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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, 2023
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 November 1, 2023, 51,075,964 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 millions, except shares)
(unaudited) | | | | | | | | | | | |
| As of |
| Assets | September 30,
2023 | | December 31,
2022 |
| Current assets: | | | |
| Cash and cash equivalents | $ | 631.4 | | | $ | 527.3 | |
Trade accounts receivable, net of allowance for expected credit losses of $58.4 and $46.5 in 2023 and 2022, respectively | 3,795.0 | | | 3,662.7 | |
| Other accounts receivable | 411.7 | | | 435.7 | |
| Inventories | 3,541.4 | | | 3,498.8 | |
| Prepaid expenses and other current assets | 231.9 | | | 206.0 | |
| Total current assets | 8,611.4 | | | 8,330.5 | |
Property, buildings and equipment, net of accumulated depreciation of $484.7 and $425.8 in 2023 and 2022, respectively | 411.1 | | | 402.7 | |
| Operating lease assets | 696.5 | | | 625.1 | |
| Intangible assets, net | 1,874.9 | | | 1,943.4 | |
| Goodwill | 3,237.7 | | | 3,240.9 | |
| Other assets | 337.0 | | | 269.1 | |
| Total assets | $ | 15,168.6 | | | $ | 14,811.7 | |
| Liabilities and Stockholders’ Equity | | | |
| Current liabilities: | | | |
| Accounts payable | $ | 2,650.0 | | | $ | 2,728.2 | |
| Accrued payroll and benefit costs | 162.1 | | | 269.1 | |
| Short-term debt and current portion of long-term debt | 14.7 | | | 70.5 | |
| Other current liabilities | 826.8 | | | 749.5 | |
| Total current liabilities | 3,653.6 | | | 3,817.3 | |
Long-term debt, net of debt discount and debt issuance costs of $46.8 and $57.9 in 2023 and 2022, respectively | 5,378.3 | | | 5,346.0 | |
| Operating lease liabilities | 575.4 | | | 510.4 | |
| Deferred income taxes | 458.3 | | | 460.7 | |
| Other noncurrent liabilities | 220.5 | | | 227.7 | |
| Total liabilities | $ | 10,286.1 | | | $ | 10,362.1 | |
| Commitments and contingencies (Note 11) | | | |
| 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 2023 and 2022 | — | | | — | |
Common stock, $.01 par value; 210,000,000 shares authorized, 69,277,345 and 68,535,704 shares issued, and 51,074,676 and 50,759,482 shares outstanding in 2023 and 2022, respectively | 0.7 | | | 0.7 | |
Class B nonvoting convertible common stock, $.01 par value; 20,000,000 shares authorized, 4,339,431 issued and no shares outstanding in 2023 and 2022, respectively | — | | | — | |
| Additional capital | 2,023.9 | | | 2,005.4 | |
| Retained earnings | 4,283.5 | | | 3,795.0 | |
Treasury stock, at cost; 22,542,100 and 22,115,653 shares in 2023 and 2022, respectively | (1,035.9) | | | (969.1) | |
| Accumulated other comprehensive loss | (384.0) | | | (377.7) | |
| Total WESCO International, Inc. stockholders' equity | 4,888.2 | | | 4,454.3 | |
| Noncontrolling interests | (5.7) | | | (4.7) | |
| Total stockholders’ equity | 4,882.5 | | | 4,449.6 | |
| Total liabilities and stockholders’ equity | $ | 15,168.6 | | | $ | 14,811.7 | |
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 millions, except per share data)
(unaudited)
| | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Nine Months Ended |
| September 30 | | September 30 |
| 2023 | | 2022 | | 2023 | | 2022 |
| Net sales | $ | 5,644.4 | | | $ | 5,445.9 | | | $ | 16,911.8 | | | $ | 15,861.6 | |
| Cost of goods sold (excluding depreciation and amortization) | 4,422.4 | | | 4,241.4 | | | 13,238.9 | | | 12,418.6 | |
| Selling, general and administrative expenses | 796.4 | | | 760.2 | | | 2,445.8 | | | 2,251.1 | |
| Depreciation and amortization | 45.1 | | | 42.7 | | | 136.4 | | | 135.6 | |
| Income from operations | 380.5 | | | 401.6 | | | 1,090.7 | | | 1,056.3 | |
| Interest expense, net | 98.5 | | | 75.1 | | | 292.3 | | | 207.1 | |
| Other expense, net | 3.7 | | | 0.7 | | | 14.6 | | | 3.0 | |
| Income before income taxes | 278.3 | | | 325.8 | | | 783.8 | | | 846.2 | |
| Provision for income taxes | 44.3 | | | 85.6 | | | 160.2 | | | 203.2 | |
| Net income | 234.0 | | | 240.2 | | | 623.6 | | | 643.0 | |
| Less: Net income attributable to noncontrolling interests | 0.6 | | | 0.6 | | | — | | | 1.4 | |
| Net income attributable to WESCO International, Inc. | 233.4 | | | 239.6 | | | 623.6 | | | 641.6 | |
| Less: Preferred stock dividends | 14.4 | | | 14.4 | | | 43.1 | | | 43.1 | |
| Net income attributable to common stockholders | $ | 219.0 | | | $ | 225.2 | | | $ | 580.5 | | | $ | 598.5 | |
| Other comprehensive income: | | | | | | | |
| Foreign currency translation adjustments and other | (64.5) | | | (146.7) | | | (6.3) | | | (194.5) | |
| Comprehensive income attributable to common stockholders | $ | 154.5 | | | $ | 78.5 | | | $ | 574.2 | | | $ | 404.0 | |
| | | | | | | |
| Earnings per share attributable to common stockholders | | | | | | | |
| Basic | $ | 4.28 | | | $ | 4.43 | | | $ | 11.34 | | | $ | 11.80 | |
| Diluted | $ | 4.20 | | | $ | 4.30 | | | $ | 11.08 | | | $ | 11.42 | |
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 millions)
(unaudited) | | | | | | | | | | | |
| | Nine Months Ended |
| | September 30 |
| 2023 | | 2022 |
| Operating activities: | | | |
| Net income | $ | 623.6 | | | $ | 643.0 | |
| Adjustments to reconcile net income to net cash provided by (used in) operating activities: | | | |
| Depreciation and amortization | 136.4 | | | 135.6 | |
| Stock-based compensation expense | 34.7 | | | 34.4 | |
| Amortization of debt discount and debt issuance costs | 11.1 | | | 11.6 | |
| Deferred income taxes | 6.5 | | | 7.2 | |
| Other operating activities, net | 1.4 | | | 4.2 | |
| | | |
| Changes in assets and liabilities: | | | |
| Trade accounts receivable, net | (133.4) | | | (737.6) | |
| Other accounts receivable | 18.7 | | | (15.1) | |
| Inventories | (62.7) | | | (886.3) | |
| Other current and noncurrent assets | (51.8) | | | (101.4) | |
| Accounts payable | (86.5) | | | 479.6 | |
| Accrued payroll and benefit costs | (120.9) | | | (88.4) | |
| Other current and noncurrent liabilities | 46.8 | | | 102.6 | |
| Net cash provided by (used in) operating activities | 423.9 | | | (410.6) | |
| Investing activities: | | | |
| Capital expenditures | (63.6) | | | (59.4) | |
| Other investing activities, net | 2.4 | | | 2.2 | |
| Net cash used in investing activities | (61.2) | | | (57.2) | |
| Financing activities: | | | |
| Proceeds from short-term debt, net | 1.3 | | | 1.3 | |
| Repayment of 5.50% Anixter Senior Notes due 2023 (Note 8) | (58.6) | | | — | |
| Proceeds from issuance of long-term debt | 2,114.2 | | | 3,141.0 | |
| Repayments of long-term debt | (2,097.9) | | | (2,593.0) | |
| Payments for taxes related to net-share settlement of equity awards | (68.0) | | | (25.0) | |
| Repurchases of common stock | (50.0) | | | — | |
| Payment of common stock dividends | (57.6) | | | — | |
| Payment of preferred stock dividends | (43.1) | | | (43.1) | |
| Payment of dividends to noncontrolling interests | (1.1) | | | — | |
| Other financing activities, net | 7.4 | | | (4.0) | |
| Net cash (used in) provided by financing activities | (253.4) | | | 477.2 | |
| | | |
| Effect of exchange rate changes on cash and cash equivalents | (5.2) | | | 12.1 | |
| Net change in cash and cash equivalents | 104.1 | | | 21.5 | |
| Cash and cash equivalents at the beginning of period | 527.3 | | | 212.6 | |
| Cash and cash equivalents at the end of period | $ | 631.4 | | | $ | 234.1 | |
| Supplemental disclosures: | | | |
| Cash paid for interest | $ | 235.0 | | | $ | 140.7 | |
| Cash paid for income taxes | $ | 165.0 | | | $ | 219.8 | |
| Right-of-use assets obtained in exchange for new operating lease liabilities | $ | 186.1 | | | $ | 170.5 | |
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 millions, 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 | | | Total |
| Balance, December 31, 2022 | | $ | 0.7 | | | 68,535,704 | | | $ | — | | | 4,339,431 | | | $ | — | | | 21,612 | | | $ | 2,005.4 | | | $ | 3,795.0 | | | $ | (969.1) | | | (22,115,653) | | | $ | (4.7) | | | $ | (377.7) | | | $ | 4,449.6 | |
| Exercise of stock-based awards | | — | | | 811,309 | | | | | | | | | | | 0.3 | | | | | (12.9) | | | (79,817) | | | | | | | (12.6) | |
| Stock-based compensation expense | | | | | | | | | | | | | | 11.7 | | | | | | | | | | | | | 11.7 | |
| Tax withholding related to vesting of restricted stock units and retirement of common stock | | — | | | (236,953) | | | | | | | | | | | (14.2) | | | (24.5) | | | | | | | | | | | (38.7) | |
| Noncontrolling interests | | | | | | | | | | | | | | | | | | | | | | 0.1 | | | | | 0.1 | |
| Net income attributable to WESCO International, Inc. | | | | | | | | | | | | | | | | 197.1 | | | | | | | | | | | 197.1 | |
| Common stock dividends | | | | | | | | | | | | | | | | (19.2) | | | | | | | | | | | (19.2) | |
| Preferred stock dividends | | | | | | | | | | | | | | | | (14.4) | | | | | | | | | | | (14.4) | |
| Translation adjustments and other | | | | | | | | | | | | | | 0.1 | | | (1.0) | | | | | | | | | 17.0 | | | 16.1 | |
| Balance, March 31, 2023 | | $ | 0.7 | | | 69,110,060 | | | $ | — | | | 4,339,431 | | | $ | — | | | 21,612 | | | $ | 2,003.3 | | | $ | 3,933.0 | | | $ | (982.0) | | | (22,195,470) | | | $ | (4.6) | | | $ | (360.7) | | | $ | 4,589.7 | |
| Exercise of stock-based awards | | — | | | 56,044 | | | | | | | | | | | 0.1 | | | | | (2.5) | | | (15,895) | | | | | | | (2.4) | |
| Stock-based compensation expense | | | | | | | | | | | | | | 12.2 | | | | | | | | | | | | | 12.2 | |
| Tax withholding related to vesting of restricted stock units and retirement of common stock | | — | | | (1,111) | | | | | | | | | | | (0.1) | | | (0.1) | | | | | | | | | | | (0.2) | |
| Noncontrolling interests | | | | | | | | | | | | | | | | | | | | | | (0.7) | | | | | (0.7) | |
| Net income attributable to WESCO International, Inc. | | | | | | | | | | | | | | | | 193.1 | | | | | | | | | | | 193.1 | |
| Common stock dividends | | | | | | | | | | | | | | | | (19.2) | | | | | | | | | | | (19.2) | |
| Preferred stock dividends | | | | | | | | | | | | | | | | (14.4) | | | | | | | | | | | (14.4) | |
| Translation adjustments and other | | | | | | | | | | | | | | | | 1.0 | | | | | | | | | 41.2 | | | 42.2 | |
| Balance, June 30, 2023 | | $ | 0.7 | | | 69,164,993 | | | $ | — | | | 4,339,431 | | | $ | — | | | 21,612 | | | $ | 2,015.5 | | | $ | 4,093.4 | | | $ | (984.5) | | | (22,211,365) | | | $ | (5.3) | | | $ | (319.5) | | | $ | 4,800.3 | |
| Exercise of stock-based awards | | — | | | 184,546 | | | | | | | | | | | 0.1 | | | | | (0.9) | | | (5,286) | | | | | | | (0.8) | |
| Stock-based compensation expense | | | | | | | | | | | | | | 10.8 | | | | | | | | | | | | | 10.8 | |
| Repurchases of common stock, including excise taxes | | | | | | | | | | | | | | | | | | (50.5) | | | (325,449) | | | | | | | (50.5) | |
| Tax withholding related to vesting of restricted stock units and retirement of common stock | | — | | | (72,194) | | | | | | | | | | | (2.5) | | | (10.4) | | | | | | | | | | | (12.9) | |
| Noncontrolling interests | | | | | | | | | | | | | | | | | | | | | | 0.6 | | | | | 0.6 | |
| Net income attributable to WESCO International, Inc. | | | | | | | | | | | | | | | | 233.4 | | | | | | | | | | | 233.4 | |
| Common stock dividends | | | | | | | | | | | | | | | | (19.1) | | | | | | | | | | | (19.1) | |
| Preferred stock dividends | | | | | | | | | | | | | | | | (14.4) | | | | | | | | | | | (14.4) | |
| Dividends to noncontrolling interests | | | | | | | | | | | | | | | | | | | | | | (1.1) | | | | | (1.1) | |
| Translation adjustments and other | | | | | | | | | | | | | | | | 0.6 | | | | | | | 0.1 | | | (64.5) | | | (63.8) | |
| Balance, September 30, 2023 | | $ | 0.7 | | | 69,277,345 | | | $ | — | | | 4,339,431 | | | $ | — | | | 21,612 | | | $ | 2,023.9 | | | $ | 4,283.5 | | | $ | (1,035.9) | | | (22,542,100) | | | $ | (5.7) | | | $ | (384.0) | | | $ | 4,882.5 | |
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 millions, 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 | | | Total |
| Balance, December 31, 2021 | | $ | 0.7 | | | 68,162,297 | | | $ | — | | | 4,339,431 | | | $ | — | | | 21,612 | | | $ | 1,969.3 | | | $ | 3,004.7 | | | $ | (956.2) | | | (22,026,922) | | | $ | (6.3) | | | $ | (236.0) | | | $ | 3,776.2 | |
Exercise of stock-based awards | | — | | | 365,833 | | | | | | | | | | | — | | | | | (0.6) | | | (858) | | | | | | | (0.6) | |
Stock-based compensation expense | | | | | | | | | | | | | | 8.9 | | | | | | | | | | | | | 8.9 | |
Tax withholding related to vesting of restricted stock units and retirement of common stock | | — | | | (129,869) | | | | | | | | | | | (7.8) | | | (8.1) | | | | | | | | | | | (15.9) | |
| Noncontrolling interests | | | | | | | | | | | | | | | | | | | | | | 0.4 | | | | | 0.4 | |
| Net income attributable to WESCO International, Inc. | | | | | | | | | | | | | | | | 181.2 | | | | | | | | | | | 181.2 | |
| Preferred stock dividends | | | | | | | | | | | | | | | | (14.4) | | | | | | | | | | | (14.4) | |
| Translation adjustments and other | | | | | | | | | | | | | | | | | | | | | | | | 31.6 | | | 31.6 | |
| Balance, March 31, 2022 | | $ | 0.7 | | | 68,398,261 | | | $ | — | | | 4,339,431 | | | $ | — | | | 21,612 | | | $ | 1,970.4 | | | $ | 3,163.4 | | | $ | (956.8) | | | (22,027,780) | | | $ | (5.9) | | | $ | (204.4) | | | $ | 3,967.4 | |
Exercise of stock-based awards | | — | | | 11,648 | | | | | | | | | | | — | | | | | (0.3) | | | (2,301) | | | | | | | (0.3) | |
Stock-based compensation expense | | | | | | | | | | | | | | 15.8 | | | | | | | | | | | | | 15.8 | |
Tax withholding related to vesting of restricted stock units and retirement of common stock | | — | | | (908) | | | | | | | | | | | — | | | — | | | | | | | | | | | — | |
| Noncontrolling interests | | | | | | | | | | | | | | | | | | | | | | 0.4 | | | | | 0.4 | |
| Net income attributable to WESCO International, Inc. | | | | | | | | | | | | | | | | 220.7 | | | | | | | | | | | 220.7 | |
| Preferred stock dividends | | | | | | | | | | | | | | | | (14.4) | | | | | | | | | | | (14.4) | |
| Translation adjustments and other | | | | | | | | | | | | | | (0.2) | | | 1.2 | | | | | | | | | (79.4) | | | (78.4) | |
| Balance, June 30, 2022 | | $ | 0.7 | | | 68,409,001 | | | $ | — | | | 4,339,431 | | | $ | — | | | 21,612 | | | $ | 1,986.0 | | | $ | 3,370.9 | | | $ | (957.1) | | | (22,030,081) | | | $ | (5.5) | | | $ | (283.8) | | | $ | 4,111.2 | |
Exercise of stock-based awards | | — | | | 174,996 | | | | | | | | | | | — | | | | | (0.7) | | | 4,037 | | | | | | | (0.7) | |
Stock-based compensation expense | | | | | | | | | | | | | | 9.7 | | | | | | | | | | | | | 9.7 | |
Tax withholding related to vesting of restricted stock units and retirement of common stock | | — | | | (60,529) | | | | | | | | | | | (2.0) | | | (4.4) | | | | | | | | | | | (6.4) | |
| Noncontrolling interests | | | | | | | | | | | | | | | | | | | | | | 0.6 | | | | | 0.6 | |
| Net income attributable to WESCO International, Inc. | | | | | | | | | | | | | | | | 239.6 | | | | | | | | | | | 239.6 | |
| Preferred stock dividends | | | | | | | | | | | | | | | | (14.4) | | | | | | | | | | | (14.4) | |
| Translation adjustments and other | | | | | | | | | | | | | | | | (1.0) | | | | | | | | | (146.7) | | | (147.7) | |
| Balance, September 30, 2022 | | $ | 0.7 | | | 68,523,468 | | | $ | — | | | 4,339,431 | | | $ | — | | | 21,612 | | | $ | 1,993.7 | | | $ | 3,590.7 | | | $ | (957.8) | | | (22,026,044) | | | $ | (4.9) | | | $ | (430.5) | | | $ | 4,191.9 | |
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, 2022, as filed with the SEC on February 21, 2023. The Condensed Consolidated Balance Sheet at December 31, 2022 was derived from the audited Consolidated Financial Statements as of that date, but does not include all the disclosures required by accounting principles generally accepted in the United States of America.
The unaudited Condensed Consolidated Balance Sheet as of September 30, 2023, the unaudited Condensed Consolidated Statements of Income and Comprehensive Income, the unaudited Condensed Consolidated Statements of Stockholders' Equity for the three and nine months ended September 30, 2023 and 2022, and the unaudited Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2023 and 2022, 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 September 2022, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“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. The Company adopted this ASU in the first quarter of 2023, except for the amendment on rollforward information, which the Company will begin disclosing in its Annual Report on Form 10-K for the fiscal year ending December 31, 2024. The adoption of this ASU resulted in additional disclosure of the Company's supplier finance program, as described below.
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)
Supplier Finance Programs
The Company has supplier finance programs that are administered by intermediaries. Under these arrangements, participating suppliers may elect to receive early payment of invoices that have been confirmed by the Company, less an interest deduction or fees paid by the supplier, which is paid to the supplier by third-party finance providers. Wesco agrees to pay the stated amount of confirmed invoices in full on the original due date of the invoices, which is typically within 45 to 180 days of the invoice date, regardless of whether the supplier elects to receive early payment from the third-party finance providers. The Company does not provide assets pledged as security or other forms of guarantees to the finance providers or intermediaries under these arrangements. As of September 30, 2023 and December 31, 2022, the amounts due to suppliers that participate in the Company's supplier finance program were approximately $37.4 million and $30.7 million, respectively, which are included in accounts payable in the Condensed Consolidated Balance Sheet.
Dividends
On March 3, 2023, the Board of Directors of Wesco International declared a quarterly cash dividend of $0.375 per share of the Company's common stock to stockholders of record as of the close of business on March 15, 2023. On March 31, 2023, the Company paid cash dividends of $19.2 million.
On June 1, 2023, the Board of Directors of Wesco International declared a quarterly cash dividend of $0.375 per share of the Company's common stock to stockholders of record as of the close of business on June 15, 2023. On June 30, 2023, the Company paid cash dividends of $19.2 million.
On August 31, 2023, the Board of Directors of Wesco International declared a quarterly cash dividend of $0.375 per share of the Company's common stock to stockholders of record as of the close of business on September 15, 2023. On September 29, 2023, the Company paid cash dividends of $19.1 million.
During the three and nine months ended September 30, 2023, the Board of Directors of Wesco International also declared and the Company paid quarterly cash dividends of $0.664 per depositary share totaling $14.4 million and $43.1 million, respectively.
3. REVENUE
Wesco distributes products and provides services to customers globally in various end markets within its business segments. The segments operate in the United States, Canada and various other 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 millions) | 2023 | | 2022 | | 2023 | | 2022 |
| Electrical & Electronic Solutions | $ | 2,190.7 | | | $ | 2,234.8 | | | $ | 6,526.1 | | | $ | 6,654.9 | |
| Communications & Security Solutions | 1,778.0 | | | 1,602.4 | | | 5,360.9 | | | 4,638.6 | |
| Utility & Broadband Solutions | 1,675.7 | | | 1,608.7 | | | 5,024.8 | | | 4,568.1 | |
| Total by segment | $ | 5,644.4 | | | $ | 5,445.9 | | | $ | 16,911.8 | | | $ | 15,861.6 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| | September 30 | | September 30 |
| (In millions) | 2023 | | 2022 | | 2023 | | 2022 |
| United States | $ | 4,166.5 | | | $ | 4,050.9 | | | $ | 12,529.5 | | | $ | 11,745.1 | |
| Canada | 765.8 | | | 765.3 | | | 2,298.3 | | | 2,288.1 | |
Other International(1) | 712.1 | | | 629.7 | | | 2,084.0 | | | 1,828.4 | |
Total by geography(2) | $ | 5,644.4 | | | $ | 5,445.9 | | | $ | 16,911.8 | | | $ | 15,861.6 | |
(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.
WESCO INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)
(unaudited)
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, 2023 and December 31, 2022, $90.7 million and $99.6 million, respectively, of deferred revenue was recorded as a component of other current liabilities in the Condensed Consolidated Balance Sheets. The Company recognized $22.1 million and $64.1 million of revenue during the three and nine months ended September 30, 2023, respectively, that was included in the deferred revenue balance as of December 31, 2022. The amount of revenue recognized during the three and nine months ended September 30, 2022 that was deferred as of December 31, 2021 was not material.
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, 2023 and December 31, 2022, the Company had contract assets of $39.9 million and $27.5 million, respectively, resulting from contracts 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 as necessary. Variable consideration reduced revenue for the three months ended September 30, 2023 and 2022 by approximately $118.4 million and $120.5 million, respectively, and by approximately $333.5 million and $324.1 million for the nine months ended September 30, 2023 and 2022, respectively. As of September 30, 2023 and December 31, 2022, the Company's estimated product return obligation was $46.5 million for both.
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 $76.4 million and $77.9 million for the three months ended September 30, 2023 and 2022, respectively, and $232.4 million and $222.0 million for the nine months ended September 30, 2023 and 2022, respectively.
4. ACQUISITIONS
Rahi Systems Holdings, Inc.
On November 1, 2022, through its wholly-owned subsidiary WESCO Distribution, Inc. (“Wesco Distribution”), the Company acquired 100% of the equity securities of Rahi Systems Holdings, Inc. (“Rahi Systems” or “Rahi”). Headquartered in Fremont, California, Rahi Systems is a leading provider of global hyperscale data center solutions with over 900 employees in 25 countries. Rahi's expertise with complex information technology projects and global presence strengthen Wesco's data center solution offerings. Wesco Distribution funded the purchase price paid at closing with cash on hand as well as borrowings under its accounts receivable securitization and revolving credit facilities.
Since the initial measurement of the identified assets acquired and liabilities assumed, the Company has recorded adjustments to inventories of $19.6 million, other current and non-current assets of $2.9 million, accounts payable of $28.0 million, deferred income taxes of $6.5 million, and other current and non-current liabilities of $1.7 million. The net impact of these adjustments was an increase to goodwill of $0.7 million.
The estimated fair values of assets acquired and liabilities assumed were based on preliminary calculations and valuations using estimates and assumptions at the time of acquisition. As the Company obtained additional information during the measurement period (not exceeding one year from the acquisition date), it recorded adjustments to its preliminary estimates of fair value, as described above. As of September 30, 2023, the Company expects that additional adjustments to the fair value of certain tax balances will be necessary.
The results of operations of Rahi Systems are included in Wesco's unaudited Condensed Consolidated Financial Statements beginning on November 1, 2022, the acquisition date. For the three and nine months ended September 30, 2023, the Condensed Consolidated Statement of Income includes $131.1 million and $417.6 million of net sales, respectively, and an immaterial amount of income from operations for Rahi Systems. The Company has not presented supplemental pro forma revenue and earnings of the combined business as the acquisition of Rahi Systems is not material to Wesco's unaudited Condensed Consolidated Financial Statements.
WESCO INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)
(unaudited)
5. GOODWILL AND INTANGIBLE ASSETS
The following table sets forth the changes in the carrying value of goodwill by reportable segment for the period presented:
| | | | | | | | | | | | | | | | | | | | | | | |
| | Nine Months Ended |
| September 30, 2023 |
| EES | | CSS | | UBS | | Total |
| (In millions) |
| Beginning balance, January 1 | $ | 825.5 | | | $ | 1,208.9 | | | $ | 1,206.5 | | | $ | 3,240.9 | |
| Foreign currency exchange rate changes | (1.0) | | | (2.5) | | | (0.4) | | | (3.9) | |
Adjustments to goodwill for acquisitions(1) | — | | | 0.7 | | | — | | | 0.7 | |
| Ending balance, September 30 | $ | 824.5 | | | $ | 1,207.1 | | | $ | 1,206.1 | | | $ | 3,237.7 | |
(1) Reflects the effect on goodwill of adjustments to the assets acquired and liabilities assumed in the acquisition of Rahi Systems since their initial measurement, which is part of the CSS segment, as described in Note 4, "Acquisitions".
The components of intangible assets are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | As of |
| | September 30, 2023 | | December 31, 2022 |
| 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 millions) |
| Trademarks | Indefinite | $ | 792.0 | | | $ | — | | | $ | 792.0 | | | $ | 792.1 | | | $ | — | | | $ | 792.1 | |
| Customer relationships | 10 - 20 | 1,514.7 | | | (441.6) | | | 1,073.1 | | | 1,516.0 | | | (377.6) | | | 1,138.4 | |
| Distribution agreements | 15 and 19 | 29.2 | | | (25.6) | | | 3.6 | | | 29.2 | | | (24.4) | | | 4.8 | |
| Trademarks | 5 and 12 | 15.2 | | | (9.0) | | | 6.2 | | | 15.5 | | | (7.4) | | | 8.1 | |
| | $ | 2,351.1 | | | $ | (476.2) | | | $ | 1,874.9 | | | $ | 2,352.8 | | | $ | (409.4) | | | $ | 1,943.4 | |
(1) Excludes the original cost and related accumulated amortization of fully-amortized intangible assets.
Amortization expense related to intangible assets totaled $22.1 million and $21.0 million for the three months ended September 30, 2023 and 2022, respectively, and $66.5 million and $71.4 million for the nine months ended September 30, 2023 and 2022, 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 millions) |
| 2023 | $ | 22.1 | |
| 2024 | 85.9 | |
| 2025 | 82.9 | |
| 2026 | 77.5 | |
| 2027 | 74.6 | |
| Thereafter | 739.9 | |
WESCO INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)
(unaudited)
6. STOCK-BASED COMPENSATION
Wesco’s stock-based compensation awards consist 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 at least an annual basis. 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 that were granted under the Company’s 1999 Long-Term Incentive Plan, as amended and restated, vest fully on the third anniversary of the date of grant, except for the special award described below, which vested in tranches. Restricted stock units awarded under the WESCO International, Inc. 2021 Omnibus Incentive Plan, which was adopted on May 27, 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 vested 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 to continued employment through the applicable anniversary date.
Performance-based awards 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, 2023 and 2022, Wesco granted the following stock options, restricted stock units, and performance-based awards at the following weighted-average fair values:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| September 30,
2023 | | September 30,
2022 | | September 30,
2023 | | September 30,
2022 |
| Stock options granted | 1,593 | | | 3,249 | | | 78,729 | | | 92,799 | |
| Weighted-average fair value | $ | 72.57 | | | $ | 54.13 | | | $ | 76.69 | | | $ | 57.15 | |
| | | | | | | |
| Restricted stock units granted | 1,649 | | | 1,669 | | | 175,513 | | | 226,615 | |
| Weighted-average fair value | $ | 140.91 | | | $ | 112.33 | | | $ | 170.13 | | | $ | 122.04 | |
| | | | | | | |
Performance-based awards granted(1) | 662 | | | — | | | 212,107 | | | 83,991 | |
Weighted-average fair value(1) | $ | 115.04 | | | $ | — | | | $ | 86.97 | | | $ | 122.09 | |
(1) As described further below, the nine months ended September 30, 2023 includes performance-based awards granted in February 2020 for which actual achievement levels were certified in February 2023, as well as performance-based awards granted during the nine months ended September 30, 2023.
WESCO INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)
(unaudited)
The fair values of stock options, 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,
2023 | | September 30,
2022 | | September 30,
2023 | | September 30,
2022 |
| Risk free interest rate | 4.4 | % | | 2.9 | % | | 4.1 | % | | 2.0 | % |
| Expected life (in years) | 5 | | 7 | | 5 | | 7 |
| Expected volatility | 52 | % | | 44 | % | | 50 | % | | 43 | % |
| Expected dividend yield | 0.96 | % | | n/a | | 0.89 | % | | n/a |
The risk-free interest rate is based on the U.S. Treasury Daily Yield Curve rate as of the grant date. The expected life is based on historical exercise experience, 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, and the expected dividend yield is based on the calculated yield on the Company's common stock at date of grant using the current fiscal year projected dividend distribution rate. The Company did not pay dividends to holders of its common stock during the three and nine months ended September 30, 2022.
The following table sets forth a summary of stock options and related information for the nine months ended September 30, 2023:
| | | | | | | | | | | | | | | | | | | | | | | |
| Awards | | Weighted-
Average
Exercise
Price | | Weighted-
Average
Remaining
Contractual Term (In years) | | Aggregate
Intrinsic
Value
(In millions) |
Outstanding at December 31, 2022 | 87,347 | | | $ | 121.55 | | | | | |
| Granted | 78,729 | | | 169.72 | | | | | |
| Exercised | (1,279) | | | 122.09 | | | | | |
| Forfeited | (1,715) | | | 148.67 | | | | | |
Outstanding at September 30, 2023 | 163,082 | | | $ | 144.51 | | | 8.9 | | $ | 2.0 | |
Exercisable at September 30, 2023 | 28,411 | | | $ | 121.53 | | | 8.4 | | $ | 0.6 | |
For the nine months ended September 30, 2023, the aggregate intrinsic value of stock options exercised during such period was not material.
The following table sets forth a summary of stock-settled stock appreciation rights and related information for the nine months ended September 30, 2023:
| | | | | | | | | | | | | | | | | | | | | | | |
| Awards | | Weighted-
Average
Exercise
Price | | Weighted-
Average
Remaining
Contractual Term (In years) | | Aggregate
Intrinsic
Value
(In millions) |
Outstanding at December 31, 2022 | 1,248,115 | | | $ | 62.02 | | | | | |
| Granted | — | | | — | | | | | |
| Exercised | (428,500) | | | 66.70 | | | | | |
| Forfeited | (1,331) | | | 74.57 | | | | | |
Outstanding at September 30, 2023 | 818,284 | | | $ | 59.55 | | | 5.3 | | $ | 69.0 | |
Exercisable at September 30, 2023 | 777,479 | | | $ | 58.64 | | | 5.2 | | $ | 66.2 | |
For the nine months ended September 30, 2023, the aggregate intrinsic value of stock-settled stock appreciation rights exercised during such period was $40.2 million.
WESCO INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)
(unaudited)
The following table sets forth a summary of restricted stock units and related information for the nine months ended September 30, 2023:
| | | | | | | | | | | |
| Awards | | Weighted-
Average
Fair
Value |
Unvested at December 31, 2022 | 774,233 | | | $ | 73.79 | |
| Granted | 175,513 | | | 170.13 | |
| Vested | (505,464) | | | 59.43 | |
| Forfeited | (24,646) | | | 122.66 | |
Unvested at September 30, 2023 | 419,636 | | | $ | 128.51 | |
The following table sets forth a summary of performance-based awards and related information for the nine months ended September 30, 2023:
| | | | | | | | | | | |
| Awards | | Weighted-
Average
Fair
Value |
Unvested at December 31, 2022 | 335,329 | | | $ | 75.26 | |
Granted(1) | 212,107 | | | 86.97 | |
| Vested | (289,394) | | | 48.32 | |
| Forfeited | (3,732) | | | 111.00 | |
Unvested at September 30, 2023 | 254,310 | | | $ | 115.15 | |
(1) Includes 63,098 performance-based awards granted in February 2023 with a fair value of $171.96 and three-year performance period ending December 31, 2025, and 144,697 of additional performance-based awards related to awards originally granted in February 2020 with a fair value of $48.32 and three-year performance period ended December 31, 2022 for which actual achievement levels were certified in February 2023. Also includes 3,074 and 662 performance-based awards granted during the three months ended June 30, 2023 and September 30, 2023, respectively, with weighted-average fair values of $150.32 and $115.04, respectively, and three-year performance periods ending December 31, 2025.
Wesco recognized $10.8 million and $9.7 million of non-cash stock-based compensation expense for the three months ended September 30, 2023 and 2022, respectively, and $34.7 million and $34.4 million for the nine months ended September 30, 2023 and 2022, respectively, which is included in selling, general and administrative expenses for such periods. As of September 30, 2023, there was $60.1 million of total unrecognized compensation expense related to non-vested stock-based compensation arrangements for all awards previously made, which is expected to be recognized as follows:
| | | | | |
| For the year ending December 31, | (In millions) |
| 2023 | $ | 10.9 | |
| 2024 | 30.8 | |
| 2025 | 16.5 | |
| 2026 | 1.9 | |
WESCO INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)
(unaudited)
7. 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 computation of basic and diluted earnings per share for the periods presented:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| | September 30 | | September 30 |
| (In millions, except per share data) | 2023 | | 2022(1) | | 2023 | | 2022(1) |
| Net income attributable to WESCO International, Inc. | $ | 233.4 | | | $ | 239.6 | | | $ | 623.6 | | | $ | 641.6 | |
| Less: Preferred stock dividends | 14.4 | | | 14.4 | | | 43.1 | | | 43.1 | |
| Net income attributable to common stockholders | $ | 219.0 | | | $ | 225.2 | | | $ | 580.5 | | | $ | 598.5 | |
Weighted-average common shares outstanding used in computing basic earnings per share | 51.2 | | | 50.8 | | | 51.2 | | | 50.7 | |
Common shares issuable upon exercise of dilutive equity awards | 1.0 | | | 1.6 | | | 1.2 | | | 1.7 | |
| Weighted-average common shares outstanding and common share equivalents used in computing diluted earnings per share | 52.2 | | | 52.4 | | | 52.4 | | | 52.4 | |
| Earnings per share attributable to common stockholders | | | | | | | |
| Basic | $ | 4.28 | | | $ | 4.43 | | | $ | 11.34 | | | $ | 11.80 | |
| Diluted | $ | 4.20 | | | $ | 4.30 | | | $ | 11.08 | | | $ | 11.42 | |
(1) Basic and diluted earnings per share for the three and nine months ended September 30, 2022 were previously calculated and reported based on amounts as presented in thousands. As such, certain prior year amounts may not foot or recalculate based on the amounts as presented in millions in the current year presentation.
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 nine months ended September 30, 2023, there were approximately 0.1 million and 0.2 million antidilutive shares, respectively. For the three and nine months ended September 30, 2022, there were approximately 0.1 million antidilutive shares.
On June 1, 2022, Wesco announced that its Board of Directors authorized, on May 31, 2022, the repurchase of up to $1 billion of the Company's common stock and Series A Preferred Stock. The share repurchase authorization has no expiration date and may be modified, suspended, or terminated at any time without prior notice. During the three months ended September 30, 2023, the Company entered into spot repurchase transactions through a broker to purchase 325,449 shares of its common stock in the open market for cash totaling $50.5 million, including excise taxes. Wesco funded the repurchases with available cash and borrowings under its revolving credit facility.
WESCO INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)
(unaudited)
8. DEBT
The following table sets forth Wesco's outstanding indebtedness:
| | | | | | | | | | | |
| As of |
| September 30,
2023 | | December 31,
2022 |
| (In millions) |
| International lines of credit | $ | 7.9 | | | $ | 7.1 | |
| Accounts Receivable Securitization Facility | 1,550.0 | | | 1,535.0 | |
| Revolving Credit Facility | 1,025.0 | | | 1,023.6 | |
| 5.50% Anixter Senior Notes due 2023 | — | | | 58.6 | |
| 6.00% Anixter Senior Notes due 2025 | 4.2 | | | 4.2 | |
| 7.125% Senior Notes due 2025 | 1,500.0 | | | 1,500.0 | |
7.250% Senior Notes due 2028, less debt discount of $5.9 and $6.8 in 2023 and 2022, respectively | 1,319.1 | | | 1,318.2 | |
| Finance lease obligations | 27.6 | | | 20.6 | |
| Total debt | 5,433.8 | | | 5,467.3 | |
| Plus: Fair value adjustments to the Anixter Senior Notes | 0.1 | | | 0.3 | |
| Less: Unamortized debt issuance costs | (40.9) | | | (51.1) | |
Less: Short-term debt and current portion of long-term debt(1) | (14.7) | | | (70.5) | |
| Total long-term debt | $ | 5,378.3 | | | $ | 5,346.0 | |
(1) As of December 31, 2022, short-term debt and current portion of long-term debt included the $58.6 million aggregate principal amount of the Company's 5.50% Anixter Senior Notes due 2023, which matured on March 1, 2023.
5.50% Anixter Senior Notes due 2023
On March 1, 2023, Wesco Distribution repaid the $58.6 million aggregate principal amount of its 5.50% Anixter Senior Notes due 2023 plus accrued interest up to, but not including, the maturity date. The repayment was funded with borrowings under the Company's Revolving Credit Facility and had no impact on the Company's results of operations.
WESCO INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)
(unaudited)
9. EMPLOYEE BENEFIT PLANS
The following tables set forth the components of net periodic pension cost (benefit) for the Company's defined benefit plans:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30 |
| (In millions) | 2023 | | 2022 | | 2023 | | 2022 | | 2023 | | 2022 |
| Domestic Plans(1) | | Foreign Plans(2) | | Total |
| Service cost | $ | — | | | $ | — | | | $ | 1.2 | | | $ | 2.0 | | | $ | 1.2 | | | $ | 2.0 | |
| Interest cost | 4.6 | | | 2.1 | | | 2.9 | | | 2.2 | | | 7.5 | | | 4.3 | |
| Expected return on plan assets | (4.3) | | | (3.5) | | | (3.1) | | | (4.0) | | | (7.4) | | | (7.5) | |
Recognized actuarial gain(3) | — | | | — | | | (0.3) | | | (0.2) | | | (0.3) | | | (0.2) | |
Net periodic pension cost (benefit) | $ | 0.3 | | | $ | (1.4) | | | $ | 0.7 | | | $ | — | | | $ | 1.0 | | | $ | (1.4) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30 |
| (In millions) | 2023 | | 2022 | | 2023 | | 2022 | | 2023 | | 2022 |
| Domestic Plans(1) | | Foreign Plans(2) | | Total |
| Service cost | $ | — | | | $ | — | | | $ | 3.6 | | | $ | 6.3 | | | $ | 3.6 | | | $ | 6.3 | |
| Interest cost | 7.8 | | | 6.3 | | | 8.6 | | | 6.8 | | | 16.4 | | | 13.1 | |
| Expected return on plan assets | (7.3) | | | (10.5) | | | (9.1) | | | (12.5) | | | (16.4) | | | (23.0) | |
Recognized actuarial gain(3) | — | | | — | | | (0.9) | | | (0.6) | | | (0.9) | | | (0.6) | |
Net periodic pension cost (benefit) | $ | 0.5 | | | $ | (4.2) | | | $ | 2.2 | | | $ | — | | | $ | 2.7 | | | $ | (4.2) | |
(1) Defined as the Anixter Inc. Pension Plan, Anixter Inc. Executive Benefit Plan, and the Anixter Inc. Supplemental Executive Retirement Plan.
(2) Defined as the EECOL Electric ULC Retirement Plan, the EECOL Electric ULC Supplemental Executive Retirement Plan, the Pension Plan for Employees of Anixter Canada Inc., and various defined benefit pension plans covering employees of foreign subsidiaries in Europe.
(3) For the three and nine months ended September 30, 2023 and 2022, no material amounts were reclassified from accumulated other comprehensive income into net income.
Service cost is reported as a component of selling, general and administrative expenses. The other components of net periodic pension cost (benefit) totaling net benefits of $0.2 million and $3.4 million for the three months ended September 30, 2023 and 2022, respectively, and $0.9 million and $10.5 million for the nine months ended September 30, 2023 and 2022, respectively are presented as components of other expense, net.
The Company expected to contribute approximately $7.0 million to its Foreign Plans in 2023. Approximately $0.8 million and $7.5 million was contributed during the three and nine months ended September 30, 2023, respectively. The Company does not expect to make a contribution to its domestic qualified pension plan in 2023 due to its overfunded status.
Other Employee Benefit Plans
Wesco sponsors defined contribution retirement savings plans for the majority of its employees in the U.S. and certain employees in Canada, which provide employer contributions.
Wesco incurred expenses of $15.9 million and $12.4 million for the three months ended September 30, 2023 and 2022, respectively, and $58.8 million and $45.4 million for the nine months ended September 30, 2023 and 2022, respectively, for its defined contribution plans.
Wesco Distribution sponsors a non-qualified deferred compensation plan (the “Wesco Deferred Compensation Plan”) that permits select employees to make pre-tax deferrals of salary and bonus. Employees have the option to transfer balances allocated to their accounts in the Wesco Deferred Compensation Plan into any of the available investment options. The Wesco Deferred Compensation Plan is an unfunded plan. As of September 30, 2023 and December 31, 2022, the Company's obligation under the Wesco Deferred Compensation Plan was $25.1 million and $20.3 million, respectively, which is included in other noncurrent liabilities in the Condensed Consolidated Balance Sheets.
WESCO INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)
(unaudited)
10. FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company’s financial instruments primarily consist of cash and cash equivalents, accounts receivable, accounts payable, bank overdrafts, outstanding indebtedness, foreign currency forward contracts, and benefit plan assets. Except for benefit plan assets, outstanding indebtedness and foreign currency forward contracts, the carrying value of the Company’s other financial instruments approximates fair value.
The assets of the Company's various defined benefit plans primarily comprise common/collective/pool funds (i.e., mutual funds). These funds are valued at the net asset value (“NAV”) of shares held in the underlying funds. Investments for which fair value is measured using the NAV per share practical expedient are not classified in the fair value hierarchy.
The Company uses a market approach to determine the fair value of its debt instruments, utilizing quoted prices in active markets, interest rates and other relevant information generated by market transactions involving similar instruments. Therefore, the inputs used to measure the fair value of the Company's debt instruments are classified as Level 2 within the fair value hierarchy.
The carrying value of Wesco's debt instruments with fixed interest rates was $2,823.4 million and $2,881.2 million as of September 30, 2023 and December 31, 2022, respectively. The estimated fair value of this debt was $2,844.9 million and $2,929.5 million as of September 30, 2023 and December 31, 2022, respectively. The reported carrying values of Wesco's other debt instruments, including those with variable interest rates, approximated their fair values as of September 30, 2023 and December 31, 2022.
The Company purchases foreign currency forward contracts to reduce the effect of fluctuations in foreign currency-denominated accounts on its earnings. The foreign currency forward contracts are not designated as hedges for accounting purposes. The Company's strategy is to negotiate terms for its derivatives and other financial instruments to be highly effective, such that the change in the value of the derivative offsets the impact of the underlying hedge. Its counterparties to foreign currency forward contracts have investment-grade credit ratings. The Company regularly monitors the creditworthiness of its counterparties to ensure no issues exist that could affect the value of its derivatives.
The Company does not hedge 100% of its foreign currency-denominated accounts. In addition, the results of hedging can vary significantly based on various factors, such as the timing of executing foreign currency forward contracts versus the movement of currencies, as well as fluctuations in the account balances throughout each reporting period. The fair value of foreign currency forward contracts is based on the difference between the contract rate and the current price of a forward contract with an equivalent remaining term. The fair value of foreign currency forward contracts is measured using observable market information. These inputs are considered Level 2 in the fair value hierarchy. At September 30, 2023 and December 31, 2022, foreign currency forward contracts were revalued at then-current foreign exchange rates with the changes in valuation reflected directly in other non-operating expense (income) in the Condensed Consolidated Statements of Income and Comprehensive Income offsetting the transaction gain (loss) recorded on foreign currency-denominated accounts. The gross and net notional amounts of foreign currency forward contracts outstanding were approximately $141.6 million and $172.8 million, at September 30, 2023 and December 31, 2022, respectively. While all of the Company's foreign currency forward contracts are subject to master netting arrangements with its counterparties, assets and liabilities related to these contracts are presented on a gross basis within the Condensed Consolidated Balance Sheets. The gross fair value of assets and liabilities related to foreign currency forward contracts were immaterial.
11. COMMITMENTS AND CONTINGENCIES
From time to time, a number of lawsuits and claims have been or may be asserted against the Company relating to the conduct of its business, including litigation relating to commercial, product and employment matters (including wage and hour). The outcome of any litigation cannot be predicted with certainty, and some lawsuits may be determined adversely to Wesco. However, management does not believe that the ultimate outcome of any such pending matters is likely to have a material adverse effect on Wesco's financial condition or liquidity, although the resolution in any fiscal period of one or more of these matters may have a material adverse effect on Wesco's results of operations for that period.
WESCO INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)
(unaudited)
12. INCOME TAXES
The effective tax rate for the three months ended September 30, 2023 and 2022 was 15.9% and 26.3%, respectively. For the three months ended September 30, 2023, the effective tax rate reflects discrete income tax benefits of $11.9 million resulting from the reversal of the valuation allowance against Brazilian deferred tax assets, $10.5 million relating to return-to-provision adjustments that resulted from the filing of the 2022 U.S. federal income tax return, and $7.6 million resulting from the exercise and vesting of stock-based awards. The return-to-provision adjustments were primarily related to increased U.S. foreign tax credit utilization. For the three months ended September 30, 2022, the effective tax rate reflects a discrete income tax benefit of $3.2 million resulting from the exercise and vesting of stock-based awards, partially offset by discrete income tax expense of $0.8 million resulting from return-to-provision adjustments. These discrete income tax items reduced the effective tax rates in such periods by approximately 10.8 and 0.7 percentage points, respectively.
The effective tax rate for the nine months ended September 30, 2023 and 2022 was 20.4% and 24.0%, respectively. For the nine months ended September 30, 2023, the effective tax rate reflects discrete income tax benefits of $29.7 million resulting from the exercise and vesting of stock-based awards, $11.9 million resulting from the reversal of the valuation allowance against Brazilian deferred tax assets, and $10.5 million relating to return-to-provision adjustments that resulted from the filing of the 2022 U.S. federal income tax return. The return-to-provision adjustments were primarily related to increased U.S. foreign tax credit utilization. For the nine-months ended September 30, 2022, the effective tax rate reflects discrete income tax benefits of $13.4 million resulting from reductions to the valuation allowance recorded against U.S. foreign tax credit carryforwards, as well as the exercise and vesting of stock-based awards of $9.4 million, partially offset by discrete income tax expense of $0.8 million resulting from return-to-provision adjustments. These discrete income tax items reduced the effective tax rates in such periods by approximately 6.6 and 2.6 percentage points, respectively.
The effective tax rate differs from the federal statutory income tax rate due primarily to state income taxes, nondeductible expenses, and the U.S. tax impact of international operations.
There have been no material adjustments to liabilities for uncertain tax positions since December 31, 2022.
13. BUSINESS SEGMENTS
The Company has operating segments comprising three strategic business units consisting of EES, CSS and UBS. These operating segments are equivalent to the Company's reportable segments. The Company's chief operating decision maker evaluates the performance of its operating segments based on net sales, adjusted earnings before interest, taxes, depreciation and amortization (“EBITDA”), and adjusted EBITDA margin percentage.
The Company incurs corporate costs primarily related to treasury, tax, information technology, legal and other centralized functions. The Company also has various corporate assets. Segment assets may not include jointly used assets, but segment results include depreciation expense or other allocations related to those assets. Interest expense and other non-operating items are either not allocated to the segments or reviewed on a segment basis. Corporate expenses and assets not directly identifiable with a reportable segment are reported in the tables below to reconcile the reportable segments to the consolidated financial statements.
The following tables set forth financial information by reportable segment for the periods presented:
| | | | | | | | | | | | | | | | | | | | | | | |
| (In millions) | Three Months Ended September 30, 2023 |
| EES | | CSS | | UBS | | Total |
| Net sales | $ | 2,190.7 | | | $ | 1,778.0 | | | $ | 1,675.7 | | | $ | 5,644.4 | |
| | | | | | | |
| Three Months Ended September 30, 2022 |
| (In millions) | EES | | CSS | | UBS | | Total |
| Net sales | $ | 2,234.8 | | | $ | 1,602.4 | | | $ | 1,608.7 | | | $ | 5,445.9 | |
WESCO INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)
(unaudited)
| | | | | | | | | | | | | | | | | | | | | | | |
| (In millions) | Nine Months Ended September 30, 2023 |
| EES | | CSS | | UBS | | Total |
| Net sales | $ | 6,526.1 | | | $ | 5,360.9 | | | $ | 5,024.8 | | | $ | 16,911.8 | |
| | | | | | | |
| Nine Months Ended September 30, 2022 |
| (In millions) | EES | | CSS | | UBS | | Total |
| Net sales | $ | 6,654.9 | | | $ | 4,638.6 | | | $ | 4,568.1 | | | $ | 15,861.6 | |
| | | | | | | |
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| (In millions) | Three Months Ended September 30, 2023 |
| EES | | CSS | | UBS |
| Adjusted EBITDA | $ | 191.5 | | $ | 175.5 | | $ | 196.4 |
| Adjusted EBITDA Margin % | 8.7 | % | | 9.9 | % | | 11.7 | % |
| | | | | |
| Three Months Ended September 30, 2022 |
| (In millions) | EES | | CSS | | UBS |
| Adjusted EBITDA | $ | 225.8 | | $ | 156.4 | | $ | 186.3 |
| Adjusted EBITDA Margin % | 10.1 | % | | 9.8 | % | | 11.6 | % |
| | | | | |
| | | | | | | | | | | | | | | | | |
| (In millions) | Nine Months Ended September 30, 2023 |
| EES | | CSS | | UBS |
| Adjusted EBITDA | $ | 563.5 | | $ | 510.5 | | $ | 572.7 |
| Adjusted EBITDA Margin % | 8.6 | % | | 9.5 | % | | 11.4 | % |
| | | | | |
| Nine Months Ended September 30, 2022 |
| (In millions) | EES | | CSS | | UBS |
| Adjusted EBITDA | $ | 653.6 |