10-Q 1 wcc-20220930.htm 10-Q wcc-20220930
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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 September 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 ClassTrading Symbol(s)Name of Exchange on which registered
Common Stock, par value $.01 per shareWCCNew York Stock Exchange
Depositary Shares, each representing a 1/1,000th interest in a share of Series A Fixed-Rate Reset Cumulative Perpetual Preferred StockWCC PR ANew 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 filerAccelerated filer
Non-accelerated filerSmaller 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 3, 2022, 50,843,668 shares of common stock, $0.01 par value, of the registrant were outstanding.



WESCO INTERNATIONAL, INC. AND SUBSIDIARIES

QUARTERLY REPORT ON FORM 10-Q



1


WESCO INTERNATIONAL, INC. AND SUBSIDIARIES

PART I—FINANCIAL INFORMATION
Item 1. Financial Statements.

2


WESCO INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
(unaudited)
As of
AssetsSeptember 30,
2022
December 31,
2021
Current assets:  
Cash and cash equivalents$234,083 $212,583 
Trade accounts receivable, net of allowance for expected credit losses of $46,663 and $41,723 in 2022 and 2021, respectively
3,622,067 2,957,613 
Other accounts receivable388,748 375,885 
Inventories3,490,121 2,666,219 
Prepaid expenses and other current assets162,068 137,811 
Total current assets7,897,087 6,350,111 
Property, buildings and equipment, net of accumulated depreciation of $406,960 and $365,345 in 2022 and 2021, respectively
372,083 379,012 
Operating lease assets 575,159 530,863 
Intangible assets, net1,853,451 1,944,141 
Goodwill3,123,430 3,208,333 
Other assets259,354 205,239 
    Total assets$14,080,564 $12,617,699 
Liabilities and Stockholders’ Equity  
Current liabilities:  
Accounts payable$2,578,741 $2,140,251 
Accrued payroll and benefit costs239,309 314,962 
Short-term debt and current portion of long-term debt69,295 9,528 
Other current liabilities 680,227 585,067 
Total current liabilities3,567,572 3,049,808 
Long-term debt, net of debt discount and debt issuance costs of $60,765 and $70,572 in 2022 and 2021, respectively
5,192,816 4,701,542 
Operating lease liabilities455,356 414,248 
Deferred income taxes443,245 437,444 
Other noncurrent liabilities229,629 238,446 
    Total liabilities$9,888,618 $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, 68,523,468 and 68,162,297 shares issued, and 50,836,855 and 50,474,806 shares outstanding in 2022 and 2021, respectively
685 682 
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 capital1,993,709 1,969,332 
Retained earnings3,590,688 3,004,690 
Treasury stock, at cost; 22,026,044 and 22,026,922 shares in 2022 and 2021, respectively
(957,805)(956,188)
Accumulated other comprehensive loss(430,500)(236,035)
Total WESCO International, Inc. stockholders' equity4,196,820 3,782,524 
Noncontrolling interests(4,874)(6,313)
    Total stockholders’ equity4,191,946 3,776,211 
    Total liabilities and stockholders’ equity$14,080,564 $12,617,699 

The accompanying notes are an integral part of the condensed consolidated financial statements.
3


WESCO INTERNATIONAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(In thousands, except per share data)
(unaudited)
 Three Months EndedNine Months Ended
September 30September 30
2022202120222021
Net sales$5,445,916 $4,728,325 $15,861,622 $13,365,592 
Cost of goods sold (excluding depreciation and amortization)4,241,401 3,720,332 12,418,561 10,581,406 
Selling, general and administrative expenses760,200 721,795 2,251,162 2,057,952 
Depreciation and amortization42,723 56,732 135,569 144,645 
Income from operations401,592 229,466 1,056,330 581,589 
Interest expense, net75,057 69,720 207,155 207,683 
Other expense (income), net688 (5,320)3,007 (8,929)
Income before income taxes325,847 165,066 846,168 382,835 
Provision for income taxes85,637 44,870 203,178 84,201 
Net income240,210 120,196 642,990 298,634 
Less: Net income attributable to noncontrolling interests608 600 1,439 665 
Net income attributable to WESCO International, Inc.239,602 119,596 641,551 297,969 
Less: Preferred stock dividends14,352 14,352 43,056 43,056 
Net income attributable to common stockholders$225,250 $105,244 $598,495 $254,913 
Other comprehensive income:
Foreign currency translation adjustments and other(146,732)(50,277)(194,465)(12,217)
Comprehensive income attributable to common stockholders$78,518 $54,967 $404,030 $242,696 
Earnings per share attributable to common stockholders
Basic$4.43 $2.09 $11.80 $5.07 
Diluted$4.30 $2.02 $11.42 $4.91 

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

4


WESCO INTERNATIONAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(unaudited)
 Nine Months Ended
 September 30
20222021
Operating activities:  
Net income$642,990 $298,634 
Adjustments to reconcile net income to net cash (used in) provided by operating activities:
Depreciation and amortization135,569 144,645 
Stock-based compensation expense34,446 22,784 
Amortization of debt discount and debt issuance costs11,610 15,290 
Gain on divestitures, net (8,927)
Other operating activities, net4,237 8,604 
Deferred income taxes7,246 (5,340)
Changes in assets and liabilities:
Trade accounts receivable, net(737,639)(521,491)
Other accounts receivable (15,097)(84,326)
Inventories(886,328)(428,405)
Other current and noncurrent assets(101,476)19,299 
Accounts payable479,645 550,858 
Accrued payroll and benefit costs(88,420)65,136 
Other current and noncurrent liabilities102,596 95,909 
Net cash (used in) provided by operating activities(410,621)172,670 
Investing activities:
Capital expenditures(59,366)(25,170)
Proceeds from divestitures 56,010 
Other investing activities, net2,159 5,766 
Net cash (used in) provided by investing activities(57,207)36,606 
Financing activities:
Proceeds (repayments) of short-term debt, net1,324 (10,288)
Repayment of 5.375% Senior Notes due 2021 (500,000)
Repayment of 5.375% Senior Notes due 2024 (354,704)
Proceeds from issuance of long-term debt3,140,953 2,470,306 
Repayments of long-term debt(2,592,996)(1,935,655)
Payments for taxes related to net-share settlement of equity awards(24,963)(20,784)
Payment of dividends(43,056)(43,056)
Debt issuance costs(2,333)(1,849)
Other financing activities, net(1,678)(14,174)
Net cash provided by (used in) financing activities477,251 (410,204)
Effect of exchange rate changes on cash and cash equivalents12,077 3,592 
Net change in cash and cash equivalents21,500 (197,336)
Cash and cash equivalents at the beginning of period212,583 449,135 
Cash and cash equivalents at the end of period$234,083 $251,799 
Supplemental disclosures:
Cash paid for interest$140,668 $141,594 
Cash paid for income taxes$219,826 $53,759 
Right-of-use assets obtained in exchange for new operating lease liabilities$170,498 $120,384 

The accompanying notes are an integral part of the condensed consolidated financial statements.
5

WESCO INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(In thousands, except shares)
(unaudited)
   Class BSeries A Retained  Accumulated Other Comprehensive Income (Loss)
 Common StockCommon StockPreferred StockAdditionalEarningsTreasury StockNoncontrolling
AmountSharesAmountSharesAmountSharesCapital(Deficit)AmountSharesInterests
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 interests388 
Net income attributable to WESCO International, Inc. 181,243 
Preferred stock dividends(14,352)
Translation adjustments and other31,640 
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 interests443 
Net income attributable to WESCO International, Inc.220,706 
Preferred stock dividends(14,352)
Translation adjustments and other10 (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)
Exercise of stock-based awards
2 174,996 38 (722)4,037 
Stock-based compensation expense
9,712 
Tax withholding related to vesting of restricted stock units and retirement of common stock
(1)(60,529)(2,023)(4,411)
Noncontrolling interests608 
Net income attributable to WESCO International, Inc.239,602 
Preferred stock dividends(14,352)
Translation adjustments and other(10)15 (1,087)(146,732)
Balance, September 30, 2022$685 68,523,468 $43 4,339,431 $ 21,612 $1,993,709 $3,590,688 $(957,805)(22,026,044)$(4,874)$(430,500)

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


6

WESCO INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(In thousands, except shares)
(unaudited)
   Class BSeries A Retained  Accumulated Other Comprehensive Income (Loss)
 Common StockCommon StockPreferred StockAdditionalEarningsTreasury StockNoncontrolling
AmountSharesAmountSharesAmountSharesCapital(Deficit)AmountSharesInterests
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 other16,841 
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 interests89 
Net income attributable to WESCO International, Inc.119,195 
Preferred stock dividends(14,352)
Translation adjustments and other21,219 
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)
Exercise of stock-based awards
2 187,770 (2)(2,306)(19,858)
Stock-based compensation expense
9,605 
Tax withholding related to vesting of restricted stock units and retirement of common stock
(1)(58,214)(1,887)(4,162)
Noncontrolling interests600 
Net income attributable to WESCO International, Inc.119,596 
Preferred stock dividends(14,352)
Translation adjustments and other(50,277)
Balance, September 30, 2021$681 68,049,518 $43 4,339,431 $ 21,612 $1,961,369 $2,851,747 $(950,004)(21,980,847)$(6,668)$(275,351)

The accompanying notes are an integral part of the condensed consolidated financial statements.
7

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 September 30, 2022, the unaudited Condensed Consolidated Statements of Income and Comprehensive Income and the unaudited Condensed Consolidated Statements of Stockholders' Equity for the three and nine months ended September 30, 2022, and 2021, and the unaudited Condensed Consolidated Statements of Cash Flows for the nine months ended September 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 ASU 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.
In September 2022, the FASB issued ASU 2022-04, Supplier Finance Programs (Subtopic 405-50): Disclosure of Supplier Finance Program Obligations, which requires that a buyer in a supplier finance program disclose sufficient information about the program to allow a user of financial statements to understand the program's nature, activity during the period, changes from period to period, and potential magnitude. The amendments in this ASU are effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years, except for the amendment on rollforward information, which is effective for fiscal years beginning after December 15, 2023. Early adoption is permitted. 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.
8

WESCO INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)
(unaudited)

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.
The following tables disaggregate Wesco’s net sales by segment and geography for the periods presented:
Three Months EndedNine Months Ended
 September 30September 30
(In thousands)2022202120222021
Electrical & Electronic Solutions$2,234,771 $1,982,485 $6,654,883 $5,626,309 
Communications & Security Solutions1,602,459 1,488,689 4,638,631 4,200,424 
Utility & Broadband Solutions1,608,686 1,257,151 4,568,108 3,538,859 
Total by segment$5,445,916 $4,728,325 $15,861,622 $13,365,592 
Three Months EndedNine Months Ended
 September 30September 30
(In thousands)2022202120222021
United States$4,050,924 $3,407,437 $11,745,090 $9,656,183 
Canada 765,281 709,507 2,288,146 2,020,395 
Other International(1)
629,711 611,381 1,828,386 1,689,014 
Total by geography(2)
$5,445,916 $4,728,325 $15,861,622 $13,365,592 
(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 September 30, 2022 and December 31, 2021, $55.5 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 September 30, 2022 and December 31, 2021, the Company had contract assets of $38.6 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 September 30, 2022 and 2021 by approximately $120.5 million and $85.8 million, respectively, and by approximately $324.1 million and $246.9 million for the nine months ended September 30, 2022 and 2021, respectively. The variable consideration for the three and nine months ended September 30, 2021 reflect adjustments that reduced the previously disclosed amounts by $9.7 million and $27.8 million, respectively. As of September 30, 2022 and December 31, 2021, the Company's estimated product return obligation was $45.5 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 $77.9 million and $63.5 million for the three months ended September 30, 2022 and 2021, respectively, and $222.0 million and $179.5 million for the nine months ended September 30, 2022 and 2021, respectively.
9

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:
 Nine Months Ended
September 30, 2022
EES
CSSUBSTotal
(In thousands)
Beginning balance, January 1$860,958 $1,121,712 $1,225,663 $3,208,333 
Foreign currency exchange rate changes(44,301)(14,449)(26,153)(84,903)
Ending balance, September 30
$816,657 $1,107,263 $1,199,510 $3,123,430 
Intangible Assets
The components of intangible assets are as follows:
As of
September 30, 2022December 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)
TrademarksIndefinite$791,228 $— $791,228 $795,065 $— $795,065 
Customer relationships
10 - 20
1,400,841 (352,638)1,048,203 1,431,251 (308,180)1,123,071 
Distribution agreements
15 - 19
29,212 (23,936)5,276 29,212 (22,714)6,498 
Trademarks
5 - 12
15,543 (6,799)8,744 38,758 (20,058)18,700 
Non-compete agreements
2
   4,300 (3,493)807 
$2,236,824 $(383,373)$1,853,451 $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 $21.0 million and $37.1 million for the three months ended September 30, 2022 and 2021, respectively, and $71.4 million and $85.8 million for the nine months ended September 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:
For the year ending December 31,(In thousands)
2022$20,467 
202381,838 
202479,445 
202576,389 
202671,073 
Thereafter733,011 
10

WESCO INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)
(unaudited)

5. STOCK-BASED COMPENSATION
Wesco’s stock-based 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. 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 participant 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 nine months ended September 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 EndedNine Months Ended
September 30,
2022
September 30,
2021
September 30,
2022
September 30,
2021
Stock options granted3,249  92,799  
Weighted-average fair value$54.13 $ $57.15 $ 
Stock-settled stock appreciation rights granted   139,592 
Weighted-average fair value$ $ $ $33.19 
Restricted stock units granted1,669 6,897 226,615 314,480 
Weighted-average fair value$112.33 $108.76 $122.04 $77.81 
Performance-based awards granted  83,991 122,812 
Weighted-average fair value$ $ $122.09 $76.76 

11

WESCO INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)
(unaudited)

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:
Three Months EndedNine Months Ended
September 30,
2022
September 30,
2021
September 30,
2022
September 30,
2021
Risk free interest rate2.9 %n/a2.0 %0.8 %
Expected life (in years)7n/a77
Expected volatility44 %n/a43 %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.
The following table sets forth a summary of stock options for the nine months ended September 30, 2022:
AwardsWeighted-
Average
Exercise
Price
Weighted-
Average
Remaining
Contractual Term (In years)
Aggregate
Intrinsic
Value
(In thousands)
Outstanding at December 31, 2021
 $   
     Granted92,799 121.58   
     Exercised   
     Forfeited(5,452)122.09   
Outstanding at September 30, 2022
87,347 $121.55 9.3$39 
Exercisable at September 30, 2022
879 $122.09 0.9$ 
The following table sets forth a summary of stock-settled stock appreciation rights for the nine months ended September 30, 2022:
AwardsWeighted-
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(101,076)61.79  
     Forfeited(8,891)73.35   
Outstanding at September 30, 2022
1,260,421 $62.03 5.4$72,283 
Exercisable at September 30, 2022
1,095,626 $61.92 5.1$62,959 
For the nine months ended September 30, 2022, the aggregate intrinsic value of stock-settled stock appreciation rights exercised during such period was $7.3 million.

12

WESCO INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)
(unaudited)

The following table sets forth a summary of time-based restricted stock units for the nine months ended September 30, 2022:
AwardsWeighted-
Average
Fair
Value