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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 June 30, 2022
or | | | | | | | | |
☐ | | 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 1/1,000th interest in a share of Series A Fixed-Rate Reset Cumulative Perpetual Preferred Stock | | WCC PR 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 every Interactive Data File required to be submitted 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 August 4, 2022, 50,802,443 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 | | | | | |
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PART I—FINANCIAL INFORMATION | |
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PART II—OTHER INFORMATION | |
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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:
WESCO INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
(unaudited) | | | | | | | | | | | |
| As of |
Assets | June 30, 2022 | | December 31, 2021 |
Current assets: | | | |
Cash and cash equivalents | $ | 236,792 | | | $ | 212,583 | |
Trade accounts receivable, net of allowance for expected credit losses of $46,591 and $41,723 in 2022 and 2021, respectively | 3,635,840 | | | 2,957,613 | |
Other accounts receivable | 390,954 | | | 375,885 | |
Inventories | 3,165,828 | | | 2,666,219 | |
Prepaid expenses and other current assets | 177,061 | | | 137,811 | |
Total current assets | 7,606,475 | | | 6,350,111 | |
Property, buildings and equipment, net of accumulated depreciation of $395,776 and $365,345 in 2022 and 2021, respectively | 370,452 | | | 379,012 | |
Operating lease assets | 570,062 | | | 530,863 | |
Intangible assets, net | 1,888,911 | | | 1,944,141 | |
Goodwill | 3,190,677 | | | 3,208,333 | |
Other assets | 236,689 | | | 205,239 | |
Total assets | $ | 13,863,266 | | | $ | 12,617,699 | |
Liabilities and Stockholders’ Equity | | | |
Current liabilities: | | | |
Accounts payable | $ | 2,652,306 | | | $ | 2,140,251 | |
Accrued payroll and benefit costs | 210,090 | | | 314,962 | |
Short-term debt and current portion of long-term debt | 70,628 | | | 9,528 | |
Other current liabilities | 659,810 | | | 585,067 | |
Total current liabilities | 3,592,834 | | | 3,049,808 | |
Long-term debt, net of debt discount and debt issuance costs of $64,059 and $70,572 in 2022 and 2021, respectively | 5,039,857 | | | 4,701,542 | |
Operating lease liabilities | 449,684 | | | 414,248 | |
Deferred income taxes | 439,475 | | | 437,444 | |
Other noncurrent liabilities | 230,109 | | | 238,446 | |
Total liabilities | $ | 9,751,959 | | | $ | 8,841,488 | |
Commitments and contingencies (Note 10) | | | |
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 2022 and 2021 | — | | | — | |
Common stock, $.01 par value; 210,000,000 shares authorized, 68,409,001 and 68,162,297 shares issued, and 50,718,351 and 50,474,806 shares outstanding in 2022 and 2021, respectively | 694 | | | 682 | |
Class B nonvoting convertible common stock, $.01 par value; 20,000,000 shares authorized, 4,339,431 issued and no shares outstanding in 2022 and 2021, respectively | 43 | | | 43 | |
Additional capital | 1,985,967 | | | 1,969,332 | |
Retained earnings | 3,370,936 | | | 3,004,690 | |
Treasury stock, at cost; 22,030,081 and 22,026,922 shares in 2022 and 2021, respectively | (957,083) | | | (956,188) | |
Accumulated other comprehensive loss | (283,768) | | | (236,035) | |
Total WESCO International, Inc. stockholders' equity | 4,116,789 | | | 3,782,524 | |
Noncontrolling interests | (5,482) | | | (6,313) | |
Total stockholders’ equity | 4,111,307 | | | 3,776,211 | |
Total liabilities and stockholders’ equity | $ | 13,863,266 | | | $ | 12,617,699 | |
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, except per share data)
(unaudited)
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Six Months Ended |
| June 30 | | June 30 |
| 2022 | | 2021 | | 2022 | | 2021 |
Net sales | $ | 5,483,525 | | | $ | 4,595,790 | | | $ | 10,415,706 | | | $ | 8,637,267 | |
Cost of goods sold (excluding depreciation and amortization) | 4,294,086 | | | 3,630,633 | | | 8,177,160 | | | 6,861,074 | |
Selling, general and administrative expenses | 772,864 | | | 699,581 | | | 1,490,962 | | | 1,336,157 | |
Depreciation and amortization | 45,866 | | | 46,704 | | | 92,846 | | | 87,913 | |
Income from operations | 370,709 | | | 218,872 | | | 654,738 | | | 352,123 | |
Interest expense, net | 68,478 | | | 67,590 | | | 132,098 | | | 137,963 | |
Other expense (income), net | 1,195 | | | (802) | | | 2,319 | | | (3,609) | |
Income before income taxes | 301,036 | | | 152,084 | | | 520,321 | | | 217,769 | |
Provision for income taxes | 79,887 | | | 32,800 | | | 117,541 | | | 39,331 | |
Net income | 221,149 | | | 119,284 | | | 402,780 | | | 178,438 | |
Less: Net income attributable to noncontrolling interests | 443 | | | 89 | | | 831 | | | 65 | |
Net income attributable to WESCO International, Inc. | 220,706 | | | 119,195 | | | 401,949 | | | 178,373 | |
Less: Preferred stock dividends | 14,352 | | | 14,352 | | | 28,704 | | | 28,704 | |
Net income attributable to common stockholders | $ | 206,354 | | | $ | 104,843 | | | $ | 373,245 | | | $ | 149,669 | |
Other comprehensive income: | | | | | | | |
Foreign currency translation adjustments and other | (79,373) | | | 21,219 | | | (47,733) | | | 38,060 | |
Comprehensive income attributable to common stockholders | $ | 126,981 | | | $ | 126,062 | | | $ | 325,512 | | | $ | 187,729 | |
| | | | | | | |
Earnings per share attributable to common stockholders | | | | | | | |
Basic | $ | 4.07 | | | $ | 2.09 | | | $ | 7.37 | | | $ | 2.98 | |
Diluted | $ | 3.95 | | | $ | 2.02 | | | $ | 7.15 | | | $ | 2.89 | |
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)
(unaudited) | | | | | | | | | | | |
| Six Months Ended |
| June 30 |
| 2022 | | 2021 |
Operating activities: | | | |
Net income | $ | 402,780 | | | $ | 178,438 | |
Adjustments to reconcile net income to net cash (used in) provided by operating activities: | | | |
Depreciation and amortization | 92,846 | | | 87,913 | |
Stock-based compensation expense | 24,734 | | | 13,179 | |
Amortization of debt discount and debt issuance costs | 8,102 | | | 9,197 | |
Gain on divestitures, net | — | | | (8,927) | |
Other operating activities, net | 2,726 | | | 3,365 | |
Deferred income taxes | 1,264 | | | (2,959) | |
Changes in assets and liabilities: | | | |
Trade accounts receivable, net | (716,767) | | | (372,287) | |
Other accounts receivable | (15,338) | | | (25,394) | |
Inventories | (530,763) | | | (268,272) | |
Other current and noncurrent assets | (80,665) | | | (14,291) | |
Accounts payable | 534,283 | | | 474,918 | |
Accrued payroll and benefit costs | (115,846) | | | 1,911 | |
Other current and noncurrent liabilities | 88,113 | | | 26,004 | |
Net cash (used in) provided by operating activities | (304,531) | | | 102,795 | |
Investing activities: | | | |
Capital expenditures | (31,641) | | | (20,191) | |
Proceeds from divestitures | — | | | 54,346 | |
Other investing activities, net | 679 | | | (1,801) | |
Net cash (used in) provided by investing activities | (30,962) | | | 32,354 | |
Financing activities: | | | |
Proceeds (repayments) of short-term debt, net | 2,218 | | | (10,763) | |
Repayment of 5.375% Senior Notes due 2021 | — | | | (500,000) | |
Proceeds from issuance of long-term debt | 1,746,289 | | | 1,557,827 | |
Repayments of long-term debt | (1,353,950) | | | (1,282,842) | |
Payments for taxes related to net-share settlement of equity awards | (17,212) | | | (12,433) | |
Payment of dividends | (28,704) | | | (28,704) | |
Debt issuance costs | (1,936) | | | (1,849) | |
Other financing activities, net | (6,214) | | | (10,918) | |
Net cash provided by (used in) financing activities | 340,491 | | | (289,682) | |
| | | |
Effect of exchange rate changes on cash and cash equivalents | 19,211 | | | (6,711) | |
Net change in cash and cash equivalents | 24,209 | | | (161,244) | |
Cash and cash equivalents at the beginning of period | 212,583 | | | 449,135 | |
Cash and cash equivalents at the end of period | $ | 236,792 | | | $ | 287,891 | |
Supplemental disclosures: | | | |
Cash paid for interest | $ | 119,267 | | | $ | 128,211 | |
Cash paid for income taxes | $ | 155,038 | | | $ | 40,883 | |
Right-of-use assets obtained in exchange for new operating lease liabilities | $ | 117,867 | | | $ | 56,748 | |
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, except shares)
(unaudited) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | Class B | | Series A | | | | Retained | | | | | | | | Accumulated Other Comprehensive Income (Loss) |
| | Common Stock | | Common Stock | | Preferred Stock | | Additional | | Earnings | | Treasury Stock | | Noncontrolling | |
| | Amount | | Shares | | Amount | | Shares | | Amount | | Shares | | Capital | | (Deficit) | | Amount | | Shares | | Interests | |
Balance, December 31, 2021 | | $ | 682 | | | 68,162,297 | | | $ | 43 | | | 4,339,431 | | | $ | — | | | 21,612 | | | $ | 1,969,332 | | | $ | 3,004,690 | | | $ | (956,188) | | | (22,026,922) | | | $ | (6,313) | | | $ | (236,035) | |
Exercise of stock-based awards | | 4 | | | 365,833 | | | | | | | | | | | (10) | | | | | (587) | | | (858) | | | | | |
Stock-based compensation expense | | | | | | | | | | | | | | 8,911 | | | | | | | | | | | |
Tax withholding related to vesting of restricted stock units and retirement of common stock | | (2) | | | (129,869) | | | | | | | | | | | (7,832) | | | (8,136) | | | | | | | | | |
Noncontrolling interests | | | | | | | | | | | | | | | | | | | | | | 388 | | | |
Net income attributable to WESCO International, Inc. | | | | | | | | | | | | | | | | 181,243 | | | | | | | | | |
Preferred stock dividends | | | | | | | | | | | | | | | | (14,352) | | | | | | | | | |
Translation adjustments and other | | | | | | | | | | | | | | | | | | | | | | | | 31,640 | |
Balance, March 31, 2022 | | $ | 684 | | | 68,398,261 | | | $ | 43 | | | 4,339,431 | | | $ | — | | | 21,612 | | | $ | 1,970,401 | | | $ | 3,163,445 | | | $ | (956,775) | | | (22,027,780) | | | $ | (5,925) | | | $ | (204,395) | |
Exercise of stock-based awards | | — | | | 11,648 | | | | | | | | | | | | | | | (311) | | | (2,301) | | | | | |
Stock-based compensation expense | | | | | | | | | | | | | | 15,823 | | | | | | | | | | | |
Tax withholding related to vesting of restricted stock units and retirement of common stock | | — | | | (908) | | | | | | | | | | | | | (40) | | | | | | | | | |
Noncontrolling interests | | | | | | | | | | | | | | | | | | | | | | 443 | | | |
Net income attributable to WESCO International, Inc. | | | | | | | | | | | | | | | | 220,706 | | | | | | | | | |
Preferred stock dividends | | | | | | | | | | | | | | | | (14,352) | | | | | | | | | |
Translation adjustments and other | | 10 | | | | | | | | | | | | | (257) | | | 1,177 | | | 3 | | | | | | | (79,373) | |
Balance, June 30, 2022 | | $ | 694 | | | 68,409,001 | | | $ | 43 | | | 4,339,431 | | | $ | — | | | 21,612 | | | $ | 1,985,967 | | | $ | 3,370,936 | | | $ | (957,083) | | | (22,030,081) | | | $ | (5,482) | | | $ | (283,768) | |
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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, except shares)
(unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | Class B | | Series A | | | | Retained | | | | | | | | Accumulated Other Comprehensive Income (Loss) |
| | Common Stock | | Common Stock | | Preferred Stock | | Additional | | Earnings | | Treasury Stock | | Noncontrolling | |
| | Amount | | Shares | | Amount | | Shares | | Amount | | Shares | | Capital | | (Deficit) | | Amount | | Shares | | Interests | |
Balance, December 31, 2020 | | $ | 676 | | | 67,596,515 | | | $ | 43 | | | 4,339,431 | | | $ | — | | | 21,612 | | | $ | 1,942,810 | | | $ | 2,601,662 | | | $ | (938,335) | | | (21,870,961) | | | $ | (7,333) | | | $ | (263,134) | |
Exercise of stock-based awards | | 2 | | | 165,641 | | | | | | | | | | | (38) | | | | | (1,421) | | | (15,330) | | | | | |
Stock-based compensation expense | | | | | | | | | | | | | | 5,954 | | | | | | | | | | | |
Tax withholding related to vesting of restricted stock units and retirement of common stock | | — | | | (35,289) | | | | | | | | | | | (2,209) | | | (617) | | | | | | | | | |
Noncontrolling interests | | | | | | | | | | | | | | | | | | | | | | (24) | | | |
Net income attributable to WESCO International, Inc. | | | | | | | | | | | | | | | | 59,178 | | | | | | | | | |
Preferred stock dividends | | | | | | | | | | | | | | | | (14,352) | | | | | | | | | |
Translation adjustments and other | | | | | | | | | | | | | | | | | | | | | | | | 16,841 | |
Balance, March 31, 2021 | | $ | 678 | | | 67,726,867 | | | $ | 43 | | | 4,339,431 | | | $ | — | | | 21,612 | | | $ | 1,946,517 | | | $ | 2,645,871 | | | $ | (939,756) | | | (21,886,291) | | | $ | (7,357) | | | $ | (246,293) | |
Exercise of stock-based awards | | 2 | | | 194,615 | | | | | | | | | | | (1) | | | | | (7,942) | | | (74,698) | | | | | |
Stock-based compensation expense | | | | | | | | | | | | | | 7,225 | | | | | | | | | | | |
Tax withholding related to vesting of restricted stock units and retirement of common stock | | — | | | (1,520) | | | | | | | | | | | (88) | | | (49) | | | | | | | | | |
Noncontrolling interests | | | | | | | | | | | | | | | | | | | | | | 89 | | | |
Net income attributable to WESCO International, Inc. | | | | | | | | | | | | | | | | 119,195 | | | | | | | | | |
Preferred stock dividends | | | | | | | | | | | | | | | | (14,352) | | | | | | | | | |
Translation adjustments and other | | | | | | | | | | | | | | | | | | | | | | | | 21,219 | |
Balance, June 30, 2021 | | $ | 680 | | | 67,919,962 | | | $ | 43 | | | 4,339,431 | | | $ | — | | | 21,612 | | | $ | 1,953,653 | | | $ | 2,750,665 | | | $ | (947,698) | | | (21,960,989) | | | $ | (7,268) | | | $ | (225,074) | |
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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.
The Company has operating segments comprising three strategic business units consisting of Electrical & Electronic Solutions ("EES"), Communications & Security Solutions ("CSS") and Utility & Broadband Solutions ("UBS").
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 International, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2021, as filed with the SEC on February 25, 2022. The Condensed Consolidated Balance Sheet at December 31, 2021 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 June 30, 2022, the unaudited Condensed Consolidated Statements of Income and Comprehensive Income, the unaudited Condensed Consolidated Statements of Stockholders' Equity for the three and six months ended June 30, 2022, and 2021, and the unaudited Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2022, and 2021, 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.
Recently Adopted and Recently Issued Accounting Standards
In March 2020, the Financial Accounting Standards Board (the "FASB") issued Accounting Standards Update ("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. The Company adopted this ASU during the first quarter of 2022 in connection with amending Wesco's credit facilities, as disclosed in Note 7, "Debt". The replacement of London Interbank Offered Rate ("LIBOR") and the related adoption of the optional guidance under this accounting standard did not have a material impact on the Company's consolidated financial statements and notes thereto.
In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, which requires contract assets and contract liabilities acquired in a business combination to be recognized and measured by the acquirer on the acquisition date in accordance with ASC Topic 606, Revenue from Contracts with Customers, as if the acquirer had originated the contracts. The amendments in this ASU are effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. Management is currently evaluating the impact that the adoption of this accounting standard will have 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.
3. REVENUE
Wesco distributes products and provides services to customers globally in various end markets within its business segments. The segments, which consist of EES, CSS and UBS, operate in the United States, Canada and various other international countries.
WESCO INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)
(unaudited)
The following tables disaggregate Wesco’s net sales by segment and geography for the periods presented:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Six Months Ended |
| June 30 | | June 30 |
(In thousands) | 2022 | | 2021 | | 2022 | | 2021 |
Electrical & Electronic Solutions | $ | 2,330,153 | | | $ | 1,923,011 | | | $ | 4,420,112 | | | $ | 3,643,824 | |
Communications & Security Solutions | 1,601,997 | | | 1,461,120 | | | 3,036,172 | | | 2,711,735 | |
Utility & Broadband Solutions | 1,551,375 | | | 1,211,659 | | | 2,959,422 | | | 2,281,708 | |
Total by segment | $ | 5,483,525 | | | $ | 4,595,790 | | | $ | 10,415,706 | | | $ | 8,637,267 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Six Months Ended |
| June 30 | | June 30 |
(In thousands) | 2022 | | 2021 | | 2022 | | 2021 |
United States | $ | 4,039,854 | | | $ | 3,318,311 | | | $ | 7,694,166 | | | $ | 6,248,747 | |
Canada | 807,832 | | | 703,135 | | | 1,522,865 | | | 1,310,887 | |
Other International(1) | 635,839 | | | 574,344 | | | 1,198,675 | | | 1,077,633 | |
Total by geography(2) | $ | 5,483,525 | | | $ | 4,595,790 | | | $ | 10,415,706 | | | $ | 8,637,267 | |
(1) No individual country's net sales are greater than 10% of total net sales.
(2) Wesco attributes revenues from external customers to individual countries on the basis of point of sale.
Due to the terms of certain contractual arrangements, Wesco bills or receives payment from its customers in advance of satisfying the respective performance obligation. Such advance billings or payments are recorded as deferred revenue and recognized as revenue 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 advance billing or payment. At June 30, 2022 and December 31, 2021, $32.7 million and $35.5 million, respectively, of deferred revenue was recorded as a component of other current liabilities in the Condensed Consolidated Balance Sheets.
The Company also has certain long-term contractual arrangements where revenue is recognized over time based on the cost-to-cost input method. As of June 30, 2022 and December 31, 2021, the Company had contract assets of $36.0 million and $33.4 million, respectively, resulting from arrangements where the amount of revenue recognized exceeded the amount billed to the customer. Contract assets are recorded in the Condensed Consolidated Balance Sheets as a component of prepaid expenses and other current assets.
Wesco’s revenues are adjusted for variable consideration, which includes customer volume rebates, returns and discounts. Wesco measures variable consideration by estimating expected outcomes using analysis and inputs based upon historical data, as well as current and forecasted information. Variable consideration is reviewed by management on a monthly basis and revenue is adjusted accordingly. Variable consideration reduced revenue for the three months ended June 30, 2022 and 2021 by approximately $102.3 million and $112.4 million, respectively, and by approximately $217.5 million and $217.8 million for the six months ended June 30, 2022 and 2021, respectively. As of June 30, 2022 and December 31, 2021, the Company's estimated product return obligation was $39.3 million and $38.8 million, respectively.
Billings to customers for shipping and handling are recognized in net sales. 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 $76.5 million and $62.7 million for the three months ended June 30, 2022 and 2021, respectively, and $144.1 million and $116.0 million for the six months ended June 30, 2022 and 2021, respectively.
WESCO INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)
(unaudited)
4. GOODWILL AND INTANGIBLE ASSETS
Goodwill
The following table sets forth the changes in the carrying value of goodwill:
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| Six Months Ended |
| June 30, 2022 |
| EES | | CSS | | UBS | | Total |
| (In thousands) |
Beginning balance, January 1 | $ | 860,958 | | | $ | 1,121,712 | | | $ | 1,225,663 | | | $ | 3,208,333 | |
Foreign currency exchange rate changes | (9,083) | | | (4,356) | | | (4,217) | | | (17,656) | |
Ending balance, June 30 | $ | 851,875 | | | $ | 1,117,356 | | | $ | 1,221,446 | | | $ | 3,190,677 | |
Intangible Assets
The components of intangible assets are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | As of |
| | June 30, 2022 | | December 31, 2021 |
| Life (in years) | Gross Carrying Amount (1) | | Accumulated Amortization (1) | | Net Carrying Amount | | Gross Carrying Amount (1) | | Accumulated Amortization (1) | | Net Carrying Amount |
Intangible assets: | | (In thousands) |
Trademarks | Indefinite | $ | 794,230 | | | $ | — | | | $ | 794,230 | | | $ | 795,065 | | | $ | — | | | $ | 795,065 | |
Customer relationships | 10 - 20 | 1,423,852 | | | (344,075) | | | 1,079,777 | | | 1,431,251 | | | (308,180) | | | 1,123,071 | |
Distribution agreements | 15 - 19 | 29,212 | | | (23,547) | | | 5,665 | | | 29,212 | | | (22,714) | | | 6,498 | |
Trademarks | 5 - 12 | 15,543 | | | (6,304) | | | 9,239 | | | 38,758 | | | (20,058) | | | 18,700 | |
Non-compete agreements | 2 | — | | | — | | | — | | | 4,300 | | | (3,493) | | | 807 | |
| | $ | 2,262,837 | | | $ | (373,926) | | | $ | 1,888,911 | | | $ | 2,298,586 | | | $ | (354,445) | | | $ | 1,944,141 | |
(1) Excludes the original cost and related accumulated amortization of fully-amortized intangible assets.
Amortization expense related to intangible assets totaled $24.7 million and $27.1 million for the three months ended June 30, 2022 and 2021, respectively, and $50.4 million and $48.7 million for the six months ended June 30, 2022 and 2021, respectively.
The following table sets forth the remaining estimated amortization expense for intangible assets for the next five years and thereafter:
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For the year ending December 31, | (In thousands) |
2022 | $ | 41,909 | |
2023 | 82,942 | |
2024 | 80,497 | |
2025 | 77,394 | |
2026 | 71,956 | |
Thereafter | 739,983 | |
5. STOCK-BASED COMPENSATION
Wesco’s stock-based employee compensation awards are comprised of stock options, 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 estimated forfeitures, over the service period for awards expected to vest. The fair value of stock options and stock-settled stock appreciation rights is determined using the Black-Scholes model.
WESCO INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)
(unaudited)
The fair value of restricted stock units and performance-based awards with performance conditions is determined by the grant-date closing price of Wesco’s common stock. The forfeiture assumption is based on Wesco’s historical employee behavior that is reviewed on an annual basis. No dividends are assumed. For stock options and stock-settled stock appreciation rights that are exercised, and for restricted stock units and performance-based awards that vest, shares are issued out of Wesco's outstanding common stock.
Stock options and stock-settled stock appreciation rights vest ratably over a three-year period and terminate on the tenth anniversary of the grant date unless terminated sooner under certain conditions. Restricted stock unit awards granted in February 2020 and prior vest based on a minimum time period of three years. The special award described below vests in tranches. Restricted stock units awarded in 2022 and 2021 vest ratably over a three-year period on each of the first, second and third anniversaries of the grant date. Vesting of performance-based awards is based on a three-year performance period, and the number of shares earned, if any, depends on the attainment of certain performance levels. Outstanding awards would vest upon the consummation of a change in control transaction with performance-based awards vesting at the target level.
On July 2, 2020, a special award of restricted stock units was granted to certain officers of the Company. These awards vest in tranches of 30% on each of the first and second anniversaries of the grant date and 40% on the third anniversary of the grant date, subject, in each case, to continued employment through the applicable anniversary date.
Performance-based awards granted in 2022, 2021 and 2020 are based on two equally-weighted performance measures: the three-year average growth rate of Wesco's net income attributable to common stockholders and the three-year cumulative return on net assets. These awards are accounted for as awards with performance conditions; compensation cost is recognized over the performance period based upon Wesco's determination of whether it is probable that the performance targets will be achieved.
During the three and six months ended June 30, 2022 and 2021, Wesco granted the following stock options, stock-settled stock appreciation rights, restricted stock units and performance-based awards at the following weighted-average fair values:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Six Months Ended |
| June 30, 2022 | | June 30, 2021 | | June 30, 2022 | | June 30, 2021 |
Stock options granted | — | | | — | | | 89,550 | | | — | |
Weighted-average fair value | $ | — | | | $ | — | | | $ | 57.26 | | | $ | — | |
| | | | | | | |
Stock-settled stock appreciation rights granted | — | | | 3,398 | | | — | | | 139,592 | |
Weighted-average fair value | $ | — | | | $ | 38.62 | | | $ | — | | | $ | 33.19 | |
| | | | | | | |
Restricted stock units granted | — | | | 6,861 | | | 224,946 | | | 307,583 | |
Weighted-average fair value | $ | — | | | $ | 86.91 | | | $ | 122.11 | | | $ | 77.12 | |
| | | | | | | |
Performance-based awards granted | — | | | 3,020 | | | 83,991 | | | 122,812 | |
Weighted-average fair value | $ | — | | | $ | 86.91 | | | $ | 122.09 | | | $ | 76.76 | |
The fair values of stock options and stock-settled stock appreciation rights, as disclosed in the table above, were estimated using the following weighted-average assumptions in the respective periods:
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| Three Months Ended | | Six Months Ended |
| June 30, 2022 | | June 30, 2021 | | June 30, 2022 | | June 30, 2021 |
Risk free interest rate | n/a | | 1.3 | % | | 1.9 | % | | 0.8 | % |
Expected life (in years) | n/a | | 7 | | 7 | | 7 |
Expected volatility | n/a | | 42 | % | | 43 | % | | 41 | % |
The risk-free interest rate is based on the U.S. Treasury Daily Yield Curve as of the grant date. The expected life is based on historical exercise experience and the expected volatility is based on the volatility of the Company's daily stock price over the expected life preceding the grant date of the award.
WESCO INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)
(unaudited)
The following table sets forth a summary of stock options for the six months ended June 30, 2022:
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| Awards | | Weighted- Average Exercise Price | | Weighted- Average Remaining Contractual Term (In years) | | Aggregate Intrinsic Value (In thousands) |
Outstanding at December 31, 2021 | — | | | $ | — | | | | | |
Granted | 89,550 | | | 122.09 | | | | | |
Exercised | — | | | — | | | | | |
Forfeited | — | | | — | | | | | |
Outstanding at June 30, 2022 | 89,550 | | | $ | 122.09 | | | 9.6 | | $ | — | |
Exercisable at June 30, 2022 | — | | | $ | — | | | 0 | | $ | — | |
The following table sets forth a summary of stock-settled stock appreciation rights for the six months ended June 30, 2022:
| | | | | | | | | | | | | | | | | | | | | | | |
| Awards | | Weighted- Average Exercise Price | | Weighted- Average Remaining Contractual Term (In years) | | Aggregate Intrinsic Value (In thousands) |
Outstanding at December 31, 2021 | 1,370,388 | | | $ | 62.09 | | | | | |
Granted | — | | | — | | | | | |
Exercised | (57,324) | | | 65.06 | | | | | |
Forfeited | (2,423) | | | 69.44 | | | | | |
Outstanding at June 30, 2022 | 1,310,641 | | | $ | 61.94 | | | 5.7 | | $ | 59,184 | |
Exercisable at June 30, 2022 | 1,137,907 | | | $ | 61.73 | | | 5.3 | | $ | 51,630 | |
For the six months ended June 30, 2022, the aggregate intrinsic value of stock-settled stock appreciation rights exercised during such period was $3.9 million.
The following table sets forth a summary of time-based restricted stock units for the six months ended June 30, 2022:
| | | | | | | | | | | |
| Awards | | Weighted- Average Fair Value |
Unvested at December 31, 2021 | 974,162 | | | $ | 53.48 | |
Granted | 224,946 | | | 122.11 | |
Vested | (237,977) | | | 64.36 | |
Forfeited | (5,812) | | | 85.91 | |
Unvested at June 30, 2022 | 955,319 | | | $ | 66.73 | |
WESCO INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)
(unaudited)
The following table sets forth a summary of performance-based awards for the six months ended June 30, 2022:
| | | | | | | | | | | |
| Awards | | Weighted- Average Fair Value |
Unvested at December 31, 2021 | 380,819 | | | $ | 59.23 | |
Granted | 83,991 | | | 122.09 | |
Vested | (115,394) | | | 54.64 | |
Forfeited | (2,834) | | | 76.80 | |
Unvested at June 30, 2022 | 346,582 | | | $ | 75.91 | |
Wesco recognized $15.8 million and $7.2 million of non-cash stock-based compensation expense for the three months ended June 30, 2022 and 2021, respectively, and $24.7 million and $13.2 million for the six months ended June 30, 2022 and 2021, respectively, which is included in selling, general and administrative expenses for all such periods. As of June 30, 2022, there was $71.4 million of total unrecognized compensation expense related to non-vested stock-based compensation arrangements for all awards previously made of which approximately $22.1 million is expected to be recognized over the remainder of 2022, $32.1 million in 2023, $15.4 million in 2024 and $1.8 million in 2025.
6. EARNINGS PER SHARE
Basic earnings per share is computed by dividing net income attributable to common stockholders by the weighted-average number of common shares outstanding during the periods. Diluted earnings per share is computed by dividing net income attributable to common stockholders 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.
The following table sets forth the details of basic and diluted earnings per share:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Six Months Ended |
| June 30 | | June 30 |
(In thousands, except per share data) | 2022 | | 2021 | | 2022 | | 2021 |
Net income attributable to WESCO International, Inc. | $ | 220,706 | | | $ | 119,195 | | | $ | 401,949 | | | $ | 178,373 | |
Less: Preferred stock dividends | 14,352 | | | 14,352 | | | 28,704 | | | 28,704 | |
Net income attributable to common stockholders | $ | 206,354 | | | $ | 104,843 | | | $ | 373,245 | | | $ | 149,669 | |
Weighted-average common shares outstanding used in computing basic earnings per share | 50,717 | | | 50,243 | | | 50,657 | | | 50,184 | |
Common shares issuable upon exercise of dilutive equity awards | 1,503 | | | 1,751 | | | 1,572 | | | 1,691 | |
Weighted-average common shares outstanding and common share equivalents used in computing diluted earnings per share | 52,220 | | | 51,994 | | | 52,229 | | | 51,875 | |
Earnings per share attributable to common stockholders | | | | | | | |
Basic | $ | 4.07 | | | $ | 2.09 | | | $ | 7.37 | | | $ | 2.98 | |
Diluted | $ | 3.95 | | | $ | 2.02 | | | $ | 7.15 | | | $ | 2.89 | |
The computation of diluted earnings per share attributable to common stockholders excludes stock-based awards that would have had an antidilutive effect on earnings per share. For the three and six months ended June 30, 2022, there were 89,550 antidilutive shares. For the three and six months ended June 30, 2021, there were 139,592 antidilutive shares.
WESCO INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)
(unaudited)
7. DEBT
The following table sets forth Wesco's outstanding indebtedness:
| | | | | | | | | | | |
| As of |
| June 30, 2022 | | December 31, 2021 |
| (In thousands) |
International lines of credit | |