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EX-32.2 - EXHIBIT 32.2 - WESCO INTERNATIONAL INCwcc-3q17ex322.htm
EX-32.1 - EXHIBIT 32.1 - WESCO INTERNATIONAL INCwcc-3q17ex321.htm
EX-31.2 - EXHIBIT 31.2 - WESCO INTERNATIONAL INCwcc-3q17ex312.htm
EX-31.1 - EXHIBIT 31.1 - WESCO INTERNATIONAL INCwcc-3q17ex311.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, 2017
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 (Do not check if a smaller reporting company)
 
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 2, 2017, 47,002,338 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)
 
As of
 
September 30,
2017
 
December 31,
2016
Assets
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
94,083

 
$
110,131

Trade accounts receivable, net of allowance for doubtful accounts of $24,240 and $22,007 in 2017 and 2016, respectively
1,236,612

 
1,034,402

Other accounts receivable
82,588

 
85,019

Inventories
925,049

 
821,441

Prepaid expenses and other current assets (Note 2)
71,795

 
52,085

Total current assets
2,410,127

 
2,103,078

Property, buildings and equipment, net of accumulated depreciation of $274,643 and $259,126 in 2017 and 2016, respectively
157,591

 
157,607

Intangible assets, net of accumulated amortization of $214,225 and $178,813 in 2017
and 2016, respectively
378,153

 
393,362

Goodwill (Note 2)
1,776,918

 
1,730,950

Other assets
41,679

 
46,844

    Total assets
$
4,764,468

 
$
4,431,841

Liabilities and Stockholders’ Equity
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
838,427

 
$
684,721

Accrued payroll and benefit costs
50,848

 
49,250

Short-term debt
39,712

 
20,920

Current portion of long-term debt
1,213

 
1,218

Bank overdrafts
26,150

 
29,384

Other current liabilities (Note 2)
87,143

 
88,306

Total current liabilities
1,043,493

 
873,799

Long-term debt, net of debt discount and debt issuance costs of $14,302 and $17,278 in 2017 and 2016, respectively
1,368,301

 
1,363,135

Deferred income taxes (Note 2)
179,630

 
168,245

Other noncurrent liabilities
65,811

 
63,031

    Total liabilities
$
2,657,235

 
$
2,468,210

Commitments and contingencies (Note 8)



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, 59,036,037 and 58,817,781 shares issued and 46,999,652 and 48,611,497 shares outstanding in 2017 and 2016, respectively
590

 
588

Class B nonvoting convertible common stock, $.01 par value; 20,000,000 shares authorized, 4,339,431 issued and no shares outstanding in 2017 and 2016, respectively
43

 
43

Additional capital
995,670

 
986,020

Retained earnings (Note 2)
2,056,961

 
1,914,757

Treasury stock, at cost; 16,375,816 and 14,545,715 shares in 2017 and 2016, respectively
(647,138
)
 
(542,537
)
Accumulated other comprehensive loss (Note 2)
(295,622
)
 
(391,971
)
Total WESCO International, Inc. stockholders' equity
2,110,504

 
1,966,900

Noncontrolling interests
(3,271
)
 
(3,269
)
    Total stockholders’ equity
2,107,233

 
1,963,631

    Total liabilities and stockholders’ equity
$
4,764,468

 
$
4,431,841


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

3


WESCO INTERNATIONAL, INC. AND SUBSIDIARIES


CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS) AND COMPREHENSIVE INCOME (LOSS)
(In thousands of dollars, except per share data)
(unaudited)
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2017
 
2016
 
2017
 
2016
Net sales
$
2,000,159

 
$
1,855,212

 
$
5,682,375

 
$
5,542,755

Cost of goods sold (excluding depreciation and
 
 
 
 
 
 
 
amortization)
1,614,814

 
1,490,173

 
4,580,896

 
4,443,079

Selling, general and administrative expenses
280,021

 
255,547

 
814,275

 
799,356

Depreciation and amortization
16,074

 
16,937

 
47,758

 
50,269

Income from operations
89,250

 
92,555

 
239,446

 
250,051

Interest expense, net
17,311

 
20,792

 
50,847

 
59,073

Loss on debt redemption

 
123,933

 

 
123,933

Income (loss) before income taxes
71,939

 
(52,170
)
 
188,599

 
67,045

Provision for income taxes
18,363

 
(21,149
)
 
47,684

 
13,678

Net income (loss)
53,576

 
(31,021
)
 
140,915

 
53,367

Less: Net (loss) income attributable to noncontrolling interests
(99
)
 
590

 
(3
)
 
(876
)
Net income (loss) attributable to WESCO International, Inc.
$
53,675

 
$
(31,611
)
 
$
140,918

 
$
54,243

Other comprehensive income (loss):
 
 
 
 
 
 
 
Foreign currency translation adjustments
51,148

 
(13,993
)
 
96,097

 
66,512

Post retirement benefit plan adjustment

 

 
252

 
(16
)
Comprehensive income (loss) attributable to WESCO International, Inc.
$
104,823

 
$
(45,604
)
 
$
237,267

 
$
120,739

 
 
 
 
 
 
 
 
Earnings (loss) per share attributable to WESCO International, Inc.
 
 
 
 
 
 
 
Basic
$
1.13

 
$
(0.73
)
 
$
2.93

 
$
1.27

Diluted
$
1.12

 
$
(0.73
)
 
$
2.90

 
$
1.13


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,
 
2017
 
2016
Operating activities:
 
 
 
Net income
$
140,915

 
$
53,367

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization
47,758

 
50,269

  Deferred income taxes
8,433

 
(21,842
)
Loss on debt redemption

 
123,933

Other operating activities, net
12,617

 
11,228

Changes in assets and liabilities:
 
 
 
Trade accounts receivable, net
(174,667
)
 
(3,075
)
Other accounts receivable
4,421

 
15,524

Inventories
(86,736
)
 
(7,651
)
Prepaid expenses and other assets
(8,515
)
 
(8,625
)
Accounts payable
138,348

 
(30,289
)
Accrued payroll and benefit costs
2,383

 
(2,648
)
Other current and noncurrent liabilities
(3,846
)
 
36,997

Net cash provided by operating activities
81,111

 
217,188

 
 
 
 
Investing activities:
 
 
 
Acquisition payments, net of cash acquired

 
(50,745
)
Capital expenditures
(15,970
)
 
(13,183
)
Other investing activities
3,490

 
(3,885
)
Net cash used in investing activities
(12,480
)
 
(67,813
)
 
 
 
 
Financing activities:
 
 
 
Proceeds from issuance of short-term debt
130,890

 
89,847

Repayments of short-term debt
(114,972
)
 
(96,535
)
Proceeds from issuance of long-term debt
1,079,718

 
1,731,715

Repayments of long-term debt
(1,076,718
)
 
(1,915,545
)
Repurchases of common stock (Note 6)
(106,702
)
 
(4,073
)
Other financing activities, net
(4,380
)
 
(3,494
)
Net cash used in financing activities
(92,164
)
 
(198,085
)
 
 
 
 
Effect of exchange rate changes on cash and cash equivalents
7,485

 
1,268

 
 
 
 
Net change in cash and cash equivalents
(16,048
)
 
(47,442
)
Cash and cash equivalents at the beginning of period
110,131

 
160,279

Cash and cash equivalents at the end of period
$
94,083

 
$
112,837


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 75,000 active customers globally, through approximately 500 full service branches and ten 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 2016 Annual Report on Form 10-K as filed with the SEC on February 22, 2017. The Condensed Consolidated Balance Sheet at December 31, 2016 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, 2017, the unaudited Condensed Consolidated Statements of Income and Comprehensive Income for the three and nine months ended September 30, 2017 and 2016, respectively, and the unaudited Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2017 and 2016, 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.
Revision of Prior Period Financial Statements
In the third quarter of 2017, management determined that the Company's income taxes receivable and payable and other tax account balances were overstated as of December 31, 2016 by a cumulative net amount of $46.4 million, which related to multiple prior periods. The Company also identified a $10.2 million understatement related to deferred income taxes and goodwill. In accordance with Staff Accounting Bulletin (“SAB”) No. 99, Materiality, and SAB No. 108, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements, management concluded that these misstatements are not material to the Company's previously issued annual and interim financial statements. Correcting the effected financial statement line items in the quarterly period ended September 30, 2017 would materially misstate the condensed consolidated financial information presented herein. Accordingly, the Condensed Consolidated Balance Sheet at December 31, 2016 in this Quarterly Report on Form 10-Q has been revised. There was an immaterial effect on the Condensed Consolidated Statements of Income and Comprehensive Income for the three and nine months ended September 30, 2016, and no effect on the Condensed Consolidated Statements of Cash Flows for the respective periods presented herein. Periods not presented herein will be revised, as applicable, in future filings.

6

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


The following table presents the effects on the financial statement line items that were revised:
 
December 31, 2016
 
As Reported
 
Adjustment
 
As Revised
 
(In thousands)
Prepaid expenses and other current assets

$
121,464

 
$
(69,379
)
 
$
52,085

Total current assets
2,172,457

 
(69,379
)
 
2,103,078

Goodwill
1,720,714

 
10,236

 
1,730,950

Total assets
4,490,984

 
(59,143
)
 
4,431,841

Other current liabilities
111,304

 
(22,998
)
 
88,306

Total current liabilities
896,797

 
(22,998
)
 
873,799

Deferred income taxes
158,009

 
10,236

 
168,245

Total liabilities
2,480,972

 
(12,762
)
 
2,468,210

Retained earnings
1,956,532

 
(41,775
)
 
1,914,757

Accumulated other comprehensive loss
(387,365
)
 
(4,606
)
 
(391,971
)
Total stockholders' equity
2,010,012

 
(46,381
)
 
1,963,631

Total liabilities and stockholders' equity
4,490,984

 
(59,143
)
 
4,431,841

Recently Adopted Accounting Pronouncements
In March 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (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. The Company adopted this ASU in the first quarter of 2017. The amendment related to the recognition of excess tax benefits and deficiencies was applied prospectively and, as disclosed in Note 9, lowered the Company's effective tax rate for the nine months ended September 30, 2017. The amendment related to the presentation of excess tax benefits on the statement of cash flows was also applied prospectively, and did not have a material impact on WESCO's cash flows. The other amendments, which were adopted by the Company according to the respective transition requirements, had no impact on the 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 Company early adopted this ASU on a modified retrospective basis in the first quarter of 2017. 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 four ASUs that address implementation issues and correct or improve 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, ASU 2016-12, Narrow-Scope Improvements and Practical Expedients and ASU 2016-20, Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers. These ASUs do not change the core principles in the revenue recognition standard outlined above. The Company has developed a multiphase plan and established a cross-functional team to evaluate and implement the new standard. Management has completed the diagnostic phase, which involved reviewing various customer contracts and comparing current

7

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


accounting to the requirements of the new standard. Currently management is evaluating the new disclosure requirements and identifying and implementing appropriate changes to its business processes and controls to support recognition and disclosure under the new standard. The new standard will be adopted in the first quarter of 2018 and the Company expects to use the modified retrospective approach. Management will continue to evaluate the impact that this pronouncement may have 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.
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 January 2017, the FASB issued ASU 2017-04, Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment, which eliminates Step 2 from the goodwill impairment test. Under the amendments in this update, 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 has not yet evaluated the impact of this accounting standard on WESCO's consolidated financial statements and notes thereto.
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. Presently, net benefit cost is reported as an employee cost within operating income (or capitalized into assets when appropriate). This amendment requires the bifurcation of net benefit cost. The service component will be presented with other employee compensation costs in operating income (or capitalized in assets). The other components will be reported separately outside of operations, and will not be eligible for capitalization. This guidance is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Early adoption is permitted. Management has not yet evaluated the impact of this accounting standard on WESCO's consolidated financial statements and notes thereto.
In May 2017, the FASB issued ASU 2017-09, Compensation—Stock Compensation (Topic 718): Scope of Modification Accounting, which 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 guidance is effective prospectively for all companies for annual periods beginning on or after December 15, 2017. Early adoption is permitted. Management has not yet evaluated 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.
Fair Value of Financial Instruments
The Company’s financial instruments consist of cash and cash equivalents, accounts receivable, accounts payable and other accrued liabilities, and outstanding indebtedness. The reported carrying amounts of WESCO’s financial instruments approximate their fair values. The Company uses a market approach to fair value all of its debt instruments, utilizing quoted

8

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


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.
3. ACQUISITIONS
On March 14, 2016, WESCO Distribution, Inc. ("WESCO Distribution") completed the acquisition of Atlanta Electrical Distributors, LLC ("AED"), 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 included a 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 was accrued at the maximum potential payout under the terms of the purchase agreement. The fair value of intangibles was estimated by management and the allocation resulted in intangible assets of $21.8 million and goodwill of $30.0 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 was estimated for the intangible assets being amortized. 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,
2017
 
September 30,
2016
 
(In thousands)
Beginning balance January 1(1)
$
1,730,950

 
$
1,681,662

Foreign currency exchange rate changes
45,968

 
34,799

Adjustments to goodwill for acquisitions (2)

 
19,201

Ending balance September 30
$
1,776,918

 
$
1,735,662

(1)
As described in Note 2, the Condensed Consolidated Balance Sheet at December 31, 2016 has been revised to correct certain financial statement line items, including goodwill.
(2)
For the nine months ended September 30, 2016, adjustments relate to goodwill resulting from the preliminary allocation of the AED purchase price to the respective assets acquired and liabilities assumed, partially offset by an adjustment to goodwill related to deferred income taxes.
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, 2017 and 2016, 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,
2017
 
September 30,
2016
 
September 30,
2017
 
September 30,
2016
Stock-settled stock appreciation rights granted
12,076

 
1,745

 
455,807

 
709,999

Weighted-average fair value
$
15.74

 
$
16.68

 
$
20.52

 
$
12.91

 
 
 
 
 
 
 
 
Restricted stock units granted
2,313

 

 
100,993

 
143,305

Weighted-average fair value
$
57.30

 
$

 
$
71.33

 
$
42.45

 
 
 
 
 
 
 
 
Performance-based awards granted

 

 
39,978

 
91,768

Weighted-average fair value
$

 
$

 
$
76.63

 
$
47.00

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,
2017
 
September 30,
2016
 
September 30,
2017
 
September 30,
2016
Risk free interest rate
1.8
%
 
1.3
%
 
1.9
%
 
1.2
%
Expected life (in years)
5

 
5

 
5

 
5

Expected volatility
28
%
 
31
%
 
29
%
 
32
%
The risk-free interest rate is based on the U.S. Treasury Daily Yield Curve rate as of the grant date. The expected life is based on historical exercise experience 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, 2017:
 
Awards
 
Weighted-
Average
Exercise
Price
 
Weighted-
Average
Remaining
Contractual Term (In years)
 
Aggregate
Intrinsic
Value
(In thousands)
Outstanding at December 31, 2016
2,439,487

 
$
52.62

 
 
 
 
     Granted
455,807

 
71.21

 
 
 
 
     Exercised
(472,873
)
 
42.41

 
 
 
 
     Forfeited
(143,506
)
 
66.21

 
 
 
 
Outstanding at September 30, 2017
2,278,915

 
57.60

 
6.4
 
$
18,344

Exercisable at September 30, 2017
1,359,744

 
$
56.71

 
4.8
 
$
12,212


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, 2017:
 
Awards
 
Weighted-
Average
Fair
Value
Unvested at December 31, 2016
257,096

 
$
57.47

     Granted
100,993

 
71.33

     Vested
(43,780
)
 
85.13

     Forfeited
(18,022
)
 
55.96

Unvested at September 30, 2017
296,287

 
$
58.20

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, 2017:
 
Awards
 
Weighted-
Average
Fair
Value
Unvested at December 31, 2016
149,320

 
$
60.36

     Granted
39,978

 
76.63

     Vested

 

     Forfeited
(39,650
)
 
77.40

Unvested at September 30, 2017
149,648

 
$
60.19

The fair value of the performance shares granted during the nine months ended September 30, 2017 and 2016 was estimated using the following weighted-average assumptions:
 
Nine Months Ended
 
September 30,
2017
 
September 30,
2016
Grant date share price
$
71.65

 
$
42.44

WESCO expected volatility
29
%
 
26
%
Peer group median volatility
24
%
 
24
%
Risk-free interest rate
1.5
%
 
0.9
%
Correlation of peer company returns
114
%
 
122
%
The unvested performance-based awards in the table above include 74,824 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 74,824 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 $3.5 million and $3.4 million of non-cash stock-based compensation expense, which is included in selling, general and administrative expenses, for the three months ended September 30, 2017 and 2016, respectively. WESCO recognized $11.3 million and $10.4 million of non-cash stock-based compensation expense, which is included in selling, general and administrative expenses, for the nine months ended September 30, 2017 and 2016, respectively. As of September 30, 2017, there was $22.6 million of total unrecognized compensation cost related to non-vested stock-based compensation arrangements for all awards previously made, of which approximately $3.7 million is expected to be recognized over the remainder of 2017, $11.4 million in 2018, $6.7 million in 2019 and $0.8 million in 2020.

11

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


6. 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 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)
2017
 
2016
 
2017
 
2016
Net income (loss) attributable to WESCO International, Inc.
$
53,675

 
$
(31,611
)
 
$
140,918

 
$
54,243

Weighted-average common shares outstanding used in computing basic earnings per share
47,415

 
43,378

 
48,134

 
42,611

Common shares issuable upon exercise of dilutive equity awards
389

 
511

 
508

 
519

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

 
4,851

 

 
4,908

Weighted-average common shares outstanding and common share equivalents, diluted
47,804

 
48,740

 
48,642

 
48,038

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

47,804

 
43,378

 
48,642

 
48,038

Earnings (loss) per share attributable to WESCO International, Inc.
 
 
 
 
 
 
 
Basic
$
1.13

 
$
(0.73
)
 
$
2.93

 
$
1.27

Diluted
$
1.12

 
$
(0.73
)
 
$
2.90

 
$
1.13

For the three and nine months ended September 30, 2017, the computation of diluted earnings per share attributable to WESCO International, Inc. excluded stock-based awards of approximately 1.5 million and 1.3 million, respectively. 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. These amounts were excluded because their effect would have been antidilutive.
Because of WESCO’s previous obligation to settle the par value of the 6.0% Convertible Senior Debentures due 2029 (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 have been 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 and the maximum amount of share dilution was limited to 11,951,932 shares. Since the 2029 Debentures were redeemed on September 15, 2016, there was no dilution from contingently convertible debentures for the three and nine months ended September 30, 2017. 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.
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. As of December 31, 2016, WESCO had repurchased 2,468,576 shares of the Company's common stock for $150.0 million under this repurchase authorization. During the three months ended June 30, 2017, the Company repurchased 804,291 shares under the repurchase authorization for $50.0 million. On August 7, 2017, the Company entered into an accelerated stock repurchase agreement (the "ASR Transaction") with a financial institution to repurchase additional shares of its common stock. In exchange for an up-front cash payment of $50.0 million, the Company received 974,246 shares. The total number of shares ultimately delivered under the ASR Transaction was 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. WESCO funded the repurchase with borrowings under the Company's revolving credit facility and

12

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


accounts receivable securitization facility. For purposes of computing earnings per share, share repurchases have been reflected as a reduction to common shares outstanding on the respective delivery dates.
7. 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 the 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, 2017 and 2016, WESCO incurred charges of $20.3 million and $18.1 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, 2017 and December 31, 2016, the Company's obligation under the deferred compensation plan was $23.4 million and $21.7 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.
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 defined benefit plans:
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
(In thousands of dollars)
2017
 
2016
 
2017
 
2016
Service cost
$
1,118

 
$
977

 
$
3,234

 
$
2,889

Interest cost
1,007

 
979

 
2,915

 
2,898

Expected return on plan assets
(1,432
)
 
(1,353
)
 
(4,144
)
 
(4,004
)
Recognized actuarial gain
(51
)
 
(10
)
 
(149
)
 
(31
)
Net periodic benefit cost
$
642

 
$
593

 
$
1,856

 
$
1,752

During the three and nine months ended September 30, 2017, there were no employer contributions to the defined benefit plans. 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 the defined benefit plans.
8. 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 undergoing a compliance audit in the State of Delaware concerning the identification, reporting and escheatment of unclaimed or abandoned property. The third party auditor conducting the audit on behalf of the State has completed the audit fieldwork and provided a draft of its preliminary findings to the Company and the State for review. A final report is expected to be issued at some point in the future. 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, and is evaluating its alternatives under applicable laws and regulations. If the Company and State do not reach resolution after further discussion, the State may issue 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 is cooperating with the government investigation. The Company

13

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


cannot predict the outcome or impact of the matter at this time, but could be subject to fines, penalties or other adverse consequences. The Company has recorded a liability for the matter based on the facts currently known to the Company.
9. INCOME TAXES
The effective tax rate for the three and nine months ended September 30, 2017 was 25.5% and 25.3%, respectively. The effective tax rate for the three and nine months ended September 30, 2016 was 40.5% and 20.4%, respectively. The effective tax rates for the three and nine months ended September 30, 2016 were impacted by the redemption of the 2029 Debentures on September 15, 2016. WESCO’s effective tax rate is typically lower than the federal statutory rate of 35% due to benefits resulting from the tax effect of intercompany financing and lower tax rates on foreign earnings, which are partially offset by nondeductible expenses and state taxes. The current year's effective tax rate is impacted by favorable discrete items, including a benefit from the exercise and vesting of stock-based awards, as well as the mix of income earned in jurisdictions with lower tax rates.
The total amount of unrecognized tax benefits was reduced by $1.6 million during the nine months ended September 30, 2017 to $4.6 million due to the expiration of statutes of limitation and the settlement of state audits. At September 30, 2017, the amount of unrecognized tax benefits that could affect the effective tax rate if recognized in the consolidated financial statements was $6.0 million. Within the next twelve months, it is reasonably possible that the amount of unrecognized tax benefits will decrease by approximately $0.2 million due to the expiration of statutes of limitation and the settlement of state audits. Of this amount, $0.2 million could impact the effective tax rate.

14

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


10. 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, 2017
 
 
 
 
 
 
 
 
 
 
(In thousands of dollars)
WESCO
International,
Inc.
 
WESCO
Distribution,
Inc.
 
Non-Guarantor
Subsidiaries
 
Consolidating
and
Eliminating
Entries
 
Consolidated
Cash and cash equivalents
$

 
$
45,775

 
$
48,308

 
$

 
$
94,083

Trade accounts receivable, net

 

 
1,236,612

 

 
1,236,612

Inventories

 
403,752

 
521,297

 

 
925,049

Prepaid expenses and other current assets
13,642

 
42,130

 
203,991

 
(105,380
)
 
154,383

Total current assets
13,642

 
491,657

 
2,010,208

 
(105,380
)
 
2,410,127

Intercompany receivables, net

 

 
2,141,945

 
(2,141,945
)
 

Property, buildings and equipment, net

 
50,191

 
107,400

 

 
157,591

Intangible assets, net

 
2,932

 
375,221

 

 
378,153

Goodwill

 
257,623

 
1,519,295

 

 
1,776,918

Investments in affiliates
3,817,521

 
4,228,307

 

 
(8,045,828
)
 

Other assets

 
18,615

 
23,064

 

 
41,679

Total assets
$
3,831,163

 
$
5,049,325

 
$
6,177,133

 
$
(10,293,153
)
 
$
4,764,468

 
 
 
 
 
 
 
 
 
 
Accounts payable
$

 
$
443,675

 
$
394,752

 
$

 
$
838,427

Short-term debt

 

 
39,712

 

 
39,712

Other current liabilities

 
117,701

 
153,033

 
(105,380
)
 
165,354

Total current liabilities

 
561,376

 
587,497

 
(105,380
)
 
1,043,493

Intercompany payables, net
1,707,926

 
434,019

 

 
(2,141,945
)
 

Long-term debt, net

 
968,361

 
399,940

 

 
1,368,301

Other noncurrent liabilities
12,733

 
61,635

 
171,073

 

 
245,441

Total WESCO International, Inc. stockholders' equity
2,110,504

 
3,023,934

 
5,021,894

 
(8,045,828
)
 
2,110,504

Noncontrolling interests

 

 
(3,271
)
 

 
(3,271
)
Total liabilities and stockholders’ equity
$
3,831,163

 
$
5,049,325

 
$
6,177,133

 
$
(10,293,153
)
 
$
4,764,468


15

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


 
Condensed Consolidating Balance Sheet
 
December 31, 2016
 
 
 
 
 
 
 
 
 
 
(In thousands of dollars)
WESCO
International,
Inc.
 
WESCO
Distribution,
Inc.
 
Non-Guarantor
Subsidiaries
 
Consolidating
and
Eliminating
Entries
 
Consolidated
Cash and cash equivalents
$

 
$
41,552

 
$
68,579

 
$

 
$
110,131

Trade accounts receivable, net

 

 
1,034,402

 

 
1,034,402

Inventories

 
364,562

 
456,879

 

 
821,441

Prepaid expenses and other current assets
13,647

 
34,833

 
211,637

 
(123,013
)
 
137,104

Total current assets
13,647

 
440,947

 
1,771,497

 
(123,013
)
 
2,103,078

Intercompany receivables, net

 

 
2,060,336

 
(2,060,336
)
 

Property, buildings and equipment, net

 
51,824

 
105,783

 

 
157,607

Intangible assets, net

 
3,417

 
389,945

 

 
393,362

Goodwill

 
257,623

 
1,473,327

 

 
1,730,950

Investments in affiliates
3,538,476

 
4,028,502

 

 
(7,566,978
)
 

Other assets

 
23,846

 
22,998

 

 
46,844

Total assets
$
3,552,123

 
$
4,806,159

 
$
5,823,886

 
$
(9,750,327
)
 
$
4,431,841

 
 
 
 
 
 
 
 
 
 
Accounts payable
$

 
$
381,795

 
$
302,926

 
$

 
$
684,721

Short-term debt

 

 
20,920

 

 
20,920

Other current liabilities

 
120,299

 
170,872

 
(123,013
)
 
168,158

Total current liabilities

 
502,094

 
494,718

 
(123,013
)
 
873,799

Intercompany payables, net
1,572,486

 
487,850

 

 
(2,060,336
)
 

Long-term debt, net

 
983,449

 
379,686

 

 
1,363,135

Other noncurrent liabilities
12,737

 
55,898

 
162,641

 

 
231,276

Total WESCO International, Inc. stockholders' equity
1,966,900

 
2,776,868

 
4,790,110

 
(7,566,978
)
 
1,966,900

Noncontrolling interests

 

 
(3,269
)
 

 
(3,269
)
Total liabilities and stockholders’ equity
$
3,552,123

 
$
4,806,159

 
$
5,823,886

 
$
(9,750,327
)
 
$
4,431,841


16

   
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 of dollars)
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

 
139,383

 

 
280,021

Depreciation and amortization

 
4,475

 
11,599

 

 
16,074

Results of affiliates’ operations
53,576

 
42,726

 

 
(96,302
)
 

Interest expense (income), net

 
25,436

 
(8,125
)
 

 
17,311

Income tax (benefit) expense

 
(136
)
 
18,499

 

 
18,363

Net income
53,576

 
42,390

 
53,912

 
(96,302
)
 
53,576

Net income attributable to noncontrolling interests

 

 
(99
)
 

 
(99
)
Net income attributable to WESCO International, Inc.
$
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, Inc.
$
104,724

 
$
93,538

 
$
105,159

 
$
(198,598
)
 
$
104,823

 
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 Income
 
Nine Months Ended
 
September 30, 2017
 
 
 
 
 
 
 
 
 
 
(In thousands of dollars)
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

 
403,651

 

 
814,275

Depreciation and amortization

 
13,811

 
33,947

 

 
47,758

Results of affiliates’ operations
140,915

 
117,907

 

 
(258,822
)
 

Interest expense (income), net

 
74,961

 
(24,114
)
 

 
50,847

Income tax (benefit) expense

 
(3,034
)
 
50,718

 

 
47,684

Net income
140,915

 
108,939

 
149,883

 
(258,822
)
 
140,915

Net income attributable to noncontrolling interests

 

 
(3
)
 

 
(3
)
Net income attributable to WESCO International, Inc.
$
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
252

 
252

 
252

 
(504
)
 
252

Comprehensive income attributable to WESCO International, Inc.
$
237,264

 
$
205,288

 
$
246,235

 
$
(451,520
)
 
$
237,267


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 Cash Flows
 
Nine Months Ended
 
September 30, 2017
 
 
 
 
 
 
 
 
 
 
(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
$
(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

 

 
7,485

 

 
7,485

Net change in cash and cash equivalents

 
4,223

 
(20,271
)
 

 
(16,048
)
Cash and cash equivalents at the beginning of period

 
41,552

 
68,579

 

 
110,131

Cash and cash equivalents at the end of period
$

 
$
45,775

 
$
48,308

 
$

 
$
94,083


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
)