Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.
Item 3. Quantitative and Qualitative Disclosures About Market Risks.
Item 4. Controls and Procedures.
Part Ii-Other Information
Item 1. Legal Proceedings.
Item 1A. Risk Factors.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Item 6. Exhibits.
Exhibits
EX-10.1
wcc-7thamendmentto4tharr.htm
EX-31.1
wcc-3q18ex311.htm
EX-31.2
wcc-3q18ex312.htm
EX-32.1
wcc-3q18ex321.htm
EX-32.2
wcc-3q18ex322.htm
WESCO Earnings 2018-09-30
WCC 10Q Quarterly Report
Balance Sheet
Income Statement
Cash Flow
10-Q 1 wcc-form10q3q2018.htm FORM 10-Q Document
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
þ
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2018
or
o
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
(State or other jurisdiction of
incorporation or organization)
25-1723342
(I.R.S. Employer
Identification No.)
225 West Station Square Drive
Suite 700
Pittsburgh, Pennsylvania
(Address of principal executive offices)
15219
(Zip Code)
(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)
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 þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No o
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 þ
Accelerated filer o
Non-accelerated filer o
Smaller reporting company o
Emerging growth company o
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. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ
As of November 1, 2018, 46,691,008 shares of common stock, $0.01 par value, of the registrant were outstanding.
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:
Trade accounts receivable, net of allowance for doubtful accounts of $25,272 and $21,313 in 2018 and 2017, respectively
1,265,880
1,170,080
Other accounts receivable
80,676
101,229
Inventories
926,768
956,148
Prepaid expenses and other current assets
90,415
63,439
Total current assets
2,506,499
2,408,849
Property, buildings and equipment, net of accumulated depreciation of $289,273 and $278,455 in 2018 and 2017, respectively
157,129
156,445
Intangible assets, net of accumulated amortization of $248,797 and $223,554 in 2018
and 2017, respectively
334,026
367,104
Goodwill
1,755,292
1,771,877
Other assets
25,845
31,193
Total assets
$
4,778,791
$
4,735,468
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable
$
813,395
$
799,520
Accrued payroll and benefit costs
73,074
72,686
Short-term debt
31,125
34,075
Current portion of long-term debt
1,179
1,224
Bank overdrafts
30,266
37,644
Other current liabilities
102,489
95,820
Total current liabilities
1,051,528
1,040,969
Long-term debt, net of debt discount and debt issuance costs of $10,596 and $14,224 in 2018 and 2017, respectively
1,229,314
1,313,261
Deferred income taxes
147,048
136,858
Other noncurrent liabilities
119,064
128,237
Total liabilities
$
2,546,954
$
2,619,325
Commitments and contingencies (Note 10)
Stockholders’ equity:
Preferred stock, $.01 par value; 20,000,000 shares authorized, no shares issued or outstanding
—
—
Common stock, $.01 par value; 210,000,000 shares authorized, 59,152,810 and 59,045,762 shares issued and 46,753,475 and 47,009,540 shares outstanding in 2018 and 2017, respectively
592
591
Class B nonvoting convertible common stock, $.01 par value; 20,000,000 shares authorized, 4,339,431 issued and no shares outstanding in 2018 and 2017, respectively
43
43
Additional capital
1,006,222
999,156
Retained earnings
2,249,327
2,079,697
Treasury stock, at cost; 16,738,766 and 16,375,653 shares in 2018 and 2017, respectively
(669,212
)
(647,158
)
Accumulated other comprehensive loss
(349,619
)
(312,590
)
Total WESCO International, Inc. stockholders' equity
2,237,353
2,119,739
Noncontrolling interests
(5,516
)
(3,596
)
Total stockholders’ equity
2,231,837
2,116,143
Total liabilities and stockholders’ equity
$
4,778,791
$
4,735,468
The accompanying notes are an integral part of the condensed consolidated financial statements.
3
WESCO INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(In thousands of dollars, except per share data)
(unaudited)
Three Months Ended
Nine Months Ended
September 30
September 30
2018
2017
2018
2017
Net sales (Note 3)
$
2,067,245
$
2,000,159
$
6,165,154
$
5,682,375
Cost of goods sold (excluding depreciation and
amortization)
1,670,037
1,614,814
4,988,103
4,580,896
Selling, general and administrative expenses (Note 8)
284,073
280,497
867,790
815,653
Depreciation and amortization
15,618
16,074
47,321
47,758
Income from operations
97,517
88,774
261,940
238,068
Net interest and other (Notes 8 and 9)
17,050
16,835
54,574
49,469
Income before income taxes
80,467
71,939
207,366
188,599
Provision for income taxes
13,822
18,363
40,077
47,684
Net income
66,645
53,576
167,289
140,915
Less: Net loss attributable to noncontrolling interests
(204
)
(99
)
(1,921
)
(3
)
Net income attributable to WESCO International, Inc.
$
66,849
$
53,675
$
169,210
$
140,918
Other comprehensive income (loss):
Foreign currency translation adjustments
20,486
51,148
(37,029
)
96,097
Post retirement benefit plan adjustments, net of tax
—
—
—
252
Comprehensive income attributable to WESCO International, Inc.
$
87,335
$
104,823
$
132,181
$
237,267
Earnings per share attributable to WESCO International, Inc.
Basic
$
1.42
$
1.13
$
3.60
$
2.93
Diluted
$
1.41
$
1.12
$
3.56
$
2.90
The accompanying notes are an integral part of the condensed consolidated financial statements.
4
WESCO INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands of dollars)
(unaudited)
Nine Months Ended
September 30
2018
2017
Operating activities:
Net income
$
167,289
$
140,915
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization
47,321
47,758
Deferred income taxes
12,194
8,433
Other operating activities, net
7,590
12,617
Changes in assets and liabilities:
Trade accounts receivable, net
(104,215
)
(174,667
)
Other accounts receivable
19,859
4,421
Inventories
23,189
(86,736
)
Prepaid expenses and other assets
(22,088
)
(8,515
)
Accounts payable
18,235
138,348
Accrued payroll and benefit costs
2,788
2,383
Other current and noncurrent liabilities
2,298
(3,846
)
Net cash provided by operating activities
174,460
81,111
Investing activities:
Capital expenditures
(23,749
)
(15,970
)
Other investing activities
3,609
3,490
Net cash used in investing activities
(20,140
)
(12,480
)
Financing activities:
Proceeds from issuance of short-term debt
116,775
130,890
Repayments of short-term debt
(119,239
)
(114,972
)
Proceeds from issuance of long-term debt
994,323
1,079,718
Repayments of long-term debt
(1,081,323
)
(1,076,718
)
Repurchases of common stock (Note 7)
(27,055
)
(106,702
)
Other financing activities, net
(8,301
)
(4,380
)
Net cash used in financing activities
(124,820
)
(92,164
)
Effect of exchange rate changes on cash and cash equivalents
(4,693
)
7,485
Net change in cash and cash equivalents
24,807
(16,048
)
Cash and cash equivalents at the beginning of period
117,953
110,131
Cash and cash equivalents at the end of period
$
142,760
$
94,083
Supplemental disclosures:
Cash paid for interest
$
37,138
$
35,344
Cash paid for income taxes
48,744
50,909
The accompanying notes are an integral part of the condensed consolidated financial statements.
5
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 full-line distributor of electrical, industrial and communications maintenance, repair and operating ("MRO") and original equipment manufacturer ("OEM") products, construction materials, and advanced supply chain management and logistics services used primarily in the industrial, construction, utility and commercial, institutional and government markets. WESCO serves approximately 70,000 active customers globally through approximately 500 branches and 10 distribution centers located primarily in the United States and Canada, with operations in 16 additional countries.
2. ACCOUNTING POLICIES
Basis of Presentation
The accompanying unaudited Condensed Consolidated Financial Statements of WESCO have been prepared in accordance with Rule 10-01 of Regulation S-X of the Securities and Exchange Commission (the “SEC”). The unaudited condensed consolidated financial information should be read in conjunction with the audited Consolidated Financial Statements and Notes thereto included in WESCO’s 2017 Annual Report on Form 10-K as filed with the SEC on February 22, 2018. The Condensed Consolidated Balance Sheet at December 31, 2017 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, 2018, the unaudited Condensed Consolidated Statements of Income and Comprehensive Income for the nine months ended September 30, 2018 and 2017, respectively, and the unaudited Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2018 and 2017, 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.
Reclassifications
Effective January 1, 2018, WESCO adopted Accounting Standards Update (ASU) 2017-07, Compensation—Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost. The adoption of this ASU, as described below and in Note 8, resulted in the reclassification of amounts reported in the unaudited Condensed Consolidated Statements of Income and Comprehensive Income for the three and nine months ended September 30, 2017.
Recently Adopted Accounting Pronouncements
Effective January 1, 2018, WESCO adopted ASU 2014-09, Revenue from Contracts with Customers, and all the related amendments (“Topic 606”) using the modified retrospective approach to all open contracts. There was no impact to WESCO’s previously reported consolidated financial statements and WESCO does not expect the adoption of Topic 606 to have a material impact on its revenue and results of operations on an ongoing basis.
WESCO’s significant accounting policies are disclosed in Note 2 of the Notes to Consolidated Financial Statements in the Annual Report on Form 10-K for the year ended December 31, 2017. Changes to the Company’s significant accounting policies as a result of adopting Topic 606 are described in Note 3 below.
In August 2016, the Financial Accounting Standards Board (FASB) issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments (a consensus of the Emerging Issues Task Force). This ASU provides guidance on eight specific cash flow issues where there is diversity in practice. The Company adopted this ASU in the first quarter of 2018. The adoption of this guidance did not have an impact on the unaudited condensed consolidated financial information presented herein.
In March 2017, the FASB issued ASU 2017-07, Compensation—Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost. This ASU requires that an employer disaggregate the service cost from the other components of net benefit cost. The Company adopted this guidance on a retrospective basis in the first quarter of 2018. See Note 8 for a description of the impact of this accounting standard on the unaudited Condensed Consolidated Statements of Income and Comprehensive Income presented herein. The adoption of this guidance did not have an impact on the Company's unaudited Condensed Consolidated Balance Sheets and the unaudited Condensed Consolidated Statements of Cash Flows presented herein.
6
WESCO INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)
(unaudited)
In May 2017, the FASB issued ASU 2017-09, Compensation—Stock Compensation (Topic 718): Scope of Modification Accounting. This ASU clarifies when to account for a change to the terms or conditions of a share-based payment award as a modification. Under the new guidance, modification accounting is required only if the fair value, the vesting conditions, or the classification of the award (as equity or liability) changes as a result of the change in terms or conditions. The Company adopted this ASU in the first quarter of 2018. The adoption of this guidance did not have an impact on the unaudited condensed consolidated financial information presented herein.
Recently Issued Accounting Pronouncements
In February 2016, the FASB issued ASU 2016-02, Leases, a comprehensive new standard that amends various aspects of existing accounting guidance for leases, including the recognition of a right-of-use asset and a lease liability in the balance sheet and disclosing key information about leasing arrangements. This ASU is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted. During 2018, the FASB issued additional ASUs that address implementation issues and correct or improve certain aspects of the new accounting guidance for leases, including ASU 2018-10, Codification Improvements to Topic 842, Leases and ASU 2018-11, Leases (Topic 842): Targeted Improvements. These ASUs do not change the core principles in the leasing standard outlined above. The amendments in ASU 2018-11 provide an optional transition method that allows entities to initially apply the new leases standard at the adoption date and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. Consequently, an entity’s reporting for the comparative periods will continue to be in accordance with current lease accounting guidance. Management established a cross-functional team to evaluate and implement the new standard. The team selected a third-party software solution to facilitate the accounting and financial reporting requirements of the new lease standard. Lease data elements have been gathered and are currently being migrated to the software solution. The new standard will be adopted in the first quarter of 2019 and the Company expects to use the optional transition method. While the Company has not yet completed its evaluation of the effects of adopting this ASU, right-of-use assets and lease liabilities will be recorded in the Consolidated Balance Sheets as of the effective date and thereafter.
In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which introduces new guidance for the accounting for credit losses on certain financial instruments. The amendments in this ASU are effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted. Management does not expect the adoption of this accounting standard to have a material impact on its consolidated financial statements and notes thereto.
In January 2017, the FASB issued ASU 2017-04, Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment, which eliminates Step 2 of the goodwill impairment test. Under the amendments in this ASU, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. An entity should apply the amendments in this ASU on a prospective basis. This guidance is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Management expects to adopt this ASU in the fourth quarter of 2018 when the Company performs its annual impairment testing. The Company does not expect the adoption of this accounting standard to have a material impact on its consolidated financial statements and notes thereto.
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement, which amends the disclosure requirements for recurring and nonrecurring fair value measurements by removing, modifying and adding certain disclosures. The amendments in this ASU are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early adoption is permitted. Management does not expect the adoption of this accounting standard to have a material impact on its consolidated financial statements and notes thereto.
In August 2018, the FASB issued ASU 2018-14, Compensation—Retirement Benefits—Defined Benefit Plans—General (Subtopic 715-20): Disclosure Framework—Changes to the Disclosure Requirements for Defined Benefit Plans, which amends the disclosure requirements for all employers that sponsor defined benefit pension and other post retirement plans by removing and adding certain disclosures. The amendments in this ASU are effective for fiscal years ending after December 15, 2020. Early adoption is permitted. Management does not expect the adoption of this accounting standard to have a material impact on its 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.
7
WESCO INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)
(unaudited)
3. REVENUE
WESCO’s revenue arrangements generally consist of single performance obligations to transfer a promised good or service, or a combination of goods and services. Revenue is recognized when control has transferred to the customer, which is generally when the product has shipped from a WESCO facility or directly from a supplier. For products that ship directly from suppliers to customers, WESCO acts as the principal in the transaction and recognizes revenue on a gross basis. Revenue for integrated supply services is recognized over time based on hours incurred. This method reflects the transfer of control as the customer benefits from these services as they are being performed. WESCO generally satisfies its performance obligations within a year or less.
WESCO generally does not have significant financing terms associated with its contracts; payments are normally received within 60 days. There are no significant costs associated with obtaining customer contracts. WESCO generally passes through the warranties offered by the applicable manufacturer or supplier to its customers. Sales taxes (and value added taxes in foreign jurisdictions) collected from customers and remitted to governmental authorities are excluded from net sales.
The following tables disaggregate WESCO’s revenue by end market and geography:
Three Months Ended
Nine Months Ended
September 30
September 30
(In thousands)
2018
2017
2018
2017
Industrial
$
723,869
$
722,227
$
2,243,590
$
2,111,813
Construction
686,165
674,996
2,007,708
1,870,406
Utility
345,937
312,501
998,438
861,162
Commercial, Institutional and Government ("CIG")
311,274
290,435
915,418
838,994
Total by end market
$
2,067,245
$
2,000,159
$
6,165,154
$
5,682,375
Three Months Ended
Nine Months Ended
September 30
September 30
(In thousands)
2018
2017
2018
2017
United States
$
1,525,393
$
1,473,016
$
4,571,533
$
4,267,684
Other (1)
541,852
527,143
1,593,621
1,414,691
Total by geography
$
2,067,245
$
2,000,159
$
6,165,154
$
5,682,375
(1)
Other primarily includes net sales originating in Canada.
WESCO distributes products and provides services to customers globally within the following end markets: (1) industrial, (2) construction, (3) utility, and (4) CIG. Revenue is measured as the amount of consideration WESCO expects to receive in exchange for transferring goods or providing services.
In accordance with certain contractual arrangements, WESCO receives payment from its customers in advance and recognizes such payment as deferred revenue. Revenue for advance payment is recognized when the performance obligation has been satisfied and control has transferred to the customer, which is generally upon shipment. Deferred revenue is usually recognized within a year or less from the date of the customer’s advance payment. At September 30, 2018 and December 31, 2017, $8.8 million and $15.5 million, respectively, of deferred revenue was recorded as a component of other current liabilities in the Condensed Consolidated Balance Sheets.
WESCO’s revenues are adjusted for variable consideration, which includes customer volume rebates, returns, and discounts. WESCO measures variable consideration by estimating expected outcomes using analysis and inputs based upon anticipated performance, historical data, as well as current and forecasted information. Measurement and recognition of variable consideration is reviewed by management on a monthly basis and revenue is adjusted accordingly. Variable consideration reduced revenue for the three months ended September 30, 2018 and 2017 by approximately $25.1 million and $24.2 million, respectively, and by approximately $74.5 million and $66.5 million for the nine months ended September 30, 2018 and 2017, respectively.
Shipping and handling costs are recognized in net sales when they are billed to the customer. These costs are recognized as a component of selling, general and administrative expenses when WESCO does not bill the customer. WESCO has elected to recognize shipping and handling costs as a fulfillment cost. Shipping and handling costs recorded as a component of selling, general
8
WESCO INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)
(unaudited)
and administrative expenses totaled $18.8 million and $15.5 million for the three months ended September 30, 2018 and 2017, respectively, and $55.6 million and $43.2 million for the nine months ended September 30, 2018 and 2017, respectively.
4. FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company’s financial instruments consist of cash and cash equivalents, accounts receivable, accounts payable, bank overdrafts, and outstanding indebtedness. The reported carrying amounts of WESCO's financial instruments approximated their fair values as of September 30, 2018 and December 31, 2017.
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 Company's debt instruments are classified as Level 2 within the fair value hierarchy.
5. GOODWILL
The following table sets forth the changes in the carrying value of goodwill:
Nine Months Ended
September 30
(In thousands)
2018
Beginning balance January 1
$
1,771,877
Foreign currency exchange rate changes
(16,585
)
Ending balance September 30
$
1,755,292
6. STOCK-BASED COMPENSATION
WESCO’s stock-based employee compensation plans are comprised of 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-settled stock appreciation rights and performance-based awards with market conditions is determined using the Black-Scholes and Monte Carlo simulation models, respectively. The fair value of restricted stock units and performance-based awards with performance conditions is determined by the grant-date closing price of WESCO’s common stock. The forfeiture assumption is based on WESCO’s historical employee behavior that is reviewed on an annual basis. No dividends are assumed.
Effective January 1, 2018, performance-based awards are based on two equally-weighted performance measures, which include the three-year average growth rate of the Company’s fully diluted earnings per share and the three-year cumulative return on net assets. From 2015 to 2017, the two equally-weighted performance-based award metrics were the three-year average growth rate of WESCO's net income and WESCO's total stockholder return in relation to the total stockholder return of a select group of peer companies over a three-year period.
During the three and nine months ended September 30, 2018 and 2017, WESCO granted the following 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, 2018
September 30, 2017
September 30, 2018
September 30, 2017
Stock-settled stock appreciation rights granted
9,415
12,076
509,046
455,807
Weighted-average fair value
$
17.40
$
15.74
$
18.38
$
20.52
Restricted stock units granted
2,686
2,313
119,457
100,993
Weighted-average fair value
$
61.41
$
57.30
$
62.72
$
71.33
Performance-based awards granted
—
—
44,144
39,978
Weighted-average fair value
$
—
$
—
$
62.80
$
76.63
9
WESCO INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)
(unaudited)
The fair value of stock-settled stock appreciation rights was estimated using the following weighted-average assumptions:
Three Months Ended
Nine Months Ended
September 30, 2018
September 30, 2017
September 30, 2018
September 30, 2017
Risk free interest rate
2.8
%
1.8
%
2.5
%
1.9
%
Expected life (in years)
5
5
5
5
Expected volatility
28
%
28
%
28
%
29
%
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 prices over a five-year period preceding the grant date.
The following table sets forth a summary of stock-settled stock appreciation rights and related information for the nine months ended September 30, 2018:
Awards
Weighted-
Average
Exercise
Price
Weighted-
Average
Remaining
Contractual Term (In years)
Aggregate
Intrinsic
Value
(In thousands)
Outstanding at December 31, 2017
2,238,607
$
57.75
Granted
509,046
62.68
Exercised
(186,662
)
40.73
Forfeited
(168,824
)
69.12
Outstanding at September 30, 2018
2,392,167
59.32
6.3
$
16,779
Exercisable at September 30, 2018
1,476,763
$
58.03
4.9
$
13,566
The following table sets forth a summary of time-based restricted stock units and related information for the nine months ended September 30, 2018:
Awards
Weighted-
Average
Fair
Value
Unvested at December 31, 2017
290,054
$
58.11
Granted
119,457
62.72
Vested
(59,905
)
68.78
Forfeited
(14,539
)
57.09
Unvested at September 30, 2018
335,067
$
57.89
10
WESCO INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)
(unaudited)
Performance shares are awards for which the vesting will occur based on market or performance conditions. The following table sets forth a summary of performance-based awards for the nine months ended September 30, 2018:
Awards
Weighted-
Average
Fair
Value
Unvested at December 31, 2017
148,508
$
60.23
Granted
44,144
62.80
Vested
—
—
Forfeited
(52,342
)
65.15
Unvested at September 30, 2018
140,310
$
59.20
The fair value of the performance shares granted during the nine months ended September 30, 2018 and 2017 was estimated using the following weighted-average assumptions:
Nine Months Ended
September 30, 2018
September 30, 2017
Grant date share price
$
62.80
$
71.65
WESCO expected volatility
n/a
29
%
Peer group median volatility
n/a
24
%
Risk-free interest rate
n/a
1.5
%
Correlation of peer company returns
n/a
114
%
The unvested performance-based awards in the table above include 48,805 shares in which vesting of the ultimate number of shares is dependent upon WESCO's total stockholder return in relation to the total stockholder return of a select group of peer companies over a three-year period. These awards are accounted for as awards with market conditions; compensation cost is recognized over the service period, regardless of whether the market conditions are achieved and the awards ultimately vest.
Vesting of the remaining 91,505 shares of performance-based awards in the table above is dependent upon the achievement of certain performance targets, including 48,805 that are dependent upon the three-year average growth rate of WESCO's net income, 21,350 that are dependent upon the three-year average growth rate of the Company's fully diluted earnings per share, and 21,350 that are based upon 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.
WESCO recognized $4.1 million and $3.5 million of non-cash stock-based compensation expense, which is included in selling, general and administrative expenses, for the three months ended September 30, 2018 and 2017, respectively. WESCO recognized $12.1 million and $11.3 million of non-cash stock-based compensation expense, which is included in selling, general and administrative expenses, for the nine months ended September 30, 2018 and 2017, respectively. As of September 30, 2018, there was $22.9 million of total unrecognized compensation cost related to non-vested stock-based compensation arrangements for all awards previously made, of which approximately $4.1 million is expected to be recognized over the remainder of 2018, $11.8 million in 2019, $6.3 million in 2020 and $0.7 million in 2021.
7. EARNINGS PER SHARE
Basic earnings per share is computed by dividing net income attributable to WESCO International by the weighted-average number of common shares outstanding during the periods. Diluted earnings per share is computed by dividing net income attributable to WESCO International 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.
11
WESCO INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)
(unaudited)
The following table sets forth the details of basic and diluted earnings per share:
Three Months Ended
Nine Months Ended
September 30
September 30
(In thousands, except per share data)
2018
2017
2018
2017
Net income attributable to WESCO International
$
66,849
$
53,675
$
169,210
$
140,918
Weighted-average common shares outstanding used in computing basic earnings per share
47,010
47,415
47,044
48,134
Common shares issuable upon exercise of dilutive equity awards
476
389
503
508
Weighted-average common shares outstanding and common share equivalents used in computing diluted earnings per share
47,486
47,804
47,547
48,642
Earnings per share attributable to WESCO International
Basic
$
1.42
$
1.13
$
3.60
$
2.93
Diluted
$
1.41
$
1.12
$
3.56
$
2.90
For the three and nine months ended September 30, 2018 the computation of diluted earnings per share attributable to WESCO International excluded stock-based awards of approximately 1.7 million and 1.5 million, respectively. For the three and nine months ended September 30, 2017, the computation of diluted earnings per share attributable to WESCO International excluded stock-based awards of approximately 1.5 million and 1.3 million, respectively. These amounts were excluded because their effect would have been antidilutive.
In December 2014, the Company's Board of Directors authorized the repurchase of up to $300 million of the Company's common stock through December 31, 2017 (the "2014 Repurchase Authorization"). During the nine months ended September 30, 2017, the Company repurchased 1,778,537 shares under the 2014 Repurchase Authorization for $100.0 million.
In December 2017, the Company's Board of Directors authorized the repurchase of up to $300 million of the Company's common stock through December 31, 2020 (the "2017 Repurchase Authorization"). On September 6, 2018, the Company entered into an accelerated stock repurchase agreement (the "ASR Transaction") with a financial institution to repurchase additional shares of its common stock pursuant to its 2017 Repurchase Authorization. In exchange for an up-front cash payment of $25.0 million, the Company received an initial share delivery of 351,821 shares. As of September 30, 2018, the ASR Transaction had not yet settled between the counterparties. The total number of shares ultimately delivered under the ASR Transaction will be determined by the average of the volume-weighted average prices of the Company's common stock for each exchange business day during the settlement valuation period. For purposes of computing earnings per share for the three and nine months ended September 30, 2018 and 2017, share repurchases were reflected as a reduction to common shares outstanding on the respective delivery dates. WESCO funded the repurchase with available cash and borrowings under the Company's accounts receivable securitization facility.
8. EMPLOYEE BENEFIT PLANS
A majority of WESCO’s employees are covered by defined contribution retirement savings plans for their services rendered subsequent to WESCO’s formation. WESCO also offers a deferred compensation plan for select individuals. For U.S. participants, WESCO matches contributions made by employees at an amount equal to 50% of participants' total monthly contributions up to a maximum of 6% of eligible compensation. For Canadian participants, WESCO makes contributions in amounts ranging from 3% to 5% of participants' eligible compensation based on years of continuous service. WESCO may also make, subject to the Board of Directors' approval, a discretionary contribution to the defined contribution retirement savings plan covering U.S. participants if certain predetermined profit levels are attained. For the nine months ended September 30, 2018 and 2017, WESCO incurred charges of $33.5 million and $20.3 million, respectively, for all such plans. Contributions are made in cash to employee retirement savings plan accounts. The deferred compensation plan is an unfunded plan. As of September 30, 2018 and December 31, 2017, the Company's obligation under the deferred compensation plan was $23.8 million and $24.3 million, respectively. Employees have the option to transfer balances allocated to their accounts in the defined contribution retirement savings plan and the deferred compensation plan into any of the available investment options.
The Company sponsors a contributory defined benefit plan covering substantially all Canadian employees of EECOL and a Supplemental Executive Retirement Plan (the "SERP") for certain executives of EECOL. During the three and nine months ended September 30, 2018, the Company contributed $0.1 million and $0.3 million, respectively, to the SERP.
12
WESCO INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)
(unaudited)
The following table sets forth the components of net periodic benefit costs for the defined benefit plans:
Three Months Ended
Nine Months Ended
September 30
September 30
(In thousands)
2018
2017
2018
2017
Service cost
$
1,296
$
1,118
$
3,955
$
3,234
Interest cost
1,026
1,007
3,131
2,915
Expected return on plan assets
(1,482
)
(1,432
)
(4,522
)
(4,144
)
Recognized actuarial gain
(11
)
(51
)
(35
)
(149
)
Net periodic benefit cost
$
829
$
642
$
2,529
$
1,856
In accordance with ASU 2017-07, as described in Note 2, the service cost of $1.3 million and $4.0 million for the three and nine months ended September 30, 2018, respectively, was reported as a component of selling, general and administrative expenses. The other components of net periodic benefit cost totaling a net benefit of $0.5 million and $1.4 million for the three and nine months ended September 30, 2018, respectively, were presented as a component of net interest and other, as described in Note 9 below. For the three and nine months ended September 30, 2017, the Company reclassified a net benefit of $0.5 million and $1.4 million, respectively, from selling, general and administrative expenses to net interest and other. The Company used the amounts disclosed in Note 7 of the Notes to Condensed Consolidated Financial Statements in the Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2017 as the estimation basis for applying the retrospective presentation requirements.
9. NET INTEREST AND OTHER
Net interest and other includes interest expense, interest income, amortization of debt discount and debt issuance costs, the non-service cost components of net periodic benefit cost, and foreign exchange gains and losses from the remeasurement of certain financial instruments. For the three and nine months ended September 30, 2018, a foreign exchange gain of less than $0.1 million and a foreign exchange loss of $2.6 million, respectively, from the remeasurement of financial instruments were reported as a component of net interest and other. Foreign exchange gains and losses were not material for the three and nine months ended September 30, 2017.
10. COMMITMENTS AND CONTINGENCIES
From time to time, a number of lawsuits and claims have been or may be asserted against us relating to the conduct of our business, including routine litigation relating to commercial and employment matters. The outcome of any litigation cannot be predicted with certainty, and some lawsuits may be determined adversely to us. However, management does not believe that the ultimate outcome of any such pending matters is likely to have a material adverse effect on our 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 our results of operations for that period.
11. INCOME TAXES
The effective tax rate for the three and nine months ended September 30, 2018 was 17.2% and 19.3%, respectively. The effective tax rate for the three and nine months ended September 30, 2017 was 25.5% and 25.3%, respectively. WESCO’s effective tax rate is typically impacted by the tax effect of intercompany financing, foreign tax rate differences, other nondeductible expenses and state income taxes. The effective tax rates for the current year periods are lower than the prior year periods primarily due to the Tax Cuts and Jobs Act of 2017 (the "TCJA"), which permanently reduced the U.S. federal statutory income tax rate from 35% to 21%, effective January 1, 2018. Also, the discrete benefits resulting from audit settlements favorably impacted the effective tax rate for the three months ended September 30, 2018.
The unaudited condensed consolidated financial information presented herein reflects provisional amounts for certain income tax effects of the TCJA for which the accounting is incomplete, but a reasonable estimate can be determined, based on enacted tax laws and rates as of September 30, 2018. Since the enactment of the TCJA on December 22, 2017, the Internal Revenue Service has issued proposed regulations and guidance regarding Section 965 of the Internal Revenue Code, as amended by the TCJA. We have reviewed the proposed regulations and guidance, and they do not materially impact the provisional amounts previously recorded for the one-time tax on the deemed repatriation of undistributed foreign earnings. Future adjustments (if any) resulting
13
WESCO INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)
(unaudited)
from additional regulatory guidance will be recognized as discrete income tax expense or benefit in the period the adjustments are determined.
The total amount of unrecognized tax benefits was reduced from $4.3 million to $1.6 million during the nine months ended September 30, 2018 due to audit settlements. The $1.6 million could affect the effective tax rate if recognized in the consolidated financial statements. It is reasonably possible that this amount will decrease by approximately $0.2 million within the next twelve months due to the expiration of statutes of limitation and the settlement of state audits.
12. CONDENSED CONSOLIDATING FINANCIAL INFORMATION
WESCO Distribution has outstanding $500 million in aggregate principal amount of 5.375% Senior Notes due 2021 (the "2021 Notes") and $350 million in aggregate principal amount of 5.375% Senior Notes due 2024 (the "2024 Notes"). The 2021 Notes and 2024 Notes are unsecured senior obligations of WESCO Distribution and are fully and unconditionally guaranteed on a senior unsecured basis by WESCO International.
Condensed consolidating financial information for WESCO International, WESCO Distribution and the non-guarantor subsidiaries is presented in the following tables.
Condensed Consolidating Balance Sheet
September 30, 2018
(In thousands)
WESCO
International,
Inc.
WESCO
Distribution,
Inc.
Non-Guarantor
Subsidiaries
Consolidating
and
Eliminating
Entries
Consolidated
Cash and cash equivalents
$
—
$
57,052
$
85,708
$
—
$
142,760
Trade accounts receivable, net
—
—
1,265,880
—
1,265,880
Inventories
—
411,252
515,516
—
926,768
Prepaid expenses and other current assets
4,943
42,568
132,620
(9,040
)
171,091
Total current assets
4,943
510,872
1,999,724
(9,040
)
2,506,499
Intercompany receivables, net
—
—
2,270,584
(2,270,584
)
—
Property, buildings and equipment, net
—
56,351
100,778
—
157,129
Intangible assets, net
—
2,291
331,735
—
334,026
Goodwill
—
257,623
1,497,669
—
1,755,292
Investments in affiliates
3,188,872
5,144,891
—
(8,333,763
)
—
Other assets
—
2,780
23,065
—
25,845
Total assets
$
3,193,815
$
5,974,808
$
6,223,555
$
(10,613,387
)
$
4,778,791
Accounts payable
$
—
$
412,989
$
400,406
$
—
$
813,395
Short-term debt
—
—
31,125
—
31,125
Other current liabilities
—
72,762
143,286
(9,040
)
207,008
Total current liabilities
—
485,751
574,817
(9,040
)
1,051,528
Intercompany payables, net
952,642
1,317,942
—
(2,270,584
)
—
Long-term debt, net
—
864,779
364,535
—
1,229,314
Other noncurrent liabilities
3,820
117,464
144,828
—
266,112
Total WESCO International stockholders' equity
2,237,353
3,188,872
5,144,891
(8,333,763
)
2,237,353
Noncontrolling interests
—
—
(5,516
)
—
(5,516
)
Total liabilities and stockholders’ equity
$
3,193,815
$
5,974,808
$
6,223,555
$
(10,613,387
)
$
4,778,791
14
WESCO INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)
(unaudited)
Condensed Consolidating Balance Sheet
December 31, 2017
(In thousands)
WESCO
International,
Inc.
WESCO
Distribution,
Inc.
Non-Guarantor
Subsidiaries
Consolidating
and
Eliminating
Entries
Consolidated
Cash and cash equivalents
$
—
$
50,602
$
67,351
$
—
$
117,953
Trade accounts receivable, net
—
—
1,170,080
—
1,170,080
Inventories
—
430,092
526,056
—
956,148
Prepaid expenses and other current assets
4,730
42,547
152,531
(35,140
)
164,668
Total current assets
4,730
523,241
1,916,018
(35,140
)
2,408,849
Intercompany receivables, net
—
—
2,189,136
(2,189,136
)
—
Property, buildings and equipment, net
—
50,198
106,247
—
156,445
Intangible assets, net
—
2,770
364,334
—
367,104
Goodwill
—
257,623
1,514,254
—
1,771,877
Investments in affiliates
3,058,613
5,023,826
—
(8,082,439
)
—
Other assets
—
2,778
28,415
—
31,193
Total assets
$
3,063,343
$
5,860,436
$
6,118,404
$
(10,306,715
)
$
4,735,468
Accounts payable
$
—
$
417,690
$
381,830
$
—
$
799,520
Short-term debt
—
—
34,075
—
34,075
Other current liabilities
—
80,039
162,475
(35,140
)
207,374
Total current liabilities
—
497,729
578,380
(35,140
)
1,040,969
Intercompany payables, net
939,784
1,249,352
—
(2,189,136
)
—
Long-term debt, net
—
934,033
379,228
—
1,313,261
Other noncurrent liabilities
3,820
120,709
140,566
—
265,095
Total WESCO International stockholders' equity
2,119,739
3,058,613
5,023,826
(8,082,439
)
2,119,739
Noncontrolling interests
—
—
(3,596
)
—
(3,596
)
Total liabilities and stockholders’ equity
$
3,063,343
$
5,860,436
$
6,118,404
$
(10,306,715
)
$
4,735,468
15
WESCO INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)
(unaudited)
Condensed Consolidating Statement of Income and Comprehensive Income
Three Months Ended
September 30, 2018
(In thousands)
WESCO
International,
Inc.
WESCO
Distribution,
Inc.
Non-Guarantor
Subsidiaries
Consolidating
and
Eliminating
Entries
Consolidated
Net sales
$
—
$
899,994
$
1,206,174
$
(38,923
)
$
2,067,245
Cost of goods sold (excluding depreciation and
amortization)
—
727,052
981,908
(38,923
)
1,670,037
Selling, general and administrative expenses
—
149,390
134,683
—
284,073
Depreciation and amortization
—
4,475
11,143
—
15,618
Results of affiliates’ operations
66,645
61,771
—
(128,416
)
—
Net interest and other
—
13,127
3,923
—
17,050
Income tax expense
—
1,076
12,746
—
13,822
Net income
66,645
66,645
61,771
(128,416
)
66,645
Net loss attributable to noncontrolling interests
—
—
(204
)
—
(204
)
Net income attributable to WESCO International
$
66,645
$
66,645
$
61,975
$
(128,416
)
$
66,849
Other comprehensive income:
Foreign currency translation adjustments
20,486
20,486
20,486
(40,972
)
20,486
Comprehensive income attributable to WESCO International
$
87,131
$
87,131
$
82,461
$
(169,388
)
$
87,335
16
WESCO INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)
(unaudited)
Condensed Consolidating Statement of Income and Comprehensive Income
Nine Months Ended
September 30, 2018
(In thousands)
WESCO
International,
Inc.
WESCO
Distribution,
Inc.
Non-Guarantor
Subsidiaries
Consolidating
and
Eliminating
Entries
Consolidated
Net sales
$
—
$
2,703,468
$
3,578,653
$
(116,967
)
$
6,165,154
Cost of goods sold (excluding depreciation and
amortization)
—
2,189,683
2,915,387
(116,967
)
4,988,103
Selling, general and administrative expenses
—
447,437
420,353
—
867,790
Depreciation and amortization
—
13,749
33,572
—
47,321
Results of affiliates’ operations
167,289
158,093
—
(325,382
)
—
Net interest and other
—
41,202
13,372
—
54,574
Income tax expense
—
2,201
37,876
—
40,077
Net income
167,289
167,289
158,093
(325,382
)
167,289
Net loss attributable to noncontrolling interests
—
—
(1,921
)
—
(1,921
)
Net income attributable to WESCO International
$
167,289
$
167,289
$
160,014
$
(325,382
)
$
169,210
Other comprehensive loss:
Foreign currency translation adjustments
(37,029
)
(37,029
)
(37,029
)
74,058
(37,029
)
Comprehensive income attributable to WESCO International
$
130,260
$
130,260
$
122,985
$
(251,324
)
$
132,181
17
WESCO INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)
(unaudited)
Condensed Consolidating Statement of Income and Comprehensive Income
Three Months Ended
September 30, 2017
(In thousands)
WESCO
International,
Inc.
WESCO
Distribution,
Inc.
Non-Guarantor
Subsidiaries
Consolidating
and
Eliminating
Entries
Consolidated
Net sales
$
—
$
867,973
$
1,169,377
$
(37,191
)
$
2,000,159
Cost of goods sold (excluding depreciation and
amortization)
—
697,896
954,109
(37,191
)
1,614,814
Selling, general and administrative expenses
—
140,638
139,859
—
280,497
Depreciation and amortization
—
4,475
11,599
—
16,074
Results of affiliates’ operations
53,576
42,726
—
(96,302
)
—
Net interest and other
—
25,436
(8,601
)
—
16,835
Income tax (benefit) expense
—
(136
)
18,499
—
18,363
Net income
53,576
42,390
53,912
(96,302
)
53,576
Net loss attributable to noncontrolling interests
—
—
(99
)
—
(99
)
Net income attributable to WESCO International
$
53,576
$
42,390
$
54,011
$
(96,302
)
$
53,675
Other comprehensive income:
Foreign currency translation adjustments
51,148
51,148
51,148
(102,296
)
51,148
Comprehensive income attributable to WESCO International
$
104,724
$
93,538
$
105,159
$
(198,598
)
$
104,823
Reclassification
As described in Note 8, the Company reclassified a net benefit of $0.5 million from selling, general and administrative expenses to net interest and other in the previously reported Condensed Consolidated Statement of Income and Comprehensive Income of the non-guarantor subsidiaries for the three months ended September 30, 2017.
18
WESCO INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)
(unaudited)
Condensed Consolidating Statement of Income and Comprehensive Income
Nine Months Ended
September 30, 2017
(In thousands)
WESCO
International,
Inc.
WESCO
Distribution,
Inc.
Non-Guarantor
Subsidiaries
Consolidating
and
Eliminating
Entries
Consolidated
Net sales
$
—
$
2,490,102
$
3,289,693
$
(97,420
)
$
5,682,375
Cost of goods sold (excluding depreciation and
amortization)
—
2,002,708
2,675,608
(97,420
)
4,580,896
Selling, general and administrative expenses
—
410,624
405,029
—
815,653
Depreciation and amortization
—
13,811
33,947
—
47,758
Results of affiliates’ operations
140,915
117,907
—
(258,822
)
—
Net interest and other
—
74,961
(25,492
)
—
49,469
Income tax (benefit) expense
—
(3,034
)
50,718
—
47,684
Net income
140,915
108,939
149,883
(258,822
)
140,915
Net loss attributable to noncontrolling interests
—
—
(3
)
—
(3
)
Net income attributable to WESCO International
$
140,915
$
108,939
$
149,886
$
(258,822
)
$
140,918
Other comprehensive income:
Foreign currency translation adjustments
96,097
96,097
96,097
(192,194
)
96,097
Post retirement benefit plan adjustments, net of tax
252
252
252
(504
)
252
Comprehensive income attributable to WESCO International
$
237,264
$
205,288
$
246,235
$
(451,520
)
$
237,267
Reclassification
As described in Note 8, the Company reclassified a net benefit of $1.4 million from selling, general and administrative expenses to net interest and other in the previously reported Condensed Consolidated Statement of Income and Comprehensive Income of the non-guarantor subsidiaries for the nine months ended September 30, 2017.
19
WESCO INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)
(unaudited)
Condensed Consolidating Statement of Cash Flows
Nine Months Ended
September 30, 2018
(In thousands)
WESCO
International,
Inc.
WESCO
Distribution,
Inc.
Non-Guarantor
Subsidiaries
Consolidating
and Eliminating
Entries
Consolidated
Net cash provided by operating activities
$
14,198
$
62,439
$
97,823
$
—
$
174,460
Investing activities:
Capital expenditures
—
(12,831
)
(10,918
)
—
(23,749
)
Dividends received from subsidiaries
—
118,271
—
(118,271
)
—
Other
—
(81,128
)
3,609
81,128
3,609
Net cash provided by (used in) investing activities
—
24,312
(7,309
)
(37,143
)
(20,140
)
Financing activities:
Borrowings
12,857
246,323
933,046
(81,128
)
1,111,098
Repayments
—
(318,323
)
(882,239
)
—
(1,200,562
)
Repurchases of common stock
(27,055
)
—
—
—
(27,055
)
Dividends paid by subsidiaries
—
—
(118,271
)
118,271
—
Other
—
(8,301
)
—
—
(8,301
)
Net cash used in financing activities
(14,198
)
(80,301
)
(67,464
)
37,143
(124,820
)
Effect of exchange rate changes on cash and cash equivalents
—
—
(4,693
)
—
(4,693
)
Net change in cash and cash equivalents
—
6,450
18,357
—
24,807
Cash and cash equivalents at the beginning of period
—
50,602
67,351
—
117,953
Cash and cash equivalents at the end of period
$
—
$
57,052
$
85,708
$
—
$
142,760
20
WESCO INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)
(unaudited)
Condensed Consolidating Statement of Cash Flows
Nine Months Ended
September 30, 2017
(In thousands)
WESCO
International,
Inc.
WESCO
Distribution,
Inc.
Non-Guarantor
Subsidiaries
Consolidating
and Eliminating
Entries
Consolidated
Net cash (used in) provided by operating activities
$
(28,740
)
$
168,603
$
(58,752
)
$
—
$
81,111
Investing activities:
Capital expenditures
—
(7,435
)
(8,535
)
—
(15,970
)
Dividends received from subsidiaries
—
51,561
—
(51,561
)
—
Other
—
(174,032
)
16,711
160,811
3,490
Net cash (used in) provided by investing activities
—
(129,906
)
8,176
109,250
(12,480
)
Financing activities:
Borrowings
135,442
557,391
691,682
(173,907
)
1,210,608
Repayments
—
(587,485
)
(617,301
)
13,096
(1,191,690
)
Repurchases of common stock
(106,702
)
—
—
—
(106,702
)
Dividends paid by subsidiaries
—
—
(51,561
)
51,561
—
Other
—
(4,380
)
—
—
(4,380
)
Net cash provided by (used in) financing activities
28,740
(34,474
)
22,820
(109,250
)
(92,164
)
Effect of exchange rate changes on cash and cash equivalents