WESCO Earnings 2020-09-30

Balance Sheet	Income Statement	Cash Flow
Assets, Equity	Rev, G Profit, Net Income	Ops, Inv, Fin

wcc-20200930

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


☑						QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2020


☐						TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 001-14989

WESCO International, Inc.

(Exact name of registrant as specified in its charter)


Delaware		25-1723342
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

225 West Station Square Drive Suite 700		15219
Pittsburgh,	Pennsylvania	(Zip Code)
(Address of principal executive offices)

(412) 454-2200

(Registrant's telephone number, including area code)

Not applicable.

(Former name, former address and former fiscal year, if changed since last report)

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

Title of Class

Trading Symbol(s)

Name of Exchange on which registered

Common Stock, par value $.01 per share

WCC

New York Stock Exchange

Depositary Shares, each representing a 1/1,00th interest in a share of Series A Fixed-Rate Reset Cumulative Perpetual Preferred Stock

WCC PR A

New York Stock Exchange

Preferred Share Purchase Rights

N/A

New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for at least the past 90 days. Yes ☑ No ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☑ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☑

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑

As of November 6, 2020, 50,042,827 shares of common stock, $0.01 par value, of the registrant were outstanding.

WESCO INTERNATIONAL, INC. AND SUBSIDIARIES

QUARTERLY REPORT ON FORM 10-Q

Table of Contents


			Page
PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.			2

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.			27

Item 3. Quantitative and Qualitative Disclosures About Market Risk.			45

Item 4. Controls and Procedures.			45

PART II—OTHER INFORMATION

Item 1. Legal Proceedings.			46

Item 1A. Risk Factors.			46

Item 6. Exhibits.			47

Signatures			49

WESCO INTERNATIONAL, INC. AND SUBSIDIARIES

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

The interim financial information required by this item is set forth in the unaudited Condensed Consolidated Financial Statements and Notes thereto in this Quarterly Report on Form 10-Q, as follows:


			Page

Condensed Consolidated Balance Sheets (unaudited)			3
Condensed Consolidated Statements of Income and Comprehensive Income (unaudited)			4
Condensed Consolidated Statements of Cash Flows (unaudited)			5
Condensed Consolidated Statements of Stockholders' Equity (unaudited)			6
Notes to Condensed Consolidated Financial Statements (unaudited)			8

WESCO INTERNATIONAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands of dollars, except share data)

(unaudited)


	As of
Assets	September 30, 2020		December 31, 2019
Current assets:
Cash and cash equivalents	$	352,249	$	150,902
Trade accounts receivable, net of allowance for expected credit losses of $26,220 and $25,443 in 2020 and 2019, respectively	2,492,248		1,187,359
Other accounts receivable	229,275		98,029
Inventories	2,357,634		1,011,674
Prepaid expenses and other current assets	166,044		92,447
Total current assets	5,597,450		2,540,411
Property, buildings and equipment, net of accumulated depreciation of $294,638 and $268,415 in 2020 and 2019, respectively	400,222		181,448
Operating lease assets	540,142		235,834
Intangible assets, net (Note 5)	2,078,468		287,275
Goodwill	3,118,818		1,759,040
Other assets	133,239		13,627
Total assets	$	11,868,339	$	5,017,635
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	1,830,877	$	830,478
Accrued payroll and benefit costs	146,670		49,508
Short-term debt and current portion of long-term debt	28,844		26,685
Other current liabilities	534,544		177,388
Total current liabilities	2,540,935		1,084,059
Long-term debt, net of debt discount and debt issuance costs of $92,343 and $8,876 in 2020 and 2019, respectively	4,878,124		1,257,067
Operating lease liabilities	419,718		179,830
Deferred income taxes	523,958		146,617
Other noncurrent liabilities	292,380		91,391
Total liabilities	$	8,655,115	$	2,758,964
Commitments and contingencies (Note 12)
Stockholders’ equity:
Preferred stock, $.01 par value; 20,000,000 shares authorized, no shares issued or outstanding	—		—
Preferred stock, Series A, $.01 par value; 25,000 shares authorized, 21,612 shares issued and outstanding in 2020 (Note 9)	—		—
Common stock, $.01 par value; 210,000,000 shares authorized, 67,562,621 and 59,308,018 shares issued and 50,042,751 and 41,797,093 shares outstanding in 2020 and 2019, respectively	676		593
Class B nonvoting convertible common stock, $.01 par value; 20,000,000 shares authorized, 4,339,431 issued and no shares outstanding in 2020 and 2019, respectively	43		43
Additional capital	1,939,101		1,039,347
Retained earnings	2,596,022		2,530,429
Treasury stock, at cost; 21,859,301 and 21,850,356 shares in 2020 and 2019, respectively	(937,520)		(937,157)
Accumulated other comprehensive loss	(377,461)		(367,772)
Total WESCO International, Inc. stockholders' equity	3,220,861		2,265,483
Noncontrolling interests	(7,637)		(6,812)
Total stockholders’ equity	3,213,224		2,258,671
Total liabilities and stockholders’ equity	$	11,868,339	$	5,017,635

The accompanying notes are an integral part of the condensed consolidated financial statements.

WESCO INTERNATIONAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

(In thousands of dollars, except per share data)

(unaudited)


	Three Months Ended				Nine Months Ended
	September 30				September 30
	2020		2019		2020		2019
Net sales (Note 3)	$	4,141,801	$	2,148,110	$	8,197,154	$	6,259,465
Cost of goods sold (excluding depreciation and amortization)	3,356,259		1,747,913		6,641,438		5,067,799
Selling, general and administrative expenses	561,971		290,852		1,221,114		883,222
Depreciation and amortization	45,476		15,612		80,324		46,035
Income from operations	178,095		93,733		254,278		262,409
Interest expense, net	74,540		14,306		152,281		49,293
Other, net	(777)		(798)		(1,463)		(1,359)
Income before income taxes	104,332		80,225		103,460		214,475
Income tax expense	24,294		15,886		23,707		44,970
Net income	80,038		64,339		79,753		169,505
Less: Net loss attributable to noncontrolling interests	(640)		(156)		(825)		(824)
Net income attributable to WESCO International, Inc.	80,678		64,495		80,578		170,329
Less: Preferred stock dividends	14,511		—		15,787		—
Net income attributable to common stockholders	$	66,167	$	64,495	$	64,791	$	170,329
Other comprehensive income (loss):
Foreign currency translation adjustments	41,428		(16,856)		(9,689)		25,905
Comprehensive income attributable to common stockholders	$	107,595	$	47,639	$	55,102	$	196,234

Earnings per share attributable to common stockholders
Basic	$	1.32	$	1.53	$	1.44	$	3.91
Diluted	$	1.31	$	1.52	$	1.44	$	3.88

The accompanying notes are an integral part of the condensed consolidated financial statements.

WESCO INTERNATIONAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands of dollars)

(unaudited)


	Nine Months Ended
	September 30
	2020		2019
Operating activities:
Net income	$	79,753	$	169,505
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	80,324		46,035
Deferred income taxes	(8,261)		4,621
Other operating activities, net	(1,763)		10,876
Changes in assets and liabilities:
Trade accounts receivable, net	3,584		(122,903)
Other accounts receivable	(14,702)		15,450
Inventories	77,681		(1,500)
Prepaid expenses and other assets	(26,655)		(20,720)
Accounts payable	80,489		46,902
Accrued payroll and benefit costs	25,872		(36,055)
Other current and noncurrent liabilities	122,616		4,453
Net cash provided by operating activities	418,938		116,664

Investing activities:
Capital expenditures	(42,562)		(30,323)
Acquisition payments, net of cash acquired (Note 4)	(3,707,575)		(27,742)
Other investing activities	26,240		4,575
Net cash used in investing activities	(3,723,897)		(53,490)

Financing activities:
Repayments of short-term debt, net	(9,824)		(29,600)
Proceeds from issuance of long-term debt	4,661,830		1,105,397
Repayments of long-term debt	(1,045,667)		(927,410)
Repurchases of common stock (Note 7)	(2,032)		(152,735)
Debt issuance costs	(79,945)		(2,508)
Payment of dividends	(15,787)		—
Other financing activities, net	(1,255)		(11,226)
Net cash provided by (used in) financing activities	3,507,320		(18,082)

Effect of exchange rate changes on cash and cash equivalents	(1,014)		(3,275)

Net change in cash and cash equivalents	201,347		41,817
Cash and cash equivalents at the beginning of period	150,902		96,343
Cash and cash equivalents at the end of period	$	352,249	$	138,160
Supplemental disclosures:
Cash paid for interest	$	36,035	$	38,347
Cash paid for income taxes	$	44,994	$	54,044
Right-of-use assets obtained in exchange for new operating lease liabilities	$	80,626	$	48,622

The accompanying notes are an integral part of the condensed consolidated financial statements.

WESCO INTERNATIONAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(In thousands of dollars, except shares)

(unaudited)


																			Accumulated Other
				Class B			Series A					Retained							Comprehensive
	Common Stock			Common Stock			Preferred Stock			Additional		Earnings		Treasury Stock			Noncontrolling		Income
	Amount		Shares	Amount		Shares	Amount		Shares	Capital		(Deficit)		Amount		Shares	Interests		(Loss)
Balance, December 31, 2019	$	593	59,308,018	$	43	4,339,431	$	—	—	$	1,039,347	$	2,530,429	$	(937,157)	(21,850,356)	$	(6,812)	$	(367,772)
Exercise of stock-based awards	1		105,620							(39)				79		2,020
Stock-based compensation expense										4,626
Tax withholding related to vesting of restricted stock units and retirement of common stock	—		(31,680)							(2,297)		761
Noncontrolling interests																	(232)
Net income attributable to WESCO												34,407
Translation adjustments																			(93,851)
Balance, March 31, 2020	$	594	59,381,958	$	43	4,339,431	$	—	—	$	1,041,637	$	2,565,597	$	(937,078)	(21,848,336)	$	(7,044)	$	(461,623)
Exercise of stock-based awards	—		30,665							—				(437)		(10,858)
Stock-based compensation expense										4,901
Tax withholding related to vesting of restricted stock units and retirement of common stock	—		(652)							(37)		27
Capital stock issuance	82		8,150,228				—		21,612	886,740
Noncontrolling interests																	47
Net loss attributable to WESCO												(34,506)
Preferred stock dividends												(1,276)
Translation adjustments																			42,734
Balance, June 30, 2020	$	676	67,562,199	$	43	4,339,431	$	—	21,612	$	1,933,241	$	2,529,842	$	(937,515)	(21,859,194)	$	(6,997)	$	(418,889)
Exercise of stock-based awards	—		479							—				(5)		(107)
Stock-based compensation expense										6,002
Tax withholding related to vesting of restricted stock units and retirement of common stock	—		(57)							(3)		13
Capital stock issuance										(139)
Noncontrolling interests																	(640)
Net income attributable to WESCO												80,678
Preferred stock dividends												(14,511)
Translation adjustments																			41,428
Balance, September 30, 2020	$	676	67,562,621	$	43	4,339,431	$	—	21,612	$	1,939,101	$	2,596,022	$	(937,520)	(21,859,301)	$	(7,637)	$	(377,461)

The accompanying notes are an integral part of the condensed consolidated financial statements.

WESCO INTERNATIONAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(In thousands of dollars, except shares)

(unaudited)


																			Accumulated Other
				Class B			Series A					Retained							Comprehensive
	Common Stock			Common Stock			Preferred Stock			Additional		Earnings		Treasury Stock			Noncontrolling		Income
	Amount		Shares	Amount		Shares	Amount		Shares	Capital		(Deficit)		Amount		Shares	Interests		(Loss)
Balance, December 31, 2018	$	592	59,157,696	$	43	4,339,431	$	—	—	$	993,666	$	2,307,462	$	(758,018)	(18,391,042)	$	(5,584)	$	(408,435)
Exercise of stock-based awards	1		156,760							(90)				(54)		(184)
Stock-based compensation expense										4,665
Repurchases of common stock										19,144				(19,144)		(365,272)
Tax withholding related to vesting of restricted stock units and retirement of common stock	—		(42,564)							(1,822)		(531)
Noncontrolling interests																	(419)
Net income attributable to WESCO												42,369
Translation adjustments																			22,517
Balance, March 31, 2019	$	593	59,271,892	$	43	4,339,431	$	—	—	$	1,015,563	$	2,349,300	$	(777,216)	(18,756,498)	$	(6,003)	$	(385,918)
Exercise of stock-based awards	—		20,831							6				(157)		(3,029)
Stock-based compensation expense										5,150
Repurchases of common stock										(22,500)				(127,500)		(2,394,816)
Tax withholding related to vesting of restricted stock units and retirement of common stock	—		(19)							(1)		4
Noncontrolling interests																	(249)
Net income attributable to WESCO												63,464
Translation adjustments																			20,244
Balance, June 30, 2019	$	593	59,292,704	$	43	4,339,431	$	—	—	$	998,218	$	2,412,768	$	(904,873)	(21,154,343)	$	(6,252)	$	(365,674)
Exercise of stock-based awards	—		1,983							—				(5)		(94)
Stock-based compensation expense										4,426
Repurchases of common stock										32,257				(32,257)		(695,496)
Tax withholding related to vesting of restricted stock units and retirement of common stock	—		(190)							(13)		(4)
Noncontrolling interests																	(156)
Net income attributable to WESCO												64,495
Translation adjustments																			(16,856)
Balance, September 30, 2019	$	593	59,294,497	$	43	4,339,431	$	—	—	$	1,034,888	$	2,477,259	$	(937,135)	(21,849,933)	$	(6,408)	$	(382,530)

The accompanying notes are an integral part of the condensed consolidated financial statements.

WESCO INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

1. ORGANIZATION

WESCO International, Inc. ("WESCO International") and its subsidiaries (collectively, “WESCO” or the "Company"), headquartered in Pittsburgh, Pennsylvania, is a leading provider of business-to-business distribution, logistics services and supply chain solutions.

On June 22, 2020, WESCO completed its previously announced acquisition of Anixter International Inc., a Delaware corporation (“Anixter”). Pursuant to the terms of the Agreement and Plan of Merger, dated January 10, 2020 (the “Merger Agreement”), by and among Anixter, WESCO and Warrior Merger Sub, Inc., a Delaware corporation and a wholly owned subsidiary of WESCO (“Merger Sub”), Merger Sub was merged with and into Anixter (the “Merger”), with Anixter surviving the Merger and continuing as a wholly owned subsidiary of WESCO.

2. ACCOUNTING POLICIES

Basis of Presentation

The accompanying unaudited Condensed Consolidated Financial Statements of WESCO have been prepared in accordance with Rule 10-01 of Regulation S-X of the Securities and Exchange Commission (the “SEC”). The unaudited condensed consolidated financial information should be read in conjunction with the audited Consolidated Financial Statements and Notes thereto included in WESCO’s 2019 Annual Report on Form 10-K as filed with the SEC on February 24, 2020. The Condensed Consolidated Balance Sheet at December 31, 2019 was derived from the audited Consolidated Financial Statements as of that date, but does not include all of the disclosures required by accounting principles generally accepted in the United States of America.

The unaudited Condensed Consolidated Balance Sheet as of September 30, 2020, the unaudited Condensed Consolidated Statements of Income and Comprehensive Income, the unaudited Condensed Consolidated Statements of Stockholders' Equity for the three and nine months ended September 30, 2020 and 2019, and the unaudited Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2020 and 2019, respectively, in the opinion of management, have been prepared on the same basis as the audited Consolidated Financial Statements and include all adjustments necessary for the fair statement of the results of the interim periods presented herein. All adjustments reflected in the unaudited condensed consolidated financial information are of a normal recurring nature unless indicated. The results for the interim periods presented herein are not necessarily indicative of the results to be expected for the full year.

In the third quarter of 2020, in connection with the acquisition of Anixter, the Company identified new operating segments. These operating segments, which have been organized around three strategic business units, consist of Electrical & Electronic Solutions ("EES"), Communications & Security Solutions ("CSS") and Utility & Broadband Solutions ("UBS"). The Company's operating segments, which are equivalent to its reportable segments, are described further in Note 14. The applicable comparative financial information reported in the Company's previously issued interim financial statements for the three and nine months ended September 30, 2019 has been recast in this Quarterly Report on Form 10-Q to conform to the basis of the new segments.

Reclassifications

The Condensed Consolidated Balance Sheet as of December 31, 2019, the unaudited Condensed Consolidated Statements of Income and Comprehensive Income for the three and nine months ended September 30, 2019, and the unaudited Condensed Consolidated Statement of Cash Flows for the nine months ended September 30, 2019, respectively, include certain reclassifications to previously reported amounts to conform to the current period presentation.

Recently Adopted Accounting Pronouncements

In June 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which introduced new guidance for the accounting for credit losses on certain financial instruments. The Company adopted this ASU effective January 1, 2020. The adoption of this new credit loss guidance did not have a material impact on the unaudited condensed consolidated financial statements and notes thereto presented herein, and WESCO does not expect it to have a material impact on its financial position or results of operation on an ongoing basis.

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement, which amends the disclosure requirements for recurring and nonrecurring fair value measurements by removing, modifying and adding certain disclosures. The Company adopted this ASU

WESCO INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)

(unaudited)

in the first quarter of 2020. The adoption of this guidance did not have a material impact on the unaudited condensed consolidated financial statements and notes thereto presented herein.

In August 2018, the FASB issued ASU 2018-15, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract, which aligned the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The standard was effective for fiscal years beginning after December 15, 2019. The Company adopted this ASU in the first quarter of 2020. The adoption of this guidance did not have a material impact on the unaudited condensed consolidated financial statements and notes thereto presented herein.

Recently Issued Accounting Pronouncements

In August 2018, the FASB issued ASU 2018-14, Compensation—Retirement Benefits—Defined Benefit Plans—General (Subtopic 715-20): Disclosure Framework—Changes to the Disclosure Requirements for Defined Benefit Plans, which amends the disclosure requirements for all employers that sponsor defined benefit pension and other post retirement plans by removing and adding certain disclosures. The amendments in this ASU are effective for fiscal years ending after December 15, 2020. Early adoption is permitted. Management does not expect the adoption of this accounting standard to have a material impact on its condensed consolidated financial statements and notes thereto.

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which removes certain exceptions to the general principles of Accounting Standards Codification Topic 740, Income Taxes, and simplifies other aspects of accounting for income taxes. The amendments in this ASU are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. Early adoption is permitted in any interim or annual period, with any adjustments reflected as of the beginning of the fiscal year of adoption. Management does not expect the adoption of this accounting standard to have a material impact on its condensed consolidated financial statements and notes thereto.

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides optional guidance for a limited period of time to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting. The amendments in this Update are effective for all entities as of March 12, 2020 through December 31, 2022. Management is currently evaluating the impact related to the replacement of London Interbank Offered Rate (LIBOR) and whether the Company will elect the adoption of the optional guidance.

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.

3. REVENUE

WESCO distributes products and provides services to customers globally in various end markets within its business segments. The segments, which consist of Electrical & Electronic Solutions, Communications & Security Solutions, and Utility & Broadband Solutions operate in the United States, Canada and various other foreign countries. Revenue is measured as the amount of consideration WESCO expects to receive in exchange for transferring goods or providing services.

The following tables disaggregate WESCO’s net sales by segment and geography for the periods presented:


	Three Months Ended				Nine Months Ended
	September 30				September 30
(In thousands)	2020		2019		2020		2019
Electrical & Electronic Solutions	$	1,653,726	$	1,250,080	$	3,811,498	$	3,626,423
Communications & Security Solutions	1,388,791		235,920		1,953,967		681,087
Utility & Broadband Solutions	1,099,284		662,110		2,431,689		1,951,955
Total by segment	$	4,141,801	$	2,148,110	$	8,197,154	$	6,259,465

WESCO INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)

(unaudited)


	Three Months Ended				Nine Months Ended
	September 30				September 30
(In thousands)	2020		2019		2020		2019
United States	$	3,033,101	$	1,601,962	$	6,100,877	$	4,679,251
Canada	582,700		431,233		1,311,724		1,230,855
Other International	526,000		114,915		784,553		349,359
Total by geography(1)	$	4,141,801	$	2,148,110	$	8,197,154	$	6,259,465

(1) WESCO attributes revenues from external customers to individual countries on the basis of point of sale.

In accordance with certain contractual arrangements, WESCO receives payment from its customers in advance and recognizes such payment as deferred revenue. Revenue for advance payment is recognized when the performance obligation has been satisfied and control has transferred to the customer, which is generally upon shipment. Deferred revenue is usually recognized within a year or less from the date of the customer’s advance payment. At September 30, 2020 and December 31, 2019, $27.7 million and $12.3 million, respectively, of deferred revenue was recorded as a component of other current liabilities in the Condensed Consolidated Balance Sheets.

WESCO’s revenues are adjusted for variable consideration, which includes customer volume rebates, returns, and discounts. WESCO measures variable consideration by estimating expected outcomes using analysis and inputs based upon anticipated performance, historical data, as well as current and forecasted information. Measurement and recognition of variable consideration is reviewed by management on a monthly basis and revenue is adjusted accordingly. Variable consideration reduced revenue for the three months ended September 30, 2020 and 2019 by approximately $75.4 million and $26.3 million, respectively, and by approximately $129.0 million and $80.1 million for the nine months ended September 30, 2020 and 2019, respectively.

Shipping and handling activities are recognized in net sales when they are billed to the customer. The related costs are recognized as a component of selling, general and administrative expenses. WESCO has elected to recognize shipping and handling costs as a fulfillment cost. Shipping and handling costs recorded as a component of selling, general and administrative expenses totaled $55.5 million and $17.6 million for the three months ended September 30, 2020 and 2019, respectively, and $94.4 million and $52.8 million for the nine months ended September 30, 2020 and 2019, respectively.

4. ACQUISITIONS

Anixter International Inc.

As described in Note 1, on June 22, 2020, WESCO completed its previously announced merger with Anixter. The Company used the net proceeds from the issuance of senior unsecured notes, borrowings under its revolving credit facility and accounts receivable securitization facility (as described further in Note 8), as well as cash on hand, to finance the acquisition of Anixter and related transaction costs.

At the effective time of the Merger, each outstanding share of common stock of Anixter (subject to limited exceptions) was converted into the right to receive (i) $72.82 in cash, (ii) 0.2397 shares of common stock of WESCO, par value $0.01 per share (the “WESCO Common Stock”) and (iii) 0.6356 depositary shares, each representing a 1/1,000th interest in a share of newly issued fixed-rate reset cumulative perpetual preferred stock of WESCO, Series A, with a $25,000 stated amount per whole preferred share and an initial dividend rate equal to 10.625%.

Anixter is a leading distributor of network and security solutions, electrical and electronic solutions, and utility power solutions with locations in over 300 cities across approximately 50 countries, and 2019 annual sales of more than $8 billion. The Merger brought together two companies with highly compatible capabilities and characteristics. The combination of WESCO and Anixter created an enterprise with scale and should afford the Company the opportunity to digitize its business, and expand its services portfolio and supply chain offerings.

WESCO INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)

(unaudited)

The total preliminary estimated fair value of consideration transferred for the Merger consisted of the following:


	(In thousands)
Cash portion attributable to common stock outstanding	$	2,476,010
Cash portion attributable to options and restricted stock units outstanding	87,375
Fair value of cash consideration	2,563,385
Common stock consideration	313,512
Series A preferred stock consideration	573,786
Fair value of equity consideration	887,298
Extinguishment of Anixter obligations, including accrued and unpaid interest	1,247,653
Total purchase consideration	$	4,698,336
Supplemental cash flow disclosure related to acquisitions:
Cash paid for acquisition	$	3,811,038
Less: Cash acquired	(103,463)
Cash paid for acquisition, net of cash acquired	$	3,707,575

The Merger was accounted for as a business combination with WESCO acquiring Anixter in accordance with Accounting Standards Codification (“ASC”) 805, Business Combinations. Under the acquisition method of accounting, the preliminary purchase consideration was allocated to the identified assets acquired and liabilities assumed based on their respective acquisition date fair value, with any excess allocated to goodwill. The fair value estimates were based on income, market and cost valuation methods using primarily unobservable inputs developed by management, which are categorized within Level 3 of the fair value hierarchy. Significant inputs used to value the identifiable intangible assets included projected revenues, estimated future cash flows, discount rates, royalty rates, and applicable income tax rates. The excess purchase consideration recorded to goodwill is not deductible for income tax purposes, and has been assigned to the Company's reportable segments based on their relative fair values, as disclosed in Note 5. The resulting goodwill is primarily attributable to Anixter's workforce, significant cross-selling opportunities in additional geographies, enhanced scale, and other operational efficiencies.

In the third quarter of 2020, the Company recognized adjustments to total identifiable intangible assets and deferred income taxes of $5.4 million and $7.3 million, respectively. Certain other measurement period adjustments were made to the identified assets acquired and liabilities assumed, none of which were significant, individually or in aggregate. The net impact of the adjustments made in the third quarter of 2020 was a decrease to goodwill of $7.6 million.

The estimated fair values of assets acquired and liabilities assumed are based on preliminary calculations and valuations using estimates and assumptions at the time of acquisition. The determination of the fair values of assets acquired and liabilities assumed, especially those related to identifiable intangible assets, is preliminary due to the complexity of combining multibillion dollar businesses. Accordingly, as the Company obtains additional information during the measurement period (not to exceed one year from the acquisition date), estimates and assumptions for the preliminary purchase consideration allocations may change materially.

WESCO INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)

(unaudited)

The following table sets forth the preliminary allocation of the purchase consideration to the respective fair value of assets acquired and liabilities assumed for the acquisition of Anixter:



	(In thousands)
Assets
Cash and cash equivalents	$	103,463
Trade accounts receivable	1,309,104
Other accounts receivable	116,386
Inventories	1,424,678
Prepaid expenses and other current assets	53,462
Property, buildings and equipment	213,020
Operating lease assets	262,413
Intangible assets	1,838,065
Goodwill	1,360,373
Other assets	112,386
Total assets	$	6,793,350

Liabilities
Accounts payable	$	920,163
Accrued payroll and benefit costs	69,480
Short-term debt and current portion of long-term debt	13,225
Other current liabilities	222,615
Long-term debt	77,822
Operating lease liabilities	199,959
Deferred income taxes<

Price	46.83	EPS	5
Shares	44	P/E	9
MCap	2,056	P/FCF	18
Net Debt	1,209	EBIT	327
TEV	3,264	TEV/EBIT	10
TTM 2019-09-30, in MM, except price, ratios

10-Q	2020-09-30	Filed 2020-11-09
10-Q	2020-06-30	Filed 2020-08-17
10-Q	2020-03-31	Filed 2020-05-01
10-K	2019-12-31	Filed 2020-02-24
10-Q	2019-09-30	Filed 2019-11-01
10-Q	2019-06-30	Filed 2019-08-02
10-Q	2019-03-31	Filed 2019-05-03
10-K	2018-12-31	Filed 2019-02-27
10-Q	2018-09-30	Filed 2018-11-02
10-Q	2018-06-30	Filed 2018-08-03
10-Q	2018-03-31	Filed 2018-05-04
10-K	2017-12-31	Filed 2018-02-22
10-Q	2017-09-30	Filed 2017-11-03
10-Q	2017-06-30	Filed 2017-08-04
10-Q	2017-03-31	Filed 2017-05-05
10-K	2016-12-31	Filed 2017-02-22
10-Q	2016-09-30	Filed 2016-11-04
10-Q	2016-06-30	Filed 2016-08-08
10-Q	2016-03-31	Filed 2016-05-06
10-K	2015-12-31	Filed 2016-02-22
10-Q	2015-09-30	Filed 2015-10-30
10-Q	2015-06-30	Filed 2015-07-31
10-Q	2015-03-31	Filed 2015-05-04
10-K	2014-12-31	Filed 2015-02-24
10-Q	2014-09-30	Filed 2014-11-03
10-Q	2014-06-30	Filed 2014-08-04
10-Q	2014-03-31	Filed 2014-05-06
10-K	2013-12-31	Filed 2014-02-21
10-Q	2013-09-30	Filed 2013-10-29
10-Q	2013-06-30	Filed 2013-08-07
10-Q	2013-03-31	Filed 2013-05-06
10-K	2012-12-31	Filed 2013-03-01
10-Q	2012-09-30	Filed 2012-11-01
10-Q	2012-06-30	Filed 2012-08-02
10-Q	2012-03-31	Filed 2012-05-03
10-K	2011-12-31	Filed 2012-02-22
10-Q	2011-09-30	Filed 2011-11-01
10-Q	2011-06-30	Filed 2011-08-03
10-Q	2011-03-31	Filed 2011-05-03
10-K	2010-12-31	Filed 2011-02-25
10-Q	2010-09-30	Filed 2010-11-02
10-Q	2010-06-30	Filed 2010-08-04
10-Q	2010-03-31	Filed 2010-05-06
10-K	2009-12-31	Filed 2010-02-26

8-K	2020-11-05
8-K	2020-11-04
8-K	2020-09-15
8-K	2020-08-13
8-K	2020-08-06
8-K	2020-07-24
8-K	2020-07-17
8-K	2020-06-23
8-K	2020-06-22
8-K	2020-06-22
8-K	2020-06-22
8-K	2020-06-16
8-K	2020-06-12
8-K	2020-06-01
8-K	2020-05-29
8-K	2020-05-29
8-K	2020-05-28
8-K	2020-05-26
8-K	2020-05-14
8-K	2020-04-30
8-K	2020-04-30
8-K	2020-04-09
8-K	2020-03-18
8-K	2020-03-11
8-K	2020-03-09
8-K	2020-03-03
8-K	2020-02-28
8-K	2020-01-30
8-K	2020-01-10
8-K	2020-01-09
8-K	2020-01-03
8-K	2019-12-26
8-K	2019-12-26
8-K	2019-10-31
8-K	2019-10-01
8-K	2019-09-30
8-K	2019-09-30
8-K	2019-08-01
8-K	2019-06-13
8-K	2019-05-31
8-K	2019-05-02
8-K	2019-02-19
8-K	2019-01-31
8-K	2018-11-01
8-K	2018-08-02
8-K	2018-08-02
8-K	2018-06-11
8-K	2018-06-01
8-K	2018-05-23
8-K	2018-04-26
8-K	2018-03-07
8-K	2018-02-01

EX-31.1	wcc-3q20ex311.htm
EX-31.2	wcc-3q20ex312.htm
EX-32.1	wcc-3q20ex321.htm
EX-32.2	wcc-3q20ex322.htm

WCC 10Q Quarterly Report

WESCO Earnings 2020-09-30