WESCO INTERNATIONAL INC [WCC] Filings

10-Q 1 wcc-20220930.htm 10-Q wcc-20220930

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


☐						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 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

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.			24

Item 3. Quantitative and Qualitative Disclosures About Market Risk.			43

Item 4. Controls and Procedures.			43

PART II—OTHER INFORMATION

Item 1. Legal Proceedings.			44

Item 1A. Risk Factors.			44

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.			44

Item 6. Exhibits.			44

Signatures			46

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, except share data)

(unaudited)


	As of
Assets	September 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 receivable	388,748		375,885
Inventories	3,490,121		2,666,219
Prepaid expenses and other current assets	162,068		137,811
Total current assets	7,897,087		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, net	1,853,451		1,944,141
Goodwill	3,123,430		3,208,333
Other assets	259,354		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 costs	239,309		314,962
Short-term debt and current portion of long-term debt	69,295		9,528
Other current liabilities	680,227		585,067
Total current liabilities	3,567,572		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 liabilities	455,356		414,248
Deferred income taxes	443,245		437,444
Other noncurrent liabilities	229,629		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 capital	1,993,709		1,969,332
Retained earnings	3,590,688		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' equity	4,196,820		3,782,524
Noncontrolling interests	(4,874)		(6,313)
Total stockholders’ equity	4,191,946		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.

WESCO INTERNATIONAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

(In thousands, except per share data)

(unaudited)


	Three Months Ended				Nine Months Ended
	September 30				September 30
	2022		2021		2022		2021
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 expenses	760,200		721,795		2,251,162		2,057,952
Depreciation and amortization	42,723		56,732		135,569		144,645
Income from operations	401,592		229,466		1,056,330		581,589
Interest expense, net	75,057		69,720		207,155		207,683
Other expense (income), net	688		(5,320)		3,007		(8,929)
Income before income taxes	325,847		165,066		846,168		382,835
Provision for income taxes	85,637		44,870		203,178		84,201
Net income	240,210		120,196		642,990		298,634
Less: Net income attributable to noncontrolling interests	608		600		1,439		665
Net income attributable to WESCO International, Inc.	239,602		119,596		641,551		297,969
Less: Preferred stock dividends	14,352		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.

WESCO INTERNATIONAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(unaudited)


	Nine Months Ended
	September 30
	2022		2021
Operating activities:
Net income	$	642,990	$	298,634
Adjustments to reconcile net income to net cash (used in) provided by operating activities:
Depreciation and amortization	135,569		144,645
Stock-based compensation expense	34,446		22,784
Amortization of debt discount and debt issuance costs	11,610		15,290
Gain on divestitures, net	—		(8,927)
Other operating activities, net	4,237		8,604
Deferred income taxes	7,246		(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 payable	479,645		550,858
Accrued payroll and benefit costs	(88,420)		65,136
Other current and noncurrent liabilities	102,596		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, net	2,159		5,766
Net cash (used in) provided by investing activities	(57,207)		36,606
Financing activities:
Proceeds (repayments) of short-term debt, net	1,324		(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 debt	3,140,953		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 activities	477,251		(410,204)

Effect of exchange rate changes on cash and cash equivalents	12,077		3,592
Net change in cash and cash equivalents	21,500		(197,336)
Cash and cash equivalents at the beginning of period	212,583		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.

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)
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 interests																	608
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.

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)
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 interests																	600
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.

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.

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 Ended				Nine Months Ended
	September 30				September 30
(In thousands)	2022		2021		2022		2021
Electrical & Electronic Solutions	$	2,234,771	$	1,982,485	$	6,654,883	$	5,626,309
Communications & Security Solutions	1,602,459		1,488,689		4,638,631		4,200,424
Utility & Broadband Solutions	1,608,686		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 Ended				Nine Months Ended
	September 30				September 30
(In thousands)	2022		2021		2022		2021
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.

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		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	(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, 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	$	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
2023	81,838
2024	79,445
2025	76,389
2026	71,073
Thereafter	733,011

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 Ended				Nine Months Ended
	September 30, 2022		September 30, 2021		September 30, 2022		September 30, 2021
Stock options granted	3,249		—		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 granted	1,669		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

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 Ended			Nine Months Ended
	September 30, 2022		September 30, 2021	September 30, 2022		September 30, 2021
Risk free interest rate	2.9	%	n/a	2.0	%	0.8	%
Expected life (in years)	7		n/a	7		7
Expected volatility	44	%	n/a	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.

The following table sets forth a summary of stock options for the nine months ended September 30, 2022:


	Awards	Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term (In years)	Aggregate Intrinsic Value (In thousands)
Outstanding at December 31, 2021	—	$	—
Granted	92,799	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:


	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	(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.

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:


			Awards						Weighted- Average Fair Value

WESCO INTERNATIONAL INC [WCC] Filings

WESCO INTERNATIONAL INC [WCC-PA] Filings