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EX-31.1 - EXHIBIT 31.1 - WESCO INTERNATIONAL INCwcc09302016ex311.htm
EX-32.2 - EXHIBIT 32.2 - WESCO INTERNATIONAL INCwcc09302016ex322.htm
EX-32.1 - EXHIBIT 32.1 - WESCO INTERNATIONAL INCwcc09302016ex321.htm
EX-31.2 - EXHIBIT 31.2 - WESCO INTERNATIONAL INCwcc09302016ex312.htm
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, 2016
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, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer þ
 
 
 
Accelerated filer o
 
 
 
 
 
Non-accelerated filer o (Do not check if a smaller reporting company)
 
Smaller reporting company 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 3, 2016, 48,556,393 shares of common stock, $0.01 par value, of the registrant were outstanding.






WESCO INTERNATIONAL, INC. AND SUBSIDIARIES


QUARTERLY REPORT ON FORM 10-Q




1


WESCO INTERNATIONAL, INC. AND SUBSIDIARIES


PART I—FINANCIAL INFORMATION
Item 1. Financial Statements.
The interim financial information required by this item is set forth in the Condensed Consolidated Financial Statements and Notes thereto in this Quarterly Report on Form 10-Q, as follows:


2


WESCO INTERNATIONAL, INC. AND SUBSIDIARIES


CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands of dollars, except share data)
(unaudited)
 
September 30,
2016
 
December 31,
2015
Assets
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
112,837

 
$
160,279

Trade accounts receivable, net of allowance for doubtful accounts of $22,943 and $22,587 in 2016 and 2015, respectively
1,102,140

 
1,075,257

Other accounts receivable
68,501

 
81,242

Inventories
832,510

 
810,067

Current deferred income taxes (Note 2)

 
8,455

Prepaid expenses and other current assets
127,839

 
122,234

Total current assets
2,243,827

 
2,257,534

Property, buildings and equipment, net of accumulated depreciation of $255,680 and $243,005 in 2016 and 2015, respectively
160,915

 
166,739

Intangible assets, net of accumulated amortization of $170,613 and $138,374 in 2016 and 2015, respectively
407,401

 
403,649

Goodwill
1,735,662

 
1,681,662

Other assets
61,548

 
60,142

    Total assets
$
4,609,353

 
$
4,569,726

Liabilities and Stockholders’ Equity
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
699,517

 
$
715,519

Accrued payroll and benefit costs
49,157

 
51,258

Short-term debt
35,562

 
43,314

Current portion of long-term debt
1,220

 
1,025

Bank overdrafts
35,814

 
34,170

Other current liabilities
138,712

 
102,515

Total current liabilities
959,982

 
947,801

Long-term debt, net of discount and debt issuance costs of $18,238 and $182,041 in 2016 and 2015, respectively
1,418,708

 
1,439,062

Deferred income taxes
181,230

 
364,838

Other noncurrent liabilities
56,800

 
44,154

    Total liabilities
$
2,616,720

 
$
2,795,855

Commitments and contingencies (Note 9)



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, 58,781,758 and 58,597,380 shares issued and 48,587,942 and 42,173,790 shares outstanding in 2016 and 2015, respectively
588

 
586

Class B nonvoting convertible common stock, $.01 par value; 20,000,000 shares authorized, 4,339,431 issued and no shares outstanding in 2016 and 2015, respectively
43

 
43

Additional capital
984,856

 
1,117,421

Retained earnings
1,909,189

 
1,854,456

Treasury stock, at cost; 14,533,247 and 20,763,021 shares in 2016 and 2015, respectively
(541,706
)
 
(772,679
)
Accumulated other comprehensive loss
(356,659
)
 
(423,155
)
Total WESCO International, Inc. stockholders' equity
1,996,311

 
1,776,672

Noncontrolling interests
(3,678
)
 
(2,801
)
    Total stockholders’ equity
1,992,633

 
1,773,871

    Total liabilities and stockholders’ equity
$
4,609,353

 
$
4,569,726


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

3


WESCO INTERNATIONAL, INC. AND SUBSIDIARIES


CONDENSED CONSOLIDATED STATEMENTS OF (LOSS) INCOME AND COMPREHENSIVE (LOSS) INCOME
(In thousands of dollars, except per share data)
(unaudited)
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2016
 
2015
 
2016
 
2015
Net sales
$
1,855,212

 
$
1,923,899

 
$
5,542,755

 
$
5,656,947

Cost of goods sold (excluding depreciation and
 
 
 
 
 
 
 
amortization)
1,490,173

 
1,543,113

 
4,443,079

 
4,526,836

Selling, general and administrative expenses
255,547

 
258,151

 
799,356

 
797,980

Depreciation and amortization
16,937

 
16,287

 
50,269

 
48,347

Income from operations
92,555

 
106,348

 
250,051

 
283,784

Interest expense, net
20,792

 
20,417

 
59,073

 
59,924

Loss on debt redemption
123,933

 

 
123,933

 

(Loss) income before income taxes
(52,170
)
 
85,931

 
67,045

 
223,860

Provision for income taxes
(21,149
)
 
23,547

 
13,678

 
64,047

Net (loss) income
(31,021
)
 
62,384

 
53,367

 
159,813

Less: Net income (loss) attributable to noncontrolling interests
590

 
(1,119
)
 
(876
)
 
(2,460
)
Net (loss) income attributable to WESCO International, Inc.
$
(31,611
)
 
$
63,503

 
$
54,243

 
$
162,273

Other comprehensive (loss) income:
 
 
 
 
 
 
 
Foreign currency translation adjustments
(13,993
)
 
(95,377
)
 
66,512

 
(183,634
)
Post retirement benefit plan adjustment

 

 
(16
)
 

Comprehensive (loss) income attributable to WESCO International, Inc.
$
(45,604
)
 
$
(31,874
)
 
$
120,739

 
$
(21,361
)
 
 
 
 
 
 
 
 
(Loss) earnings per share attributable to WESCO International, Inc.
 
 
 
 
 
 
 
Basic
$
(0.73
)
 
$
1.47

 
$
1.27

 
$
3.70

Diluted
$
(0.73
)
 
$
1.28

 
$
1.13

 
$
3.16


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,
 
2016
 
2015
Operating activities:
 
 
 
Net income
$
53,367

 
$
159,813

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization
50,269

 
48,347

  Deferred income taxes
(21,842
)
 
26,339

Loss on debt redemption
123,933

 

Other operating activities, net
11,228

 
17,498

Changes in assets and liabilities:
 
 
 
Trade accounts receivable, net
(3,075
)
 
(49,799
)
Other accounts receivable
15,524

 
64,893

Inventories
(7,651
)
 
(38,862
)
Prepaid expenses and other assets
(8,625
)
 
(12,052
)
Accounts payable
(30,289
)
 
30,389

Accrued payroll and benefit costs
(2,648
)
 
(20,394
)
Other current and noncurrent liabilities
36,997

 
(50,208
)
Net cash provided by operating activities
217,188

 
175,964

 
 
 
 
Investing activities:
 
 
 
Acquisition payments, net of cash acquired
(50,745
)
 
(68,502
)
Capital expenditures
(13,183
)
 
(16,242
)
Other investing activities
(3,885
)
 
1,791

Net cash used in investing activities
(67,813
)
 
(82,953
)
 
 
 
 
Financing activities:
 
 
 
Proceeds from issuance of short-term debt
89,847

 
75,564

Repayments of short-term debt
(96,535
)
 
(73,464
)
Proceeds from issuance of long-term debt
1,731,715

 
1,220,334

Repayments of long-term debt
(1,915,545
)
 
(1,128,694
)
Repurchases of common stock (Note 6)
(4,073
)
 
(155,775
)
Other financing activities, net
(3,494
)
 
(11,253
)
Net cash used in financing activities
(198,085
)
 
(73,288
)
 
 
 
 
Effect of exchange rate changes on cash and cash equivalents
1,268

 
(15,190
)
 
 
 
 
Net change in cash and cash equivalents
(47,442
)
 
4,533

Cash and cash equivalents at the beginning of period
160,279

 
128,319

Cash and cash equivalents at the end of period
$
112,837

 
$
132,852


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. 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 manufacturers ("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 over 80,000 active customers globally, through approximately 500 full service branches and nine distribution centers located primarily in the United States, Canada and Mexico, with operations in 14 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 2015 Annual Report on Form 10-K as filed with the SEC on February 22, 2016. The Condensed Consolidated Balance Sheet at December 31, 2015 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, 2016, the unaudited Condensed Consolidated Statements of (Loss) Income and Comprehensive (Loss) Income for the three and nine months ended September 30, 2016 and 2015, respectively, and the unaudited Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2016 and 2015, 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.
During the first quarter of 2016, the Company adopted certain accounting pronouncements that were effective beginning this fiscal year. The adoption of such guidance, as described below, resulted in certain reclassifications to amounts previously reported in the Consolidated Balance Sheet at December 31, 2015.
Fair Value of Financial Instruments
The Company measures the fair value of financial assets and liabilities in accordance with Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 820, "Fair Value Measurements and Disclosures," which defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements.
ASC 820 establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value and requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to measurements involving significant unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are as follows:
Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that are accessible at the measurement date.
Level 2 inputs include inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices in active markets for similar assets and liabilities, quoted prices for identical or similar assets or liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of assets or liabilities.
Level 3 inputs are unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions.

6

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


Except for WESCO’s previously outstanding 6.0% Convertible Senior Debentures due 2029 (the "2029 Debentures"), the reported carrying amounts of WESCO’s debt instruments approximate their fair values. As described in Note 7, the 2029 Debentures have been fully redeemed as of September 30, 2016. At December 31, 2015, the carrying value of WESCO’s 2029 Debentures was $177.8 million and the fair value was approximately $514.2 million. The Company uses a market approach to fair value all of its debt instruments, utilizing quoted prices in active markets, interest rates and other relevant information generated by market transactions involving similar instruments. Therefore, all of the Company's debt instruments are classified as Level 2 within the valuation hierarchy. For all of the Company's remaining financial instruments, consisting of cash and cash equivalents, accounts receivable, accounts payable and other accrued liabilities, carrying values are considered to approximate fair value due to the short maturity of these instruments.
Recently Adopted Accounting Pronouncements
In April 2015, the FASB issued Accounting Standards Update (ASU) 2015-03, Simplifying the Presentation of Debt Issuance Costs, which simplifies the presentation of debt issuance costs by requiring that debt issuance costs related to a recognized liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The Company adopted this new guidance on a retrospective basis effective January 1, 2016. Accordingly, the Company reclassified approximately $17.7 million of debt issuance costs from other noncurrent assets to long-term debt in the balance sheet as of December 31, 2015.
In May 2015, the FASB issued ASU 2015-07, Disclosures for Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent). This updated guidance removes the requirement to categorize investments for which fair value is measured using the net asset value (NAV) per share practical expedient within the fair value hierarchy. The amendments in this ASU are effective beginning in the first quarter of 2016 and will be applied retrospectively. The adoption of this ASU is not expected to have an impact on WESCO's financial position, results of operations or cash flows; however, this updated guidance will impact the Company's defined benefit plan disclosure in its Annual Report on Form 10-K for the fiscal year ending December 31, 2016. Specifically, investments for which fair value is measured using the NAV per share practical expedient will be removed from the fair value hierarchy in all periods presented.
In November 2015, the FASB issued ASU 2015-17, Balance Sheet Classification of Deferred Taxes. This ASU simplifies the presentation of deferred income taxes by requiring that all deferred tax assets and liabilities, along with any related valuation allowance, be classified as noncurrent in the balance sheet. The Company elected to early adopt this ASU on a prospective basis during the first quarter of 2016. The adoption of this ASU did not have a material impact on WESCO's financial position and it had no impact on its results of operations or cash flows.
Recently Issued Accounting Pronouncements
In August 2015, the FASB issued ASU 2015-14, Revenue from Contracts with Customers: Deferral of Effective Date. The Company previously reported that in May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers, which provides a framework for addressing revenue recognition issues and replaces almost all existing revenue recognition guidance in current U.S. generally accepted accounting principles. The core principle of ASU 2014-09 is for companies to recognize revenue for the transfer of goods or services to customers in amounts that reflect the consideration to which the company expects to be entitled in exchange for those goods or services. ASU 2014-09 will also result in enhanced disclosures about revenue, provide guidance for transactions that were not previously addressed comprehensively, and improve guidance for multiple-element arrangements. The amendments in ASU 2015-14 defer the effective date of the new revenue recognition guidance to annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. During 2016, the FASB issued three ASUs that address implementation issues related to certain aspects of the new revenue recognition guidance, including ASU 2016-08, Principal versus Agent Considerations (Reporting Revenue Gross versus Net), ASU 2016-10, Identifying Performance Obligations and Licensing, and ASU 2016-12, Narrow-Scope Improvements and Practical Expedients. The amendments in these ASUs do not change the core principles in the revenue recognition standard outlined above. Management is currently evaluating the future impact of this guidance on WESCO's consolidated financial statements and notes thereto.
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 on the balance sheet and disclosing key information about leasing arrangements. This guidance is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted. The new leasing standard requires modified retrospective transition, which requires application of the new guidance at the beginning of the earliest comparative period presented in the year of adoption. Management is currently evaluating the impact of this new standard on WESCO's consolidated financial statements and notes thereto.

7

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


In March 2016, the FASB issued ASU 2016-09, Compensation—Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting, which simplifies several aspects of accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. The amendments in this ASU affect all entities that issue share-based payment awards to their employees. Management is currently evaluating the impact of this accounting standard on WESCO's consolidated financial statements and notes thereto.
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 ASU 2016-13 are effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years and early adoption is permitted. Management is currently evaluating the impact of this accounting standard on WESCO's consolidated financial statements and notes thereto.
In August 2016, the 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 amendments in this ASU are effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. Management is currently evaluating the impact of this accounting standard on WESCO's consolidated financial statements and notes thereto.
In October 2016, the FASB issued ASU 2016-16, Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory. The purpose of ASU 2016-16 is to simplify the income tax accounting of an intra-entity transfer of an asset other than inventory and to record its effect when the transfer occurs. The guidance is effective for annual reporting periods beginning after December 15, 2017, including interim reporting periods within those annual reporting periods and early adoption is permitted. Management is currently evaluating the impact of this accounting standard on WESCO's consolidated financial statements and notes thereto.
Other pronouncements issued by the FASB or other authoritative accounting standards groups with future effective dates are either not applicable or are not expected to be significant to WESCO’s financial position, results of operations or cash flows.
3. ACQUISITIONS
The following table sets forth consideration paid for acquisitions:
 
Nine Months Ended
(In thousands of dollars)
September 30,
2016
 
September 30,
2015
Fair value of assets acquired
$
78,564

 
$
89,786

Fair value of liabilities assumed
26,764

 
21,284

   Cash paid for acquisitions
$
51,800

 
$
68,502

Supplemental cash flow disclosure:
 
 
 
   Cash paid for acquisitions
$
51,800

 
$
68,502

   Less: cash acquired
(1,055
)
 

   Cash paid for acquisitions, net of cash acquired
$
50,745

 
$
68,502

The fair values of assets acquired and liabilities assumed during the nine months ended September 30, 2016, which are primarily for the acquisition of Atlanta Electrical Distributors, LLC, are based upon preliminary calculations and valuations. WESCO's estimates and assumptions for its preliminary purchase price allocation are subject to change as it obtains additional information for its estimates during the respective measurement period (up to one year from the respective acquisition date).
Acquisition of Atlanta Electrical Distributors, LLC
On March 14, 2016, WESCO Distribution, Inc. ("WESCO Distribution") completed the acquisition of Atlanta Electrical Distributors, LLC, an Atlanta-based electrical distributor focused on the construction and MRO markets from five locations in Georgia with approximately $85 million in annual sales. WESCO Distribution funded the purchase price paid at closing with borrowings under its revolving credit facility. The purchase price was allocated to the respective assets and liabilities based upon their estimated fair values as of the acquisition date. In addition to the cash paid at closing, the purchase price includes a

8

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


contingent payment that may be earned upon the achievement of certain financial performance targets over three consecutive one year periods. The fair value of the contingent consideration was determined using a probability-weighted outcome analysis and Level 3 inputs such as internal forecasts. This amount has been accrued at the maximum potential payout under the terms of the purchase agreement and it is included in the fair value of liabilities assumed as presented above. The preliminary fair value of intangibles was estimated by management and the allocation resulted in intangible assets of $21.8 million and goodwill of $31.6 million. The intangible assets include customer relationships of $15.8 million amortized over 13 and 14 years, a trademark of $6.0 million amortized over 13 years, and non-compete agreements of less than $0.1 million amortized over 5 years. No residual value is estimated for the intangible assets being amortized. Management believes that the majority of goodwill is deductible for tax purposes.
2015 Acquisitions of Needham Electric Supply Corporation and Hill Country Electric Supply, LP
On October 30, 2015, WESCO Distribution completed the acquisition of Needham Electric Supply Corporation, an electrical distributor focused on the commercial construction and lighting national account markets from 24 locations in Massachusetts, New Hampshire and Vermont with approximately $115 million in annual sales. WESCO Distribution funded the purchase price paid at closing with cash and borrowings under its revolving credit facility. The purchase price was allocated to the respective assets and liabilities based upon their estimated fair values as of the acquisition date. The fair value of intangibles was estimated by management and the allocation resulted in intangible assets of $31.0 million and goodwill of $35.7 million. The intangible assets include customer relationships of $24.5 million amortized over 12 and 14 years, and trademarks of $6.5 million amortized over 13 years. No residual value is estimated for the intangible assets being amortized. Management believes that the majority of goodwill is deductible for tax purposes.
On May 1, 2015, WESCO Distribution completed the acquisition of Hill Country Electric Supply, LP, an electrical distributor focused on the commercial construction market from nine locations in Central and South Texas with approximately $140 million in annual sales. WESCO Distribution funded the purchase price paid at closing with borrowings under its prior revolving credit facility. The purchase price was allocated to the respective assets and liabilities based upon their estimated fair values as of the acquisition date. The fair value of intangibles was estimated by management and the allocation resulted in intangible assets of $21.1 million and goodwill of $16.2 million. The intangible assets include customer relationships of $13.1 million amortized over 11 years, non-compete agreements of $0.2 million amortized over 5 years, and trademarks of $7.8 million amortized over 12 years. No residual value is estimated for the intangible assets being amortized. Management believes that the majority of goodwill is deductible for tax purposes.
4. GOODWILL
The following table sets forth the changes in the carrying value of goodwill:
 
Nine Months Ended
 
September 30,
2016
 
September 30,
2015
 
(In thousands)
Beginning balance January 1
$
1,681,662

 
$
1,735,440

Foreign currency exchange rate changes
34,799

 
(93,453
)
Adjustments to goodwill for acquisitions (1)
19,201

 
24,231

Ending balance September 30
$
1,735,662

 
$
1,666,218

(1)
Includes a $15.2 million adjustment recorded during the second quarter of 2016 to correct deferred income taxes related to prior acquisitions.
5. 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.

9

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


During the three and nine months ended September 30, 2016 and 2015, 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,
2016

September 30,
2015
 
September 30,
2016
 
September 30,
2015
Stock-settled stock appreciation rights granted
1,745

 

 
709,999

 
394,182

Weighted-average fair value
$
16.68

 
$

 
$
12.91

 
$
21.68

 
 
 
 
 
 
 
 
Restricted stock units granted

 
2,730

 
143,305

 
81,022

Weighted-average fair value
$

 
$
54.94

 
$
42.45

 
$
69.05

 
 
 
 
 
 
 
 
Performance-based awards granted

 

 
91,768

 
59,661

Weighted-average fair value
$

 
$

 
$
47.00

 
$
67.81

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,
2016

September 30,
2015
 
September 30,
2016
 
September 30,
2015
Risk free interest rate
1.3
%

%
 
1.2
%
 
1.6
%
Expected life (in years)
5


0

 
5

 
5

Expected volatility
31
%

%
 
32
%
 
32
%
The risk-free interest rate is based on the U.S. Treasury Daily Yield Curve rates 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, 2016:
 
Awards
 
Weighted-
Average
Exercise
Price
 
Weighted-
Average
Remaining
Contractual Term (In years)
 
Aggregate
Intrinsic
Value
(In thousands)
Outstanding at December 31, 2015
2,567,021

 
$
54.47

 
 
 
 
     Granted
709,999

 
42.63

 
 
 
 
     Exercised
(312,244
)
 
32.45

 
 
 
 
     Forfeited
(279,190
)
 
64.07

 
 
 
 
Outstanding at September 30, 2016
2,685,586

 
52.89

 
5.6
 
$
33,729

Exercisable at September 30, 2016
1,776,910

 
$
53.65

 
3.8
 
$
21,472


10

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


The following table sets forth a summary of time-based restricted stock units and related information for the nine months ended September 30, 2016:
 
Awards
 
Weighted-
Average
Fair
Value
Unvested at December 31, 2015
175,411

 
$
74.52

     Granted
143,305

 
42.45

     Vested
(59,904
)
 
72.43

     Forfeited
(17,100
)
 
59.69

Unvested at September 30, 2016
241,712

 
$
57.29

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, 2016:
 
Awards
 
Weighted-
Average
Fair
Value
Unvested at December 31, 2015
114,520

 
$
76.48

     Granted
91,768

 
47.00

     Vested

 

     Forfeited
(53,394
)
 
71.89

Unvested at September 30, 2016
152,894

 
$
60.39

The fair value of the performance shares granted during the nine months ended September 30, 2016 was estimated using the following weighted-average assumptions:
Weighted-Average Assumptions
Grant date share price
$
42.44

WESCO expected volatility
26.3
%
Peer group median volatility
24.2
%
Risk-free interest rate
0.89
%
Correlation of peer company returns
121.5
%
The unvested performance-based awards in the table above include 76,447 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 76,447 shares of performance-based awards in the table above is dependent upon the three-year average growth rate of WESCO's net income. 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 $3.4 million and $1.9 million of non-cash stock-based compensation expense, which is included in selling, general and administrative expenses, for the three months ended September 30, 2016 and 2015, respectively. WESCO recognized $10.4 million and $9.7 million of non-cash stock-based compensation expense, which is included in selling, general and administrative expenses, for the nine months ended September 30, 2016 and 2015, respectively. As of September 30, 2016, there was $20.5 million of total unrecognized compensation cost related to non-vested stock-based compensation arrangements for all awards previously made, of which approximately $3.5 million is expected to be recognized over the remainder of 2016, $10.4 million in 2017, $6.0 million in 2018 and $0.6 million in 2019.

11

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


During the nine months ended September 30, 2016 and 2015, the total intrinsic value of all awards exercised was $10.6 million and $15.4 million, respectively. The gross deferred tax benefit associated with the exercise of awards for the nine months ended September 30, 2016 and 2015 totaled $4.0 million and $5.6 million, respectively, and was recorded as an increase to additional capital.
6. EARNINGS PER SHARE
Basic earnings per share is computed by dividing net income by the weighted-average number of common shares outstanding during the periods. Diluted earnings per share is computed by dividing net income 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 and contingently convertible debt.
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)
2016
 
2015
 
2016
 
2015
Net (loss) income attributable to WESCO International, Inc.
$
(31,611
)
 
$
63,503

 
$
54,243

 
$
162,273

Weighted-average common shares outstanding used in computing basic earnings per share
43,378

 
43,191

 
42,611

 
43,860

Common shares issuable upon exercise of dilutive equity awards
511

 
538

 
519

 
717

Common shares issuable from contingently convertible debentures (see below for basis of calculation)
4,851

 
5,989

 
4,908

 
6,738

Weighted-average common shares outstanding and common share equivalents, diluted
48,740

 
49,718

 
48,038

 
51,315

Weighted-average common shares outstanding and common share equivalents used in computing diluted earnings per share

43,378

 
49,718

 
48,038

 
51,315

(Loss) earnings per share attributable to WESCO International, Inc.
 
 

 
 
 
 
Basic
$
(0.73
)
 
$
1.47

 
$
1.27

 
$
3.70

Diluted
$
(0.73
)
 
$
1.28

 
$
1.13

 
$
3.16

For the three and nine months ended September 30, 2016, the computation of diluted (loss) earnings per share attributable to WESCO International, Inc. excluded stock-based awards of approximately 1.3 million. For the three and nine months ended September 30, 2015, the computation of diluted earnings per share attributable to WESCO International, Inc. excluded stock-based awards of approximately 1.6 million and 1.0 million. These amounts were excluded because their effect would have been antidilutive.
Because of WESCO’s previous obligation to settle the par value of the 2029 Debentures in cash upon conversion, WESCO was required to include shares underlying the 2029 Debentures in its diluted weighted-average shares outstanding when the average stock price per share for the period exceeded the conversion price of the debentures. Only the number of shares that would be issuable under the treasury stock method of accounting for share dilution were included, which was based upon the amount by which the average stock price exceeded the conversion price. The conversion price of the 2029 Debentures was $28.87. As a result of the net loss attributable to WESCO International, Inc. for the three months ended September 30, 2016, dilutive shares were not included in the calculation of diluted loss per share because their effect was antidilutive. For the nine months ended September 30, 2016, the effect of the 2029 Debentures on diluted earnings per share attributable to WESCO International, Inc. was a decrease of $0.13. For the three and nine months ended September 30, 2015, the effect of the 2029 Debentures on diluted earnings per share attributable to WESCO International, Inc. was a decrease of $0.17 and $0.48, respectively.
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. During the year ended December 31, 2015, the Company entered into accelerated stock repurchase agreements (the "ASR Transactions") with certain financial institutions to purchase shares of its common

12

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


stock. In exchange for up-front cash payments totaling $150.0 million, the Company received 2,468,576 shares during the nine months ended September 30, 2015. The total number of shares ultimately delivered under the ASR Transactions was determined by the average of the volume-weighted-average prices of the Company's common stock for each exchange business day during the respective settlement valuation periods. WESCO funded the repurchases with borrowings under its prior revolving credit facility. For purposes of computing earnings per share, share repurchases were reflected as a reduction to common shares outstanding on the respective share delivery dates.
7. DEBT
5.375% Senior Notes due 2024
On June 15, 2016, WESCO Distribution issued $350 million aggregate principal amount of 5.375% Senior Notes due 2024 (the "2024 Notes") through a private offering exempt from the registration requirements of the Securities Act of 1933, as amended. The 2024 Notes were issued at 100% of par and are governed by an indenture (the “Indenture”) entered into on June 15, 2016 among WESCO Distribution, as issuer, WESCO International, Inc., as parent guarantor, and U.S. Bank National Association, as trustee. The 2024 Notes are unsecured senior obligations of WESCO Distribution and are guaranteed on a senior unsecured basis by WESCO International, Inc. The 2024 Notes bear interest at a rate of 5.375% per annum, payable semi-annually in arrears on June 15 and December 15 of each year, commencing on December 15, 2016. The notes mature on June 15, 2024.
WESCO incurred costs totaling $6.0 million to issue the 2024 Notes, which are recorded as a reduction to the carrying value of the debt. The Company used the net proceeds to redeem its 2029 Debentures on September 15, 2016.
At any time on or after June 15, 2019, WESCO Distribution may redeem all or a part of the 2024 Notes. Between June 15, 2019 and June 14, 2020, WESCO Distribution may redeem all or a part of the 2024 Notes at a redemption price equal to 104.031% of the principal amount. Between June 15, 2020 and June 14, 2021, WESCO Distribution may redeem all or a part of the 2024 Notes at a redemption price equal to 102.688% of the principal amount. Between June 15, 2021 and June 14, 2022, WESCO Distribution may redeem all or a part of the 2024 Notes at a redemption price equal to 101.344% of the principal amount. On and after June 15, 2022, WESCO Distribution may redeem all or a part of the 2024 Notes at a redemption price equal to 100% of the principal amount.
The Indenture governing the 2024 Notes contains customary covenants and events of default. Upon a change of control, the holders of the 2024 Notes have the right to require WESCO Distribution to repurchase all or any part of the 2024 Notes at a redemption price equal to 101% of the principal amount thereof, plus accrued and unpaid interest.
6.0% Convertible Senior Debentures due 2029
On September 15, 2016, the Company completed the redemption of its 2029 Debentures. Holders of the 2029 Debentures received cash totaling $344.8 million, which was equal to the principal amount of the then-outstanding Debentures, in addition to accrued and unpaid interest. Holders who surrendered the 2029 Debentures for conversion received 18 shares of WESCO stock for each $1,000 principal amount of 2029 Debentures converted. In total, 6,267,688 shares were issued at the redemption date closing price of WESCO’s common stock. The redemption resulted in a non-cash loss of $123.9 million, which included the write off of unamortized debt issuance costs.
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 matches contributions in an amount ranging from 3% to 5% of the participant’s eligible compensation based on years of continuous service. In addition, for U.S. participants, employer contributions may be made at the discretion of the Board of Directors. For the nine months ended September 30, 2016 and 2015, WESCO incurred charges of $18.1 million and $17.5 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, 2016 and December 31, 2015, the Company's obligation under the deferred compensation plan was $21.4 million and $23.5 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.

13

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


In connection with the December 14, 2012 acquisition of EECOL, the Company assumed a contributory defined benefit plan covering substantially all Canadian employees of EECOL and a Supplemental Executive Retirement Plan for certain executives of EECOL.
The following table reflects the components of net periodic benefit costs for the Company's defined benefit plans:
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
(In thousands of dollars)
2016
 
2015
 
2016
 
2015
Service cost
$
977

 
$
1,113

 
$
2,889

 
$
3,442

Interest cost
979

 
991

 
2,898

 
3,064

Expected return on plan assets
(1,353
)
 
(1,299
)
 
(4,004
)
 
(4,017
)
Recognized actuarial gain
(10
)
 
(4
)
 
(31
)
 
(12
)
Net periodic benefit cost
$
593

 
$
801

 
$
1,752

 
$
2,477

During the three and nine months ended September 30, 2016, the Company made aggregate cash contributions of $0.5 million and $1.4 million, respectively, to its defined benefit plans.
9. COMMITMENTS AND CONTINGENCIES
WESCO is subject to the laws and regulations of states and other jurisdictions concerning the identification, reporting and escheatment (the transfer of property to the state) of unclaimed or abandoned funds, and is subject to audit and examination for compliance with these requirements. WESCO Distribution is currently undergoing a compliance audit in the State of Delaware concerning the identification, reporting and escheatment of unclaimed or abandoned property. A third party auditor is conducting the audit on behalf of the State, and the Company has been working with an outside consultant during the audit process and in discussions with the auditors. The Company is defending the audit, the outcome of which cannot be predicted with certainty at this time. After the third party auditor completes its field work, it is expected to issue preliminary findings for review by the Company and the State, and thereafter the auditor is expected to issue a final report of examination. If the Company and State do not reach resolution after further discussion, the State issues a demand for payment, which the Company may either agree to pay or appeal, in full or in part. The Company has recorded a liability for unclaimed property based on the facts currently known to the Company.
In October 2014, WESCO was notified that the New York County District Attorney’s Office is conducting a criminal investigation involving minority and disadvantaged business contracting practices in the construction industry in New York City and that various contractors, minority and disadvantaged business firms, and their material suppliers, including the Company, are a part of this investigation. The Company intends to cooperate with the government investigation. The Company cannot predict the outcome or impact of the matter at this time, but could be subject to fines, penalties or other adverse consequences. Based on the facts currently known to the Company, it cannot reasonably estimate a range of exposure to potential liability at this time.
10. INCOME TAXES
The effective tax rate for the three and nine months ended September 30, 2016 was 40.5% and 20.4%, respectively. These rates were impacted by the redemption of the 2029 Debentures described in Note 7. The effective tax rate for the three and nine months ended September 30, 2015 was 27.4% and 28.6%, respectively. WESCO’s effective tax rate is generally lower than the federal statutory rate of 35% due to benefits resulting from the tax effect of intercompany financing and lower rates on foreign earnings, which are partially offset by nondeductible expenses and state taxes.
The total amount of unrecognized tax benefits was reduced by $2.2 million during the nine months ended September 30, 2016 to $3.2 million due to the settlement of outstanding tax matters and the expiration of statutes of limitation. At September 30, 2016, the amount of unrecognized tax benefits that would affect the effective tax rate if recognized in the consolidated financial statements was $4.5 million. It is reasonably possible that the amount of unrecognized tax benefits will decrease by approximately $0.9 million within the next twelve months due to the expiration of statutes of limitation and the settlement of state audits. Of this amount, $0.3 million could impact the effective tax rate.

14

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


11. CONDENSED CONSOLIDATING FINANCIAL INFORMATION
WESCO Distribution has outstanding $500 million in aggregate principal amount of 5.375% Senior Notes due 2021 (the "2021 Notes"). The 2021 Notes are unsecured senior obligations of WESCO Distribution, Inc. and are fully and unconditionally guaranteed on a senior unsecured basis by WESCO International, Inc.
WESCO Distribution has outstanding $350 million in aggregate principal amount of 2024 Notes. The 2024 Notes are unsecured senior obligations of WESCO Distribution, Inc. and are fully and unconditionally guaranteed on a senior unsecured basis by WESCO International, Inc.
Condensed consolidating financial information for WESCO International, Inc., WESCO Distribution, Inc. and the non-guarantor subsidiaries is presented in the following tables.
 
Condensed Consolidating Balance Sheet
 
September 30, 2016
 
 
 
 
 
 
 
 
 
 
(In thousands of dollars)
WESCO
International,
Inc.
 
WESCO
Distribution,
Inc.
 
Non-Guarantor
Subsidiaries
 
Consolidating
and
Eliminating
Entries
 
Consolidated
Cash and cash equivalents
$

 
$
42,487

 
$
70,350

 
$

 
$
112,837

Trade accounts receivable, net

 

 
1,102,140

 

 
1,102,140

Inventories

 
370,166

 
462,344

 

 
832,510

Prepaid expenses and other current assets

 
42,695

 
162,616

 
(8,971
)
 
196,340

Total current assets

 
455,348

 
1,797,450

 
(8,971
)
 
2,243,827

Intercompany receivables, net

 

 
2,031,482

 
(2,031,482
)
 

Property, buildings and equipment, net

 
52,567

 
108,348

 

 
160,915

Intangible assets, net

 
3,581

 
403,820

 

 
407,401

Goodwill

 
244,648

 
1,491,014

 

 
1,735,662

Investments in affiliates
3,568,774

 
3,998,961

 

 
(7,567,735
)
 

Other assets
17

 
23,816

 
37,715

 

 
61,548

Total assets
$
3,568,791

 
$
4,778,921

 
$
5,869,829

 
$
(9,608,188
)
 
$
4,609,353

 
 
 
 
 
 
 
 
 
 
Accounts payable
$

 
$
383,329

 
$
316,188

 
$

 
$
699,517

Short-term debt

 

 
35,562

 

 
35,562

Other current liabilities
9,078

 
66,763

 
158,033

 
(8,971
)
 
224,903

Total current liabilities
9,078

 
450,092

 
509,783

 
(8,971
)
 
959,982

Intercompany payables, net
1,544,299

 
487,183

 

 
(2,031,482
)
 

Long-term debt, net

 
993,074

 
425,634

 

 
1,418,708

Other noncurrent liabilities
19,103

 
45,513

 
173,414

 

 
238,030

Total WESCO International, Inc. stockholders' equity
1,996,311

 
2,803,059

 
4,764,676

 
(7,567,735
)
 
1,996,311

Noncontrolling interests

 

 
(3,678
)
 

 
(3,678
)
Total liabilities and stockholders’ equity
$
3,568,791

 
$
4,778,921

 
$
5,869,829

 
$
(9,608,188
)
 
$
4,609,353


15

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


 
Condensed Consolidating Balance Sheet
 
December 31, 2015
 
 
 
 
 
 
 
 
 
 
(In thousands of dollars)
WESCO
International,
Inc.
 
WESCO
Distribution,
Inc.
 
Non-Guarantor
Subsidiaries
 
Consolidating
and
Eliminating
Entries
 
Consolidated
Cash and cash equivalents
$

 
$
38,963

 
$
121,316

 
$

 
$
160,279

Trade accounts receivable, net

 

 
1,075,257

 

 
1,075,257

Inventories

 
376,641

 
433,426

 

 
810,067

Prepaid expenses and other current assets
15

 
47,290

 
173,596

 
(8,970
)
 
211,931

Total current assets
15

 
462,894

 
1,803,595

 
(8,970
)
 
2,257,534

Intercompany receivables, net

 

 
1,964,848

 
(1,964,848
)
 

Property, buildings and equipment, net

 
56,921

 
109,818

 

 
166,739

Intangible assets, net

 
4,072

 
399,577

 

 
403,649

Goodwill

 
255,251

 
1,426,411

 

 
1,681,662

Investments in affiliates
3,309,006

 
3,827,069

 

 
(7,136,075
)
 

Other assets

 
32,601

 
27,541

 

 
60,142

Total assets
$
3,309,021

 
$
4,638,808

 
$
5,731,790

 
$
(9,109,893
)
 
$
4,569,726

 
 
 
 
 
 
 
 
 
 
Accounts payable
$

 
$
414,524

 
$
300,995

 
$

 
$
715,519

Short-term debt

 

 
43,314

 

 
43,314

Other current liabilities
15,254

 
55,129

 
127,555

 
(8,970
)
 
188,968

Total current liabilities
15,254

 
469,653

 
471,864

 
(8,970
)
 
947,801

Intercompany payables, net
1,320,240

 
644,608

 

 
(1,964,848
)
 

Long-term debt, net
177,753

 
737,490

 
523,819

 

 
1,439,062

Other noncurrent liabilities
19,102

 
216,515

 
173,375

 

 
408,992

Total WESCO International, Inc. stockholders' equity
1,776,672

 
2,570,542

 
4,565,533

 
(7,136,075
)
 
1,776,672

Noncontrolling interests

 

 
(2,801
)
 

 
(2,801
)
Total liabilities and stockholders’ equity
$
3,309,021

 
$
4,638,808

 
$
5,731,790

 
$
(9,109,893
)
 
$
4,569,726


16

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


 
Condensed Consolidating Statement of (Loss) Income and Comprehensive (Loss) Income
 
Three Months Ended
 
September 30, 2016
 
 
 
 
 
 
 
 
 
 
(In thousands of dollars)
WESCO
International,
Inc.
 
WESCO
Distribution,
Inc.
 
Non-Guarantor
Subsidiaries
 
Consolidating
and
Eliminating
Entries
 
Consolidated
Net sales
$

 
$
827,648

 
$
1,052,915

 
$
(25,351
)
 
$
1,855,212

Cost of goods sold (excluding depreciation and
 
 
 
 
 
 
 
 
 
amortization)

 
663,159

 
852,365

 
(25,351
)
 
1,490,173

Selling, general and administrative expenses
38

 
128,514

 
126,995

 

 
255,547

Depreciation and amortization

 
5,114

 
11,823

 

 
16,937

Results of affiliates’ operations
100,295

 
71,567

 

 
(171,862
)
 

Interest expense (income), net
4,904

 
23,543

 
(7,655
)
 

 
20,792

Loss on debt redemption
123,933

 

 

 

 
123,933

Income tax expense (benefit)
2,441

 
(12,261
)
 
(11,329
)
 

 
(21,149
)
Net (loss) income
(31,021
)
 
91,146

 
80,716

 
(171,862
)
 
(31,021
)
Net income attributable to noncontrolling interests

 

 
590

 

 
590

Net (loss) income attributable to WESCO International, Inc.
$
(31,021
)
 
$
91,146

 
$
80,126

 
$
(171,862
)
 
$
(31,611
)
Other comprehensive loss:
 
 
 
 
 
 
 
 
 
Foreign currency translation adjustments
(13,993
)
 
(13,993
)
 
(13,993
)
 
27,986

 
(13,993
)
Comprehensive (loss) income attributable to WESCO International, Inc.
$
(45,014
)
 
$
77,153

 
$
66,133

 
$
(143,876
)
 
$
(45,604
)


17

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


 
Condensed Consolidating Statement of Income and Comprehensive Loss
 
Three Months Ended
 
September 30, 2015
 
 
 
 
 
 
 
 
 
 
(In thousands of dollars)
WESCO
International,
Inc.
 
WESCO
Distribution,
Inc.
 
Non-Guarantor
Subsidiaries
 
Consolidating
and
Eliminating
Entries
 
Consolidated
Net sales
$

 
$
876,098

 
$
1,077,255

 
$
(29,454
)
 
$
1,923,899

Cost of goods sold (excluding depreciation and
 
 
 
 
 
 
 
 
 
amortization)

 
705,698

 
866,869

 
(29,454
)
 
1,543,113

Selling, general and administrative expenses
5

 
131,648

 
126,498

 

 
258,151

Depreciation and amortization

 
4,866

 
11,421

 

 
16,287

Results of affiliates’ operations
66,944

 
48,419

 

 
(115,363
)
 

Interest expense (income), net
6,253

 
19,681

 
(5,517
)
 

 
20,417

Income tax (benefit) expense
(1,698
)
 
3,988

 
21,257

 

 
23,547

Net income
62,384

 
58,636

 
56,727

 
(115,363
)
 
62,384

Net loss attributable to noncontrolling interests

 

 
(1,119
)
 

 
(1,119
)
Net income attributable to WESCO International, Inc.
$
62,384

 
$
58,636

 
$
57,846

 
$
(115,363
)
 
$
63,503

Other comprehensive loss:
 
 
 
 
 
 
 
 
 
Foreign currency translation adjustments
(95,377
)
 
(95,377
)
 
(95,377
)
 
190,754

 
(95,377
)
Comprehensive loss attributable to WESCO International, Inc.
$
(32,993
)
 
$
(36,741
)
 
$
(37,531
)
 
$
75,391

 
$
(31,874
)


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, 2016
 
 
 
 
 
 
 
 
 
 
(In thousands of dollars)
WESCO
International,
Inc.
 
WESCO
Distribution,
Inc.
 
Non-Guarantor
Subsidiaries
 
Consolidating
and
Eliminating
Entries
 
Consolidated
Net sales
$

 
$
2,481,165

 
$
3,140,011

 
$
(78,421
)
 
$
5,542,755

Cost of goods sold (excluding depreciation and
 
 
 
 
 
 
 
 
 
amortization)

 
1,985,639

 
2,535,861

 
(78,421
)
 
4,443,079

Selling, general and administrative expenses
(328
)
 
351,663

 
448,021

 

 
799,356

Depreciation and amortization

 
15,318

 
34,951

 

 
50,269

Results of affiliates’ operations
193,266

 
105,401

 

 
(298,667
)
 

Interest expense (income), net
17,555

 
63,247

 
(21,729
)
 

 
59,073

Loss on debt redemption
123,933

 

 

 

 
123,933

Income tax (benefit) expense
(1,261
)
 
4,677

 
10,262

 

 
13,678

Net income
53,367

 
166,022

 
132,645

 
(298,667
)
 
53,367

Net loss attributable to noncontrolling interests

 

 
(876
)
 

 
(876
)
Net income attributable to WESCO International, Inc.
$
53,367

 
$
166,022

 
$
133,521

 
$
(298,667
)
 
$
54,243

Other comprehensive income (loss):

 


 


 


 


Foreign currency translation adjustments
66,512

 
66,512

 
66,512

 
(133,024
)
 
66,512

Post retirement benefit plan adjustments
$
(16
)
 
$
(16
)
 
$
(16
)
 
$
32

 
$
(16
)
Comprehensive income attributable to WESCO International, Inc.
$
119,863

 
$
232,518

 
$
200,017

 
$
(431,659
)
 
$
120,739



19

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


 
Condensed Consolidating Statement of Income and Comprehensive Loss
 
Nine Months Ended
 
September 30, 2015
 
 
 
 
 
 
 
 
 
 
(In thousands of dollars)
WESCO
International,
Inc.
 
WESCO
Distribution,
Inc.
 
Non-Guarantor
Subsidiaries
 
Consolidating
and
Eliminating
Entries
 
Consolidated
Net sales
$

 
$
2,600,150

 
$
3,144,759

 
$
(87,962
)
 
$
5,656,947

Cost of goods sold (excluding depreciation and
 
 
 
 
 
 
 
 
 
amortization)

 
2,089,594

 
2,525,204

 
(87,962
)
 
4,526,836

Selling, general and administrative expenses
22

 
415,971

 
381,987

 

 
797,980

Depreciation and amortization

 
14,640

 
33,707

 

 
48,347

Results of affiliates’ operations
173,137

 
131,074

 

 
(304,211
)
 

Interest expense (income), net
18,641

 
55,561

 
(14,278
)
 

 
59,924

Income tax (benefit) expense
(5,339
)
 
6,976

 
62,410

 

 
64,047

Net income
159,813

 
148,482

 
155,729

 
(304,211
)
 
159,813

Net loss attributable to noncontrolling interests

 

 
(2,460
)
 

 
(2,460
)
Net income attributable to WESCO International, Inc.
$
159,813

 
$
148,482

 
$
158,189

 
$
(304,211
)
 
$
162,273

Other comprehensive loss:

 


 


 


 


Foreign currency translation adjustments
(183,634
)
 
(183,634
)
 
(183,634
)
 
367,268

 
(183,634
)
Comprehensive loss attributable to WESCO International, Inc.
$
(23,821
)
 
$
(35,152
)
 
$
(25,445
)
 
$
63,057

 
$
(21,361
)


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, 2016
 
 
 
 
 
 
 
 
 
 
(In thousands of dollars)
WESCO
International,
Inc.
 
WESCO
Distribution,
Inc.
 
Non-Guarantor
Subsidiaries
 
Consolidating
and Eliminating
Entries
 
Consolidated
Net cash provided by (used in) operating activities
$
124,834

 
$
(274,575
)
 
$
366,929

 
$

 
$
217,188

Investing activities:

 

 

 

 

Capital expenditures

 
(9,224
)
 
(3,959
)
 

 
(13,183
)
Acquisition payments, net of cash acquired

 
(50,745
)
 

 

 
(50,745
)
Dividends received from subsidiaries

 
47,621

 

 
(47,621
)
 

Other

 
(257,768
)
 
(335,594
)
 
589,477

 
(3,885
)
Net cash used in investing activities

 
(270,116
)
 
(339,553
)
 
541,856

 
(67,813
)
Financing activities:
 
 
 
 
 
 
 
 
 
Borrowings
224,043

 
1,386,397

 
468,890

 
(257,768
)
 
1,821,562

Repayments
(344,804
)
 
(834,688
)
 
(500,879
)
 
(331,709
)
 
(2,012,080
)
Dividends paid by subsidiaries

 

 
(47,621
)
 
47,621

 

Other
(4,073
)
 
(3,494
)
 

 

 
(7,567
)
Net cash (used in) provided by financing activities
(124,834
)
 
548,215

 
(79,610
)
 
(541,856
)
 
(198,085
)
Effect of exchange rate changes on cash and cash equivalents

 

 
1,268

 

 
1,268

Net change in cash and cash equivalents

 
3,524

 
(50,966
)
 

 
(47,442
)
Cash and cash equivalents at the beginning of period

 
38,963

 
121,316

 

 
160,279

Cash and cash equivalents at the end of period
$

 
$
42,487

 
$
70,350

 
$

 
$
112,837























21

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


 
Condensed Consolidating Statement of Cash Flows
 
Nine Months Ended
 
September 30, 2015
 
 
 
 
 
 
 
 
 
 
(In thousands of dollars)
WESCO
International,
Inc.
 
WESCO
Distribution,
Inc.
 
Non-Guarantor
Subsidiaries
 
Consolidating
and Eliminating
Entries
 
Consolidated
Net cash (used in) provided by operating activities
$
(3,332
)
 
$
160,270

 
$
19,026

 
$

 
$
175,964

Investing activities:

 

 

 

 

Capital expenditures

 
(12,137
)
 
(4,105
)
 

 
(16,242
)
Acquisition payments, net of cash acquired

 
(68,502
)
 

 

 
(68,502
)
Dividends received from subsidiaries

 
98,455

 

 
(98,455
)
 

Other

 
(192,781
)
 
14,887

 
179,685

 
1,791

Net cash used in investing activities

 
(174,965
)
 
10,782

 
81,230

 
(82,953
)
Financing activities:
 
 
 
 
 
 
 
 
 
Borrowings
157,422

 
936,352

 
394,905

 
(192,781
)
 
1,295,898

Repayments

 
(901,448
)
 
(313,806
)
 
13,096

 
(1,202,158
)
Equity activities
(154,090
)
 

 

 

 
(154,090
)
Dividends paid by subsidiaries

 

 
(98,455
)
 
98,455

 

Other

 
(12,938
)
 

 

 
(12,938
)
Net cash provided by (used in) financing activities
3,332

 
21,966

 
(17,356
)
 
(81,230
)