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 as of December 31, 2017 and 2016, and the related consolidated statements of income and comprehensive income (loss), of stockholders’ equity and of cash flows for each of the three years in the period ended December 31, 2017, including the related notes and schedule of valuation and qualifying accounts for each of the three years in the period ended December 31, 2017 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, 2017, 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, 2017 and 2016, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2017 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, 2017, 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 21, 2018
We have served as the Company’s auditor since 1994.
WESCO INTERNATIONAL, INC. AND SUBSIDIARIES
|
|
|
|
|
|
|
|
|
CONSOLIDATED BALANCE SHEETS
|
|
As of December 31,
|
|
2017
|
|
2016
|
|
(In thousands,
except share data)
|
Assets
|
|
|
|
Current assets:
|
|
|
|
Cash and cash equivalents
|
$
|
117,953
|
|
|
$
|
110,131
|
|
Trade accounts receivable, net of allowance for doubtful accounts of $21,313 and $22,007
|
|
|
|
in 2017 and 2016, respectively
|
1,170,080
|
|
|
1,034,402
|
|
Other accounts receivable
|
101,229
|
|
|
85,019
|
|
Inventories
|
956,148
|
|
|
821,441
|
|
Income taxes receivable (Note 2)
|
23,250
|
|
|
5,725
|
|
Prepaid expenses and other current assets (Note 2)
|
40,189
|
|
|
46,360
|
|
Total current assets
|
2,408,849
|
|
|
2,103,078
|
|
Property, buildings and equipment, net (Note 6)
|
156,445
|
|
|
157,607
|
|
Intangible assets, net (Note 3)
|
367,104
|
|
|
393,362
|
|
Goodwill (Notes 2 and 3)
|
1,771,877
|
|
|
1,730,950
|
|
Deferred income taxes (Note 9)
|
24,203
|
|
|
15,803
|
|
Other assets
|
6,990
|
|
|
31,041
|
|
Total assets
|
$
|
4,735,468
|
|
|
$
|
4,431,841
|
|
Liabilities and Stockholders’ Equity
|
|
|
|
Current liabilities:
|
|
|
|
Accounts payable
|
$
|
799,520
|
|
|
$
|
684,721
|
|
Accrued payroll and benefit costs (Note 11)
|
72,686
|
|
|
49,250
|
|
Short-term debt (Note 7)
|
34,075
|
|
|
20,920
|
|
Current portion of long-term debt (Note 7)
|
1,224
|
|
|
1,218
|
|
Bank overdrafts
|
37,644
|
|
|
29,384
|
|
Income taxes payable (Note 2)
|
9,712
|
|
|
9,881
|
|
Other current liabilities
|
86,108
|
|
|
78,425
|
|
Total current liabilities
|
1,040,969
|
|
|
873,799
|
|
Long-term debt, net of debt discount and debt issuance costs of $14,224 and $17,278
|
|
|
|
in 2017 and 2016, respectively (Note 7)
|
1,313,261
|
|
|
1,363,135
|
|
Deferred income taxes (Notes 2 and 9)
|
136,858
|
|
|
168,245
|
|
Other noncurrent liabilities
|
128,237
|
|
|
63,031
|
|
Total liabilities
|
$
|
2,619,325
|
|
|
$
|
2,468,210
|
|
Commitments and contingencies (Note 13)
|
|
|
|
Stockholders’ Equity:
|
|
|
|
Preferred stock, $.01 par value; 20,000,000 shares authorized, no shares issued or outstanding (Note 8)
|
—
|
|
|
—
|
|
Common stock, $.01 par value; 210,000,000 shares authorized, 59,045,762 and 58,817,781 shares issued and 47,009,540 and 48,611,497 shares outstanding in 2017 and 2016, respectively (Note 8)
|
591
|
|
|
588
|
|
Class B nonvoting convertible common stock, $.01 par value; 20,000,000 shares authorized, 4,339,431 issued and no shares outstanding in 2017 and 2016, respectively
|
43
|
|
|
43
|
|
Additional capital
|
999,156
|
|
|
986,020
|
|
Retained earnings (Note 2)
|
2,079,697
|
|
|
1,914,757
|
|
Treasury stock, at cost; 16,375,653 and 14,545,715 shares in 2017 and 2016, respectively
|
(647,158
|
)
|
|
(542,537
|
)
|
Accumulated other comprehensive loss (Note 2)
|
(312,590
|
)
|
|
(391,971
|
)
|
Total WESCO International, Inc. stockholders' equity
|
2,119,739
|
|
|
1,966,900
|
|
Noncontrolling interests
|
(3,596
|
)
|
|
(3,269
|
)
|
Total stockholders’ equity
|
2,116,143
|
|
|
1,963,631
|
|
Total liabilities and stockholders’ equity
|
$
|
4,735,468
|
|
|
$
|
4,431,841
|
|
The accompanying notes are an integral part of the consolidated financial statements.
WESCO INTERNATIONAL, INC. AND SUBSIDIARIES
|
|
|
|
|
|
|
|
|
|
|
|
|
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (LOSS)
|
|
|
|
Year Ended December 31,
|
|
2017
|
|
2016
|
|
2015
|
|
(In thousands, except per share data)
|
Net sales
|
$
|
7,679,021
|
|
|
$
|
7,336,017
|
|
|
$
|
7,518,487
|
|
Cost of goods sold (excluding depreciation and amortization)
|
6,194,366
|
|
|
5,887,814
|
|
|
6,024,826
|
|
Selling, general and administrative expenses
|
1,099,748
|
|
|
1,049,286
|
|
|
1,054,951
|
|
Depreciation and amortization
|
64,017
|
|
|
66,858
|
|
|
64,968
|
|
Income from operations
|
320,890
|
|
|
332,059
|
|
|
373,742
|
|
Interest expense, net
|
68,450
|
|
|
76,575
|
|
|
69,832
|
|
Loss on debt redemption (Note 7)
|
—
|
|
|
123,933
|
|
|
—
|
|
Income before income taxes
|
252,440
|
|
|
131,551
|
|
|
303,910
|
|
Provision for income taxes (Note 9)
|
89,307
|
|
|
30,431
|
|
|
95,537
|
|
Net income
|
163,133
|
|
|
101,120
|
|
|
208,373
|
|
Less: Net loss attributable to noncontrolling interests
|
(327
|
)
|
|
(468
|
)
|
|
(2,314
|
)
|
Net income attributable to WESCO International, Inc.
|
$
|
163,460
|
|
|
$
|
101,588
|
|
|
$
|
210,687
|
|
Other comprehensive income (loss):
|
|
|
|
|
|
Foreign currency translation adjustments
|
85,762
|
|
|
38,275
|
|
|
(225,795
|
)
|
Post retirement benefit plan adjustments, net of tax (Note 11)
|
(6,381
|
)
|
|
(2,485
|
)
|
|
4,532
|
|
Comprehensive income (loss) attributable to WESCO International, Inc.
|
$
|
242,841
|
|
|
$
|
137,378
|
|
|
$
|
(10,576
|
)
|
|
|
|
|
|
|
Earnings per share attributable to WESCO International, Inc. (Note 10)
|
|
|
|
|
|
Basic
|
$
|
3.42
|
|
|
$
|
2.30
|
|
|
$
|
4.85
|
|
Diluted
|
$
|
3.38
|
|
|
$
|
2.10
|
|
|
$
|
4.18
|
|
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, 2014
|
|
$
|
584
|
|
|
58,400,736
|
|
|
$
|
43
|
|
|
4,339,431
|
|
|
$
|
1,102,369
|
|
|
$
|
1,602,139
|
|
|
$
|
(616,366
|
)
|
|
(18,250,178
|
)
|
|
$
|
(487
|
)
|
|
$
|
(206,498
|
)
|
Exercise of stock-based awards, including tax benefit of $1,403
|
|
2
|
|
|
230,206
|
|
|
|
|
|
|
1,344
|
|
|
|
|
(3,300
|
)
|
|
(44,267
|
)
|
|
|
|
|
Stock-based compensation expense
|
|
|
|
|
|
|
|
|
|
12,899
|
|
|
|
|
|
|
|
|
|
|
|
Conversion of 2029 Debentures, net of tax
|
|
—
|
|
|
427
|
|
|
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
Repurchase of common stock
|
|
|
|
|
|
|
|
|
|
3,013
|
|
|
|
|
(153,013
|
)
|
|
(2,468,576
|
)
|
|
|
|
|
Tax withholding related to vesting of restricted stock units and retirement of common stock
|
|
—
|
|
|
(33,989
|
)
|
|
|
|
|
|
(2,202
|
)
|
|
(145
|
)
|
|
|
|
|
|
|
|
|
Noncontrolling interests
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,314
|
)
|
|
|
Net income attributable to WESCO
|
|
|
|
|
|
|
|
|
|
|
|
210,687
|
|
|
|
|
|
|
|
|
|
Translation adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(225,795
|
)
|
Benefit plan adjustments, net of tax effect of $1,661
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,532
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
Conversion of 2029 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
|
)
|
|
(51,501
|
)
|
|
|
|
|
Stock-based compensation expense
|
|
|
|
|
|
|
|
|
|
14,809
|
|
|
|
|
|
|
|
|
|
|
|
Repurchase 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
|
)
|
|
(16,375,753
|
)
|
|
$
|
(3,596
|
)
|
|
$
|
(312,590
|
)
|
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,
|
|
2017
|
|
2016
|
|
2015
|
|
(In thousands)
|
Operating Activities:
|
|
|
|
|
|
Net income
|
$
|
163,133
|
|
|
$
|
101,120
|
|
|
$
|
208,373
|
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
|
|
|
|
|
Depreciation and amortization
|
64,017
|
|
|
66,858
|
|
|
64,968
|
|
Stock-based compensation expense
|
14,809
|
|
|
12,493
|
|
|
12,899
|
|
Amortization of debt discount and debt issuance costs
|
3,984
|
|
|
6,684
|
|
|
12,195
|
|
Loss on debt redemption (Note 7)
|
—
|
|
|
123,933
|
|
|
—
|
|
Gain on sale of property, buildings and equipment
|
(4,038
|
)
|
|
(4,702
|
)
|
|
(45
|
)
|
Other operating activities
|
79
|
|
|
(836
|
)
|
|
(11,627
|
)
|
Deferred income taxes
|
(50,396
|
)
|
|
(45,174
|
)
|
|
42,850
|
|
Changes in assets and liabilities:
|
|
|
|
|
|
Trade receivables, net
|
(112,977
|
)
|
|
56,767
|
|
|
40,102
|
|
Other accounts receivable
|
(14,163
|
)
|
|
(1,628
|
)
|
|
57,242
|
|
Inventories
|
(119,002
|
)
|
|
(1,612
|
)
|
|
2,410
|
|
Prepaid expenses and other assets
|
11,334
|
|
|
13,207
|
|
|
(8,517
|
)
|
Accounts payable
|
102,870
|
|
|
(40,607
|
)
|
|
(55,914
|
)
|
Accrued payroll and benefit costs
|
24,679
|
|
|
(1,922
|
)
|
|
(15,015
|
)
|
Other current and noncurrent liabilities
|
64,793
|
|
|
15,654
|
|
|
(66,872
|
)
|
Net cash provided by operating activities
|
149,122
|
|
|
300,235
|
|
|
283,049
|
|
Investing Activities:
|
|
|
|
|
|
Capital expenditures
|
(21,507
|
)
|
|
(17,957
|
)
|
|
(21,658
|
)
|
Acquisition payments, net of cash acquired
|
—
|
|
|
(50,890
|
)
|
|
(151,595
|
)
|
Proceeds from sale of assets
|
6,766
|
|
|
8,361
|
|
|
3,023
|
|
Other investing activities
|
9,446
|
|
|
(10,000
|
)
|
|
—
|
|
Net cash used in investing activities
|
(5,295
|
)
|
|
(70,486
|
)
|
|
(170,230
|
)
|
Financing Activities:
|
|
|
|
|
|
Proceeds from issuance of short-term debt
|
175,819
|
|
|
111,458
|
|
|
102,033
|
|
Repayments of short-term debt
|
(164,030
|
)
|
|
(131,501
|
)
|
|
(101,353
|
)
|
Proceeds from issuance of long-term debt
|
1,504,636
|
|
|
2,082,738
|
|
|
1,528,578
|
|
Repayments of long-term debt
|
(1,556,636
|
)
|
|
(2,323,568
|
)
|
|
(1,435,820
|
)
|
Debt issuance costs
|
(915
|
)
|
|
(6,002
|
)
|
|
(3,359
|
)
|
Repurchase of common stock (Note 10)
|
(106,792
|
)
|
|
(4,818
|
)
|
|
(155,805
|
)
|
Other financing activities
|
6,722
|
|
|
(4,570
|
)
|
|
(2,089
|
)
|
Net cash used in financing activities
|
(141,196
|
)
|
|
(276,263
|
)
|
|
(67,815
|
)
|
Effect of exchange rate changes on cash and cash equivalents
|
5,191
|
|
|
(3,634
|
)
|
|
(13,044
|
)
|
Net change in cash and cash equivalents
|
7,822
|
|
|
(50,148
|
)
|
|
31,960
|
|
Cash and cash equivalents at the beginning of period
|
110,131
|
|
|
160,279
|
|
|
128,319
|
|
Cash and cash equivalents at the end of period
|
$
|
117,953
|
|
|
$
|
110,131
|
|
|
$
|
160,279
|
|
Supplemental disclosures:
|
|
|
|
|
|
Cash paid for interest
|
$
|
63,795
|
|
|
$
|
74,391
|
|
|
$
|
66,342
|
|
Cash paid for taxes
|
65,117
|
|
|
76,293
|
|
|
74,213
|
|
Non-cash investing and financing activities:
|
|
|
|
|
|
Property, buildings and equipment acquired through capital leases
|
552
|
|
|
1,143
|
|
|
288
|
|
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.
Revision of Prior Period Financial Statements
In the third quarter of 2017, management determined that the Company's income taxes receivable and payable and other tax account balances were overstated as of
December 31, 2016
by a cumulative net amount of
$46.4 million
, which related to multiple prior periods. The Company also identified a
$10.2 million
understatement related to deferred income taxes and goodwill. 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 these misstatements are not material to the Company's previously issued annual and interim financial statements. Correcting the effected financial statement line items in the year ended
December 31, 2017
would have materially misstated the consolidated financial statements presented herein. Accordingly, the Consolidated Balance Sheet at
December 31, 2016
and the Consolidated Statements of Stockholders' Equity for the years ended
December 31, 2016
and
2015
have been revised in this Annual Report on Form 10-K. There was an immaterial effect on the Consolidated Statements of Income and Comprehensive Income (Loss) for the years ended
December 31, 2016
and
2015
, and no effect on the Consolidated Statements of Cash Flows for such periods.
The following table presents the effects on the financial statement line items that were revised:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
As
Reported
|
|
Adjustment
|
|
As
Revised
|
|
(In thousands)
|
Income taxes receivable
|
$
|
72,881
|
|
|
$
|
(67,156
|
)
|
|
$
|
5,725
|
|
Prepaid expenses and other current assets
|
48,583
|
|
|
(2,223
|
)
|
|
46,360
|
|
Total current assets
|
2,172,457
|
|
|
(69,379
|
)
|
|
2,103,078
|
|
Goodwill
|
1,720,714
|
|
|
10,236
|
|
|
1,730,950
|
|
Total assets
|
4,490,984
|
|
|
(59,143
|
)
|
|
4,431,841
|
|
Income taxes payable
|
32,879
|
|
|
(22,998
|
)
|
|
9,881
|
|
Total current liabilities
|
896,797
|
|
|
(22,998
|
)
|
|
873,799
|
|
Deferred income taxes
|
158,009
|
|
|
10,236
|
|
|
168,245
|
|
Total liabilities
|
2,480,972
|
|
|
(12,762
|
)
|
|
2,468,210
|
|
Retained earnings
(1)
|
1,956,532
|
|
|
(41,775
|
)
|
|
1,914,757
|
|
Accumulated other comprehensive loss
(1)
|
(387,365
|
)
|
|
(4,606
|
)
|
|
(391,971
|
)
|
Total WESCO International, Inc. stockholders' equity
|
2,013,281
|
|
|
(46,381
|
)
|
|
1,966,900
|
|
Total stockholders' equity
|
2,010,012
|
|
|
(46,381
|
)
|
|
1,963,631
|
|
Total liabilities and stockholders' equity
|
4,490,984
|
|
|
(59,143
|
)
|
|
4,431,841
|
|
|
|
(1)
|
These financial statement line items have been revised as of
December 31, 2015
and
2014
in the Consolidated Statements of Stockholders' Equity for the years ended
December 31, 2017
,
2016
and
2015
.
|
WESCO INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)
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
Revenues are recognized for product sales when title, ownership and risk of loss pass to the customer or for services when the service is rendered. In the case of stock sales and special orders, a sale occurs at the time of shipment from WESCO's distribution point, as the terms of WESCO’s sales are typically FOB shipping point. In cases where WESCO processes customer orders that ship directly from suppliers, revenue is recognized once the product is shipped and title has passed. In all cases, revenue is recognized once the sales price to the customer is fixed or is determinable and WESCO has reasonable assurance as to the collectability.
WESCO provides integrated supply services to certain customers, which include some or all of the following: determine inventory stocking levels; establish inventory reorder points; launch purchase orders; receive material; pack away material; and, pick material for order fulfillment. WESCO recognizes revenue for these services in the period rendered based upon a previously negotiated fee arrangement. WESCO also sells inventory to these customers and recognizes revenue at the time title and risk of loss transfers to the customer. The amount of revenue recognized for integrated supply services totaled
$26.2 million
,
$27.1 million
, and
$35.1 million
in
2017
,
2016
and
2015
, respectively.
Selling, General and Administrative Expenses
WESCO includes warehousing, purchasing, branch operations, information services, and marketing and selling expenses in this category, as well as other types of general and administrative costs.
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 under the rebate provisions of the various supplier contracts. The corresponding rebate income is derived from the level of actual purchases made by WESCO and is recorded as a reduction to cost of goods sold. Receivables under the supplier rebate program were
$72.7 million
at
December 31, 2017
and
$64.2 million
at
December 31, 2016
. Supplier volume rebate rates have historically ranged between approximately
0.9%
and
1.4%
of sales depending on market conditions. In
2017
, the rebate rate was
1.3%
.
Shipping and Handling Costs and Fees
WESCO records the costs and fees associated with transporting its products to customers as a component of selling, general and administrative expenses. These costs totaled
$61.8 million
,
$57.9 million
and
$59.4 million
in
2017
,
2016
and
2015
, respectively.
Cash Equivalents
Cash equivalents are defined as highly liquid investments with original maturities of 90 days or less when purchased.
Asset Securitization
WESCO maintains control of the receivables transferred pursuant to its accounts receivable securitization program (the “Receivables Facility”); therefore, 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. The expenses associated with the Receivables Facility are reported as interest expense in the Consolidated Statements of Income and Comprehensive Income (Loss).
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 estimates based on historical data and reasonable assumptions of collectability made at the local branch level and on a consolidated corporate basis to calculate the allowance 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
$21.3 million
at
December 31, 2017
and
$22.0 million
at
December 31, 2016
. The total amount recorded as selling, general and administrative expense related to bad debts was
$8.5 million
,
$5.9 million
and
$6.1 million
for
2017
,
2016
and
2015
, respectively.
WESCO INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)
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. On a retrospective basis, WESCO identifies 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
$28.6 million
and
$27.3 million
at
December 31, 2017
and
2016
, respectively. The total expense related to excess and obsolete inventories, included in cost of goods sold, was
$8.8 million
,
$7.3 million
and
$8.6 million
for
2017
,
2016
and
2015
, respectively. WESCO absorbs into the cost of inventories certain overhead expenses such as purchasing, receiving and storage and at
December 31, 2017
and
2016
,
$70.7 million
and
$65.3 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
$156.4 million
net book value of property, buildings and equipment as of
December 31, 2017
,
$97.6 million
consists of land, buildings and leasehold improvements and 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.
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, 2017
and
2016
, respectively, goodwill and indefinite-lived trademarks totaled
$1.87 billion
and
$1.83 billion
.
We performed our annual impairment testing 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, 2017
, 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.
WESCO INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)
Definite Lived Intangible Assets
Intangible assets are amortized over
2
to
20
years. A portion of intangible assets related to certain customer relationships are amortized using an accelerated method whereas all other intangible assets subject to amortization use a straight-line method that reflects the pattern in which the economic benefits of the respective assets are consumed or otherwise used. 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
$13.9 million
and
$9.5 million
at
December 31, 2017
and
2016
, 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”) imposes a one-time tax on the deemed repatriation of undistributed foreign earnings. Notwithstanding the effects of applying such provisions of the TCJA, WESCO continues to assert that the earnings of its foreign subsidiaries are indefinitely reinvested. However, as a result of the TCJA, the Company is reevaluating its intent and ability to repatriate foreign cash based upon the available liquidity and cash flow needs of its foreign subsidiaries and will disclose in future filings any change in its intention to repatriate undistributed foreign earnings and any resulting income tax impacts. Until the Company completes this reevaluation, it is not practicable to determine the amount of any unrecognized deferred income taxes on these undistributed foreign earnings.
The provisions of the TCJA also introduce U.S. taxation on certain global intangible low-taxed income ("GILTI"). WESCO has elected to account for any GILTI tax that arises in future periods as a component of income tax expense.
Provisional amounts are recorded for certain income tax effects of the TCJA for which the accounting is incomplete, but a reasonable estimate can be determined. Provisional amounts, or adjustments to provisional amounts, identified during the period ending on or before one year from the TCJA's enactment date are recognized as an adjustment to income tax expense or benefit from continuing operations in the period the amounts are determined.
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. During the year ended
December 31, 2017
, the Company capitalized debt issuance costs of
$0.9 million
. As of
December 31, 2017
and
2016
, unamortized debt issuance costs of
$13.7 million
and
$16.5 million
were recorded in the Consolidated Balance Sheets, respectively.
WESCO INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)
Convertible Debentures
WESCO separately accounted for the liability and equity components of the 6.0% Convertible Senior Debentures due 2029 (the "2029 Debentures") in a manner that reflected its non-convertible debt borrowing rate. WESCO estimated its non-convertible debt borrowing rate through a combination of discussions with its financial institutions and review of relevant market data. The discounts to the convertible debt balances were amortized to interest expense, using the effective interest method, over the implicit life of the debentures.
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).
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 discount rate used to determine the projected benefit obligations for the Canadian pensions was
3.5%
at
December 31, 2017
.
Stock-Based Compensation
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, and compensation cost is recognized, net of forfeitures, over the service period for awards expected to vest. The fair value of stock-settled 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 with service conditions and performance-based awards with performance conditions is determined by the grant-date closing price of WESCO's common stock. Expected volatilities are based on historical volatility of WESCO's common stock. WESCO estimates the expected life of stock-settled stock appreciation rights using historical data pertaining to option exercises and employee terminations. The risk-free rate is based on the U.S. Treasury yields in effect at the time of grant. The forfeiture assumption is based on WESCO's historical employee behavior, which is reviewed on an annual basis. No dividends are assumed for stock-based awards. 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.
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.
Fair Value of Financial Instruments
The Company measures the fair value of financial assets and liabilities in accordance with Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 820, "Fair Value Measurements and Disclosures." ASC 820 establishes 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 hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to measurements involving significant unobservable inputs (Level 3 measurements). 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, such as quoted prices in active markets for similar assets and liabilities, quoted prices for identical or similar assets or liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of assets or liabilities.
|
WESCO INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)
|
|
•
|
Level 3 inputs are unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions.
|
The Company’s financial instruments consist of cash and cash equivalents, accounts receivable, accounts payable, bank overdrafts, other accrued liabilities, and outstanding indebtedness. The reported carrying amounts of WESCO’s debt instruments totaled
$1.36 billion
and
$1.40 billion
at
December 31, 2017
and
2016
, respectively, and approximated their fair values which totaled
$1.39 billion
and
$1.42 billion
, respectively. The Company uses a market approach to fair value all of its debt instruments, utilizing quoted prices in active markets, interest rates and other relevant information generated by market transactions involving similar instruments. Therefore, all of the Company's debt instruments are classified as Level 2 within the valuation hierarchy. For all of the Company's remaining financial instruments, carrying values are considered to approximate fair value.
Environmental Expenditures
WESCO has facilities and operations that distribute certain products that must comply with environmental regulations and laws. Expenditures for current operations are expensed or capitalized, as appropriate. Expenditures relating to existing conditions caused by past operations, and that do not contribute to future revenue, are expensed. Liabilities are recorded when remedial efforts are probable and the costs can be reasonably estimated.
Recently Adopted Accounting Pronouncements
In March 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2016-09,
Compensation—Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting
, which simplifies several aspects of accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. The amendments in this ASU affect all entities that issue share-based payment awards to their employees. The Company adopted this ASU in the first quarter of 2017. The amendment related to the recognition of excess tax benefits and deficiencies was applied prospectively and lowered the Company's effective tax rate by approximately 1% for the year ended
December 31, 2017
. The amendment related to the presentation of excess tax benefits on the statement of cash flows was also applied prospectively, and did not have a material impact on WESCO's cash flows. The other amendments, which were adopted by the Company according to the respective transition requirements, had no impact on the consolidated financial statements and notes thereto.
In October 2016, the FASB issued ASU 2016-16,
Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory.
The purpose of ASU 2016-16 is to simplify the income tax accounting of an intra-entity transfer of an asset other than inventory and to record its effect when the transfer occurs. The Company early adopted this ASU on a modified retrospective basis in the first quarter of 2017. The adoption of this ASU did not have a material impact on WESCO's financial position and it had no impact on its results of operations or cash flows.
Recently Issued Accounting Pronouncements
In August 2015, the FASB issued ASU 2015-14,
Revenue from Contracts with Customers: Deferral of Effective Date
. The Company previously reported that in May 2014, the FASB issued ASU 2014-09,
Revenue from Contracts with Customers
, which provides a framework for addressing revenue recognition issues and replaces almost all existing revenue recognition guidance in current U.S. generally accepted accounting principles. The core principle of ASU 2014-09 is for companies to recognize revenue for the transfer of goods or services to customers in amounts that reflect the consideration to which the company expects to be entitled in exchange for those goods or services. ASU 2014-09 will also result in enhanced disclosures about revenue, provide guidance for transactions that were not previously addressed comprehensively, and improve guidance for multiple-element arrangements. The amendments in ASU 2015-14 defer the effective date of the new revenue recognition guidance to annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. During 2016, the FASB issued four ASUs that address implementation issues and correct or improve certain aspects of the new revenue recognition guidance, including ASU 2016-08,
Principal versus Agent Considerations (Reporting Revenue Gross versus Net)
, ASU 2016-10,
Identifying Performance Obligations and Licensing
, ASU 2016-12,
Narrow-Scope Improvements and Practical Expedients
and ASU 2016-20,
Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers
. These ASUs do not change the core principles in the revenue recognition standard outlined above. The Company developed a multiphase plan and established a cross-functional team to evaluate and implement the new standard. Management completed the diagnostic and testing phase of the project, which involved reviewing various customer contracts and comparing current accounting to the requirements of the new standard. Currently management is evaluating the new disclosure requirements and identifying and implementing appropriate changes to the Company's business processes and controls to support recognition and disclosure under the new standard. The new standard will be adopted in the first quarter of 2018 using the modified retrospective method. Except for new disclosures requirements, the adoption of this pronouncement is not expected to have a material impact on WESCO's consolidated financial statements.
WESCO INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)
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 guidance is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted. The new leasing standard requires modified retrospective transition, which requires application of the new guidance at the beginning of the earliest comparative period presented in the year of adoption. Management is currently evaluating the impact of this standard and right-of-use assets and lease liabilities will be recorded in the Consolidated Balance Sheets upon adoption. An estimate of the impact of this standard is not currently determinable.
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 ASU 2016-13 are effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years and early adoption is permitted. The Company does not expect the adoption of this accounting standard to have a material impact on its consolidated financial statements and notes thereto.
In August 2016, the 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 provides guidance on eight specific cash flow issues where there is diversity in practice. The amendments in this ASU are effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. Except for potential reclassifications within the statement of cash flows, the Company does not expect the adoption of this accounting standard to have a material impact on its consolidated financial statements and notes thereto.
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 from the goodwill impairment test. Under the amendments in this update, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with 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. The Company does not expect the adoption of this accounting standard to have a material impact on its consolidated financial statements and notes thereto.
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
. Presently, net benefit cost is reported as an employee cost within operating income (or capitalized into assets when appropriate). This amendment requires the bifurcation of net benefit cost. The service component will be presented with other employee compensation costs in operating income (or capitalized in assets). The other components will be reported separately outside of operations, and will not be eligible for capitalization. This guidance is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Early adoption is permitted. The Company does not expect the adoption of this accounting standard to have a material impact on its consolidated financial statements and notes thereto.
In May 2017, the FASB issued ASU 2017-09,
Compensation—Stock Compensation (Topic 718): Scope of Modification Accounting
, which 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 guidance is effective prospectively for all companies for annual periods beginning on or after December 15, 2017. Early adoption is permitted. The Company 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. GOODWILL AND INTANGIBLE ASSETS
Goodwill
The following table sets forth the changes in the carrying value of goodwill:
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2017
|
|
2016
|
|
(In thousands)
|
Beginning balance January 1
|
$
|
1,730,950
|
|
|
$
|
1,681,662
|
|
Foreign currency exchange rate changes
|
40,927
|
|
|
21,434
|
|
Adjustments to goodwill for acquisitions
(1)
|
—
|
|
|
17,618
|
|
Prior period revision (Note 2)
|
—
|
|
|
10,236
|
|
Ending balance December 31
|
$
|
1,771,877
|
|
|
$
|
1,730,950
|
|
|
|
(1)
|
For the year ended
December 31, 2016
, adjustments relate to goodwill resulting from the preliminary allocation of the purchase price for
Atlanta Electrical Distributors, LLC
to the respective assets acquired and liabilities assumed, partially offset by an adjustment to goodwill related to deferred income taxes.
|
Intangible Assets
The components of intangible assets are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2017
|
|
December 31, 2016
|
|
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
|
|
$
|
100,249
|
|
|
$
|
—
|
|
|
$
|
100,249
|
|
|
$
|
96,962
|
|
|
$
|
—
|
|
|
$
|
96,962
|
|
Trademarks
|
4-15
|
|
25,118
|
|
|
(5,516
|
)
|
|
19,602
|
|
|
25,098
|
|
|
(3,426
|
)
|
|
21,672
|
|
Non-compete agreements
|
2-7
|
|
196
|
|
|
(102
|
)
|
|
94
|
|
|
196
|
|
|
(63
|
)
|
|
133
|
|
Customer relationships
|
2-20
|
|
377,270
|
|
|
(161,711
|
)
|
|
215,559
|
|
|
362,637
|
|
|
(126,835
|
)
|
|
235,802
|
|
Distribution agreements
|
10-19
|
|
39,515
|
|
|
(22,200
|
)
|
|
17,315
|
|
|
38,972
|
|
|
(19,295
|
)
|
|
19,677
|
|
Patents
|
10
|
|
48,310
|
|
|
(34,025
|
)
|
|
14,285
|
|
|
48,310
|
|
|
(29,194
|
)
|
|
19,116
|
|
|
|
|
$
|
590,658
|
|
|
$
|
(223,554
|
)
|
|
$
|
367,104
|
|
|
$
|
572,175
|
|
|
$
|
(178,813
|
)
|
|
$
|
393,362
|
|
|
|
(1)
|
Excludes the original cost and accumulated amortization of fully-amortized intangible assets.
|
Amortization expense related to intangible assets totaled
$37.8 million
,
$39.1 million
and
$36.9 million
for the years ended
December 31, 2017
,
2016
and
2015
, respectively.
The following table sets forth the estimated amortization expense for intangible assets for the next five years:
|
|
|
|
|
For the year ending December 31,
|
(In thousands)
|
2018
|
$
|
37,848
|
|
2019
|
36,549
|
|
2020
|
34,621
|
|
2021
|
26,930
|
|
2022
|
24,350
|
|
WESCO INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)
4. 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's largest supplier is Eaton Corporation, accounting for approximately
11%
of its purchases in
2017
,
2016
and
2015
. Therefore, WESCO could potentially incur risk due to supplier concentration.
5. ACQUISITIONS
The following table sets forth the consideration paid for acquisitions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2017
|
|
2016
|
|
2015
|
|
(In thousands)
|
Fair value of assets acquired
|
$
|
—
|
|
|
$
|
76,980
|
|
|
$
|
192,099
|
|
Fair value of liabilities assumed
|
—
|
|
|
25,058
|
|
|
39,836
|
|
Cash paid for acquisitions
|
$
|
—
|
|
|
$
|
51,922
|
|
|
$
|
152,263
|
|
Supplemental cash flow disclosure related to acquisitions:
|
|
|
|
|
|
Cash paid for acquisitions
|
$
|
—
|
|
|
$
|
51,922
|
|
|
$
|
152,263
|
|
Less: cash acquired
|
—
|
|
|
(1,032
|
)
|
|
(668
|
)
|
Cash paid for acquisitions, net of cash acquired
|
$
|
—
|
|
|
$
|
50,890
|
|
|
$
|
151,595
|
|
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 is aligned 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.
Hill Country Electric Supply, LP and Needham Electric Supply Corporation
On
May 1, 2015
, WESCO Distribution completed the acquisition of
Hill Country Electric Supply, LP ("Hill Country")
, an electrical distributor focused on the commercial construction market from
nine
locations in Central and South Texas with approximately
$140 million
in annual sales. WESCO Distribution funded the purchase price paid at closing with borrowings under its prior 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. The fair value of intangibles was estimated by management and the allocation resulted in intangible assets of
$21.1 million
and goodwill of
$16.2 million
. The majority of goodwill is deductible for tax purposes.
On
October 30, 2015
, WESCO Distribution completed the acquisition of
Needham Electric Supply Corporation ("Needham")
, an electrical distributor focused on the commercial construction and lighting national account markets from
24
locations in Massachusetts, New Hampshire and Vermont with approximately
$115 million
in annual sales. WESCO Distribution funded the purchase price paid at closing with cash and 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. The fair value of intangibles was estimated by management and the allocation resulted in intangible assets of
$31.0 million
and goodwill of
$35.7 million
. The majority of goodwill is deductible for tax purposes.
WESCO INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)
For the acquisitions of Hill Country and Needham that were made in 2015, the intangible assets include customer relationships of
$37.6 million
amortized over
11
to
14
years, trademarks of
$14.3 million
amortized over
12
and
13
years, and other intangibles of
$0.2 million
. No residual value is estimated for the intangible assets being amortized.
6. PROPERTY, BUILDINGS AND EQUIPMENT
The following table sets forth the components of property, buildings and equipment:
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
2017
|
|
2016
|
|
(In thousands)
|
Buildings and leasehold improvements
|
$
|
117,894
|
|
|
$
|
117,461
|
|
Furniture, fixtures and equipment
|
183,801
|
|
|
178,183
|
|
Software costs
|
103,842
|
|
|
93,040
|
|
|
405,537
|
|
|
388,684
|
|
Accumulated depreciation and amortization
|
(278,455
|
)
|
|
(259,126
|
)
|
|
127,082
|
|
|
129,558
|
|
Land
|
25,814
|
|
|
24,653
|
|
Construction in progress
|
3,549
|
|
|
3,396
|
|
|
$
|
156,445
|
|
|
$
|
157,607
|
|
Depreciation expense was
$16.3 million
,
$17.1 million
and
$17.8 million
, and capitalized software amortization was
$9.9 million
,
$10.6 million
and
$10.3 million
, in
2017
,
2016
and
2015
, respectively. The unamortized software cost was
$22.4 million
and
$21.6 million
as of
December 31, 2017
and
2016
, respectively. Furniture, fixtures and equipment include capitalized leases of
$10.6 million
and
$12.0 million
and related accumulated amortization of
$9.0 million
and
$8.9 million
as of
December 31, 2017
and
2016
, respectively.
7. DEBT
The following table sets forth WESCO’s outstanding indebtedness:
|
|
|
|
|
|
|
|
|
|
As of
December 31,
|
|
2017
|
|
2016
|
|
(In thousands)
|
International lines of credit
|
$
|
34,075
|
|
|
$
|
20,920
|
|
Term Loan Facility, less debt discount of $513 and $770 in 2017 and 2016, respectively
|
84,237
|
|
|
143,980
|
|
Accounts Receivable Securitization Facility
|
380,000
|
|
|
380,000
|
|
Revolving Credit Facility
|
12,000
|
|
|
4,000
|
|
5.375% Senior Notes due 2021
|
500,000
|
|
|
500,000
|
|
5.375% Senior Notes due 2024
|
350,000
|
|
|
350,000
|
|
Capital leases
|
1,959
|
|
|
2,881
|
|
Total debt
|
1,362,271
|
|
|
1,401,781
|
|
Less unamortized debt issuance costs
|
(13,711
|
)
|
|
(16,508
|
)
|
Less short-term debt and current portion of long-term debt
|
(35,299
|
)
|
|
(22,138
|
)
|
Total long-term debt
|
$
|
1,313,261
|
|
|
$
|
1,363,135
|
|
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
$0.3 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
WESCO INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)
by WESCO Distribution. Accordingly, borrowings under these lines directly reduce availability under the Revolving Credit Facility. The average interest rate for these facilities was
5.42%
and
7.36%
at
December 31, 2017
and
2016
, 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, 2017
, the amount outstanding under the U.S. sub-facility was
$84.8 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, 2017
, the interest rate on borrowings under the U.S. sub-facility was
4.7%
. 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 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 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. 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.
As of
December 31, 2017
and
2016
, accounts receivable eligible for securitization totaled
$751.2 million
and
$657.5 million
, respectively. The Consolidated Balance Sheets as of
December 31, 2017
and
2016
include
$380.0 million
of account receivable
WESCO INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)
balances legally sold to third parties in both years, as well as borrowings for equal amounts. At
December 31, 2017
, the interest rate for this facility was approximately
1.9%
.
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, 2017
, the interest rate for this facility was approximately
3.0%
.
The Credit Agreement requires ongoing compliance with certain customary affirmative and negative covenants. The Credit Agreement also contains customary events of default.
During
2017
, WESCO borrowed
$834.4 million
under the Revolving Credit Facility and made repayments in the aggregate amount of
$826.4 million
. During
2016
, aggregate borrowings and repayments were
$1,025.8 million
and
$1,096.8 million
, respectively. WESCO had
$562.9 million
available under the Revolving Credit facility at December 31,
2017
, after giving effect to
$18.0 million
of outstanding letters of credit,
$19.5 million
of surety bonds, and
$7.1 million
of other reserves, as compared to
$509.7 million
available under the Revolving Credit facility at December 31,
2016
, after giving effect to
$20.1 million
of outstanding letters of credit,
$16.2 million
of surety bonds, and
$6.4 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 are 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, 2017 and December 14, 2018, WESCO Distribution may redeem all or a part of the 2021 Notes at a redemption price equal to
102.688%
of the principal amount. 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.
WESCO INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)
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, commencing on December 15, 2016. WESCO incurred costs totaling
$6.0 million
to issue the 2024 Notes, which are 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 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.
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. WESCO amortized the debt discount and financing costs over the life of the instrument. For the years ended December 31,
2016
and
2015
, non-cash interest expense for the amortization of the debt discount and debt issuance costs was
$3.1 million
and
$4.2 million
, respectively.
Covenant Compliance
WESCO was in compliance with all relevant covenants contained in its debt agreements as of
December 31, 2017
.
WESCO INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)
The following table sets forth the aggregate principal repayment requirements for all indebtedness for the next five years and thereafter, as of
December 31, 2017
:
|
|
|
|
|
|
(In thousands)
|
2018
|
$
|
35,299
|
|
2019
|
85,246
|
|
2020
|
392,239
|
|
2021
|
500,000
|
|
2022
|
—
|
|
Thereafter
|
350,000
|
|
Total payments on debt
|
1,362,784
|
|
Debt discount
|
(513
|
)
|
Total debt
|
$
|
1,362,271
|
|
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.
8. 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 provide certain limits on declaring or paying dividends, and repurchasing common stock. In addition, the indentures governing the 2021 Notes and 2024 Notes place limits on the Company's ability to pay dividends and repurchase common stock. At
December 31, 2017
and
2016
, no dividends had been declared and, therefore, no retained earnings were reserved for dividend payments.
9. INCOME TAXES
The Tax Cuts and Jobs Act of 2017 (the "TCJA”), enacted on December 22, 2017, provides a broad range of tax reform, including changes to the U.S. corporate tax rate, business-related exclusions, deductions and credits, as well as international tax provisions. Most notably, the TCJA permanently reduces the U.S. corporate income tax rate from 35% to 21%, effective January 1, 2018, and imposes a one-time tax on the deemed repatriation of undistributed foreign earnings (the "transition tax"). The TCJA also introduces 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 as of
December 31, 2017
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
and is payable over a period of eight years.
WESCO INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)
As of
December 31, 2017
, the Company had not completed its accounting for certain income tax effects of the TCJA and the provisional amounts described above could change materially in future periods. Although the Company made reasonable estimates to determine the effect of the TCJA on its deferred income taxes, the Company must gather and analyze additional information to complete the related accounting. Similarly, the Company's accounting for the income tax effects of the transition tax is incomplete primarily due to the complexity of computing foreign earnings and measuring the portion of such earnings held in cash and cash equivalents, which is subject to a higher tax rate. Further regulatory guidance is expected to be issued regarding the implementation and interpretation of the TCJA provisions, which could affect the Company's analyses and ultimate conclusions. As described in Note 2, future adjustments (if any) will be recognized as discrete income tax expense or benefit in the period the adjustments are determined. The accounting for the income tax effects of the TCJA will be completed within the measurement period defined in Note 2.
The following table sets forth the components of income before income taxes by jurisdiction:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2017
|
|
2016
|
|
2015
|
|
|
|
(In thousands)
|
|
|
United States
|
$
|
180,957
|
|
|
$
|
80,881
|
|
|
$
|
288,881
|
|
Foreign
|
71,483
|
|
|
50,670
|
|
|
15,029
|
|
Income before income taxes
|
$
|
252,440
|
|
|
$
|
131,551
|
|
|
$
|
303,910
|
|
The following table sets forth the components of the provision (benefit) for income taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2017
|
|
2016
|
|
2015
|
|
|
|
(In thousands)
|
|
|
Current income taxes:
|
|
|
|
|
|
Federal
(1)
|
$
|
122,170
|
|
|
$
|
65,614
|
|
|
$
|
45,812
|
|
State
|
2,259
|
|
|
6,489
|
|
|
4,565
|
|
Foreign
|
15,274
|
|
|
3,502
|
|
|
2,309
|
|
Total current income taxes
|
139,703
|
|
|
75,605
|
|
|
52,686
|
|
Deferred income taxes:
|
|
|
|
|
|
Federal
|
(48,060
|
)
|
|
(42,835
|
)
|
|
29,593
|
|
State
|
4,508
|
|
|
(2,938
|
)
|
|
3,767
|
|
Foreign
|
(6,844
|
)
|
|
599
|
|
|
9,491
|
|
Total deferred income taxes
|
(50,396
|
)
|
|
(45,174
|
)
|
|
42,851
|
|
Provision for income taxes
|
$
|
89,307
|
|
|
$
|
30,431
|
|
|
$
|
95,537
|
|
|
|
(1)
|
Income tax (expense) benefit related to stock-based awards and other equity instruments recorded directly to additional paid in capital totaled
$(0.1) million
and
$1.6 million
in
2016
and
2015
, respectively. Due to the adoption of ASU 2016-09, as described in Note 2, there was no income tax (expense) benefit recorded to additional paid in capital for stock-based awards in 2017.
|
WESCO INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)
The following table sets forth the reconciliation between the federal statutory income tax rate and the effective tax rate:
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2017
|
|
2016
|
|
2015
|
Federal statutory rate
|
35.0
|
%
|
|
35.0
|
%
|
|
35.0
|
%
|
State income taxes, net of federal income tax benefit
|
1.4
|
|
|
1.0
|
|
|
2.2
|
|
Deemed repatriation of undistributed foreign earnings
|
32.8
|
|
|
—
|
|
|
—
|
|
Deferred income tax remeasurement
|
(22.4
|
)
|
|
—
|
|
|
—
|
|
Tax effect of intercompany financing
|
(10.5
|
)
|
|
(19.9
|
)
|
|
(8.8
|
)
|
Foreign tax rate differences
|
(1.3
|
)
|
|
(0.4
|
)
|
|
(1.1
|
)
|
Valuation allowance against deferred tax assets
|
0.4
|
|
|
1.1
|
|
|
—
|
|
Nondeductible expenses
|
(0.1
|
)
|
|
1.6
|
|
|
1.2
|
|
Adjustment related to uncertain tax positions
|
—
|
|
|
3.7
|
|
|
2.7
|
|
Other
|
0.1
|
|
|
1.0
|
|
|
0.2
|
|
Effective tax rate
|
35.4
|
%
|
|
23.1
|
%
|
|
31.4
|
%
|
As of
December 31, 2017
, WESCO’s foreign subsidiaries had undistributed earnings of approximately
$884.0 million
, of which
$807.2 million
was attributable to the Company's Canadian operations. As described above, WESCO recognized provisional income tax expense of
$82.8 million
for the year ended
December 31, 2017
resulting from the transition tax. Notwithstanding the effects of applying such provisions of the TCJA, WESCO continues to assert that the earnings of its foreign subsidiaries are indefinitely reinvested to fund growth in the foreign markets. However, as a result of the TCJA, the Company is reevaluating its intent and ability to repatriate foreign cash based upon the available liquidity and cash flow needs of its foreign subsidiaries and will disclose in future filings any change in its intention to repatriate undistributed foreign earnings and any resulting income tax impacts. Until the Company completes this reevaluation, it is not practicable to determine the amount of any unrecognized deferred income taxes on these undistributed foreign earnings.
The following table sets forth deferred tax assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
2017
|
|
2016
|
|
|
|
(In thousands)
|
|
|
|
Assets
|
|
Liabilities
|
|
Assets
|
|
Liabilities
|
Accounts receivable
|
$
|
3,496
|
|
|
$
|
—
|
|
|
$
|
3,484
|
|
|
$
|
—
|
|
Inventories
|
—
|
|
|
3,181
|
|
|
—
|
|
|
4,001
|
|
Depreciation of property, buildings and equipment
|
—
|
|
|
13,283
|
|
|
—
|
|
|
11,487
|
|
Amortization of intangible assets
(1)
|
—
|
|
|
159,107
|
|
|
—
|
|
|
237,015
|
|
Employee benefits
|
14,835
|
|
|
—
|
|
|
18,577
|
|
|
—
|
|
Stock-based compensation
(2)
|
16,341
|
|
|
—
|
|
|
23,844
|
|
|
—
|
|
Advance payments
|
8,456
|
|
|
—
|
|
|
22,056
|
|
|
—
|
|
Foreign tax credits
|
—
|
|
|
—
|
|
|
15,698
|
|
|
—
|
|
Tax loss carryforwards
|
19,128
|
|
|
—
|
|
|
18,440
|
|
|
—
|
|
Other
|
11,850
|
|
|
8,672
|
|
|
7,175
|
|
|
7,783
|
|
Deferred income taxes before valuation allowance
|
74,106
|
|
|
184,243
|
|
|
109,274
|
|
|
260,286
|
|
Valuation allowance
|
(2,518
|
)
|
|
—
|
|
|
(1,430
|
)
|
|
—
|
|
Total deferred income taxes
(1)
|
$
|
71,588
|
|
|
$
|
184,243
|
|
|
$
|
107,844
|
|
|
$
|
260,286
|
|
|
|
(1)
|
As described in Note 2, the Consolidated Balance Sheet at
December 31, 2016
was revised to correct certain financial statement line items, including deferred income taxes.
|
|
|
(2)
|
The Company does not expect the realizability of the deferred tax asset related to stock-based compensation to be materially impacted by the TCJA's expansion on the limitation of deductions for excessive employee compensation.
|
WESCO INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)
As of
December 31, 2017
and
2016
, WESCO had deferred tax assets of
$10.4 million
and
$10.0 million
, respectively, related to Canadian net operating loss carryforwards. The Canadian net operating loss carryforwards expire beginning in
2029
through
2037
. Additionally, WESCO had deferred tax assets of
$7.0 million
and
$6.2 million
as of
December 31, 2017
and
2016
, respectively, related to non-Canadian foreign net operating loss carryforwards. These net operating loss carryforwards expire beginning in
2019
, while some may be carried forward indefinitely. As of
December 31, 2017
and
2016
, WESCO had deferred tax assets of
$3.1 million
and
$3.2 million
, respectively, related to state net operating loss carryforwards. These carryforwards expire beginning in
2022
through
2036
. 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 a non-Canadian foreign location. Accordingly, the Company recorded a full valuation allowance against the total deferred tax asset related to these non-Canadian foreign net operating loss carryforwards of
$2.5 million
at
December 31, 2017
.
As of
December 31, 2016
, WESCO had deferred tax assets of
$15.7 million
related to foreign tax credit (“FTC”) carryforwards. As described above, the Company fully utilized these FTC carryforwards against the liability recorded for the transition tax imposed by the TCJA.
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 as follows:
|
|
|
|
United States — Federal
|
|
2004 and forward
|
United States — Material States
|
|
2013 and forward
|
Canada
|
|
2004 and forward
|
The statutes of limitation with respect to the Company’s 2004 to 2007 U.S. federal income tax returns are open by waiver only in connection with the implementation of the Mutual Agreement Procedure (“MAP”) concluded in the fourth quarter of 2015 between the Competent Authorities of the Internal Revenue Service (the "IRS") and the Canada Revenue Agency (the “CRA”) and the request for MAP assistance filed with the IRS and CRA in 2017 with respect to certain other 2004 to 2007 transfer pricing matters. The statutes of limitation with respect to the Company’s 2008 to 2011 U.S. federal income tax returns are open by waiver only in connection with the implementation of the Advance Pricing Agreement (“APA”) concluded in the fourth quarter of 2015 between the IRS and CRA and certain other transfer pricing matters pending with the CRA. The statutes of limitation with respect to the Company’s 2012 and 2013 U.S. federal income tax returns are open by waiver only in connection with the IRS examination of the 2012 and 2013 years and the APA.
The following table sets forth the reconciliation of gross unrecognized tax benefits:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
2017
|
|
2016
|
|
2015
|
|
(In thousands)
|
Beginning balance January 1
|
$
|
6,181
|
|
|
$
|
5,436
|
|
|
$
|
20,033
|
|
Additions based on tax positions related to the current year
|
—
|
|
|
—
|
|
|
46
|
|
Additions for tax positions of prior years
|
—
|
|
|
3,298
|
|
|
402
|
|
Reductions for tax positions of prior years
|
(155
|
)
|
|
(21
|
)
|
|
(378
|
)
|
Settlements
|
(1,025
|
)
|
|
(1,921
|
)
|
|
(9,638
|
)
|
Lapse in statute of limitations
|
(755
|
)
|
|
(728
|
)
|
|
(1,497
|
)
|
Foreign currency exchange rate changes
|
102
|
|
|
117
|
|
|
(3,532
|
)
|
Ending balance December 31
|
$
|
4,348
|
|
|
$
|
6,181
|
|
|
$
|
5,436
|
|
The total amount of unrecognized tax benefits were
$4.3 million
,
$6.2 million
, and
$5.4 million
as of
December 31, 2017
,
2016
and
2015
, respectively. The amount of unrecognized tax benefits that would affect the effective tax rate if recognized in the consolidated financial statements was
$1.7 million
,
$7.5 million
, and
$6.2 million
, respectively.
It is reasonably possible that the amount of unrecognized tax benefits will decrease by approximately
$3.0 million
within the next twelve months due to the settlement of uncertain tax positions related to IRS audits or the expiration of statutes of limitation. Of this amount, approximately
$0.3 million
could impact the effective tax rate.
The Company classifies interest related to unrecognized tax benefits as interest income or expense. Interest expense on unrecognized tax benefits was
$0.1 million
and
$1.2 million
for
2017
and
2016
, respectively. In
2015
, interest income of
$8.7 million
was recognized as a result of the conclusion of the MAP and APA proceedings for the 2004 to 2014 tax years. As of
WESCO INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)
December 31, 2017
and
2016
, WESCO had an accrued liability of
$1.8 million
and
$2.2 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
2017
,
2016
, and
2015
.
10. 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,
|
|
2017
|
|
2016
|
|
2015
|
(In thousands, except per share data)
|
|
|
|
|
|
Net income attributable to WESCO International
|
$
|
163,460
|
|
|
$
|
101,588
|
|
|
$
|
210,687
|
|
Weighted-average common shares outstanding used in computing basic earnings per share
|
47,849
|
|
|
44,116
|
|
|
43,433
|
|
Common shares issuable upon exercise of dilutive equity awards
|
512
|
|
|
543
|
|
|
626
|
|
Common shares issuable from contingently convertible debentures (see below for basis of calculation)
|
—
|
|
|
3,674
|
|
|
6,314
|
|
Weighted-average common shares outstanding and common share equivalents used in computing diluted earnings per share
|
48,361
|
|
|
48,333
|
|
|
50,373
|
|
Earnings per share attributable to WESCO International
|
|
|
|
|
|
Basic
|
$
|
3.42
|
|
|
$
|
2.30
|
|
|
$
|
4.85
|
|
Diluted
|
$
|
3.38
|
|
|
$
|
2.10
|
|
|
$
|
4.18
|
|
The computation of diluted earnings per share attributable to WESCO International excluded equity awards of approximately
1.3 million
for the year ended
December 31, 2017
and approximately
1.2 million
for the years ended
December 31, 2016
and
2015
. 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 year ended
December 31, 2017
. For the years ended
December 31, 2016
and
2015
, the effect of the 2029 Debentures on diluted earnings per share attributable to WESCO International was a decrease of
$0.17
and
$0.60
, respectively.
In December 2014, the Company's Board of Directors authorized the repurchase of up to
$300 million
of the Company's common stock through December 31, 2017. As of
December 31, 2016
, WESCO had repurchased
2,468,576
shares of the Company's common stock for
$150.0 million
under this repurchase authorization. During the year ended
December 31, 2017
, the Company entered into accelerated stock repurchase agreements (the "ASR Transactions") with a certain financial institution to repurchase additional shares of its common stock. In exchange for up-front cash payments totaling
$100.0 million
, the Company received
1,778,537
shares. The total number of shares ultimately delivered under the ASR Transactions was 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 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.
WESCO INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)
11. 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 of Directors' approval, a discretionary contribution to the defined contribution retirement savings plan covering U.S. participants if certain predetermined profit levels are attained. A discretionary employer contribution charge of
$10.0 million
was incurred in
2017
. In
2016
and
2015
, there were no charges for discretionary employer contributions. For the years ended
December 31, 2017
,
2016
and
2015
, WESCO incurred charges of
$31.3 million
,
$18.5 million
, and
$18.1 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, 2017
and
2016
, the Company's obligation under the deferred compensation plan was
$24.3 million
and
$21.7 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)
|
2017
|
|
2016
|
Accumulated Benefit Obligation (ABO) at December 31
|
$
|
92,375
|
|
|
$
|
75,666
|
|
|
|
|
|
Change in Projected Benefit Obligation (PBO)
|
|
|
|
PBO at beginning of year
|
$
|
96,160
|
|
|
$
|
87,186
|
|
Service cost
|
4,328
|
|
|
3,845
|
|
Interest cost
|
3,912
|
|
|
3,856
|
|
Participant contributions
|
735
|
|
|
709
|
|
Actuarial loss, including assumption changes
|
10,906
|
|
|
2,172
|
|
Benefits paid
|
(3,005
|
)
|
|
(4,404
|
)
|
Foreign currency exchange rate changes
|
7,283
|
|
|
2,796
|
|
PBO at end of year
|
$
|
120,319
|
|
|
$
|
96,160
|
|
|
|
|
|
Change in Plan Assets
|
|
|
|
Fair value of plan assets at beginning of year
|
$
|
84,753
|
|
|
$
|
79,185
|
|
Actual return on plan assets
|
7,875
|
|
|
4,115
|
|
Participant contributions
|
735
|
|
|
709
|
|
Employer contributions
|
368
|
|
|
1,956
|
|
Benefits paid
|
(3,005
|
)
|
|
(4,404
|
)
|
Foreign currency exchange rate changes
|
6,456
|
|
|
3,192
|
|
Fair value of plan assets at end of year
|
$
|
97,182
|
|
|
$
|
84,753
|
|
|
|
|
|
Funded Status
|
$
|
(23,137
|
)
|
|
$
|
(11,407
|
)
|
|
|
|
|
Amounts Recognized in the Consolidated Balance Sheets
|
|
|
|
Current liabilities
|
$
|
(395
|
)
|
|
$
|
(364
|
)
|
Noncurrent liabilities
|
(22,742
|
)
|
|
(11,043
|
)
|
Net amount recognized
|
$
|
(23,137
|
)
|
|
$
|
(11,407
|
)
|
|
|
|
|
Amounts Recognized in Accumulated Other Comprehensive Income (Loss)
|
|
|
|
Net actuarial loss (gain)
|
$
|
2,508
|
|
|
$
|
(6,234
|
)
|
Total amount recognized, before tax effect
|
$
|
2,508
|
|
|
$
|
(6,234
|
)
|
WESCO INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2017
|
|
2016
|
|
2015
|
|
(In thousands)
|
Components of Net Periodic Pension Cost
|
|
|
|
|
|
Service cost
|
$
|
4,328
|
|
|
$
|
3,845
|
|
|
$
|
4,537
|
|
Interest cost
|
3,912
|
|
|
3,856
|
|
|
4,012
|
|
Expected return on plan assets
|
(5,562
|
)
|
|
(5,328
|
)
|
|
(5,260
|
)
|
Recognized actuarial gain
|
(149
|
)
|
|
(31
|
)
|
|
(15
|
)
|
Net periodic pension cost
|
$
|
2,529
|
|
|
$
|
2,342
|
|
|
$
|
3,274
|
|
|
|
|
|
|
|
Other Changes in Plan Assets and PBO Recognized in Accumulated Other Comprehensive Income (Loss)
|
|
|
|
|
|
Net actuarial loss (gain)
|
$
|
8,593
|
|
|
$
|
2,756
|
|
|
$
|
(6,208
|
)
|
Amortization of unrecognized net actuarial gain
|
149
|
|
|
31
|
|
|
15
|
|
Total amount recognized, before tax effect
|
8,742
|
|
|
2,787
|
|
|
(6,193
|
)
|
Tax effect
|
(2,361
|
)
|
|
(302
|
)
|
|
1,661
|
|
Total amount recognized, after tax effect
|
$
|
6,381
|
|
|
$
|
2,485
|
|
|
$
|
(4,532
|
)
|
|
|
|
|
|
|
Total recognized in net periodic pension cost and accumulated other comprehensive income (loss)
|
$
|
8,910
|
|
|
$
|
4,827
|
|
|
$
|
(1,258
|
)
|
The following weighted-average actuarial assumptions were used to determine benefit obligations at December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
2016
|
|
Pension Plan
|
|
SERP
|
|
Pension Plan
|
|
SERP
|
Discount rate
|
3.5
|
%
|
|
3.5
|
%
|
|
3.9
|
%
|
|
3.9
|
%
|
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,
|
|
2017
|
|
2016
|
|
2015
|
|
Pension
Plan
|
|
SERP
|
|
Pension
Plan
|
|
SERP
|
|
Pension
Plan
|
|
SERP
|
Discount rate
|
3.9
|
%
|
|
3.9
|
%
|
|
4.2
|
%
|
|
4.2
|
%
|
|
4.1
|
%
|
|
4.1
|
%
|
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
|
%
|
|
4.0
|
%
|
|
4.0
|
%
|
|
4.0
|
%
|
|
4.0
|
%
|
The following benefit payments, which reflect expected future service, are expected to be paid:
|
|
|
|
|
Years ending December 31
|
(In thousands)
|
2018
|
$
|
3,092
|
|
2019
|
3,131
|
|
2020
|
3,215
|
|
2021
|
3,382
|
|
2022
|
3,488
|
|
2023 to 2027
|
21,776
|
|
The Company expects to contribute approximately
$0.4 million
to the SERP in
2018
.
WESCO INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)
The Plan's weighted asset allocations by asset category are as follows:
|
|
|
|
|
|
|
|
December 31
|
|
2017
|
|
2016
|
Asset Category
|
|
|
|
Pooled Funds:
|
|
|
|
Canadian equities
|
11.5
|
%
|
|
11.7
|
%
|
U.S. equities
|
4.6
|
%
|
|
4.6
|
%
|
Non-North American equities
|
20.8
|
%
|
|
21.6
|
%
|
Fixed income investments
|
41.4
|
%
|
|
43.4
|
%
|
Other
|
21.7
|
%
|
|
18.7
|
%
|
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.
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 funds.
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,
WESCO INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)
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, 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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
(In thousands)
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
NAV
(1)
|
|
Total
|
Pooled Funds:
|
|
|
|
|
|
|
|
|
|
Canadian equities
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
9,916
|
|
|
$
|
9,916
|
|
U.S. equities
|
—
|
|
|
—
|
|
|
—
|
|
|
3,881
|
|
|
3,881
|
|
Non-North American equities
|
—
|
|
|
—
|
|
|
—
|
|
|
18,296
|
|
|
18,296
|
|
Fixed income investments
|
—
|
|
|
—
|
|
|
—
|
|
|
36,677
|
|
|
36,677
|
|
Other
|
235
|
|
|
—
|
|
|
—
|
|
|
15,748
|
|
|
15,983
|
|
Total investments
|
$
|
235
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
84,518
|
|
|
$
|
84,753
|
|
|
|
(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.
|
12. STOCK-BASED COMPENSATION
WESCO sponsors four stock-based compensation plans. 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 and predecessor plans are administered by the Compensation Committee of the Board of Directors.
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, 2017
,
3.6 million
shares of common stock were reserved under the LTIP for future equity award grants.
Except for the performance-based award, awards granted vest and become exercisable once criteria based on time is achieved. Performance-based awards vest based on market or performance conditions. All awards vest immediately in the event of a change in control. Each award terminates on the tenth anniversary of its grant date unless terminated sooner under certain conditions.
WESCO recognized
$14.8 million
,
$12.5 million
and
$12.9 million
of non-cash stock-based compensation expense, which is included in selling, general and administrative expenses, for the years ended
December 31, 2017
,
2016
and
2015
, respectively. As of
December 31, 2017
, there was
$18.7 million
of total unrecognized compensation expense related to non-vested stock-based compensation arrangements for all awards previously made of which approximately
$11.3 million
is expected to be recognized in
2018
,
$6.6 million
in
2019
and
$0.8 million
in
2020
.
The total intrinsic value of awards exercised during the years ended
December 31, 2017
,
2016
, and
2015
was
$17.2 million
,
$13.0 million
, and
$15.8 million
, respectively. The gross deferred tax benefit associated with the exercise of stock-based awards totaled
$6.4 million
,
$4.9 million
, and
$5.7 million
in
2017
,
2016
, and
2015
, respectively.
WESCO INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)
The following table sets forth a summary of stock-settled stock appreciation rights and related information for the years indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
2016
|
|
2015
|
|
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
|
2,439,487
|
|
|
$
|
52.62
|
|
|
|
|
|
|
2,567,021
|
|
|
$
|
54.47
|
|
|
2,480,745
|
|
|
$
|
50.91
|
|
Granted
|
455,807
|
|
|
71.21
|
|
|
|
|
|
|
709,999
|
|
|
42.63
|
|
|
394,182
|
|
|
69.54
|
|
Exercised
|
(495,181
|
)
|
|
42.19
|
|
|
|
|
|
|
(526,818
|
)
|
|
41.54
|
|
|
(232,542
|
)
|
|
35.80
|
|
Canceled
|
(161,506
|
)
|
|
66.06
|
|
|
|
|
|
|
(310,715
|
)
|
|
63.71
|
|
|
(75,364
|
)
|
|
73.59
|
|
End of year
|
2,238,607
|
|
|
57.75
|
|
|
6.2
|
|
$
|
28,791
|
|
|
2,439,487
|
|
|
52.62
|
|
|
2,567,021
|
|
|
54.47
|
|
Exercisable at end of year
|
1,331,580
|
|
|
$
|
56.96
|
|
|
4.6
|
|
$
|
18,801
|
|
|
1,549,350
|
|
|
$
|
53.35
|
|
|
2,034,263
|
|
|
$
|
49.36
|
|
WESCO granted the following stock-settled stock appreciation rights at the following weighted-average assumptions:
|
|
|
|
|
|
|
|
2017
|
|
2016
|
|
2015
|
Stock-settled stock appreciation rights granted
|
455,807
|
|
709,999
|
|
394,182
|
Risk free interest rate
|
1.9%
|
|
1.2%
|
|
1.6%
|
Expected life (in years)
|
5
|
|
5
|
|
5
|
Expected volatility
|
29%
|
|
32%
|
|
32%
|
The weighted-average fair value per stock-settled stock appreciation right granted was
$20.52
,
$12.88
and
$21.68
for the years ended
December 31, 2017
,
2016
and
2015
, respectively.
The following table sets forth a summary of time-based restricted stock units and related information for the years ended
December 31, 2017
,
2016
and
2015
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
2016
|
|
2015
|
|
Awards
|
|
Weighted-Average
Fair
Value
|
|
Awards
|
|
Weighted-Average
Fair
Value
|
|
Awards
|
|
Weighted-Average
Fair
Value
|
Unvested at beginning of year
|
257,096
|
|
|
$
|
57.47
|
|
|
175,411
|
|
|
$
|
74.52
|
|
|
185,457
|
|
|
$
|
73.87
|
|
Granted
|
100,993
|
|
|
71.33
|
|
|
162,256
|
|
|
44.45
|
|
|
81,022
|
|
|
69.05
|
|
Vested
|
(44,720
|
)
|
|
84.57
|
|
|
(60,015
|
)
|
|
72.41
|
|
|
(76,387
|
)
|
|
66.89
|
|
Forfeited
|
(23,315
|
)
|
|
57.52
|
|
|
(20,556
|
)
|
|
59.15
|
|
|
(14,681
|
)
|
|
75.73
|
|
Unvested at end of year
|
290,054
|
|
|
$
|
58.11
|
|
|
257,096
|
|
|
$
|
57.47
|
|
|
175,411
|
|
|
$
|
74.52
|
|
The weighted-average fair value per restricted stock unit granted was
$71.33
,
$44.45
and
$69.05
for the years ended
December 31, 2017
,
2016
and
2015
, respectively.
WESCO INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)
The following table sets forth a summary of performance-based awards for the year ended
December 31, 2017
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
2016
|
|
2015
|
|
Awards
|
|
Weighted-Average
Fair
Value
|
|
Awards
|
|
Weighted-Average
Fair
Value
|
|
Awards
|
|
Weighted-Average
Fair
Value
|
Unvested at beginning of year
|
149,320
|
|
|
$
|
60.36
|
|
|
114,520
|
|
|
$
|
76.48
|
|
|
130,004
|
|
|
$
|
80.21
|
|
Granted
|
39,978
|
|
|
76.63
|
|
|
91,768
|
|
|
47.00
|
|
|
59,661
|
|
|
67.81
|
|
Vested
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(38,869
|
)
|
|
72.25
|
|
Forfeited
|
(40,790
|
)
|
|
76.77
|
|
|
(56,968
|
)
|
|
71.25
|
|
|
(36,276
|
)
|
|
80.14
|
|
Unvested at end of year
|
148,508
|
|
|
$
|
60.23
|
|
|
149,320
|
|
|
$
|
60.36
|
|
|
114,520
|
|
|
$
|
76.48
|
|
The weighted-average fair value per performance-based award granted was
$76.63
,
$47.00
and
$67.81
for the years ended
December 31, 2017
,
2016
and
2015
, respectively.
The fair value of the performance shares based on total stockholder return granted during the year ended
December 31, 2017
,
2016
and
2015
were estimated using the following weighted-average assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
2017
|
|
2016
|
|
2015
|
Grant date share price
|
$
|
71.65
|
|
|
$
|
42.44
|
|
|
$
|
69.54
|
|
WESCO expected volatility
|
29
|
%
|
|
26
|
%
|
|
27
|
%
|
Peer group median volatility
|
24
|
%
|
|
24
|
%
|
|
23
|
%
|
Risk-free interest rate
|
1.5
|
%
|
|
0.9
|
%
|
|
1.1
|
%
|
Correlation
|
114
|
%
|
|
122
|
%
|
|
96
|
%
|
The unvested performance-based awards in the table above include
74,254
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. The fair value of these awards is determined using a Monte Carlo simulation model. 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
74,254
shares of performance-based awards in the table above is dependent upon the three-year average growth rate of WESCO's net income. The fair value of these awards is based upon the grant-date closing price of WESCO's common stock. 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.
13. 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, 2017
, are as follows
:
|
|
|
|
|
Years ending December 31
|
(In thousands)
|
2018
|
$
|
65,510
|
|
2019
|
55,378
|
|
2020
|
44,036
|
|
2021
|
33,498
|
|
2022
|
23,904
|
|
Thereafter
|
49,150
|
|
Rental expense for the years ended
December 31, 2017
,
2016
and
2015
was
$82.0 million
,
$76.7 million
and
$70.7 million
, respectively.
WESCO INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)
From time to time, a number of lawsuits and claims have been or may be asserted against us relating to the conduct of its business, including routine litigation relating to commercial 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.
WESCO is subject to the laws and regulations of states and other jurisdictions concerning the identification, reporting and escheatment (the transfer of property to the state) of unclaimed or abandoned funds, and is subject to audit and examination for compliance with these requirements. The State of Delaware conducted an audit concerning the identification, reporting and escheatment of unclaimed or abandoned property, and in December 2017, WESCO reached agreement in principle with the State of Delaware to resolve the audit. The settlement amount was not material to the Company’s financial condition or results of operations.
In October 2014, WESCO was notified that the New York County District Attorney’s Office was conducting an investigation involving minority and disadvantaged business contracting practices in the construction industry in New York City and that various contractors, minority and disadvantaged business firms, and their material suppliers, including the Company, were part of this investigation. The Company cooperated with the government investigation and, in November 2017, reached an agreement in principle for a civil settlement to resolve the Company’s involvement in the investigation. The settlement amount was not material to the Company’s financial condition or results of operations.
14. SEGMENTS AND RELATED INFORMATION
WESCO provides distribution of product and services through its four operating segments, which have been aggregated as one reportable segment. WESCO has approximately
230,000
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,
|
|
2017
|
|
2016
|
|
2015
|
|
2017
|
|
2016
|
|
2015
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
$
|
5,775,988
|
|
|
75
|
%
|
|
$
|
5,635,803
|
|
|
77
|
%
|
|
$
|
5,665,962
|
|
|
75
|
%
|
|
$
|
95,851
|
|
|
$
|
123,465
|
|
|
$
|
157,570
|
|
Canada
|
1,521,378
|
|
|
20
|
%
|
|
1,394,657
|
|
|
19
|
%
|
|
1,533,705
|
|
|
21
|
%
|
|
56,591
|
|
|
60,372
|
|
|
63,088
|
|
Mexico
|
77,280
|
|
|
1
|
%
|
|
62,430
|
|
|
1
|
%
|
|
70,048
|
|
|
1
|
%
|
|
262
|
|
|
227
|
|
|
332
|
|
Subtotal North American Operations
|
7,374,646
|
|
|
|
|
7,092,890
|
|
|
|
|
7,269,715
|
|
|
|
|
152,704
|
|
|
184,064
|
|
|
220,990
|
|
Other International
|
304,375
|
|
|
4
|
%
|
|
243,127
|
|
|
3
|
%
|
|
248,772
|
|
|
3
|
%
|
|
3,741
|
|
|
4,583
|
|
|
5,369
|
|
Total
|
$
|
7,679,021
|
|
|
|
|
$
|
7,336,017
|
|
|
|
|
$
|
7,518,487
|
|
|
|
|
$
|
156,445
|
|
|
$
|
188,647
|
|
|
$
|
226,359
|
|
The following table sets forth sales information about WESCO’s sales by product category:
|
|
|
|
|
|
|
Year Ended December 31,
|
2017
|
|
2016
|
|
2015
|
(percentages based on total sales)
|
|
|
|
|
|
General Supplies
|
40%
|
|
40%
|
|
40%
|
Wire, Cable and Conduit
|
15%
|
|
14%
|
|
15%
|
Communications and Security
|
15%
|
|
15%
|
|
15%
|
Electrical Distribution and Controls
|
10%
|
|
11%
|
|
11%
|
Lighting and Sustainability
|
12%
|
|
12%
|
|
10%
|
Automation, Controls and Motors
|
8%
|
|
8%
|
|
9%
|
WESCO INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)
15. 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, 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 Balance Sheet
|
|
December 31, 2016
|
|
(In thousands)
|
|
WESCO
International,
Inc.
|
|
WESCO
Distribution,
Inc.
|
|
Non-Guarantor
Subsidiaries
|
|
Consolidating
and
Eliminating
Entries
|
|
Consolidated
|
Cash and cash equivalents
|
$
|
—
|
|
|
$
|
41,552
|
|
|
$
|
68,579
|
|
|
$
|
—
|
|
|
$
|
110,131
|
|
Trade accounts receivable, net
|
—
|
|
|
—
|
|
|
1,034,402
|
|
|
—
|
|
|
1,034,402
|
|
Inventories
|
—
|
|
|
364,562
|
|
|
456,879
|
|
|
—
|
|
|
821,441
|
|
Prepaid expenses and other current assets
|
13,647
|
|
|
34,833
|
|
|
211,637
|
|
|
(123,013
|
)
|
|
137,104
|
|
Total current assets
|
13,647
|
|
|
440,947
|
|
|
1,771,497
|
|
|
(123,013
|
)
|
|
2,103,078
|
|
Intercompany receivables, net
|
—
|
|
|
—
|
|
|
2,060,336
|
|
|
(2,060,336
|
)
|
|
—
|
|
Property, buildings and equipment, net
|
—
|
|
|
51,824
|
|
|
105,783
|
|
|
—
|
|
|
157,607
|
|
Intangible assets, net
|
—
|
|
|
3,417
|
|
|
389,945
|
|
|
—
|
|
|
393,362
|
|
Goodwill
|
—
|
|
|
257,623
|
|
|
1,473,327
|
|
|
—
|
|
|
1,730,950
|
|
Investments in affiliates
|
3,538,476
|
|
|
4,028,502
|
|
|
—
|
|
|
(7,566,978
|
)
|
|
—
|
|
Other assets
|
—
|
|
|
23,846
|
|
|
22,998
|
|
|
—
|
|
|
46,844
|
|
Total assets
|
$
|
3,552,123
|
|
|
$
|
4,806,159
|
|
|
$
|
5,823,886
|
|
|
$
|
(9,750,327
|
)
|
|
$
|
4,431,841
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
$
|
—
|
|
|
$
|
381,795
|
|
|
$
|
302,926
|
|
|
$
|
—
|
|
|
$
|
684,721
|
|
Short-term debt
|
—
|
|
|
—
|
|
|
20,920
|
|
|
—
|
|
|
20,920
|
|
Other current liabilities
|
—
|
|
|
120,299
|
|
|
170,872
|
|
|
(123,013
|
)
|
|
168,158
|
|
Total current liabilities
|
—
|
|
|
502,094
|
|
|
494,718
|
|
|
(123,013
|
)
|
|
873,799
|
|
Intercompany payables, net
|
1,572,486
|
|
|
487,850
|
|
|
—
|
|
|
(2,060,336
|
)
|
|
—
|
|
Long-term debt
|
—
|
|
|
983,449
|
|
|
379,686
|
|
|
—
|
|
|
1,363,135
|
|
Other noncurrent liabilities
|
12,737
|
|
|
55,898
|
|
|
162,641
|
|
|
—
|
|
|
231,276
|
|
Total WESCO International stockholders’ equity
|
1,966,900
|
|
|
2,776,868
|
|
|
4,790,110
|
|
|
(7,566,978
|
)
|
|
1,966,900
|
|
Noncontrolling interests
|
—
|
|
|
—
|
|
|
(3,269
|
)
|
|
—
|
|
|
(3,269
|
)
|
Total liabilities and stockholders’ equity
|
$
|
3,552,123
|
|
|
$
|
4,806,159
|
|
|
$
|
5,823,886
|
|
|
$
|
(9,750,327
|
)
|
|
$
|
4,431,841
|
|
WESCO INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
544,245
|
|
|
—
|
|
|
1,099,748
|
|
Depreciation and amortization
|
—
|
|
|
18,442
|
|
|
45,575
|
|
|
—
|
|
|
64,017
|
|
Results of affiliates’ operations
|
160,587
|
|
|
168,782
|
|
|
—
|
|
|
(329,369
|
)
|
|
—
|
|
Interest expense (income), net
|
—
|
|
|
94,313
|
|
|
(25,863
|
)
|
|
—
|
|
|
68,450
|
|
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
|
(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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
571,788
|
|
|
—
|
|
|
1,049,286
|
|
Depreciation and amortization
|
—
|
|
|
20,226
|
|
|
46,632
|
|
|
—
|
|
|
66,858
|
|
Results of affiliates’ operations
|
240,571
|
|
|
155,814
|
|
|
—
|
|
|
(396,385
|
)
|
|
—
|
|
Interest expense (income), net
|
17,555
|
|
|
87,824
|
|
|
(28,804
|
)
|
|
—
|
|
|
76,575
|
|
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
|
(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
|
|
WESCO INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidating Statement of Income and Comprehensive Income (Loss)
|
|
Year ended December 31, 2015
|
|
(In thousands)
|
|
WESCO
International,
Inc.
|
|
WESCO
Distribution,
Inc.
|
|
Non-Guarantor
Subsidiaries
|
|
Consolidating
and
Eliminating
Entries
|
|
Consolidated
|
Net sales
|
$
|
—
|
|
|
$
|
3,456,883
|
|
|
$
|
4,177,383
|
|
|
$
|
(115,779
|
)
|
|
$
|
7,518,487
|
|
Cost of goods sold (excluding depreciation and
|
—
|
|
|
2,784,413
|
|
|
3,356,192
|
|
|
(115,779
|
)
|
|
6,024,826
|
|
amortization)
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses
|
26
|
|
|
611,549
|
|
|
443,376
|
|
|
—
|
|
|
1,054,951
|
|
Depreciation and amortization
|
—
|
|
|
19,703
|
|
|
45,265
|
|
|
—
|
|
|
64,968
|
|
Results of affiliates’ operations
|
225,370
|
|
|
219,619
|
|
|
—
|
|
|
(444,989
|
)
|
|
—
|
|
Interest expense (income), net
|
24,910
|
|
|
63,261
|
|
|
(18,339
|
)
|
|
—
|
|
|
69,832
|
|
Provision for income taxes
|
(7,939
|
)
|
|
(6,929
|
)
|
|
110,405
|
|
|
—
|
|
|
95,537
|
|
Net income
|
$
|
208,373
|
|
|
$
|
204,505
|
|
|
$
|
240,484
|
|
|
$
|
(444,989
|
)
|
|
$
|
208,373
|
|
Less: Net loss attributable to noncontrolling interests
|
—
|
|
|
—
|
|
|
(2,314
|
)
|
|
—
|
|
|
(2,314
|
)
|
Net income attributable to WESCO International
|
$
|
208,373
|
|
|
$
|
204,505
|
|
|
$
|
242,798
|
|
|
$
|
(444,989
|
)
|
|
$
|
210,687
|
|
Other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments
|
(225,795
|
)
|
|
(225,795
|
)
|
|
(225,795
|
)
|
|
451,590
|
|
|
(225,795
|
)
|
Post retirement benefit plan adjustments
|
4,532
|
|
|
4,532
|
|
|
4,532
|
|
|
(9,064
|
)
|
|
4,532
|
|
Comprehensive (loss) income attributable to WESCO International
|
$
|
(12,890
|
)
|
|
$
|
(16,758
|
)
|
|
$
|
21,535
|
|
|
$
|
(2,463
|
)
|
|
$
|
(10,576
|
)
|
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)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidating Statement of Cash Flows
|
|
Year ended December 31, 2015
|
|
(In thousands)
|
|
WESCO
International,
Inc.
|
|
WESCO
Distribution,
Inc.
|
|
Non-Guarantor
Subsidiaries
|
|
Consolidating
and Eliminating
Entries
|
|
Consolidated
|
Net cash provided by operating activities
|
$
|
3,531
|
|
|
$
|
214,037
|
|
|
$
|
65,481
|
|
|
$
|
—
|
|
|
$
|
283,049
|
|
Investing activities:
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
—
|
|
|
(15,266
|
)
|
|
(6,392
|
)
|
|
—
|
|
|
(21,658
|
)
|
Acquisition payments, net of cash acquired
|
—
|
|
|
(151,595
|
)
|
|
—
|
|
|
—
|
|
|
(151,595
|
)
|
Proceeds from sale of assets
|
—
|
|
|
—
|
|
|
3,023
|
|
|
—
|
|
|
3,023
|
|
Dividends received from subsidiaries
|
—
|
|
|
114,101
|
|
|
—
|
|
|
(114,101
|
)
|
|
—
|
|
Advances to subsidiaries and other
|
—
|
|
|
(197,345
|
)
|
|
17,461
|
|
|
179,884
|
|
|
—
|
|
Net cash (used in) provided by investing activities
|
—
|
|
|
(250,105
|
)
|
|
14,092
|
|
|
65,783
|
|
|
(170,230
|
)
|
Financing activities:
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of debt
|
150,705
|
|
|
1,224,596
|
|
|
452,655
|
|
|
(197,345
|
)
|
|
1,630,611
|
|
Repayments of debt
|
—
|
|
|
(1,175,056
|
)
|
|
(379,578
|
)
|
|
17,461
|
|
|
(1,537,173
|
)
|
Equity activities
|
(154,236
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(154,236
|
)
|
Dividends paid by subsidiaries
|
—
|
|
|
—
|
|
|
(114,101
|
)
|
|
114,101
|
|
|
—
|
|
Other
|
—
|
|
|
(7,017
|
)
|
|
—
|
|
|
—
|
|
|
(7,017
|
)
|
Net cash provided by (used in) financing activities
|
(3,531
|
)
|
|
42,523
|
|
|
(41,024
|
)
|
|
(65,783
|
)
|
|
(67,815
|
)
|
Effect of exchange rate changes on cash and cash equivalents
|
—
|
|
|
—
|
|
|
(13,044
|
)
|
|
—
|
|
|
(13,044
|
)
|
Net change in cash and cash equivalents
|
—
|
|
|
6,455
|
|
|
25,505
|
|
|
—
|
|
|
31,960
|
|
Cash and cash equivalents at the beginning of period
|
—
|
|
|
32,508
|
|
|
95,811
|
|
|
—
|
|
|
128,319
|
|
Cash and cash equivalents at the end of period
|
$
|
—
|
|
|
$
|
38,963
|
|
|
$
|
121,316
|
|
|
$
|
—
|
|
|
$
|
160,279
|
|
Revisions
As described in Note 2, the Consolidated Balance Sheet at December 31, 2016 has been revised to correct certain financial statement line items.
WESCO INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)
16. SELECTED QUARTERLY FINANCIAL DATA (unaudited)
The following table sets forth selected quarterly financial data for the years ended December 31,
2017
and
2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
Quarter
|
|
Second
Quarter
|
|
Third
Quarter
|
|
Fourth
Quarter
|
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
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
|
|
|
|
|
Net Sales
|
$
|
1,775,961
|
|
|
$
|
1,911,582
|
|
|
$
|
1,855,212
|
|
|
$
|
1,793,262
|
|
Cost of goods sold (excluding depreciation and amortization)
|
1,420,793
|
|
|
1,532,113
|
|
|
1,490,173
|
|
|
1,444,735
|
|
Income from operations
|
69,508
|
|
|
87,987
|
|
|
92,555
|
|
|
82,009
|
|
Income (loss) before income taxes
|
50,679
|
|
|
68,535
|
|
|
(52,170
|
)
|
|
64,507
|
|
Net income (loss)
|
34,534
|
|
|
49,852
|
|
|
(31,021
|
)
|
|
47,755
|
|
Net income (loss) attributable to WESCO International
|
36,053
|
|
|
49,798
|
|
|
(31,611
|
)
|
|
47,348
|
|
Basic earnings (loss) per share attributable to WESCO International
(2) (4)
|
0.85
|
|
|
1.18
|
|
|
(0.73
|
)
|
|
0.97
|
|
Diluted earnings (loss) per share attributable to WESCO International
(3) (4)
|
0.77
|
|
|
1.02
|
|
|
(0.73
|
)
|
|
0.96
|
|
|
|
(1)
|
As described in Note 9, 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.
|
|
|
(4)
|
On September 15, 2016, the Company completed the redemption of its 2029 Debentures. The redemption resulted in a non-cash charge of
$123.9 million
and consequently a net loss attributable to WESCO International for the three months ended September 30, 2016. Accordingly, dilutive shares were not included in the calculation of diluted loss per share for the three months ended September 30, 2016 because their effect was antidilutive. As described in Note 9, 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.
|