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6,381
|
)
|
Balance, December 31, 2017
|
|
$
|
591
|
|
|
59,045,762
|
|
|
$
|
43
|
|
|
4,339,431
|
|
|
$
|
999,156
|
|
|
$
|
2,079,697
|
|
|
$
|
(647,158
|
)
|
|
(16,375,653
|
)
|
|
$
|
(3,596
|
)
|
|
$
|
(312,590
|
)
|
Exercise of stock-based awards
|
|
1
|
|
|
130,371
|
|
|
|
|
|
|
(45
|
)
|
|
|
|
(841
|
)
|
|
(11,943
|
)
|
|
|
|
|
Stock-based compensation expense and other (Note 2)
|
|
|
|
|
|
|
|
|
|
10,790
|
|
|
|
|
|
|
|
|
|
|
|
Repurchases of common stock
|
|
|
|
|
|
|
|
|
|
(14,981
|
)
|
|
|
|
(110,019
|
)
|
|
(2,003,446
|
)
|
|
|
|
|
Tax withholding related to vesting of restricted stock units and retirement of common stock
|
|
—
|
|
|
(18,437
|
)
|
|
|
|
|
|
(1,254
|
)
|
|
422
|
|
|
|
|
|
|
|
|
|
Noncontrolling interests
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,988
|
)
|
|
|
Net income attributable to WESCO
|
|
|
|
|
|
|
|
|
|
|
|
227,343
|
|
|
|
|
|
|
|
|
|
Translation adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(99,643
|
)
|
Benefit plan adjustments, net of tax effect of $1,406
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,798
|
|
Balance, December 31, 2018
|
|
$
|
592
|
|
|
59,157,696
|
|
|
$
|
43
|
|
|
4,339,431
|
|
|
$
|
993,666
|
|
|
$
|
2,307,462
|
|
|
$
|
(758,018
|
)
|
|
(18,391,042
|
)
|
|
$
|
(5,584
|
)
|
|
$
|
(408,435
|
)
|
The accompanying notes are an integral part of the consolidated financial statements.
WESCO INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2018
|
|
2017
|
|
2016
|
|
(In thousands)
|
Operating Activities:
|
|
|
|
|
|
Net income
|
$
|
225,355
|
|
|
$
|
163,133
|
|
|
$
|
101,120
|
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
|
|
|
|
|
Depreciation and amortization
|
62,997
|
|
|
64,017
|
|
|
66,858
|
|
Stock-based compensation expense
|
16,445
|
|
|
14,809
|
|
|
12,493
|
|
Amortization of debt discount and debt issuance costs
|
4,482
|
|
|
3,984
|
|
|
6,684
|
|
Loss on debt redemption (Note 9)
|
—
|
|
|
—
|
|
|
123,933
|
|
Other operating activities (Note 2)
|
(8,134
|
)
|
|
(3,959
|
)
|
|
(5,538
|
)
|
Deferred income taxes (Note 11)
|
9,137
|
|
|
(50,396
|
)
|
|
(45,174
|
)
|
Changes in assets and liabilities:
|
|
|
|
|
|
Trade receivables, net
|
(22,934
|
)
|
|
(112,977
|
)
|
|
56,767
|
|
Inventories
|
(8,702
|
)
|
|
(119,002
|
)
|
|
(1,612
|
)
|
Other current and noncurrent assets
|
(4,239
|
)
|
|
(2,829
|
)
|
|
11,579
|
|
Accounts payable
|
9,193
|
|
|
102,870
|
|
|
(40,607
|
)
|
Accrued payroll and benefit costs
|
18,777
|
|
|
24,679
|
|
|
(1,922
|
)
|
Other current and noncurrent liabilities
|
(5,656
|
)
|
|
64,793
|
|
|
15,654
|
|
Net cash provided by operating activities
|
296,721
|
|
|
149,122
|
|
|
300,235
|
|
Investing Activities:
|
|
|
|
|
|
Capital expenditures
|
(36,210
|
)
|
|
(21,507
|
)
|
|
(17,957
|
)
|
Acquisition payments, net of cash acquired
|
—
|
|
|
—
|
|
|
(50,890
|
)
|
Proceeds from sale of assets
|
12,461
|
|
|
6,766
|
|
|
8,361
|
|
Other investing activities
|
(10,393
|
)
|
|
9,446
|
|
|
(10,000
|
)
|
Net cash used in investing activities
|
(34,142
|
)
|
|
(5,295
|
)
|
|
(70,486
|
)
|
Financing Activities:
|
|
|
|
|
|
Proceeds from issuance of short-term debt
|
142,293
|
|
|
175,819
|
|
|
111,458
|
|
Repayments of short-term debt
|
(143,747
|
)
|
|
(164,030
|
)
|
|
(131,501
|
)
|
Proceeds from issuance of long-term debt
|
1,193,067
|
|
|
1,504,636
|
|
|
2,082,738
|
|
Repayments of long-term debt
|
(1,318,470
|
)
|
|
(1,556,636
|
)
|
|
(2,323,568
|
)
|
Debt issuance costs
|
—
|
|
|
(915
|
)
|
|
(6,002
|
)
|
Repurchases of common stock (Note 12)
|
(127,169
|
)
|
|
(106,792
|
)
|
|
(4,818
|
)
|
Increase (decrease) in bank overdrafts
|
(19,857
|
)
|
|
8,199
|
|
|
(4,907
|
)
|
Other financing activities
|
(1,211
|
)
|
|
(1,477
|
)
|
|
337
|
|
Net cash used in financing activities
|
(275,094
|
)
|
|
(141,196
|
)
|
|
(276,263
|
)
|
Effect of exchange rate changes on cash and cash equivalents
|
(9,095
|
)
|
|
5,191
|
|
|
(3,634
|
)
|
Net change in cash and cash equivalents
|
(21,610
|
)
|
|
7,822
|
|
|
(50,148
|
)
|
Cash and cash equivalents at the beginning of period
|
117,953
|
|
|
110,131
|
|
|
160,279
|
|
Cash and cash equivalents at the end of period
|
$
|
96,343
|
|
|
$
|
117,953
|
|
|
$
|
110,131
|
|
Supplemental disclosures:
|
|
|
|
|
|
Cash paid for interest
|
$
|
64,702
|
|
|
$
|
63,795
|
|
|
$
|
74,391
|
|
Cash paid for taxes
|
61,983
|
|
|
65,117
|
|
|
76,293
|
|
Non-cash investing and financing activities:
|
|
|
|
|
|
Property, buildings and equipment acquired through capital leases
|
437
|
|
|
552
|
|
|
1,143
|
|
The accompanying notes are an integral part of the consolidated financial statements.
WESCO INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION
WESCO International, Inc. ("WESCO International") and its subsidiaries (collectively, “WESCO” or the "Company"), headquartered in Pittsburgh, Pennsylvania, is a full-line distributor of electrical, industrial and communications maintenance, repair and operating ("MRO") and original equipment manufacturer ("OEM") products, construction materials, and advanced supply chain management and logistics services used primarily in the industrial, construction, utility and commercial, institutional and government markets. WESCO serves approximately
70,000
active customers globally, through approximately
500
branches and
10
distribution centers located primarily in the United States, Canada and Mexico, with operations in
15
additional countries.
2. ACCOUNTING POLICIES
Basis of Consolidation
The consolidated financial statements include the accounts of WESCO International and all of its subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation.
Correction of Prior Period
Management determined that the deferred tax asset related to stock-based compensation was overstated by
$5.7 million
due to equity awards that had expired subsequent to the requisite service period in years 2016 and prior. In accordance with Staff Accounting Bulletin (“SAB”) No. 99,
Materiality
, and SAB No. 108,
Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements
, management concluded that this misstatement is not material to the Company's previously issued annual and interim financial statements, and the correction of this item in the year ended
December 31, 2018
is not material to the 2018 consolidated financial statements presented herein. The Company recorded an adjustment to decrease deferred income taxes and additional capital in the Consolidated Balance Sheet at
December 31, 2018
.
Reclassifications
Effective January 1, 2018, WESCO adopted Accounting Standards Update (ASU) 2017-07,
Compensation—Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost
. The adoption of this ASU, as described below and in Note 13, resulted in the reclassification of amounts reported in the Consolidated Statements of Income and Comprehensive Income for the years ended
December 31, 2017
and
2016
.
The Consolidated Balance Sheet as of
December 31, 2017
and the Consolidated Statements of Cash Flows for the years ended
December 31, 2017
and
2016
include certain reclassifications to previously reported amounts to conform to the current period's presentation.
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Although these estimates are based on management’s best knowledge of current events and actions WESCO may undertake in the future, actual results may ultimately differ from the estimates.
Revenue Recognition
WESCO’s revenue arrangements generally consist of single performance obligations to transfer a promised good or service, or a combination of goods and services. Revenue is recognized when control has transferred to the customer, which is generally when the product has shipped from a WESCO facility or directly from a supplier. For products that ship directly from suppliers to customers, WESCO acts as the principal in the transaction and recognizes revenue on a gross basis. Revenue for integrated supply services is recognized over time based on hours incurred as the transfer of control occurs as the services are being performed. WESCO generally satisfies its performance obligations within a year or less.
WESCO generally does not have significant financing terms associated with its contracts; payments are normally received within 60 days. There are generally no significant costs associated with obtaining customer contracts. WESCO generally passes through warranties offered by manufacturers or suppliers to its customers. Sales taxes (and value added taxes in foreign jurisdictions) collected from customers and remitted to governmental authorities are excluded from net sales.
WESCO INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)
Supplier Volume Rebates
WESCO receives volume rebates from certain suppliers based on contractual arrangements with such suppliers. Volume rebates are included within other accounts receivable in the Consolidated Balance Sheets, and represent the estimated amounts due to WESCO based on forecasted purchases and the rebate provisions of the various supplier contracts. The corresponding rebate income is recorded as a reduction to cost of goods sold. Receivables under the supplier rebate program were
$73.5 million
at
December 31, 2018
and
$72.7 million
at
December 31, 2017
. In
2018
,
2017
and
2016
, the supplier volume rebate as a percentage of net sales was
1.3%
.
Cash Equivalents
Cash equivalents are defined as highly liquid investments with original maturities of 90 days or less when purchased.
Allowance for Doubtful Accounts
WESCO maintains allowances for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments. WESCO has a systematic procedure using historical data and reasonable assumptions of collectability made at the local branch level and on a consolidated corporate basis to estimate allowances for doubtful accounts. If the financial condition of WESCO’s customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required. The allowance for doubtful accounts was
$24.5 million
at
December 31, 2018
and
$21.3 million
at
December 31, 2017
. The total amount recorded as selling, general and administrative expense related to bad debts was
$10.9 million
,
$8.5 million
and
$5.9 million
for
2018
,
2017
and
2016
, respectively.
Inventories
Inventories primarily consist of merchandise purchased for resale and are stated at the lower of cost and net realizable value. Cost is determined principally under the average cost method. WESCO makes provisions for obsolete or slow-moving inventories as necessary to reflect reductions in value. WESCO writes down its inventories to net realizable value based on internal factors derived from historical analysis of actual losses. WESCO uses past data to identify items in excess of 36 months supply relative to demand or movement. WESCO then analyzes the ultimate disposition of identified excess inventories as they are sold, returned to supplier, or scrapped. This historical item-by-item analysis allows WESCO to develop an estimate of the likelihood that an item identified as being in excess supply ultimately becomes obsolete. WESCO applies the estimate to inventories currently in excess of 36 months supply, and reduces the carrying value of its inventories by the derived amount. Reserves for excess and obsolete inventories were
$27.6 million
and
$28.6 million
at
December 31, 2018
and
2017
, respectively. The total expense related to excess and obsolete inventories, included in cost of goods sold, was
$9.7 million
,
$8.8 million
and
$7.3 million
for
2018
,
2017
and
2016
, respectively. WESCO absorbs into the cost of inventories certain overhead expenses such as purchasing, receiving and storage and at
December 31, 2018
and
2017
,
$69.2 million
and
$70.7 million
, respectively, of these costs were included in ending inventories.
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 and
three to ten years
for furniture, fixtures and equipment.
Capitalized computer software costs are amortized using the straight-line method over the estimated useful life, typically
three to five years
, and are reported at the lower of unamortized cost or net realizable value.
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 resulting gains or losses are recorded and reported as selling, general and administrative expenses.
Of WESCO’s
$160.9 million
net book value of property, buildings and equipment as of
December 31, 2018
,
$88.3 million
consists of land, buildings and leasehold improvements that are geographically dispersed among WESCO’s
500
branches and
10
distribution centers, mitigating the risk of impairment. WESCO assesses its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of any such assets may not be fully recoverable. Changes in circumstances include technological advances, changes in the business model, capital structure, economic conditions or operating performance. The evaluation is based upon, among other things, utilization, serviceability and assumptions about the estimated future undiscounted cash flows that these assets are expected to generate. When the sum of the undiscounted cash flows is less than the carrying value of the asset or asset group, an impairment loss is recognized to the extent that carrying value exceeds fair value. Management applies its best judgment when performing these evaluations.
WESCO INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)
Goodwill and Indefinite-Lived Intangible Assets
Goodwill and indefinite-lived intangible assets are tested for impairment annually during the fourth quarter using information available at the end of September, or more frequently if triggering events occur, indicating that their carrying value may not be recoverable. WESCO tests for goodwill impairment on a reporting unit level and the evaluation involves comparing the fair value of each reporting unit to its carrying value. The fair values of the reporting units are determined using a combination of a discounted cash flow analysis and market multiples. Assumptions used for these fair value techniques are based on a combination of historical results, current forecasts, market data and recent economic events. WESCO evaluates the recoverability of indefinite-lived intangible assets using the relief-from-royalty method based on projected financial information. At
December 31, 2018
and
2017
, respectively, goodwill and indefinite-lived trademarks totaled
$1.8 billion
and
$1.9 billion
.
We performed our annual impairment tests of goodwill and indefinite-lived intangible assets during the fourth quarter. A possible indicator of goodwill impairment is the relationship of a company’s market capitalization to its book value. As of
December 31, 2018
, our market capitalization exceeded our book value and the fair values of our reporting units exceeded their carrying values. Accordingly, there were no impairment losses identified as a result of our annual test.
The determination of fair value involves significant management judgment and management applies its best judgment when assessing the reasonableness of financial projections. Fair values are sensitive to changes in underlying assumptions and factors. As a result, there can be no assurance that the estimates and assumptions made for purposes of the annual goodwill and indefinite-lived intangible impairment tests will prove to be an accurate prediction of future results.
Definite Lived Intangible Assets
Definite lived intangible assets are amortized over
2
to
20
years. A portion of definite lived intangible assets related to certain customer relationships are amortized using an accelerated method whereas all other definite lived intangible assets subject to amortization use a straight-line method. In either case, the amortization method reflects the pattern in which the economic benefits of the respective assets are consumed or otherwise used. Definite lived intangible assets are tested for impairment if events or circumstances occur indicating that the respective asset might be impaired.
Insurance Programs
WESCO uses commercial insurance for auto, workers’ compensation, casualty and health claims, and information technology as a risk-reduction strategy to minimize catastrophic losses. The Company’s strategy involves large deductible policies where WESCO must pay all costs up to the deductible amount. WESCO estimates the reserve for these programs based on historical incident rates and costs. The assumptions included in developing this accrual include the period of time between the incurrence and payment of a claim. The total liability related to the insurance programs was
$13.1 million
and
$13.9 million
at
December 31, 2018
and
2017
, respectively.
Income Taxes
WESCO accounts for income taxes under the asset and liability method, which requires the recognition of deferred income taxes for events that have future tax consequences. Under this method, deferred income taxes are recognized (using enacted tax laws and rates) based on the future income tax effects of differences in the carrying amounts of assets and liabilities for financial reporting and tax purposes. The effect of a tax rate change on deferred tax assets and liabilities is recognized in income in the period of change.
WESCO recognizes deferred tax assets at amounts that are expected to be realized. To make such determination, management evaluates all positive and negative evidence, including but not limited to, prior, current and future taxable income, tax planning strategies and future reversals of existing temporary differences. A valuation allowance is recognized if it is “more-likely-than-not” that some or all of a deferred tax asset will not be realized. WESCO regularly assesses the realizability of deferred tax assets.
WESCO accounts for uncertainty in income taxes using a "more-likely-than-not" recognition threshold. Due to the subjectivity inherent in the evaluation of uncertain tax positions, the tax benefit ultimately recognized may materially differ from the estimate. WESCO recognizes interest and penalties related to uncertain tax benefits as part of interest expense and income tax expense, respectively.
The Tax Cuts and Jobs Act of 2017 (the “TCJA”) imposed a one-time tax on the deemed repatriation of undistributed foreign earnings (the "transition tax"). Except for a portion of the previously taxed foreign earnings that have been repatriated, WESCO continues to assert that the remaining undistributed earnings of its foreign subsidiaries, the majority of which were subject to the transition tax, are indefinitely reinvested. WESCO believes it is able to maintain a sufficient level of liquidity for its domestic operations and commitments without repatriating cash held by these foreign subsidiaries. Upon any future repatriation, additional income taxes may be incurred; however, it is not practicable to determine the amount at this time.
WESCO INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)
The provisions of the TCJA also introduced U.S. taxation on certain global intangible low-taxed income ("GILTI"). WESCO has elected to account for GILTI tax as a component of income tax expense.
Future adjustments (if any) resulting from additional regulatory guidance regarding the accounting for the income tax effects of TCJA will be recognized as discrete income tax expense or benefit in the period in which guidance is issued.
Foreign Currency
The local currency is the functional currency for the majority 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 an exchange rate that approximates the average for the period. Translation adjustments arising from the use of differing exchange rates from period to period are included as a component of other comprehensive income (loss) within stockholders’ equity. Gains and losses from foreign currency transactions are included in net income for the period.
Defined Benefit Pension Plan
Liabilities and expenses for pension benefits are determined using actuarial methodologies and incorporate significant assumptions, including the interest rate used to discount the future estimated cash flows, the expected long-term rate of return on plan assets, and several assumptions relating to the employee workforce (salary increases, retirement age, and mortality).
Fair Value of Financial Instruments
The Company measures the fair value of financial assets and liabilities according to a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value and requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs. The three levels of the fair value hierarchy are as follows: Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that are accessible at the measurement date; Level 2 inputs include inputs other than Level 1 that are observable, either directly or indirectly, and Level 3 inputs are unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to measurements involving significant unobservable inputs (Level 3).
Recently Adopted Accounting Pronouncements
Effective January 1, 2018, WESCO adopted ASU 2014-09,
Revenue from Contracts with Customers
, and all the related amendments (“Topic 606”) using the modified retrospective approach to all open contracts (see Note 3 below). There was no impact to WESCO’s previously reported consolidated financial statements and WESCO does not expect the adoption of Topic 606 to have a material impact on its revenue and results of operations on an ongoing basis.
In August 2016, the Financial Accounting Standards Board (FASB) issued ASU 2016-15,
Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments (a consensus of the Emerging Issues Task Force)
. This ASU provided guidance on eight specific cash flow issues where there was diversity in practice. The Company adopted this ASU in the first quarter of 2018. The adoption of this guidance did not have an impact on the consolidated financial statements and notes presented herein.
In January 2017, the FASB issued ASU 2017-04,
Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment,
which eliminates Step 2 of the goodwill impairment test. Under the amendments in this ASU, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit to its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. An entity should apply the amendments in this ASU on a prospective basis. This guidance is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted. Management adopted this ASU in the fourth quarter of 2018 when the Company performed its annual impairment tests. The adoption of this accounting standard did not have an impact on the consolidated financial statements and notes presented herein.
In March 2017, the FASB issued ASU 2017-07,
Compensation—Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost
. This ASU requires that an employer disaggregate the service cost from the other components of net benefit cost. The Company adopted this guidance on a retrospective basis in the first quarter of 2018. See Note 13 for a description of the impact of this accounting standard on the Consolidated Statements of Income and Comprehensive Income presented herein. The adoption of this guidance did not have an impact on the Company's Consolidated Balance Sheets and the Consolidated Statements of Cash Flows presented herein.
WESCO INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)
In May 2017, the FASB issued ASU 2017-09,
Compensation—Stock Compensation (Topic 718): Scope of Modification Accounting.
This ASU clarifies when to account for a change to the terms or conditions of a share-based payment award as a modification. Under the new guidance, modification accounting is required only if the fair value, the vesting conditions, or the classification of the award (as equity or liability) changes as a result of the change in terms or conditions. The Company adopted this ASU in the first quarter of 2018. The adoption of this guidance did not have an impact on the consolidated financial statements presented and notes herein.
Recently Issued Accounting Pronouncements
In February 2016, the FASB issued ASU 2016-02,
Leases
, a comprehensive new standard that amends various aspects of existing accounting guidance for leases, including the recognition of a right-of-use asset and a lease liability in the balance sheet and disclosing key information about leasing arrangements. This ASU is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. During 2018, the FASB issued additional ASUs that address implementation issues and correct or improve certain aspects of the new accounting guidance for leases, including ASU 2018-10, Codification Improvements to Topic 842, Leases and ASU 2018-11, Leases (Topic 842): Targeted Improvements. These ASUs do not change the core principles in the leasing standard outlined above. The amendments in ASU 2018-11 provide an optional transition method that allows entities to initially apply the new lease standard at the adoption date. Consequently, an entity’s reporting for the comparative periods will continue to be in accordance with current lease accounting guidance. During 2018, management established a cross-functional team to evaluate and implement the new standard. The team selected a third-party software solution to facilitate the accounting and financial reporting requirements of the new lease standard. Lease data elements have been gathered and migrated to the software solution. The new standard will be adopted in the first quarter of 2019. The Company expects to use the optional transition method and elect the package of practical expedients permitted under the transition guidance. The Company also expects to elect the practical expedient related to lease and nonlease components. The Company anticipates recording right-of-use assets and lease liabilities of
$200 million
to
$250 million
in the Consolidated Balance Sheet as of January 1, 2019, most of which will relate to real estate. The Company does not expect the adoption to have a material impact on the Consolidated Statement of Income and Comprehensive Income (Loss) or Consolidated Statement of Cash Flow. The Company is currently updating business processes and internal controls to meet the standard’s new accounting, reporting and disclosure requirements.
In June 2016, the FASB issued ASU 2016-13,
Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments
, which introduces new guidance for the accounting for credit losses on certain financial instruments. The amendments in this ASU are effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted. Management does not expect the adoption of this accounting standard to have a material impact on its consolidated financial statements and notes thereto.
In August 2018, the FASB issued ASU 2018-13,
Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement
, which amends the disclosure requirements for recurring and nonrecurring fair value measurements by removing, modifying and adding certain disclosures. The amendments in this ASU are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early adoption is permitted. Management does not expect the adoption of this accounting standard to have a material impact on its consolidated financial statements and notes thereto.
In August 2018, the FASB issued ASU 2018-14,
Compensation—Retirement Benefits—Defined Benefit Plans—General (Subtopic 715-20): Disclosure Framework—Changes to the Disclosure Requirements for Defined Benefit Plans
, which amends the disclosure requirements for all employers that sponsor defined benefit pension and other post retirement plans by removing and adding certain disclosures. The amendments in this ASU are effective for fiscal years ending after December 15, 2020. Early adoption is permitted. Management does not expect the adoption of this accounting standard to have a material impact on its consolidated financial statements and notes thereto.
Other pronouncements issued by the FASB or other authoritative accounting standards groups with future effective dates are either not applicable or are not expected to be significant to WESCO’s financial position, results of operations or cash flows.
WESCO INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)
3. REVENUE
WESCO distributes products and provides services to customers globally within the following end markets: (1) industrial, (2) construction, (3) utility, and (4) commercial, institutional and government. Revenue is measured as the amount of consideration WESCO expects to receive in exchange for transferring goods or providing services.
The following tables disaggregate WESCO’s net sales by end market and geography:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
(In thousands)
|
2018
|
|
2017
|
|
2016
|
Industrial
|
$
|
2,983,062
|
|
|
$
|
2,852,357
|
|
|
$
|
2,644,442
|
|
Construction
|
2,684,844
|
|
|
2,546,261
|
|
|
2,482,624
|
|
Utility
|
1,303,697
|
|
|
1,181,704
|
|
|
1,158,651
|
|
Commercial, Institutional and Government
|
1,204,998
|
|
|
1,098,699
|
|
|
1,050,300
|
|
Total by end market
|
$
|
8,176,601
|
|
|
$
|
7,679,021
|
|
|
$
|
7,336,017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
(In thousands)
|
2018
|
|
2017
|
|
2016
|
United States
|
$
|
6,089,130
|
|
|
$
|
5,775,988
|
|
|
$
|
5,635,803
|
|
Other
(1)
|
2,087,471
|
|
|
1,903,033
|
|
|
1,700,214
|
|
Total by geography
|
$
|
8,176,601
|
|
|
$
|
7,679,021
|
|
|
$
|
7,336,017
|
|
|
|
(1)
|
Other primarily includes net sales originating in Canada.
|
The amount of revenue recognized for integrated supply services totaled
$23.3 million
,
$26.2 million
, and
$27.1 million
in
2018
,
2017
and
2016
, respectively.
In accordance with certain contractual arrangements, WESCO receives payment from its customers in advance and recognizes such payment as deferred revenue. Revenue for advance payment is recognized when the performance obligation has been satisfied and control has transferred to the customer, which is generally upon shipment. Deferred revenue is usually recognized within a year or less from the date of the customer’s advance payment. At
December 31, 2018
and
2017
,
$11.8 million
and
$15.5 million
, respectively, of deferred revenue was recorded as a component of other current liabilities in the Consolidated Balance Sheets.
WESCO’s revenues are adjusted for variable consideration, which includes customer volume rebates, returns, and discounts. WESCO measures variable consideration by estimating expected outcomes using analysis and inputs based upon historical data, as well as current and forecasted information. Variable consideration is reviewed by management on a monthly basis and revenue is adjusted accordingly. Variable consideration reduced revenue for the years ended
December 31, 2018
,
2017
and
2016
by approximately
$107.4 million
,
$91.1 million
and
$79.9 million
, respectively.
Shipping and handling costs are recognized in net sales when they are billed to the customer. These costs are recognized as a component of selling, general and administrative expenses when WESCO does not bill the customer. WESCO has elected to recognize shipping and handling costs as a fulfillment cost. Shipping and handling costs recorded as a component of selling, general and administrative expenses totaled
$74.1 million
,
$61.8 million
and
$57.9 million
for the years ended
December 31, 2018
,
2017
and
2016
, respectively.
4. FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company’s financial instruments consist of cash and cash equivalents, accounts receivable, accounts payable, bank overdrafts, and outstanding indebtedness. The Company uses a market approach to determine the fair value of its debt instruments, utilizing quoted prices in active markets, interest rates and other relevant information generated by market transactions involving similar instruments. Therefore, the inputs used to measure the fair value of the Company's debt instruments are classified as Level 2 within the fair value hierarchy. The reported carrying amounts of WESCO's financial instruments approximated their fair values as of
December 31, 2018
and
2017
.
WESCO INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)
5. GOODWILL AND INTANGIBLE ASSETS
Goodwill
The following table sets forth the changes in the carrying value of goodwill:
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2018
|
|
2017
|
|
(In thousands)
|
Beginning balance January 1
|
$
|
1,771,877
|
|
|
$
|
1,730,950
|
|
Foreign currency exchange rate changes
|
(49,274
|
)
|
|
40,927
|
|
Ending balance December 31
|
$
|
1,722,603
|
|
|
$
|
1,771,877
|
|
Intangible Assets
The components of intangible assets are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2018
|
|
December 31, 2017
|
|
Life
|
|
Gross Carrying
Amount
(1)
|
|
Accumulated
Amortization
(1)
|
|
Net
Carrying
Amount
|
|
Gross Carrying
Amount
(1)
|
|
Accumulated
Amortization
(1)
|
|
Net
Carrying
Amount
|
|
|
|
(In thousands)
|
Intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trademarks
|
Indefinite
|
|
$
|
96,260
|
|
|
$
|
—
|
|
|
$
|
96,260
|
|
|
$
|
100,249
|
|
|
$
|
—
|
|
|
$
|
100,249
|
|
Trademarks
|
4-15
|
|
25,185
|
|
|
(7,585
|
)
|
|
17,600
|
|
|
25,118
|
|
|
(5,516
|
)
|
|
19,602
|
|
Non-compete agreements
|
2-7
|
|
196
|
|
|
(141
|
)
|
|
55
|
|
|
196
|
|
|
(102
|
)
|
|
94
|
|
Customer relationships
|
2-20
|
|
358,620
|
|
|
(180,395
|
)
|
|
178,225
|
|
|
377,270
|
|
|
(161,711
|
)
|
|
215,559
|
|
Distribution agreements
|
10-19
|
|
36,984
|
|
|
(22,562
|
)
|
|
14,422
|
|
|
39,515
|
|
|
(22,200
|
)
|
|
17,315
|
|
Patents
|
10
|
|
48,310
|
|
|
(38,856
|
)
|
|
9,454
|
|
|
48,310
|
|
|
(34,025
|
)
|
|
14,285
|
|
|
|
|
$
|
565,555
|
|
|
$
|
(249,539
|
)
|
|
$
|
316,016
|
|
|
$
|
590,658
|
|
|
$
|
(223,554
|
)
|
|
$
|
367,104
|
|
|
|
(1)
|
Excludes the original cost and related accumulated amortization of fully-amortized intangible assets.
|
Amortization expense related to intangible assets totaled
$35.9 million
,
$37.8 million
and
$39.1 million
for the years ended
December 31, 2018
,
2017
and
2016
, respectively.
The following table sets forth the estimated amortization expense for intangible assets for the next five years and thereafter:
|
|
|
|
|
For the year ending December 31,
|
(In thousands)
|
2019
|
$
|
35,269
|
|
2020
|
33,417
|
|
2021
|
25,809
|
|
2022
|
23,431
|
|
2023
|
22,877
|
|
Thereafter
|
78,953
|
|
6. 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 commercial, institutional and government markets. Based upon WESCO’s broad customer base, the Company has concluded that it has no material credit risk as a result of customer concentration. WESCO is subject to supplier concentration risk as Eaton Corporation, the Company's largest supplier, accounted for approximately
11%
of its purchases in
2018
,
2017
and
2016
.
WESCO INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)
7. ACQUISITIONS
The following table sets forth the consideration paid for acquisitions:
|
|
|
|
|
|
Year Ended December 31,
|
|
2016
|
|
(In thousands)
|
Fair value of assets acquired
|
$
|
76,980
|
|
Fair value of liabilities assumed
|
25,058
|
|
Cash paid for acquisitions
|
$
|
51,922
|
|
Supplemental cash flow disclosure related to acquisitions:
|
|
Cash paid for acquisitions
|
$
|
51,922
|
|
Less: cash acquired
|
(1,032
|
)
|
Cash paid for acquisitions, net of cash acquired
|
$
|
50,890
|
|
Atlanta Electrical Distributors, LLC
On
March 14, 2016
, WESCO Distribution, Inc. ("WESCO Distribution") completed the acquisition of
Atlanta Electrical Distributors, LLC
, an Atlanta-based electrical distributor focused on the construction and MRO markets from
five
locations in Georgia with approximately
$85 million
in annual sales. WESCO Distribution funded the purchase price paid at closing with borrowings under its revolving credit facility. The purchase price was allocated to the respective assets and liabilities based upon their estimated fair values as of the acquisition date. In addition to the cash paid at closing, the purchase price included a contingent payment that may be earned upon the achievement of certain financial performance targets over three consecutive one year periods. The fair value of the contingent consideration was determined using a probability-weighted outcome analysis and Level 3 inputs such as internal forecasts. This amount was initially accrued at the maximum potential payout under the terms of the purchase agreement and was reduced in 2017 to reflect a payout that aligns with current financial performance. The fair value of intangibles was estimated by management and the allocation resulted in intangible assets of
$21.8 million
and goodwill of
$30.0 million
. The intangible assets include customer relationships of
$15.8 million
amortized over
13
and
14
years, a trademark of
$6.0 million
amortized over
13 years
, and non-compete agreements of less than
$0.1 million
amortized over
5 years
. No residual value was estimated for the intangible assets being amortized. The majority of goodwill is deductible for tax purposes.
8. PROPERTY, BUILDINGS AND EQUIPMENT
The following table sets forth the components of property, buildings and equipment:
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
2018
|
|
2017
|
|
(In thousands)
|
Buildings and leasehold improvements
|
$
|
111,510
|
|
|
$
|
117,894
|
|
Furniture, fixtures and equipment
|
186,523
|
|
|
183,801
|
|
Software costs
|
115,631
|
|
|
103,842
|
|
|
413,664
|
|
|
405,537
|
|
Accumulated depreciation and amortization
|
(291,811
|
)
|
|
(278,455
|
)
|
|
121,853
|
|
|
127,082
|
|
Land
|
23,996
|
|
|
25,814
|
|
Construction in progress
|
15,029
|
|
|
3,549
|
|
|
$
|
160,878
|
|
|
$
|
156,445
|
|
Depreciation expense was
$17.3 million
,
$16.3 million
and
$17.1 million
, and capitalized software amortization was
$9.8 million
,
$9.9 million
and
$10.6 million
, in
2018
,
2017
and
2016
, respectively. The unamortized software cost was
$24.2 million
and
$22.4 million
as of
December 31, 2018
and
2017
, respectively. Furniture, fixtures and equipment include capitalized leases of
$9.3 million
and
$10.6 million
and related accumulated amortization of
$8.4 million
and
$9.0 million
as of
December 31, 2018
and
2017
, respectively.
WESCO INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)
9. DEBT
The following table sets forth WESCO’s outstanding indebtedness:
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
2018
|
|
2017
|
|
(In thousands)
|
International lines of credit
|
$
|
30,785
|
|
|
$
|
34,075
|
|
Term Loan Facility, less debt discount of $156 and $513 in 2018 and 2017, respectively
|
24,594
|
|
|
84,237
|
|
Accounts Receivable Securitization Facility
|
275,000
|
|
|
380,000
|
|
Revolving Credit Facility
|
51,598
|
|
|
12,000
|
|
5.375% Senior Notes due 2021
|
500,000
|
|
|
500,000
|
|
5.375% Senior Notes due 2024
|
350,000
|
|
|
350,000
|
|
Capital leases
|
1,123
|
|
|
1,959
|
|
Total debt
|
1,233,100
|
|
|
1,362,271
|
|
Less unamortized debt issuance costs
|
(9,575
|
)
|
|
(13,711
|
)
|
Less short-term debt and current portion of long-term debt
|
(56,214
|
)
|
|
(35,299
|
)
|
Total long-term debt
|
$
|
1,167,311
|
|
|
$
|
1,313,261
|
|
International Lines of Credit
Certain foreign subsidiaries of WESCO have entered into uncommitted lines of credit, which serve as overdraft facilities, to support local operations. The maximum borrowing limit varies by facility and ranges between
$2.0 million
and
$21.0 million
. The applicable interest rate for borrowings under these lines of credit varies by country and is governed by the applicable loan agreement. The international lines of credit are renewable on an annual basis and certain facilities are fully and unconditionally guaranteed by WESCO Distribution. Accordingly, borrowings under these lines directly reduce availability under the Revolving Credit Facility. The average interest rate for these facilities was
8.78%
and
5.42%
at
December 31, 2018
and
2017
, respectively.
Term Loan Facility
On
December 12, 2012
, WESCO Distribution, as U.S. borrower, WDCC Enterprises Inc. ("WDCC" and together with WESCO Distribution, the “Borrowers”), as Canadian borrower, and WESCO International entered into a Term Loan Agreement (the “Term Loan Agreement”) among WESCO Distribution, WDCC, the Company, the lenders party thereto and Credit Suisse AG Cayman Islands Branch, as administrative agent and as collateral agent.
The Term Loan Agreement provided a seven-year term loan facility (the “Term Loan Facility”), which consisted of two separate sub-facilities: (i) a Canadian sub-facility in an aggregate principal amount of CAD
150 million
, issued at a
2.0%
discount, and (ii) a U.S. sub-facility in an aggregate principal amount of
$700 million
, issued at a
1.0%
discount. The proceeds of the Term Loan Facility were used to finance the acquisition of EECOL, and to pay fees and expenses incurred in connection with the acquisition and certain other transactions. Subject to the terms of the Term Loan Agreement, the Borrowers may request incremental term loans from time to time in an aggregate principal amount not to exceed at any time
$300 million
, with an equivalent principal amount in U.S. dollars being calculated for any incremental term loan denominated in Canadian dollars.
On November 19, 2013, the Borrowers and WESCO International entered into an amendment (the “Term Loan Amendment”) to the Term Loan Agreement. The Term Loan Amendment, among other things, reduced the applicable margin on U.S. term loans by 0.50% and the LIBOR floor applicable to the U.S. sub-facility from 1.00% to 0.75%. The modified pricing terms were effective December 13, 2013.
On November 26, 2013, WESCO Distribution sold
$500 million
aggregate principal amount of
5.375%
Senior Notes due 2021 (the “2021 Notes”), and used the net proceeds plus excess cash to prepay
$500 million
under the Company's U.S. sub-facility of the Term Loan Facility (see discussion below under “5.375% Senior Notes due 2021” for additional information). The prepayment satisfied all remaining quarterly repayment obligations under the U.S. sub-facility. As of
December 31, 2018
, the amount outstanding under the U.S. sub-facility was
$24.8 million
. The Canadian sub-facility was fully repaid in 2015 using cash provided by Canadian operations.
Borrowings under the Term Loan Facility bear interest at base rates plus applicable margins. At
December 31, 2018
, the interest rate on borrowings under the U.S. sub-facility was
7.5%
. To the extent not previously paid, the outstanding U.S. sub-facility will become due and payable on December 12, 2019, with any unpaid incremental term loans becoming due and payable on the
WESCO INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)
respective maturity dates applicable to those incremental term loans. At any time or from time to time, the Borrowers may prepay borrowings under the Term Loan Facility in whole or in part without premium or penalty. The Borrowers' obligations under the Term Loan Facility are secured by substantially all of the assets of the Borrowers, the Company and certain of the Company's other subsidiaries; provided that, with respect to borrowings under the U.S. sub-facility, the collateral does not include assets of certain foreign subsidiaries or more than 65% of the issued and outstanding equity interests in certain foreign subsidiaries.
The Term Loan Facility contains customary affirmative and negative covenants for credit facilities of this type. The Term Loan Facility also provides for customary events of default.
Accounts Receivable Securitization Facility
On November 8, 2017, WESCO Distribution amended its accounts receivable securitization facility (the "Receivables Facility") pursuant to the terms and conditions of a Fifth Amendment to Fourth Amended and Restated Receivables Purchase Agreement, by and among WESCO Receivables Corp. (“WESCO Receivables”), WESCO Distribution, the various purchasers from time to time party thereto and PNC Bank, National Association, as Administrator (the "Amendment"). The Amendment extended the term of the Receivables Facility to September 24, 2020 and added and amended certain other defined terms. Substantially all other terms and conditions of the Receivables Facility were unchanged.
The Receivables Facility has a purchase limit of
$550 million
with the opportunity to exercise an accordion feature that permits increases in the purchase limit of up to
$100 million
. The interest rate spread and commitment fee of the Receivables Facility is
0.95%
and
0.45%
, respectively.
Under the Receivables Facility, WESCO sells, on a continuous basis, an undivided interest in all domestic accounts receivable to WESCO Receivables, a wholly owned special purpose entity (the “SPE”). The SPE sells, without recourse, a senior undivided interest in the receivables to financial institutions for cash while maintaining a subordinated undivided interest in the receivables, in the form of overcollateralization. Since WESCO maintains control of the transferred receivables, the transfers do not qualify for “sale” treatment. As a result, the transferred receivables remain on the balance sheet, and WESCO recognizes the related secured borrowing. WESCO has agreed to continue servicing the sold receivables for the third-party conduits and financial institutions at market rates; accordingly, no servicing asset or liability has been recorded. The expenses associated with the Receivables Facility are reported as a component of net interest and other in the Consolidated Statements of Income and Comprehensive Income.
As of
December 31, 2018
and
2017
, accounts receivable eligible for securitization totaled
$758.3 million
and
$751.2 million
, respectively. The Consolidated Balance Sheets as of
December 31, 2018
and
2017
include
$275.0 million
and
$380.0 million
, respectively, of account receivable balances legally sold to third parties, as well as borrowings for equal amounts. At
December 31, 2018
, the interest rate for this facility was approximately
2.0%
.
Revolving Credit Facility
On September 24, 2015, WESCO International, WESCO Distribution and certain other subsidiaries of the Company entered into a $600 million revolving credit facility (the “Revolving Credit Facility”), which contains a letter of credit sub-facility of up to $125 million, pursuant to the terms and conditions of a Second Amended and Restated Credit Agreement (the "Credit Agreement"). The Revolving Credit Facility contains an accordion feature allowing WESCO Distribution to request increases to the borrowing commitments of up to $200 million in the aggregate, subject to customary conditions.
The Revolving Credit Facility matures in
September 2020
and consists of two separate sub-facilities: (i) a Canadian sub-facility with a borrowing limit of up to
$400 million
, which is collateralized by substantially all assets of WESCO Canada and the other Canadian Borrowers, other than, among other things, real property, in each case, subject to customary exceptions and limitations, and (ii) a U.S sub-facility with a borrowing limit of up to
$600 million
less the amount of outstanding borrowings under the Canadian sub-facility. The U.S. sub-facility is collateralized by substantially all assets of WESCO Distribution and its domestic subsidiaries which are party to the Credit Agreement, other than, among other things, real property and accounts receivable sold or intended to be sold pursuant to the Receivables Purchase Agreement. The applicable interest rate for borrowings under the Revolving Credit Facility includes interest rate spreads based on available borrowing capacity that range between
1.25%
and
1.75%
for LIBOR-based borrowings and
0.25%
and
0.75%
for prime rate-based borrowings. At
December 31, 2018
, the interest rate for this facility was approximately
3.5%
.
The Credit Agreement requires ongoing compliance with certain customary affirmative and negative covenants. The Credit Agreement also contains customary events of default.
During
2018
, WESCO borrowed
$473.1 million
under the Revolving Credit Facility and made repayments in the aggregate amount of
$433.5 million
. During
2017
, aggregate borrowings and repayments were
$834.4 million
and
$826.4 million
, respectively. WESCO had
$515.9 million
available under the Revolving Credit facility at December 31,
2018
, after giving effect to
$27.2 million
of outstanding letters of credit,
$19.5 million
of surety bonds, and
$5.3 million
of other reserves, as compared to
$562.9 million
WESCO INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)
available under the Revolving Credit facility at December 31,
2017
, after giving effect to
$18.0 million
of outstanding letters of credit,
$19.1 million
of surety bonds, and
$7.1 million
of other reserves.
5.375% Senior Notes due 2021
In November 2013, WESCO Distribution issued
$500 million
aggregate principal amount of 2021 Notes through a private offering exempt from the registration requirements of the Securities Act of 1933, as amended (the “Securities Act”). The 2021 Notes were issued at 100% of par and are governed by an indenture (the “2021 Indenture”) entered into on November 26, 2013 between WESCO International and U.S. Bank National Association, as trustee. The 2021 Notes are unsecured senior obligations of WESCO Distribution and are guaranteed on a senior unsecured basis by WESCO International. The 2021 Notes bear interest at a stated rate of
5.375%
, payable semi-annually in arrears on June 15 and December 15 of each year. In addition, WESCO incurred costs related to the issuance of the 2021 Notes totaling
$8.4 million
, which were recorded as a reduction to the carrying value of the debt and are being amortized over the life of the notes. The 2021 Notes mature on December 15, 2021. The net proceeds of the 2021 Notes were used to prepay a portion of the U.S. sub-facility of the term loans due 2019.
Under the terms of a registration rights agreement dated as of November 26, 2013 among WESCO Distribution, WESCO International and Merrill Lynch, Pierce, Fenner & Smith Incorporated, as the representative of the initial purchasers of the 2021 Notes, WESCO Distribution and WESCO International agreed to register under the Securities Act notes having terms identical in all material respects to the 2021 Notes (the “2021 Exchange Notes”) and to make an offer to exchange the 2021 Exchange Notes for the 2021 Notes. WESCO Distribution launched the exchange offer on June 12, 2014 and the exchange offer expired on July 17, 2014.
At any time WESCO Distribution may redeem all or a part of the 2021 Notes. Between December 15, 2018 and December 14, 2019, WESCO Distribution may redeem all or a part of the 2021 Notes at a redemption price equal to
101.344%
of the principal amount. On and after December 15, 2019, WESCO Distribution may redeem all or a part of the 2021 Notes at a redemption price equal to
100%
of the principal amount.
The 2021 Indenture contains customary covenants and customary events of default. In addition, upon a change of control, the holders of 2021 Notes have the right to require WESCO Distribution to repurchase all or any part of the 2021 Notes at a redemption price equal to
101%
of the principal amount, plus accrued and unpaid interest.
5.375% Senior Notes due 2024
In June 2016, WESCO Distribution issued
$350 million
aggregate principal amount of 5.375% Senior Notes due 2024 (the "2024 Notes") through a private offering exempt from the registration requirements of the Securities Act. The 2024 Notes were issued at 100% of par and are governed by an indenture (the “2024 Indenture”) entered into on June 15, 2016 among WESCO Distribution, as issuer, WESCO International, as parent guarantor, and U.S. Bank National Association, as trustee. The 2024 Notes are unsecured senior obligations of WESCO Distribution and are guaranteed on a senior unsecured basis by WESCO International. The 2024 Notes bear interest at a rate of
5.375%
per annum, payable semi-annually in arrears on June 15 and December 15 of each year. WESCO incurred costs totaling
$6.0 million
to issue the 2024 Notes, which were recorded as a reduction to the carrying value of the debt and are being amortized over the life of the note. The notes mature on June 15, 2024. The Company used the net proceeds to redeem its 6.0% Convertible Senior Debentures due 2029 (the "2029 Debentures") on September 15, 2016.
Under the terms of a registration rights agreement dated as of June 15, 2016 among WESCO Distribution, as the issuer, WESCO International, as parent guarantor, and Goldman, Sachs & Co., as representative of the initial purchasers of the 2024 Notes, WESCO Distribution and WESCO International agreed to register under the Securities Act notes having terms identical in all material respects to the 2024 Notes (the “2024 Exchange Notes”) and to make an offer to exchange the 2024 Exchange Notes for the 2024 Notes. WESCO Distribution launched the exchange offer on December 28, 2016 and the exchange offer expired on January 31, 2017.
At any time on or after June 15, 2019, WESCO Distribution may redeem all or a part of the 2024 Notes. Between June 15, 2019 and June 14, 2020, WESCO Distribution may redeem all or a part of the 2024 Notes at a redemption price equal to
104.031%
of the principal amount. Between June 15, 2020 and June 14, 2021, WESCO Distribution may redeem all or a part of the 2024 Notes at a redemption price equal to
102.688%
of the principal amount. Between June 15, 2021 and June 14, 2022, WESCO Distribution may redeem all or a part of the 2024 Notes at a redemption price equal to
101.344%
of the principal amount. On and after June 15, 2022, WESCO Distribution may redeem all or a part of the 2024 Notes at a redemption price equal to
100%
of the principal amount.
The 2024 Indenture contains customary covenants and events of default. Upon a change of control, the holders of the 2024 Notes have the right to require WESCO Distribution to repurchase all or any part of the 2024 Notes at a redemption price equal to
101%
of the principal amount thereof, plus accrued and unpaid interest.
WESCO INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)
6.0% Convertible Senior Debentures due 2029
On August 27, 2009, WESCO International completed an exchange offer pursuant to which it issued
$345 million
in aggregate principal amount of the 2029 Debentures. On
September 15, 2016
, the Company redeemed the 2029 Debentures. Holders of the 2029 Debentures received cash totaling
$344.8 million
, which was equal to the principal amount of the then-outstanding debentures, in addition to accrued and unpaid interest.
Holders who surrendered the 2029 Debentures for conversion received 18 shares of WESCO stock for each $1,000 principal amount of 2029 Debentures converted.
In total,
6,267,688
shares were issued on the redemption date. The redemption resulted in a non-cash loss of
$123.9 million
, which included the write off of unamortized debt issuance costs.
WESCO separately accounted for the liability and equity components of its 2029 Debentures in a manner that reflected its non-convertible debt borrowing rate. WESCO utilized an interest rate of
13.875%
to reflect the non-convertible debt borrowing rate of its offering upon issuance, which was determined based on discussions with its financial institutions and a review of relevant market data, and resulted in a
$181.2 million
discount to the 2029 Debenture balance and a net increase in additional capital of
$106.5 million
. In addition, the financing costs incurred to issue the 2029 Debentures were allocated between the instrument's debt and equity components. The debt discount was amortized to interest expense, using the effective interest method, over the implicit life of the debentures. WESCO amortized the financing costs on a straight-line basis over the term of the instrument. For the year ended December 31,
2016
, non-cash interest expense for the amortization of the debt discount and debt issuance costs was
$3.1 million
.
Debt Issuance Costs
WESCO capitalizes costs associated with the issuance of debt and such costs are amortized over the term of the respective debt instrument on a straight-line basis. Debt issuance costs are presented in the Consolidated Balance Sheets as a direct reduction from the carrying amount of the related debt liability. Upon prepayment of debt, the Company accelerates the recognition of an appropriate amount of the costs as refinancing or extinguishment of debt. As of
December 31, 2018
and
2017
, unamortized debt issuance costs of
$9.6 million
and
$13.7 million
were recorded in the Consolidated Balance Sheets, respectively.
Covenant Compliance
WESCO was in compliance with all relevant covenants contained in its debt agreements as of
December 31, 2018
.
The following table sets forth the aggregate principal repayment requirements for all indebtedness for the next five years and thereafter, as of
December 31, 2018
:
|
|
|
|
|
|
(In thousands)
|
2019
|
$
|
56,702
|
|
2020
|
326,554
|
|
2021
|
500,000
|
|
2022
|
—
|
|
2023
|
—
|
|
Thereafter
|
350,000
|
|
Total payments on debt
|
1,233,256
|
|
Debt discount
|
(156
|
)
|
Total debt
|
$
|
1,233,100
|
|
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; (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 Revolving Credit Facility and the Receivables Facility require WESCO to meet certain fixed charge coverage tests depending on availability or liquidity, respectively.
WESCO INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)
10. CAPITAL STOCK
Preferred Stock
There are
20 million
shares of preferred stock authorized at a par value of
$0.01
per share; there are no shares issued or outstanding. 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 million
shares of common stock and
20 million
shares of Class B common stock authorized at a par value of
$0.01
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.
The terms of the Revolving Credit Facility and the Term Loan Facility, as well as the indentures governing the 2021 Notes and 2024 Notes, place certain limits on the Company's ability to declare or pay dividends and repurchase common stock. The share repurchases in
2018
and
2017
, as described in Note 12, were made within the limits of our various credit agreements. At
December 31, 2018
and
2017
, no dividends had been declared and, therefore, no retained earnings were reserved for dividend payments.
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, with cost determined on a weighted-average basis.
11. INCOME TAXES
The Tax Cuts and Jobs Act of 2017 (the "TCJA”), enacted on December 22, 2017, provided a broad range of change to U.S. corporate tax law, including changes to the U.S. corporate income tax rate, new business-related exclusions, deductions and credits, as well as international tax provisions. Most notably, the TCJA permanently reduced the U.S. corporate income tax rate from 35% to 21%, effective January 1, 2018, and imposed a one-time tax on the deemed repatriation of undistributed foreign earnings (the "transition tax"). The TCJA also introduced anti-base erosion provisions, including the global intangible low-taxed income ("GILTI") tax.
As a result of the reduction in the U.S. corporate income tax rate, the Company remeasured its U.S. deferred income tax balances and recorded a provisional deferred income tax benefit of
$56.4 million
for the year ended
December 31, 2017
. The Company also recognized provisional current income tax expense for the transition tax under the TCJA of
$82.8 million
for the year ended
December 31, 2017
. After the utilization of foreign tax credit carryforwards of
$17.8 million
, a provisional liability of
$65.0 million
was accrued for the transition tax as of
December 31, 2017
, which is payable over a period of eight years.
During the year ended
December 31, 2018
, the Company completed its accounting for the income tax effects of the TCJA, which resulted in an additional deferred income tax benefit of
$0.9 million
and a discrete benefit of
$3.4 million
. As of
December 31, 2018
, a liability of
$43.2 million
was in the Consolidated Balance Sheet for the transition tax.
The accounting for the income tax effects of the TCJA was completed based on regulatory guidance issued to date. Additional guidance could be issued, which could affect the amounts described above. Future adjustments (if any) will be recognized as discrete income tax expense or benefit in the period in which guidance is issued.
The following table sets forth the components of income before income taxes by jurisdiction:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2018
|
|
2017
|
|
2016
|
|
|
|
(In thousands)
|
|
|
United States
|
$
|
198,556
|
|
|
$
|
180,957
|
|
|
$
|
80,881
|
|
Foreign
|
82,469
|
|
|
71,483
|
|
|
50,670
|
|
Income before income taxes
|
$
|
281,025
|
|
|
$
|
252,440
|
|
|
$
|
131,551
|
|
WESCO INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)
The following table sets forth the components of the provision (benefit) for income taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2018
|
|
2017
|
|
2016
|
|
|
|
(In thousands)
|
|
|
Current income taxes:
|
|
|
|
|
|
Federal
(1)
|
$
|
28,464
|
|
|
$
|
122,170
|
|
|
$
|
65,614
|
|
State
|
7,458
|
|
|
2,259
|
|
|
6,489
|
|
Foreign
|
10,611
|
|
|
15,274
|
|
|
3,502
|
|
Total current income taxes
|
46,533
|
|
|
139,703
|
|
|
75,605
|
|
Deferred income taxes:
|
|
|
|
|
|
Federal
|
5,253
|
|
|
(48,060
|
)
|
|
(42,835
|
)
|
State
|
1,967
|
|
|
4,508
|
|
|
(2,938
|
)
|
Foreign
|
1,917
|
|
|
(6,844
|
)
|
|
599
|
|
Total deferred income taxes
|
9,137
|
|
|
(50,396
|
)
|
|
(45,174
|
)
|
Provision for income taxes
|
$
|
55,670
|
|
|
$
|
89,307
|
|
|
$
|
30,431
|
|
|
|
(1)
|
Income tax expense related to stock-based awards and other equity instruments recorded directly to additional paid in capital totaled
$0.1 million
in
2016
. Due to the adoption of ASU 2016-09 in the first quarter of
2017
, there was no income tax expense or benefit recorded to additional paid in capital for stock-based awards in
2018
and
2017
.
|
The following table sets forth the reconciliation between the federal statutory income tax rate and the effective tax rate:
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2018
|
|
2017
|
|
2016
|
Federal statutory rate
|
21.0
|
%
|
|
35.0
|
%
|
|
35.0
|
%
|
State income taxes, net of federal income tax benefit
|
2.8
|
|
|
1.4
|
|
|
1.0
|
|
Deemed repatriation of undistributed foreign earnings
|
(1.2
|
)
|
|
32.8
|
|
|
—
|
|
Deferred income tax remeasurement
|
(0.3
|
)
|
|
(22.4
|
)
|
|
—
|
|
Tax effect of intercompany financing
|
(5.6
|
)
|
|
(10.5
|
)
|
|
(19.9
|
)
|
Other
(1)
|
3.1
|
|
|
(0.9
|
)
|
|
7.0
|
|
Effective tax rate
|
19.8
|
%
|
|
35.4
|
%
|
|
23.1
|
%
|
|
|
(1)
|
Certain components of the effective tax rate for
2017
and
2016
have been reclassified to conform to the current period presentation.
|
As a result of the TCJA, WESCO reevaluated its intent and ability to repatriate foreign earnings based upon the liquidity of the Company's domestic operations and cash flow needs of its foreign subsidiaries. Consequently, during the year ended
December 31, 2018
, WESCO repatriated a portion of the previously taxed earnings attributable to the Company's Canadian operations to repay outstanding indebtedness in the U.S. WESCO continues to assert that the remaining undistributed earnings of its foreign subsidiaries, the majority of which were subject to the transition tax described above, are indefinitely reinvested. WESCO believes that it is able to maintain a sufficient level of liquidity for its domestic operations and commitments without repatriating cash held by these foreign subsidiaries. Upon any future repatriation, additional income taxes may be incurred; however, it is not practicable to determine the amount at this time.
WESCO INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)
The following table sets forth deferred tax assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
2018
|
|
2017
|
|
|
|
(In thousands)
|
|
|
|
Assets
|
|
Liabilities
|
|
Assets
|
|
Liabilities
|
Accounts receivable
|
$
|
3,657
|
|
|
$
|
—
|
|
|
$
|
3,496
|
|
|
$
|
—
|
|
Inventories
|
—
|
|
|
3,315
|
|
|
—
|
|
|
3,181
|
|
Depreciation of property, buildings and equipment
|
—
|
|
|
17,384
|
|
|
—
|
|
|
13,283
|
|
Amortization of intangible assets
|
—
|
|
|
158,795
|
|
|
—
|
|
|
159,107
|
|
Employee benefits
|
20,107
|
|
|
—
|
|
|
14,835
|
|
|
—
|
|
Stock-based compensation
(1)
|
12,840
|
|
|
—
|
|
|
16,341
|
|
|
—
|
|
Advance payments
|
—
|
|
|
—
|
|
|
8,456
|
|
|
—
|
|
Tax loss carryforwards
|
15,557
|
|
|
—
|
|
|
19,128
|
|
|
—
|
|
Other
|
7,927
|
|
|
4,115
|
|
|
11,850
|
|
|
8,672
|
|
Deferred income taxes before valuation allowance
|
60,088
|
|
|
183,609
|
|
|
74,106
|
|
|
184,243
|
|
Valuation allowance
|
(4,072
|
)
|
|
—
|
|
|
(2,518
|
)
|
|
—
|
|
Total deferred income taxes
|
$
|
56,016
|
|
|
$
|
183,609
|
|
|
$
|
71,588
|
|
|
$
|
184,243
|
|
|
|
(1)
|
The Company does not expect the executive compensation deduction rules in Section 162(m) of the Internal Revenue Code as amended by the TCJA to have a material impact on the realizability of the deferred tax asset related to stock-based compensation.
|
As of
December 31, 2018
and
2017
, WESCO had deferred tax assets of
$6.4 million
and
$10.4 million
, respectively, related to Canadian net operating loss carryforwards. The Canadian net operating loss carryforwards expire beginning in
2036
through
2037
. Additionally, WESCO had deferred tax assets of
$7.2 million
and
$7.0 million
as of
December 31, 2018
and
2017
, respectively, related to non-Canadian foreign net operating loss carryforwards. These net operating loss carryforwards expire beginning in
2019
through
2028
, while some may be carried forward indefinitely. As of
December 31, 2018
and
2017
, WESCO had deferred tax assets of
$3.2 million
and
$3.1 million
, respectively, related to state net operating loss carryforwards. These carryforwards expire beginning in
2022
through
2037
. The Company has determined, based upon an evaluation of all available evidence, that it "more-likely-than-not" will utilize all of its net operating loss carryforwards before expiration, other than those incurred in certain non-Canadian foreign jurisdictions. Accordingly, the Company recorded a full valuation allowance against deferred tax assets related to certain non-Canadian foreign net operating loss carryforwards of
$4.1 million
and
$2.5 million
at
December 31, 2018
and
2017
, respectively.
The Company is under examination by tax authorities in the U.S. and Canada and remains subject to examination until the applicable statutes of limitation expire. The statutes of limitation for the material jurisdictions in which the Company files income tax returns remain open principally due to certain transfer pricing matters and are as follows:
|
|
|
|
United States — Federal
|
|
2004 and forward
|
United States — Material States
|
|
2004 and forward
|
Canada
|
|
2004 and forward
|
The following table sets forth the reconciliation of gross unrecognized tax benefits:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
2018
|
|
2017
|
|
2016
|
|
(In thousands)
|
Beginning balance January 1
|
$
|
4,348
|
|
|
$
|
6,181
|
|
|
$
|
5,436
|
|
Additions for tax positions of prior years
|
—
|
|
|
—
|
|
|
3,298
|
|
Reductions for tax positions of prior years
|
—
|
|
|
(155
|
)
|
|
(21
|
)
|
Settlements
|
(2,646
|
)
|
|
(1,025
|
)
|
|
(1,921
|
)
|
Lapse in statute of limitations
|
(287
|
)
|
|
(755
|
)
|
|
(728
|
)
|
Foreign currency exchange rate changes
|
(122
|
)
|
|
102
|
|
|
117
|
|
Ending balance December 31
|
$
|
1,293
|
|
|
$
|
4,348
|
|
|
$
|
6,181
|
|
WESCO INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)
The total amount of unrecognized tax benefits were
$1.3 million
,
$4.3 million
, and
$6.2 million
as of
December 31, 2018
,
2017
and
2016
, respectively. The amount of unrecognized tax benefits that would affect the effective tax rate if recognized in the consolidated financial statements was
$1.3 million
,
$1.7 million
, and
$7.5 million
, respectively.
It is reasonably possible that the amount of unrecognized tax benefits will decrease by approximately
$0.1 million
within the next twelve months due to the settlement of uncertain tax positions related to state audits or the expiration of statutes of limitation. This amount could affect the effective tax rate if recognized in the consolidated financial statements.
The Company classifies interest related to unrecognized tax benefits as a component of net interest and other in the Consolidated Statement of Income and Comprehensive Income. Interest expense on unrecognized tax benefits was
$0.2 million
,
$0.1 million
, and
$1.2 million
for
2018
,
2017
and
2016
, respectively. As of
December 31, 2018
and
2017
, WESCO had a liability of
$0.8 million
and
$1.8 million
, respectively, for interest expense related to unrecognized tax benefits. The Company classifies penalties related to unrecognized tax benefits as part of income tax expense. Penalties recorded in income tax expense were immaterial in
2018
,
2017
, and
2016
.
12. EARNINGS PER SHARE
Basic earnings per share is computed by dividing net income attributable to WESCO International by the weighted-average number of common shares outstanding during the periods. Diluted earnings per share is computed by dividing net income attributable to WESCO International 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, which includes consideration of equity awards and contingently convertible debt.
The following tables set forth the details of basic and diluted earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2018
|
|
2017
|
|
2016
|
(In thousands, except per share data)
|
|
|
|
|
|
Net income attributable to WESCO International
|
$
|
227,343
|
|
|
$
|
163,460
|
|
|
$
|
101,588
|
|
Weighted-average common shares outstanding used in computing basic earnings per share
|
46,722
|
|
|
47,849
|
|
|
44,116
|
|
Common shares issuable upon exercise of dilutive equity awards
|
477
|
|
|
512
|
|
|
543
|
|
Common shares issuable from contingently convertible debentures (see below for basis of calculation)
|
—
|
|
|
—
|
|
|
3,674
|
|
Weighted-average common shares outstanding and common share equivalents used in computing diluted earnings per share
|
47,199
|
|
|
48,361
|
|
|
48,333
|
|
Earnings per share attributable to WESCO International
|
|
|
|
|
|
Basic
|
$
|
4.87
|
|
|
$
|
3.42
|
|
|
$
|
2.30
|
|
Diluted
|
$
|
4.82
|
|
|
$
|
3.38
|
|
|
$
|
2.10
|
|
The computation of diluted earnings per share attributable to WESCO International excluded equity awards of approximately
1.6 million
,
1.3 million
and
1.2 million
for the years ended
December 31, 2018
,
2017
and
2016
, respectively. These shares were excluded because their effect would have been antidilutive.
Because of WESCO’s previous obligation to settle the par value of the 2029 Debentures in cash upon conversion, WESCO was required to include shares underlying the 2029 Debentures in its diluted weighted-average shares outstanding when the average stock price per share for the period exceeded the conversion price of the debentures. Only the number of shares that would have been issuable under the treasury stock method of accounting for share dilution were included, which was based upon the amount by which the average stock price exceeded the conversion price. The conversion price of the 2029 Debentures was
$28.87
and the maximum amount of share dilution was limited to
11,951,932
shares. Since the 2029 Debentures were redeemed on September 15, 2016, there was no dilution from contingently convertible debentures for the years ended
December 31, 2018
and
2017
. For the year ended
December 31, 2016
, the effect of the 2029 Debentures on diluted earnings per share attributable to WESCO International was a decrease of
$0.17
.
In December 2014, the Company's Board of Directors (the "Board") authorized the repurchase of up to
$300 million
of the Company's common stock through
December 31, 2017
(the "2014 Repurchase Authorization"). During the year ended
December 31, 2017
, the Company repurchased
1,778,537
shares for
$100.0 million
. As of
December 31, 2017
, WESCO had repurchased
4,247,113
shares of common stock for
$250.0 million
under the 2014 Repurchase Authorization.
WESCO INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)
In December 2017, the Board authorized the repurchase of up to
$300 million
of the Company's common stock through
December 31, 2020
(the "2017 Repurchase Authorization"). In October 2018, the Board approved an increase to the 2017 Repurchase Authorization from
$300 million
to
$400 million
. On
September 6, 2018
and
November 6, 2018
, the Company entered into accelerated stock repurchase agreements with a financial institution to repurchase additional shares of its common stock pursuant to its 2017 Repurchase Authorization. In exchange for up-front cash payments totaling
$125.0 million
, the Company received
2,003,446
shares. As of
December 31, 2018
, the accelerated stock repurchase agreement entered into on
November 6, 2018
had not yet settled between the counterparties. Upon settlement, the Company expects to receive additional shares.
The total number of shares ultimately delivered under the accelerated stock repurchases described above are determined by the average of the volume-weighted-average prices of the Company's common stock for each exchange business day during the respective settlement valuation periods. WESCO funded the repurchases with available cash, and borrowings under its accounts receivable securitization and revolving credit facilities. For purposes of computing earnings per share, share repurchases have been reflected as a reduction to common shares outstanding on the respective delivery dates.
13. EMPLOYEE BENEFIT PLANS
Defined Contribution Plans
A majority of WESCO’s employees are covered by defined contribution retirement savings plans for their services rendered subsequent to WESCO’s formation. WESCO also offers a deferred compensation plan for select individuals. For U.S. participants, WESCO matches contributions made by employees at an amount equal to
50%
of participants' total monthly contributions up to a maximum of
6%
of eligible compensation. For Canadian participants, WESCO makes contributions in amounts ranging from
3%
to
5%
of participants' eligible compensation based on years of continuous service. WESCO may also make, subject to the Board's approval, a discretionary contribution to the defined contribution retirement savings plan covering U.S. participants if certain predetermined profit levels are attained. Discretionary employer contribution charges of
$20.6 million
and
$10.0 million
were incurred in
2018
and
2017
, respectively. In
2016
, there was no charge for discretionary employer contributions. For the years ended
December 31, 2018
,
2017
and
2016
, WESCO incurred charges of
$42.0 million
,
$31.3 million
, and
$18.5 million
, respectively, for all such plans. Contributions are made in cash to employee retirement savings plan accounts. The deferred compensation plan is an unfunded plan. As of
December 31, 2018
and
2017
, the Company's obligation under the deferred compensation plan was
$21.9 million
and
$24.3 million
, respectively. Employees have the option to transfer balances allocated to their accounts in the defined contribution retirement savings plan and the deferred compensation plan into any of the available investment options.
Defined Benefit Plans
The Company sponsors a contributory defined benefit plan (the "Plan") covering substantially all Canadian employees of EECOL. The Plan provides retirement benefits based on earnings and credited service, and participants contribute 2% of their earnings to the Plan. Participants become 100% vested after two years of continuous service or, if earlier, at the participant's normal retirement age.
The Company also sponsors a Supplemental Executive Retirement Plan (the "SERP"), which provides additional pension benefits to certain executives of EECOL based on earnings, and credited service. Effective January 1, 2013, the SERP was closed to new participants and existing participants became 100% vested. SERP participants continue to contribute 4% of their earnings to the Plan.
WESCO INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)
The following tables present the changes in benefit obligations, plan assets and funded status for the pension plans and the components of net periodic pension cost.
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
(In thousands)
|
2018
|
|
2017
|
Accumulated Benefit Obligation (ABO) at December 31
|
$
|
78,746
|
|
|
$
|
92,375
|
|
|
|
|
|
Change in Projected Benefit Obligation (PBO)
|
|
|
|
PBO at beginning of year
|
$
|
120,319
|
|
|
$
|
96,160
|
|
Service cost
|
5,242
|
|
|
4,328
|
|
Interest cost
|
4,137
|
|
|
3,912
|
|
Participant contributions
|
745
|
|
|
735
|
|
Actuarial (gain) loss, including assumption changes
|
(11,644
|
)
|
|
10,906
|
|
Benefits paid
|
(3,892
|
)
|
|
(3,005
|
)
|
Foreign currency exchange rate changes
|
(9,392
|
)
|
|
7,283
|
|
PBO at end of year
|
$
|
105,515
|
|
|
$
|
120,319
|
|
|
|
|
|
Change in Plan Assets
|
|
|
|
Fair value of plan assets at beginning of year
|
$
|
97,182
|
|
|
$
|
84,753
|
|
Actual return on plan assets
|
(425
|
)
|
|
7,875
|
|
Participant contributions
|
745
|
|
|
735
|
|
Employer contributions
|
372
|
|
|
368
|
|
Benefits paid
|
(3,892
|
)
|
|
(3,005
|
)
|
Foreign currency exchange rate changes
|
(7,426
|
)
|
|
6,456
|
|
Fair value of plan assets at end of year
|
$
|
86,556
|
|
|
$
|
97,182
|
|
|
|
|
|
Funded Status
|
$
|
(18,959
|
)
|
|
$
|
(23,137
|
)
|
|
|
|
|
Amounts Recognized in the Consolidated Balance Sheets
|
|
|
|
Current liabilities
|
$
|
(364
|
)
|
|
$
|
(395
|
)
|
Noncurrent liabilities
|
(18,595
|
)
|
|
(22,742
|
)
|
Net amount recognized
|
$
|
(18,959
|
)
|
|
$
|
(23,137
|
)
|
|
|
|
|
Amounts Recognized in Accumulated Other Comprehensive Income (Loss)
|
|
|
|
Net actuarial (gain) loss
|
$
|
(2,696
|
)
|
|
$
|
2,508
|
|
Total amount recognized, before tax effect
|
$
|
(2,696
|
)
|
|
$
|
2,508
|
|
WESCO INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2018
|
|
2017
|
|
2016
|
|
(In thousands)
|
Components of Net Periodic Pension Cost
|
|
|
|
|
|
Service cost
|
$
|
5,242
|
|
|
$
|
4,328
|
|
|
$
|
3,845
|
|
Interest cost
|
4,137
|
|
|
3,912
|
|
|
3,856
|
|
Expected return on plan assets
|
(5,969
|
)
|
|
(5,562
|
)
|
|
(5,328
|
)
|
Recognized actuarial gain
|
(46
|
)
|
|
(149
|
)
|
|
(31
|
)
|
Net periodic pension cost
|
$
|
3,364
|
|
|
$
|
2,529
|
|
|
$
|
2,342
|
|
|
|
|
|
|
|
Other Changes in Plan Assets and PBO Recognized in Accumulated Other Comprehensive Income (Loss)
|
|
|
|
|
|
Net actuarial (gain) loss
|
$
|
(5,250
|
)
|
|
$
|
8,593
|
|
|
$
|
2,756
|
|
Amortization of unrecognized net actuarial gain
|
46
|
|
|
149
|
|
|
31
|
|
Total amount recognized, before tax effect
|
(5,204
|
)
|
|
8,742
|
|
|
2,787
|
|
Tax effect
|
1,406
|
|
|
(2,361
|
)
|
|
(302
|
)
|
Total amount recognized, after tax effect
|
$
|
(3,798
|
)
|
|
$
|
6,381
|
|
|
$
|
2,485
|
|
|
|
|
|
|
|
Total recognized in net periodic pension cost and accumulated other comprehensive income (loss)
|
$
|
(434
|
)
|
|
$
|
8,910
|
|
|
$
|
4,827
|
|
In accordance with ASU 2017-07, as described in Note 2, the service cost of
$5.2 million
,
$4.3 million
and
$3.8 million
for the years ended
December 31, 2018
,
2017
and
2016
, respectively, was reported as a component of selling, general and administrative expenses. The other components of net periodic benefit cost totaling a net benefit of
$1.9 million
for the year ended
December 31, 2018
was presented as a component of net interest and other, as described in Note 15 below. For the years ended
December 31, 2017
and
2016
, the Company reclassified a net benefit of
$1.8 million
and
$1.5 million
, respectively, from selling, general and administrative expenses to net interest and other. The Company used the amounts disclosed in Note 11 of the Notes to Consolidated Financial Statements in the Annual Report on Form 10-K for the fiscal year ended
December 31, 2017
as the estimation basis for applying the retrospective presentation requirements.
The interest rate used to discount future estimated cash flows is determined using the Canadian Institute of Actuaries ("CIA") methodology, which references yield curve information provided by Fiera Capital and matches expected benefit payments. The expected long-term rate of return on plan assets is applied to the fair market-related value of plan assets.
The following weighted-average actuarial assumptions were used to determine benefit obligations at December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
2017
|
|
Pension Plan
|
|
SERP
|
|
Pension Plan
|
|
SERP
|
Discount rate
|
4.0
|
%
|
|
4.0
|
%
|
|
3.5
|
%
|
|
3.5
|
%
|
Rate of compensation increase
|
3.8
|
%
|
|
3.8
|
%
|
|
3.8
|
%
|
|
3.8
|
%
|
The following weighted-average actuarial assumptions were used to determine net periodic pension costs at January 1:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2018
|
|
2017
|
|
2016
|
|
Pension
Plan
|
|
SERP
|
|
Pension
Plan
|
|
SERP
|
|
Pension
Plan
|
|
SERP
|
Discount rate
|
3.5
|
%
|
|
3.5
|
%
|
|
3.9
|
%
|
|
3.9
|
%
|
|
4.2
|
%
|
|
4.2
|
%
|
Expected long-term return on
assets
|
6.4
|
%
|
|
n/a
|
|
|
6.4
|
%
|
|
n/a
|
|
|
6.4
|
%
|
|
n/a
|
|
Rate of compensation increase
|
3.8
|
%
|
|
3.8
|
%
|
|
3.8
|
%
|
|
3.8
|
%
|
|
4.0
|
%
|
|
4.0
|
%
|
WESCO INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)
The following benefit payments, which reflect expected future service, are expected to be paid:
|
|
|
|
|
Years ending December 31
|
(In thousands)
|
2019
|
$
|
2,870
|
|
2020
|
2,946
|
|
2021
|
3,098
|
|
2022
|
3,196
|
|
2023
|
3,448
|
|
2024 to 2028
|
21,721
|
|
The Company expects to contribute approximately
$2.9 million
and
$0.4 million
to the Plan and SERP, respectively, in
2019
.
The Plan's weighted asset allocations by asset category are as follows:
|
|
|
|
|
|
|
|
December 31
|
|
2018
|
|
2017
|
Asset Category
|
|
|
|
Pooled Funds:
|
|
|
|
Canadian equities
|
12.4
|
%
|
|
11.5
|
%
|
U.S. equities
|
5.0
|
%
|
|
4.6
|
%
|
Non-North American equities
|
22.5
|
%
|
|
20.8
|
%
|
Fixed income investments
|
44.7
|
%
|
|
41.4
|
%
|
Other
|
15.4
|
%
|
|
21.7
|
%
|
Total
|
100.0
|
%
|
|
100.0
|
%
|
The Plan's long-term overall objective is to maintain benefits at their current level without affecting the cost of maintaining the Plan, assuming that the demographic make-up of the group of members remains the same.
The primary investment objective, in support of the overall objective, is to earn the highest rate of return possible for the Plan, while keeping risk at acceptable levels. The long-term return objective of the Plan is to achieve a minimum annualized rate of return in excess of the actuarial requirements. This translates into a required return of 3.0% above inflation, net of investment management fees. The return objective is consistent with the overall investment risk level that the Plan assumes in order to meet the pension obligations of the Plan. To achieve this long term investment objective, the Plan has adopted an asset mix that has a combination of primarily equity and fixed income investments. Risk is controlled by investing in a well-diversified portfolio of asset classes. A benchmark portfolio is established based on the expected returns for each asset class available. The investment of the Plan's assets in accordance with the benchmark portfolio should enable the Plan to not only attain, but also exceed the minimum overall objective.
The following table presents the target asset mix based on market value for each investment category within which the investment managers must invest the Plan's assets. The asset mix is reviewed and rebalanced to target on an annual basis.
|
|
|
|
Asset Category
|
Target %
|
Canadian equities
|
12.5
|
%
|
Non-Canadian equities
|
27.5
|
%
|
Total equities
|
40
|
%
|
Fixed income investments
|
45
|
%
|
Other investments
|
15
|
%
|
The Plan's assets are measured at fair value, which is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Financial assets and liabilities are classified in the fair value hierarchy based on the lowest level of any input that is significant to the measurement of fair value. Investments for which fair value is measured using the net asset value (NAV) per share practical expedient are not classified in the fair value hierarchy. The following describes the valuation methodologies used to measure the fair value of the Plan's assets.
WESCO INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)
Pooled Equity Investments.
These investments consist of the Plan's share of segregated funds that primarily invest in equity securities. The funds are valued at the net asset value of shares held in the underlying funds.
Pooled Fixed Income Investments.
These investments consist of the Plan's share of a segregated fund that primarily invests in Canadian issued bonds and debentures and is valued at the net asset value of shares held in the underlying securities.
Other Investments.
These investments consist of cash and cash equivalents, a money market fund and diversified growth funds. The diversified growth funds invest in a broad range of asset classes, including equities, bonds, infrastructure, property, commodities and absolute return strategies. These investments are valued at the net asset value of shares held in the underlying funds.
The fair value methods described above may not be indicative of net realizable value or reflective of future fair values. Additionally, while the Company believes the valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement at the reporting date.
The following tables set forth the fair value of the Plan's assets by asset category:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2018
|
(In thousands)
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
NAV
(1)
|
|
Total
|
Pooled Funds:
|
|
|
|
|
|
|
|
|
|
Canadian equities
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
10,693
|
|
|
$
|
10,693
|
|
U.S. equities
|
—
|
|
|
—
|
|
|
—
|
|
|
4,356
|
|
|
4,356
|
|
Non-North American equities
|
—
|
|
|
—
|
|
|
—
|
|
|
19,492
|
|
|
19,492
|
|
Fixed income investments
|
—
|
|
|
—
|
|
|
—
|
|
|
38,668
|
|
|
38,668
|
|
Other
|
203
|
|
|
—
|
|
|
—
|
|
|
13,144
|
|
|
13,347
|
|
Total investments
|
$
|
203
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
86,353
|
|
|
$
|
86,556
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2017
|
(In thousands)
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
NAV
(1)
|
|
Total
|
Pooled Funds:
|
|
|
|
|
|
|
|
|
|
Canadian equities
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
11,211
|
|
|
$
|
11,211
|
|
U.S. equities
|
—
|
|
|
—
|
|
|
—
|
|
|
4,436
|
|
|
4,436
|
|
Non-North American equities
|
—
|
|
|
—
|
|
|
—
|
|
|
20,207
|
|
|
20,207
|
|
Fixed income investments
|
—
|
|
|
—
|
|
|
—
|
|
|
40,193
|
|
|
40,193
|
|
Other
|
3,996
|
|
|
—
|
|
|
—
|
|
|
17,139
|
|
|
21,135
|
|
Total investments
|
$
|
3,996
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
93,186
|
|
|
$
|
97,182
|
|
|
|
(1)
|
As described above, investments measured at fair value using the NAV per share practical expedient have not been classified in the fair value hierarchy. The amounts presented in the tables are intended to reconcile the fair value hierarchy to the total fair value of plan assets.
|
14. STOCK-BASED COMPENSATION
WESCO sponsors a stock-based compensation plan. The 1999 Long-Term Incentive Plan, as amended and restated (“LTIP”) was designed to be the successor plan to all prior plans. Any shares remaining 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.
On May 31, 2017, the Company renewed and restated the LTIP, increasing the maximum number of shares of common stock that may be issued under the plan by
1.7 million
shares to
3.4 million
.
Under the LTIP, the total number of shares of common stock authorized to be issued will be reduced by 1 share of common stock for every 1 share that is subject to a stock appreciation right granted, and 1.83 shares of common stock for every 1 share that is subject to an award other than a stock appreciation right granted on or after May 31, 2017.
As of
December 31, 2018
,
3.1 million
shares of common stock were reserved under the LTIP for future equity award grants.
WESCO’s stock-based employee compensation plans are comprised of stock-settled stock appreciation rights, restricted stock units and performance-based awards. Compensation cost for all stock-based awards is measured at fair value on the date of grant
WESCO INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)
and compensation cost is recognized, net of estimated forfeitures, over the service period for awards expected to vest. The fair value of stock-settled stock appreciation rights and performance-based awards with market conditions is determined using the Black-Scholes and Monte Carlo simulation models, respectively. The fair value of restricted stock units and performance-based awards with performance conditions is determined by the grant-date closing price of WESCO’s common stock. The forfeiture assumption is based on WESCO’s historical employee behavior that is reviewed on an annual basis. No dividends are assumed. For stock appreciation rights that are exercised and for restricted stock units and performance-based award that vest, shares are issued out of WESCO's outstanding common stock.
Except for the performance-based awards, awards granted vest and become exercisable once criteria based on time is achieved. Performance-based awards vest based on market or performance conditions. In the event of a change in control, all awards vest immediately. Each award terminates on the tenth anniversary of its grant date unless terminated sooner under certain conditions.
For awards granted in 2018, performance-based awards were based on two equally-weighted performance measures, which include the three-year average growth rate of the Company’s fully diluted earnings per share and the three-year cumulative return on net assets. From 2015 to 2017, the two equally-weighted performance-based award metrics were the three-year average growth rate of WESCO's net income and WESCO's total stockholder return in relation to the total stockholder return of a select group of peer companies over a three-year period.
WESCO recognized
$16.4 million
,
$14.8 million
and
$12.5 million
of non-cash stock-based compensation expense, which is included in selling, general and administrative expenses, for the years ended
December 31, 2018
,
2017
and
2016
, respectively. As of
December 31, 2018
, there was
$18.8 million
of total unrecognized compensation expense related to non-vested stock-based compensation arrangements for all awards previously made of which approximately
$11.7 million
is expected to be recognized in
2019
,
$6.3 million
in
2020
and
$0.8 million
in
2021
.
The total intrinsic value of awards exercised during the years ended
December 31, 2018
,
2017
, and
2016
was
$8.2 million
,
$17.2 million
, and
$13.0 million
, respectively. The gross deferred tax benefit associated with the exercise of stock-based awards totaled
$2.0 million
,
$6.4 million
, and
$4.9 million
in
2018
,
2017
, and
2016
, respectively.
The following table sets forth a summary of stock-settled stock appreciation rights and related information for the years presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2018
|
|
2017
|
|
2016
|
|
Awards
|
|
Weighted-Average
Exercise
Price
|
|
Weighted-Average
Remaining
Contractual
Life
|
|
Aggregate
Intrinsic
Value
(In thousands)
|
|
Awards
|
|
Weighted-Average
Exercise
Price
|
|
Awards
|
|
Weighted-Average
Exercise
Price
|
Beginning of year
|
2,238,607
|
|
|
$
|
57.75
|
|
|
|
|
|
|
2,439,487
|
|
|
$
|
52.62
|
|
|
2,567,021
|
|
|
$
|
54.47
|
|
Granted
|
509,046
|
|
|
62.68
|
|
|
|
|
|
|
455,807
|
|
|
71.21
|
|
|
709,999
|
|
|
42.63
|
|
Exercised
|
(192,700
|
)
|
|
40.74
|
|
|
|
|
|
|
(495,181
|
)
|
|
42.19
|
|
|
(526,818
|
)
|
|
41.54
|
|
Canceled
|
(203,320
|
)
|
|
68.69
|
|
|
|
|
|
|
(161,506
|
)
|
|
66.06
|
|
|
(310,715
|
)
|
|
63.71
|
|
End of year
|
2,351,633
|
|
|
59.26
|
|
|
6.1
|
|
$
|
6,514
|
|
|
2,238,607
|
|
|
57.75
|
|
|
2,439,487
|
|
|
52.62
|
|
Exercisable at end of year
|
1,453,932
|
|
|
$
|
57.93
|
|
|
4.6
|
|
$
|
5,623
|
|
|
1,331,580
|
|
|
$
|
56.96
|
|
|
1,549,350
|
|
|
$
|
53.35
|
|
The following table sets forth the weighted-average assumptions used to estimate the fair value of stock-settled stock appreciation rights granted during the years presented:
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2018
|
|
2017
|
|
2016
|
Stock-settled stock appreciation rights granted
|
509,046
|
|
455,807
|
|
709,999
|
Risk free interest rate
|
2.5%
|
|
1.9%
|
|
1.2%
|
Expected life (in years)
|
5
|
|
5
|
|
5
|
Expected volatility
|
28%
|
|
29%
|
|
32%
|
The risk-free interest rate is based on the U.S. Treasury Daily Yield Curve rate as of the grant date. The expected life is based on historical exercise experience and the expected volatility is based on the volatility of the Company's daily stock prices over a five-year period preceding the grant date.
WESCO INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)
The weighted-average fair value per stock-settled stock appreciation right granted was
$18.38
,
$20.52
and
$12.88
for the years ended
December 31, 2018
,
2017
and
2016
, respectively.
The following table sets forth a summary of time-based restricted stock units and related information for the years presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2018
|
|
2017
|
|
2016
|
|
Awards
|
|
Weighted-Average
Fair
Value
|
|
Awards
|
|
Weighted-Average
Fair
Value
|
|
Awards
|
|
Weighted-Average
Fair
Value
|
Unvested at beginning of year
|
290,054
|
|
|
$
|
58.11
|
|
|
257,096
|
|
|
$
|
57.47
|
|
|
175,411
|
|
|
$
|
74.52
|
|
Granted
|
122,062
|
|
|
62.40
|
|
|
100,993
|
|
|
71.33
|
|
|
162,256
|
|
|
44.45
|
|
Vested
|
(64,166
|
)
|
|
67.91
|
|
|
(44,720
|
)
|
|
84.57
|
|
|
(60,015
|
)
|
|
72.41
|
|
Forfeited
|
(20,152
|
)
|
|
58.15
|
|
|
(23,315
|
)
|
|
57.52
|
|
|
(20,556
|
)
|
|
59.15
|
|
Unvested at end of year
|
327,798
|
|
|
$
|
57.87
|
|
|
290,054
|
|
|
$
|
58.11
|
|
|
257,096
|
|
|
$
|
57.47
|
|
The following table sets forth a summary of performance-based awards and related information for the years presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2018
|
|
2017
|
|
2016
|
|
Awards
|
|
Weighted-Average
Fair
Value
|
|
Awards
|
|
Weighted-Average
Fair
Value
|
|
Awards
|
|
Weighted-Average
Fair
Value
|
Unvested at beginning of year
|
148,508
|
|
|
$
|
60.23
|
|
|
149,320
|
|
|
$
|
60.36
|
|
|
114,520
|
|
|
$
|
76.48
|
|
Granted
|
44,144
|
|
|
62.80
|
|
|
39,978
|
|
|
76.63
|
|
|
91,768
|
|
|
47.00
|
|
Vested
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Forfeited
|
(53,756
|
)
|
|
64.67
|
|
|
(40,790
|
)
|
|
76.77
|
|
|
(56,968
|
)
|
|
71.25
|
|
Unvested at end of year
|
138,896
|
|
|
$
|
59.33
|
|
|
148,508
|
|
|
$
|
60.23
|
|
|
149,320
|
|
|
$
|
60.36
|
|
The following table sets forth the assumptions used to estimate the fair value of performance shares granted during the years presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
2018
|
|
2017
|
|
2016
|
Grant date share price
|
$
|
62.80
|
|
|
$
|
71.67
|
|
|
$
|
42.44
|
|
WESCO expected volatility
|
n/a
|
|
|
29
|
%
|
|
26
|
%
|
Peer group median volatility
|
n/a
|
|
|
24
|
%
|
|
24
|
%
|
Risk-free interest rate
|
n/a
|
|
|
1.5
|
%
|
|
0.9
|
%
|
Correlation of peer company returns
|
n/a
|
|
|
114
|
%
|
|
122
|
%
|
The unvested performance-based awards in the table above include
48,098
shares in which vesting of the ultimate number of shares is dependent upon WESCO's total stockholder return in relation to the total stockholder return of a select group of peer companies over a three-year period. These awards are accounted for as awards with market conditions; compensation cost is recognized over the service period, regardless of whether the market conditions are achieved and the awards ultimately vest.
Vesting of the remaining
90,798
shares of performance-based awards in the table above is dependent upon the achievement of certain performance targets, including
48,098
that are dependent upon the three-year average growth rate of WESCO's net income,
21,350
that are dependent upon the three-year average growth rate of the Company's fully diluted earnings per share, and
21,350
that are based upon the three-year cumulative return on net assets. These awards are accounted for as awards with performance conditions; compensation cost is recognized over the performance period based upon WESCO's determination of whether it is probable that the performance targets will be achieved.
WESCO INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)
15. NET INTEREST AND OTHER
Net interest and other includes interest expense, interest income, amortization of debt discount and debt issuance costs, the non-service cost components of net periodic benefit cost, and foreign exchange gains and losses from the remeasurement of certain financial instruments. For the year ended
December 31, 2018
, a foreign exchange loss of
$2.8 million
from the remeasurement of certain financial instruments was reported as a component of net interest and other. Foreign exchange gains and losses were not material for the years ended
December 31, 2017
and
2016
.
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, 2018
, are as follows:
|
|
|
|
|
Years ending December 31
|
(In thousands)
|
2019
|
$
|
71,640
|
|
2020
|
59,594
|
|
2021
|
47,264
|
|
2022
|
34,490
|
|
2023
|
24,493
|
|
Thereafter
|
40,302
|
|
Rental expense for the years ended
December 31, 2018
,
2017
and
2016
was
$86.0 million
,
$82.0 million
and
$76.7 million
, respectively.
From time to time, a number of lawsuits and claims have been or may be asserted against the Company relating to the conduct of its business, including litigation relating to commercial, product and employment matters. The outcome of any litigation cannot be predicted with certainty, and some lawsuits may be determined adversely to WESCO. However, management does not believe that the ultimate outcome of any such pending matters is likely to have a material adverse effect on WESCO's financial condition or liquidity, although the resolution in any fiscal period of one or more of these matters may have a material adverse effect on WESCO's results of operations for that period.
In an effort to expand the Company's footprint in the Middle East, WESCO has been doing business since 2009 with WESTEC Supplies General Trading (“WESTEC”), an industrial equipment supplier headquartered in the United Arab Emirates. WESTEC has a line of credit with a maximum borrowing capacity of approximately
$6.7 million
to support its working capital requirements and joint sales efforts with WESCO. Due to the nature of WESCO’s arrangement with WESTEC, WESCO has provided a standby letter of credit under its Revolving Credit Facility of up to
$7.3 million
as security for WESTEC’s line of credit. As of
December 31, 2018
, WESTEC had an outstanding loan balance of
$6.4 million
. Management currently believes the estimated fair value of the noncontingent guarantee on the line of credit is nominal and therefore a liability has not been recorded as of
December 31, 2018
.
WESCO INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)
17. SEGMENTS AND RELATED INFORMATION
WESCO distributes products and provides services through its four operating segments, which have been aggregated as one reportable segment. WESCO has approximately
220,000
unique product stock keeping units and markets more than
1,000,000
products for customers. There were no material amounts of sales or transfers among geographic areas and no material amounts of export sales.
WESCO attributes revenues from external customers to individual countries on the basis of the point of sale. The following table sets forth information about WESCO by geographic area:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Sales
Year Ended December 31,
|
|
Long-Lived Assets
December 31,
|
|
2018
|
|
2017
|
|
2016
|
|
2018
|
|
2017
|
|
2016
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
$
|
6,089,130
|
|
|
75
|
%
|
|
$
|
5,775,988
|
|
|
75
|
%
|
|
$
|
5,635,803
|
|
|
77
|
%
|
|
$
|
106,078
|
|
|
$
|
95,851
|
|
|
$
|
123,465
|
|
Other International
(1)
|
2,087,471
|
|
|
25
|
%
|
|
1,903,033
|
|
|
25
|
%
|
|
1,700,214
|
|
|
23
|
%
|
|
54,800
|
|
|
60,594
|
|
|
65,182
|
|
Total
|
$
|
8,176,601
|
|
|
|
|
$
|
7,679,021
|
|
|
|
|
$
|
7,336,017
|
|
|
|
|
$
|
160,878
|
|
|
$
|
156,445
|
|
|
$
|
188,647
|
|
|
|
(1)
|
Other primarily includes Canada.
|
The following table sets forth information about WESCO’s sales by product category:
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2018
|
|
2017
|
|
2016
|
(percentages based on total sales)
|
|
|
|
|
|
General Supplies
|
40%
|
|
40%
|
|
40%
|
Wire, Cable and Conduit
|
14%
|
|
15%
|
|
14%
|
Communications and Security
|
16%
|
|
15%
|
|
15%
|
Electrical Distribution and Controls
|
11%
|
|
10%
|
|
11%
|
Lighting and Sustainability
|
11%
|
|
12%
|
|
12%
|
Automation, Controls and Motors
|
8%
|
|
8%
|
|
8%
|
WESCO INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)
18. CONDENSED CONSOLIDATING FINANCIAL INFORMATION
WESCO Distribution has outstanding
$500 million
in aggregate principal amount of 2021 Notes and
$350 million
in aggregate principal amount of 2024 Notes. The 2021 Notes and 2024 Notes are unsecured senior obligations of WESCO Distribution and are fully and unconditionally guaranteed on a senior unsecured basis by WESCO International.
Condensed consolidating financial information for WESCO International, WESCO Distribution and the non-guarantor subsidiaries is presented in the following tables.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidating Balance Sheet
|
|
December 31, 2018
|
|
(In thousands)
|
|
WESCO
International,
Inc.
|
|
WESCO
Distribution,
Inc.
|
|
Non-Guarantor
Subsidiaries
|
|
Consolidating
and
Eliminating
Entries
|
|
Consolidated
|
Cash and cash equivalents
|
$
|
—
|
|
|
$
|
35,931
|
|
|
$
|
60,412
|
|
|
$
|
—
|
|
|
$
|
96,343
|
|
Trade accounts receivable, net
|
—
|
|
|
—
|
|
|
1,166,607
|
|
|
—
|
|
|
1,166,607
|
|
Inventories
|
—
|
|
|
440,422
|
|
|
508,304
|
|
|
—
|
|
|
948,726
|
|
Prepaid expenses and other current assets
|
1,123
|
|
|
57,586
|
|
|
124,523
|
|
|
(9,268
|
)
|
|
173,964
|
|
Total current assets
|
1,123
|
|
|
533,939
|
|
|
1,859,846
|
|
|
(9,268
|
)
|
|
2,385,640
|
|
Intercompany receivables, net
|
—
|
|
|
—
|
|
|
2,403,704
|
|
|
(2,403,704
|
)
|
|
—
|
|
Property, buildings and equipment, net
|
—
|
|
|
63,506
|
|
|
97,372
|
|
|
—
|
|
|
160,878
|
|
Intangible assets, net
|
—
|
|
|
2,131
|
|
|
313,885
|
|
|
—
|
|
|
316,016
|
|
Goodwill
|
—
|
|
|
257,623
|
|
|
1,464,980
|
|
|
—
|
|
|
1,722,603
|
|
Investments in affiliates
|
3,182,469
|
|
|
5,137,783
|
|
|
|
|
|
(8,320,252
|
)
|
|
—
|
|
Other assets
|
—
|
|
|
2,905
|
|
|
16,994
|
|
|
|
|
|
19,899
|
|
Total assets
|
$
|
3,183,592
|
|
|
$
|
5,997,887
|
|
|
$
|
6,156,781
|
|
|
$
|
(10,733,224
|
)
|
|
$
|
4,605,036
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
$
|
—
|
|
|
$
|
404,373
|
|
|
$
|
389,975
|
|
|
$
|
—
|
|
|
$
|
794,348
|
|
Short-term debt
|
—
|
|
|
—
|
|
|
30,785
|
|
|
—
|
|
|
30,785
|
|
Other current liabilities
|
—
|
|
|
86,600
|
|
|
159,481
|
|
|
(9,268
|
)
|
|
236,813
|
|
Total current liabilities
|
—
|
|
|
490,973
|
|
|
580,241
|
|
|
(9,268
|
)
|
|
1,061,946
|
|
Intercompany payables, net
|
1,048,282
|
|
|
1,355,422
|
|
|
—
|
|
|
(2,403,704
|
)
|
|
—
|
|
Long-term debt
|
—
|
|
|
842,093
|
|
|
325,218
|
|
|
—
|
|
|
1,167,311
|
|
Other noncurrent liabilities
|
—
|
|
|
126,930
|
|
|
119,123
|
|
|
—
|
|
|
246,053
|
|
Total WESCO International stockholders’ equity
|
2,135,310
|
|
|
3,182,469
|
|
|
5,137,783
|
|
|
(8,320,252
|
)
|
|
2,135,310
|
|
Noncontrolling interests
|
—
|
|
|
—
|
|
|
(5,584
|
)
|
|
—
|
|
|
(5,584
|
)
|
Total liabilities and stockholders’ equity
|
$
|
3,183,592
|
|
|
$
|
5,997,887
|
|
|
$
|
6,156,781
|
|
|
$
|
(10,733,224
|
)
|
|
$
|
4,605,036
|
|
WESCO INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidating Balance Sheet
|
|
December 31, 2017
|
|
(In thousands)
|
|
WESCO
International,
Inc.
|
|
WESCO
Distribution,
Inc.
|
|
Non-Guarantor
Subsidiaries
|
|
Consolidating
and
Eliminating
Entries
|
|
Consolidated
|
Cash and cash equivalents
|
$
|
—
|
|
|
$
|
50,602
|
|
|
$
|
67,351
|
|
|
$
|
—
|
|
|
$
|
117,953
|
|
Trade accounts receivable, net
|
—
|
|
|
—
|
|
|
1,170,080
|
|
|
—
|
|
|
1,170,080
|
|
Inventories
|
—
|
|
|
430,092
|
|
|
526,056
|
|
|
—
|
|
|
956,148
|
|
Prepaid expenses and other current assets
|
4,730
|
|
|
42,547
|
|
|
152,531
|
|
|
(35,140
|
)
|
|
164,668
|
|
Total current assets
|
4,730
|
|
|
523,241
|
|
|
1,916,018
|
|
|
(35,140
|
)
|
|
2,408,849
|
|
Intercompany receivables, net
|
—
|
|
|
—
|
|
|
2,189,136
|
|
|
(2,189,136
|
)
|
|
—
|
|
Property, buildings and equipment, net
|
—
|
|
|
50,198
|
|
|
106,247
|
|
|
—
|
|
|
156,445
|
|
Intangible assets, net
|
—
|
|
|
2,770
|
|
|
364,334
|
|
|
—
|
|
|
367,104
|
|
Goodwill
|
—
|
|
|
257,623
|
|
|
1,514,254
|
|
|
—
|
|
|
1,771,877
|
|
Investments in affiliates
|
3,058,613
|
|
|
5,023,826
|
|
|
—
|
|
|
(8,082,439
|
)
|
|
—
|
|
Other assets
|
—
|
|
|
2,778
|
|
|
28,415
|
|
|
—
|
|
|
31,193
|
|
Total assets
|
$
|
3,063,343
|
|
|
$
|
5,860,436
|
|
|
$
|
6,118,404
|
|
|
$
|
(10,306,715
|
)
|
|
$
|
4,735,468
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
$
|
—
|
|
|
$
|
417,690
|
|
|
$
|
381,830
|
|
|
$
|
—
|
|
|
$
|
799,520
|
|
Short-term debt
|
—
|
|
|
—
|
|
|
34,075
|
|
|
—
|
|
|
34,075
|
|
Other current liabilities
|
—
|
|
|
80,039
|
|
|
162,475
|
|
|
(35,140
|
)
|
|
207,374
|
|
Total current liabilities
|
—
|
|
|
497,729
|
|
|
578,380
|
|
|
(35,140
|
)
|
|
1,040,969
|
|
Intercompany payables, net
|
939,784
|
|
|
1,249,352
|
|
|
—
|
|
|
(2,189,136
|
)
|
|
—
|
|
Long-term debt
|
—
|
|
|
934,033
|
|
|
379,228
|
|
|
—
|
|
|
1,313,261
|
|
Other noncurrent liabilities
|
3,820
|
|
|
120,709
|
|
|
140,566
|
|
|
—
|
|
|
265,095
|
|
Total WESCO International stockholders’ equity
|
2,119,739
|
|
|
3,058,613
|
|
|
5,023,826
|
|
|
(8,082,439
|
)
|
|
2,119,739
|
|
Noncontrolling interests
|
—
|
|
|
—
|
|
|
(3,596
|
)
|
|
—
|
|
|
(3,596
|
)
|
Total liabilities and stockholders’ equity
|
$
|
3,063,343
|
|
|
$
|
5,860,436
|
|
|
$
|
6,118,404
|
|
|
$
|
(10,306,715
|
)
|
|
$
|
4,735,468
|
|
WESCO INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidating Statement of Income and Comprehensive Income
|
|
Year ended December 31, 2018
|
|
(In thousands)
|
|
WESCO
International,
Inc.
|
|
WESCO
Distribution,
Inc.
|
|
Non-Guarantor
Subsidiaries
|
|
Consolidating
and
Eliminating
Entries
|
|
Consolidated
|
Net sales
|
$
|
—
|
|
|
$
|
3,572,406
|
|
|
$
|
4,757,321
|
|
|
$
|
(153,126
|
)
|
|
$
|
8,176,601
|
|
Cost of goods sold (excluding depreciation and
|
—
|
|
|
2,890,490
|
|
|
3,871,856
|
|
|
(153,126
|
)
|
|
6,609,220
|
|
amortization)
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses
|
—
|
|
|
590,009
|
|
|
561,935
|
|
|
—
|
|
|
1,151,944
|
|
Depreciation and amortization
|
—
|
|
|
18,334
|
|
|
44,663
|
|
|
—
|
|
|
62,997
|
|
Results of affiliates’ operations
|
225,355
|
|
|
209,802
|
|
|
—
|
|
|
(435,157
|
)
|
|
—
|
|
Net interest and other
|
—
|
|
|
54,178
|
|
|
17,237
|
|
|
—
|
|
|
71,415
|
|
Provision for income taxes
|
—
|
|
|
3,842
|
|
|
51,828
|
|
|
—
|
|
|
55,670
|
|
Net income
|
225,355
|
|
|
225,355
|
|
|
209,802
|
|
|
(435,157
|
)
|
|
225,355
|
|
Less: Net loss attributable to noncontrolling interests
|
—
|
|
|
—
|
|
|
(1,988
|
)
|
|
—
|
|
|
(1,988
|
)
|
Net income attributable to WESCO International
|
$
|
225,355
|
|
|
$
|
225,355
|
|
|
$
|
211,790
|
|
|
$
|
(435,157
|
)
|
|
$
|
227,343
|
|
Other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments
|
(99,643
|
)
|
|
(99,643
|
)
|
|
(99,643
|
)
|
|
199,286
|
|
|
(99,643
|
)
|
Post retirement benefit plan adjustments, net of tax
|
3,798
|
|
|
3,798
|
|
|
3,798
|
|
|
(7,596
|
)
|
|
3,798
|
|
Comprehensive income attributable to WESCO International
|
$
|
129,510
|
|
|
$
|
129,510
|
|
|
$
|
115,945
|
|
|
$
|
(243,467
|
)
|
|
$
|
131,498
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidating Statement of Income and Comprehensive Income
|
|
Year ended December 31, 2017
|
|
(In thousands)
|
|
WESCO
International,
Inc.
|
|
WESCO
Distribution,
Inc.
|
|
Non-Guarantor
Subsidiaries
|
|
Consolidating
and
Eliminating
Entries
|
|
Consolidated
|
Net sales
|
$
|
—
|
|
|
$
|
3,370,088
|
|
|
$
|
4,441,655
|
|
|
$
|
(132,722
|
)
|
|
$
|
7,679,021
|
|
Cost of goods sold (excluding depreciation and
|
—
|
|
|
2,714,511
|
|
|
3,612,577
|
|
|
(132,722
|
)
|
|
6,194,366
|
|
amortization)
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses
|
—
|
|
|
555,503
|
|
|
546,095
|
|
|
—
|
|
|
1,101,598
|
|
Depreciation and amortization
|
—
|
|
|
18,442
|
|
|
45,575
|
|
|
—
|
|
|
64,017
|
|
Results of affiliates’ operations
|
160,587
|
|
|
168,782
|
|
|
—
|
|
|
(329,369
|
)
|
|
—
|
|
Net interest and other
|
—
|
|
|
94,313
|
|
|
(27,713
|
)
|
|
—
|
|
|
66,600
|
|
Provision for income taxes
|
(2,546
|
)
|
|
(4,486
|
)
|
|
96,339
|
|
|
—
|
|
|
89,307
|
|
Net income
|
163,133
|
|
|
160,587
|
|
|
168,782
|
|
|
(329,369
|
)
|
|
163,133
|
|
Less: Net loss attributable to noncontrolling interests
|
—
|
|
|
—
|
|
|
(327
|
)
|
|
—
|
|
|
(327
|
)
|
Net income attributable to WESCO International
|
$
|
163,133
|
|
|
$
|
160,587
|
|
|
$
|
169,109
|
|
|
$
|
(329,369
|
)
|
|
$
|
163,460
|
|
Other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments
|
85,762
|
|
|
85,762
|
|
|
85,762
|
|
|
(171,524
|
)
|
|
85,762
|
|
Post retirement benefit plan adjustments, net of tax
|
(6,381
|
)
|
|
(6,381
|
)
|
|
(6,381
|
)
|
|
12,762
|
|
|
(6,381
|
)
|
Comprehensive income attributable to WESCO International
|
$
|
242,514
|
|
|
$
|
239,968
|
|
|
$
|
248,490
|
|
|
$
|
(488,131
|
)
|
|
$
|
242,841
|
|
WESCO INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidating Statement of Income and Comprehensive Income
|
|
Year ended December 31, 2016
|
|
(In thousands)
|
|
WESCO
International,
Inc.
|
|
WESCO
Distribution,
Inc.
|
|
Non-Guarantor
Subsidiaries
|
|
Consolidating
and
Eliminating
Entries
|
|
Consolidated
|
Net sales
|
$
|
—
|
|
|
$
|
3,306,265
|
|
|
$
|
4,134,508
|
|
|
$
|
(104,756
|
)
|
|
$
|
7,336,017
|
|
Cost of goods sold (excluding depreciation and
|
—
|
|
|
2,651,409
|
|
|
3,341,161
|
|
|
(104,756
|
)
|
|
5,887,814
|
|
amortization)
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses
|
61
|
|
|
477,437
|
|
|
573,301
|
|
|
—
|
|
|
1,050,799
|
|
Depreciation and amortization
|
—
|
|
|
20,226
|
|
|
46,632
|
|
|
—
|
|
|
66,858
|
|
Results of affiliates’ operations
|
240,571
|
|
|
155,814
|
|
|
—
|
|
|
(396,385
|
)
|
|
—
|
|
Net interest and other
|
17,555
|
|
|
87,824
|
|
|
(30,317
|
)
|
|
—
|
|
|
75,062
|
|
Loss on debt redemption
|
123,933
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
123,933
|
|
Provision for income taxes
|
(2,098
|
)
|
|
8,263
|
|
|
24,266
|
|
|
—
|
|
|
30,431
|
|
Net income
|
$
|
101,120
|
|
|
$
|
216,920
|
|
|
$
|
179,465
|
|
|
$
|
(396,385
|
)
|
|
$
|
101,120
|
|
Less: Net loss attributable to noncontrolling interests
|
—
|
|
|
—
|
|
|
(468
|
)
|
|
—
|
|
|
(468
|
)
|
Net income attributable to WESCO International
|
$
|
101,120
|
|
|
$
|
216,920
|
|
|
$
|
179,933
|
|
|
$
|
(396,385
|
)
|
|
$
|
101,588
|
|
Other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments
|
38,275
|
|
|
38,275
|
|
|
38,275
|
|
|
(76,550
|
)
|
|
38,275
|
|
Post retirement benefit plan adjustments, net of tax
|
(2,485
|
)
|
|
(2,485
|
)
|
|
(2,485
|
)
|
|
4,970
|
|
|
(2,485
|
)
|
Comprehensive income attributable to WESCO International
|
$
|
136,910
|
|
|
$
|
252,710
|
|
|
$
|
215,723
|
|
|
$
|
(467,965
|
)
|
|
$
|
137,378
|
|
Reclassification
As described in Note 13, the Company reclassified a net benefit of
$1.8 million
and
$1.5 million
, respectively, from selling, general and administrative expenses to net interest and other in the previously reported Condensed Consolidated Statement of Income and Comprehensive Income of the non-guarantor subsidiaries for the years ended
December 31, 2017
and
2016
, respectively.
WESCO INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidating Statement of Cash Flows
|
|
Year ended December 31, 2018
|
|
(In thousands)
|
|
WESCO
International,
Inc.
|
|
WESCO
Distribution,
Inc.
|
|
Non-Guarantor
Subsidiaries
|
|
Consolidating
and Eliminating
Entries
|
|
Consolidated
|
Net cash provided by operating activities
|
$
|
18,672
|
|
|
$
|
153,467
|
|
|
$
|
124,582
|
|
|
$
|
—
|
|
|
$
|
296,721
|
|
Investing activities:
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
—
|
|
|
(17,573
|
)
|
|
(18,637
|
)
|
|
—
|
|
|
(36,210
|
)
|
Proceeds from sale of assets
|
—
|
|
|
—
|
|
|
12,461
|
|
|
—
|
|
|
12,461
|
|
Dividends received from subsidiaries
|
|
|
|
347,531
|
|
|
|
|
|
(347,531
|
)
|
|
—
|
|
Advances to subsidiaries and other
|
—
|
|
|
(406,028
|
)
|
|
196,219
|
|
|
199,416
|
|
|
(10,393
|
)
|
Net cash (used in) provided by investing activities
|
—
|
|
|
(76,070
|
)
|
|
190,043
|
|
|
(148,115
|
)
|
|
(34,142
|
)
|
Financing activities:
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of debt
|
108,497
|
|
|
339,606
|
|
|
1,086,673
|
|
|
(199,416
|
)
|
|
1,335,360
|
|
Repayments of debt
|
—
|
|
|
(410,606
|
)
|
|
(1,051,611
|
)
|
|
—
|
|
|
(1,462,217
|
)
|
Equity activities
|
(127,169
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(127,169
|
)
|
Dividends paid by subsidiaries
|
|
|
|
|
|
|
(347,531
|
)
|
|
347,531
|
|
|
—
|
|
Other
|
—
|
|
|
(21,068
|
)
|
|
—
|
|
|
—
|
|
|
(21,068
|
)
|
Net cash used in financing activities
|
(18,672
|
)
|
|
(92,068
|
)
|
|
(312,469
|
)
|
|
148,115
|
|
|
(275,094
|
)
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
|
|
|
|
(9,095
|
)
|
|
—
|
|
|
(9,095
|
)
|
Net change in cash and cash equivalents
|
—
|
|
|
(14,671
|
)
|
|
(6,939
|
)
|
|
—
|
|
|
(21,610
|
)
|
Cash and cash equivalents at the beginning of period
|
—
|
|
|
50,602
|
|
|
67,351
|
|
|
—
|
|
|
117,953
|
|
Cash and cash equivalents at the end of period
|
$
|
—
|
|
|
$
|
35,931
|
|
|
$
|
60,412
|
|
|
$
|
—
|
|
|
$
|
96,343
|
|
WESCO INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidating Statement of Cash Flows
|
|
Year ended December 31, 2017
|
|
(In thousands)
|
|
WESCO
International,
Inc.
|
|
WESCO
Distribution,
Inc.
|
|
Non-Guarantor
Subsidiaries
|
|
Consolidating
and Eliminating
Entries
|
|
Consolidated
|
Net cash (used in) provided by operating activities
|
$
|
(36,575
|
)
|
|
$
|
101,826
|
|
|
$
|
83,871
|
|
|
$
|
—
|
|
|
$
|
149,122
|
|
Investing activities:
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
—
|
|
|
(13,215
|
)
|
|
(8,292
|
)
|
|
—
|
|
|
(21,507
|
)
|
Proceeds from sale of assets
|
—
|
|
|
—
|
|
|
6,766
|
|
|
—
|
|
|
6,766
|
|
Dividends received from subsidiaries
|
—
|
|
|
307,784
|
|
|
—
|
|
|
(307,784
|
)
|
|
—
|
|
Advances to subsidiaries and other
|
—
|
|
|
(383,686
|
)
|
|
26,912
|
|
|
366,220
|
|
|
9,446
|
|
Net cash (used in) provided by investing activities
|
—
|
|
|
(89,117
|
)
|
|
25,386
|
|
|
58,436
|
|
|
(5,295
|
)
|
Financing activities:
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of debt
|
143,367
|
|
|
775,926
|
|
|
1,144,848
|
|
|
(383,686
|
)
|
|
1,680,455
|
|
Repayments of debt
|
—
|
|
|
(785,392
|
)
|
|
(952,740
|
)
|
|
17,466
|
|
|
(1,720,666
|
)
|
Equity activities
|
(106,792
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(106,792
|
)
|
Dividends paid by subsidiaries
|
—
|
|
|
—
|
|
|
(307,784
|
)
|
|
307,784
|
|
|
—
|
|
Other
|
—
|
|
|
5,807
|
|
|
—
|
|
|
—
|
|
|
5,807
|
|
Net cash provided by (used in) financing activities
|
36,575
|
|
|
(3,659
|
)
|
|
(115,676
|
)
|
|
(58,436
|
)
|
|
(141,196
|
)
|
Effect of exchange rate changes on cash and cash equivalents
|
—
|
|
|
—
|
|
|
5,191
|
|
|
—
|
|
|
5,191
|
|
Net change in cash and cash equivalents
|
—
|
|
|
9,050
|
|
|
(1,228
|
)
|
|
—
|
|
|
7,822
|
|
Cash and cash equivalents at the beginning of period
|
—
|
|
|
41,552
|
|
|
68,579
|
|
|
—
|
|
|
110,131
|
|
Cash and cash equivalents at the end of period
|
$
|
—
|
|
|
$
|
50,602
|
|
|
$
|
67,351
|
|
|
$
|
—
|
|
|
$
|
117,953
|
|
WESCO INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidating Statement of Cash Flows
|
|
Year ended December 31, 2016
|
|
(In thousands)
|
|
WESCO
International,
Inc.
|
|
WESCO
Distribution,
Inc.
|
|
Non-Guarantor
Subsidiaries
|
|
Consolidating
and Eliminating
Entries
|
|
Consolidated
|
Net cash provided by (used in) operating activities
|
$
|
95,388
|
|
|
$
|
(243,476
|
)
|
|
$
|
448,323
|
|
|
$
|
—
|
|
|
$
|
300,235
|
|
Investing activities:
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
—
|
|
|
(12,482
|
)
|
|
(5,475
|
)
|
|
—
|
|
|
(17,957
|
)
|
Acquisition payments, net of cash acquired
|
—
|
|
|
(50,890
|
)
|
|
—
|
|
|
—
|
|
|
(50,890
|
)
|
Proceeds from sale of assets
|
—
|
|
|
—
|
|
|
8,361
|
|
|
—
|
|
|
8,361
|
|
Dividends received from subsidiaries
|
—
|
|
|
82,912
|
|
|
—
|
|
|
(82,912
|
)
|
|
—
|
|
Advances to subsidiaries and other
|
—
|
|
|
(297,259
|
)
|
|
(337,344
|
)
|
|
624,603
|
|
|
(10,000
|
)
|
Net cash used in investing activities
|
—
|
|
|
(277,719
|
)
|
|
(334,458
|
)
|
|
541,691
|
|
|
(70,486
|
)
|
Financing activities:
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of debt
|
252,246
|
|
|
1,566,864
|
|
|
672,345
|
|
|
(297,259
|
)
|
|
2,194,196
|
|
Repayments of debt
|
(344,804
|
)
|
|
(1,030,520
|
)
|
|
(752,401
|
)
|
|
(327,344
|
)
|
|
(2,455,069
|
)
|
Equity activities
|
(2,830
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(2,830
|
)
|
Dividends paid by subsidiaries
|
—
|
|
|
—
|
|
|
(82,912
|
)
|
|
82,912
|
|
|
—
|
|
Other
|
—
|
|
|
(12,560
|
)
|
|
—
|
|
|
—
|
|
|
(12,560
|
)
|
Net cash (used in) provided by financing activities
|
(95,388
|
)
|
|
523,784
|
|
|
(162,968
|
)
|
|
(541,691
|
)
|
|
(276,263
|
)
|
Effect of exchange rate changes on cash and cash equivalents
|
—
|
|
|
—
|
|
|
(3,634
|
)
|
|
—
|
|
|
(3,634
|
)
|
Net change in cash and cash equivalents
|
—
|
|
|
2,589
|
|
|
(52,737
|
)
|
|
—
|
|
|
(50,148
|
)
|
Cash and cash equivalents at the beginning of period
|
—
|
|
|
38,963
|
|
|
121,316
|
|
|
—
|
|
|
160,279
|
|
Cash and cash equivalents at the end of period
|
$
|
—
|
|
|
$
|
41,552
|
|
|
$
|
68,579
|
|
|
$
|
—
|
|
|
$
|
110,131
|
|
WESCO INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)
19. SELECTED QUARTERLY FINANCIAL DATA (unaudited)
The following table sets forth selected quarterly financial data for the years ended December 31,
2018
and
2017
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
Quarter
|
|
Second
Quarter
|
|
Third
Quarter
|
|
Fourth
Quarter
|
2018
|
|
|
|
|
|
|
|
Net Sales
|
$
|
1,993,915
|
|
|
$
|
2,103,994
|
|
|
$
|
2,067,245
|
|
|
$
|
2,011,447
|
|
Cost of goods sold (excluding depreciation and amortization)
|
1,613,966
|
|
|
1,704,100
|
|
|
1,670,037
|
|
|
1,621,117
|
|
Income from operations
|
73,241
|
|
|
91,183
|
|
|
97,517
|
|
|
90,499
|
|
Income before income taxes
|
53,458
|
|
|
73,442
|
|
|
80,467
|
|
|
73,658
|
|
Net income
|
42,971
|
|
|
57,673
|
|
|
66,645
|
|
|
58,066
|
|
Net income attributable to WESCO International
|
44,421
|
|
|
57,940
|
|
|
66,849
|
|
|
58,133
|
|
Basic earnings per share attributable to WESCO International
(2)
|
0.94
|
|
|
1.23
|
|
|
1.42
|
|
|
1.27
|
|
Diluted earnings per share attributable to WESCO International
(3)
|
0.93
|
|
|
1.22
|
|
|
1.41
|
|
|
1.26
|
|
|
|
|
|
|
|
|
|
2017
|
|
|
|
|
|
|
|
Net Sales
|
$
|
1,772,591
|
|
|
$
|
1,909,624
|
|
|
$
|
2,000,159
|
|
|
$
|
1,996,647
|
|
Cost of goods sold (excluding depreciation and amortization)
|
1,422,573
|
|
|
1,543,510
|
|
|
1,614,814
|
|
|
1,613,469
|
|
Income from operations
|
67,089
|
|
|
83,105
|
|
|
89,250
|
|
|
81,446
|
|
Income before income taxes
|
50,368
|
|
|
66,289
|
|
|
71,939
|
|
|
63,844
|
|
Net income
(1)
|
37,800
|
|
|
49,535
|
|
|
53,576
|
|
|
22,222
|
|
Net income attributable to WESCO International
(1)
|
37,729
|
|
|
49,510
|
|
|
53,675
|
|
|
22,546
|
|
Basic earnings per share attributable to WESCO International
(1) (2)
|
0.77
|
|
|
1.03
|
|
|
1.13
|
|
|
0.48
|
|
Diluted earnings per share attributable to WESCO International
(1) (3)
|
0.76
|
|
|
1.02
|
|
|
1.12
|
|
|
0.47
|
|
|
|
(1)
|
As described in Note 11, net income and net income attributable to WESCO International include provisional discrete income tax expense of $26.4 million resulting from the application of the TCJA, which affected basic and diluted earnings per share attributable to WESCO International in the fourth quarter of 2017.
|
|
|
(2)
|
Earnings per share (EPS) in each quarter is computed using the weighted-average number of shares outstanding during that quarter while EPS for the full year is computed by using the weighted-average number of shares outstanding during the year. Thus, the sum of the four quarters’ EPS may not equal the full-year EPS.
|
|
|
(3)
|
Diluted EPS in each quarter is computed using the weighted-average number of shares outstanding and common share equivalents during that quarter while diluted EPS for the full year is computed by using the weighted-average number of shares outstanding and common share equivalents during the year. Thus, the sum of the four quarters’ diluted EPS may not equal the full-year diluted EPS.
|
20. SUBSEQUENT EVENTS
On January 16, 2019, WESCO issued a press release announcing that its WESCO Services, LLC subsidiary entered into a definitive agreement to acquire certain assets of Sylvania Lighting Solutions from OSRAM Sylvania. The transaction is expected to close in March 2019.