WESCO INTERNATIONAL INC - FORM 10-Q - August 3, 2018

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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 June 30, 2018
or
o
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                     to                     
Commission File Number: 001-14989
WESCO International, Inc.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
 
25-1723342
(I.R.S. Employer
Identification No.)
 
 
 
225 West Station Square Drive
Suite 700
Pittsburgh, Pennsylvania
(Address of principal executive offices)
 
15219
(Zip Code)

(412) 454-2200
(Registrant's telephone number, including area code)
Not applicable.
(Former name, former address and former fiscal year, if changed since last report) 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for at least the past 90 days.              Yes þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer þ
 
 
 
Accelerated filer o
 
 
 
 
 
Non-accelerated filer o (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 August 2, 2018, 47,099,411 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 unaudited 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
 
June 30,
2018
 
December 31,
2017
Assets
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
110,940

 
$
117,953

Trade accounts receivable, net of allowance for doubtful accounts of $22,763 and $21,313 in 2018 and 2017, respectively
1,257,330

 
1,170,080

Other accounts receivable
62,361

 
101,229

Inventories
935,231

 
956,148

Prepaid expenses and other current assets
81,078

 
63,439

Total current assets
2,446,940

 
2,408,849

Property, buildings and equipment, net of accumulated depreciation of $285,632 and $278,455 in 2018 and 2017, respectively
157,492

 
156,445

Intangible assets, net of accumulated amortization of $237,716 and $223,554 in 2018
and 2017, respectively
340,579

 
367,104

Goodwill
1,744,694

 
1,771,877

Other assets
25,281

 
31,193

    Total assets
$
4,714,986

 
$
4,735,468

Liabilities and Stockholders’ Equity
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
818,179

 
$
799,520

Accrued payroll and benefit costs
54,353

 
72,686

Short-term debt
35,527

 
34,075

Current portion of long-term debt
1,188

 
1,224

Bank overdrafts
28,296

 
37,644

Other current liabilities
88,366

 
95,820

Total current liabilities
1,025,909

 
1,040,969

Long-term debt, net of debt discount and debt issuance costs of $11,441 and $14,224 in 2018 and 2017, respectively
1,261,705

 
1,313,261

Deferred income taxes
140,498

 
136,858

Other noncurrent liabilities
121,119

 
128,237

    Total liabilities
$
2,549,231

 
$
2,619,325

Commitments and contingencies (Note 10)



Stockholders’ equity:
 
 
 
Preferred stock, $.01 par value; 20,000,000 shares authorized, no shares issued or outstanding
—

 
—

Common stock, $.01 par value; 210,000,000 shares authorized, 59,144,569 and 59,045,762 shares issued and 47,099,031 and 47,009,540 shares outstanding in 2018 and 2017, respectively
591

 
591

Class B nonvoting convertible common stock, $.01 par value; 20,000,000 shares authorized, 4,339,431 issued and no shares outstanding in 2018 and 2017, respectively
43

 
43

Additional capital
1,005,897

 
999,156

Retained earnings
2,182,484

 
2,079,697

Treasury stock, at cost; 16,384,969 and 16,375,653 shares in 2018 and 2017, respectively
(647,843
)
 
(647,158
)
Accumulated other comprehensive loss
(370,105
)
 
(312,590
)
Total WESCO International, Inc. stockholders' equity
2,171,067

 
2,119,739

Noncontrolling interests
(5,312
)
 
(3,596
)
    Total stockholders’ equity
2,165,755

 
2,116,143

    Total liabilities and stockholders’ equity
$
4,714,986

 
$
4,735,468


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

3

WESCO INTERNATIONAL, INC. AND SUBSIDIARIES


CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(In thousands of dollars, except per share data)
(unaudited)
 
Three Months Ended
 
Six Months Ended
 
June 30
 
June 30
 
2018
 
2017
 
2018
 
2017
Net sales (Note 3)
$
2,103,994

 
$
1,909,624

 
$
4,097,909

 
$
3,682,215

Cost of goods sold (excluding depreciation and
 
 
 
 
 
 
 
amortization)
1,704,100

 
1,543,510

 
3,318,066

 
2,966,083

Selling, general and administrative expenses (Note 8)
292,888

 
267,735

 
583,717

 
535,153

Depreciation and amortization
15,823

 
15,721

 
31,703

 
31,686

Income from operations
91,183

 
82,658

 
164,423

 
149,293

Net interest and other (Notes 8 and 9)
17,741

 
16,369

 
37,524

 
32,636

Income before income taxes
73,442

 
66,289

 
126,899

 
116,657

Provision for income taxes
15,769

 
16,754

 
26,255

 
29,323

Net income
57,673

 
49,535

 
100,644

 
87,334

Less: Net (loss) income attributable to noncontrolling interests
(267
)
 
25

 
(1,717
)
 
96

Net income attributable to WESCO International, Inc.
$
57,940

 
$
49,510

 
$
102,361

 
$
87,238

Other comprehensive income (loss):
 
 
 
 
 
 
 
Foreign currency translation adjustments
(28,715
)
 
33,381

 
(57,515
)
 
44,949

Post retirement benefit plan adjustments, net of tax
—

 
—

 
—

 
252

Comprehensive income attributable to WESCO International, Inc.
$
29,225

 
$
82,891

 
$
44,846

 
$
132,439

 
 
 
 
 
 
 
 
Earnings per share attributable to WESCO International, Inc.
 
 
 
 
 
 
 
Basic
$
1.23

 
$
1.03

 
$
2.18

 
$
1.80

Diluted
$
1.22

 
$
1.02

 
$
2.15

 
$
1.78


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)
 
Six Months Ended
 
June 30
 
2018
 
2017
Operating activities:
 
 
 
Net income
$
100,644

 
$
87,334

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization
31,703

 
31,686

  Deferred income taxes
6,100

 
6,404

Other operating activities, net
11,027

 
8,306

Changes in assets and liabilities:
 
 
 
Trade accounts receivable, net
(102,567
)
 
(95,978
)
Other accounts receivable
38,430

 
16,425

Inventories
11,407

 
(36,877
)
Prepaid expenses and other assets
(12,866
)
 
(6,360
)
Accounts payable
26,073

 
76,836

Accrued payroll and benefit costs
(16,588
)
 
(10,786
)
Other current and noncurrent liabilities
(6,542
)
 
(10,221
)
Net cash provided by operating activities
86,821

 
66,769

 
 
 
 
Investing activities:
 
 
 
Capital expenditures
(16,384
)
 
(9,795
)
Other investing activities
(8,684
)
 
3,467

Net cash used in investing activities
(25,068
)
 
(6,328
)
 
 
 
 
Financing activities:
 
 
 
Proceeds from issuance of short-term debt
87,861

 
69,257

Repayments of short-term debt
(85,761
)
 
(68,517
)
Proceeds from issuance of long-term debt
794,888

 
662,078

Repayments of long-term debt
(848,888
)
 
(692,078
)
Repurchases of common stock (Note 7)
(1,891
)
 
(56,665
)
(Decrease) increase in bank overdrafts
(9,408
)
 
155

Other financing activities, net
(550
)
 
(768
)
Net cash used in financing activities
(63,749
)
 
(86,538
)
 
 
 
 
Effect of exchange rate changes on cash and cash equivalents
(5,017
)
 
3,765

 
 
 
 
Net change in cash and cash equivalents
(7,013
)
 
(22,332
)
Cash and cash equivalents at the beginning of period
117,953

 
110,131

Cash and cash equivalents at the end of period
$
110,940

 
$
87,799

Supplemental disclosures:
 
 
 
Cash paid for interest
$
32,380

 
$
30,776

Cash paid for income taxes
33,792

 
30,664


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

5
   
WESCO INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)



1. ORGANIZATION
WESCO International, Inc. ("WESCO International") and its subsidiaries (collectively, “WESCO” or the "Company"), headquartered in Pittsburgh, Pennsylvania, is a full-line distributor of electrical, industrial and communications maintenance, repair and operating ("MRO") and original equipment manufacturer ("OEM") products, construction materials, and advanced supply chain management and logistics services used primarily in the industrial, construction, utility and commercial, institutional and government markets. WESCO serves approximately 70,000 active customers globally through approximately 500 branches and 10 distribution centers located primarily in the United States and Canada, with operations in 16 additional countries.
2. ACCOUNTING POLICIES
Basis of Presentation
The accompanying unaudited Condensed Consolidated Financial Statements of WESCO have been prepared in accordance with Rule 10-01 of Regulation S-X of the Securities and Exchange Commission (the “SEC”). The unaudited condensed consolidated financial information should be read in conjunction with the audited Consolidated Financial Statements and Notes thereto included in WESCO’s 2017 Annual Report on Form 10-K as filed with the SEC on February 22, 2018. The Condensed Consolidated Balance Sheet at December 31, 2017 was derived from the audited Consolidated Financial Statements as of that date, but does not include all of the disclosures required by accounting principles generally accepted in the United States of America.
The unaudited Condensed Consolidated Balance Sheet as of June 30, 2018, the unaudited Condensed Consolidated Statements of Income and Comprehensive Income for the six months ended June 30, 2018 and 2017, respectively, and the unaudited Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2018 and 2017, respectively, in the opinion of management, have been prepared on the same basis as the audited Consolidated Financial Statements and include all adjustments necessary for the fair statement of the results of the interim periods presented herein. All adjustments reflected in the unaudited condensed consolidated financial information are of a normal recurring nature unless indicated. The results for the interim periods presented herein are not necessarily indicative of the results to be expected for the full year.
Reclassifications
Effective January 1, 2018, WESCO adopted Accounting Standards Update (ASU) 2017-07, Compensation—Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost. The adoption of this ASU, as described below and in Note 8, resulted in the reclassification of amounts reported in the unaudited Condensed Consolidated Statements of Income and Comprehensive Income for the three and six months ended June 30, 2017.
Recently Adopted Accounting Pronouncements
Effective January 1, 2018, WESCO adopted ASU 2014-09, Revenue from Contracts with Customers, and all the related amendments (“Topic 606”) using the modified retrospective approach to all open contracts. There was no impact to WESCO’s previously reported consolidated financial statements and WESCO does not expect the adoption of Topic 606 to have a material impact on its revenue and results of operations on an ongoing basis.
WESCO’s significant accounting policies are disclosed in Note 2 of the Notes to Consolidated Financial Statements in the Annual Report on Form 10-K for the year ended December 31, 2017. Changes to the Company’s significant accounting policies as a result of adopting Topic 606 are described in Note 3 below.
In August 2016, the Financial Accounting Standards Board (FASB) issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments (a consensus of the Emerging Issues Task Force). This ASU provides guidance on eight specific cash flow issues where there is diversity in practice. The Company adopted this ASU in the first quarter of 2018. The adoption of this guidance did not have an impact on the unaudited condensed consolidated financial information presented herein.
In March 2017, the FASB issued ASU 2017-07, Compensation—Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost. This ASU requires that an employer disaggregate the service cost from the other components of net benefit cost. The Company adopted this guidance on a retrospective basis in the first quarter of 2018. See Note 8 for a description of the impact of this accounting standard on the unaudited Condensed Consolidated Statements of Income and Comprehensive Income presented herein. The adoption of this guidance did not have an impact on the Company's unaudited Condensed Consolidated Balance Sheets and the unaudited Condensed Consolidated Statements of Cash Flows presented herein.

6
   
WESCO INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)
(unaudited)


In May 2017, the FASB issued ASU 2017-09, Compensation—Stock Compensation (Topic 718): Scope of Modification Accounting. This ASU clarifies when to account for a change to the terms or conditions of a share-based payment award as a modification. Under the new guidance, modification accounting is required only if the fair value, the vesting conditions, or the classification of the award (as equity or liability) changes as a result of the change in terms or conditions. The Company adopted this ASU in the first quarter of 2018. The adoption of this guidance did not have an impact on the unaudited condensed consolidated financial information presented herein.
Recently Issued Accounting Pronouncements
In February 2016, the FASB issued ASU 2016-02, Leases, a comprehensive new standard that amends various aspects of existing accounting guidance for leases, including the recognition of a right-of-use asset and a lease liability in the balance sheet and disclosing key information about leasing arrangements. This ASU is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted. 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 has established a cross-functional team to evaluate and implement the new standard. The team is currently in the process of gathering lease data and selecting a third-party software solution to assist with accounting for leases under the new standard. Upon adoption, right-of-use assets and lease liabilities will be recorded in the Consolidated Balance Sheets.
In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which introduces new guidance for the accounting for credit losses on certain financial instruments. The amendments in this ASU are effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted. Management does not expect the adoption of this accounting standard to have a material impact on its consolidated financial statements and notes thereto.
In January 2017, the FASB issued ASU 2017-04, Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment, which eliminates Step 2 of the goodwill impairment test. Under the amendments in this ASU, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. An entity should apply the amendments in this ASU on a prospective basis. This guidance is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Management expects to adopt this ASU in the fourth quarter of 2018 when the Company performs its annual impairment testing. The Company does not expect the adoption of this accounting standard to have a material impact on its consolidated financial statements and notes thereto.
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. REVENUE
WESCO’s revenue arrangements generally consist of single performance obligations to transfer a promised good or service, or a combination of goods and services. Revenue is recognized when control has transferred to the customer, which is generally when the product has shipped from a WESCO facility or directly from a supplier. For products that ship directly from suppliers to customers, WESCO acts as the principal in the transaction and recognizes revenue on a gross basis. Revenue for integrated supply services is recognized over time based on hours incurred. This method reflects the transfer of control as the customer benefits from these services as they are being performed. WESCO generally satisfies its performance obligations within a year or less.
WESCO generally does not have significant financing terms associated with its contracts; payments are normally received within 60 days. There are no significant costs associated with obtaining customer contracts. WESCO generally passes through the warranties offered by the applicable manufacturer or supplier to its customers. Sales taxes (and value added taxes in foreign jurisdictions) collected from customers and remitted to governmental authorities are excluded from net sales.

7
   
WESCO INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)
(unaudited)


The following tables disaggregate WESCO’s revenue by end market and geography:
 
Three Months Ended
 
Six Months Ended
 
June 30
 
June 30
(In thousands)
2018
 
2017
 
2018
 
2017
Industrial
$
760,741

 
$
711,305

 
$
1,519,723

 
$
1,389,601

Construction
683,752

 
623,763

 
1,321,551

 
1,195,392

Utility
336,961

 
282,400

 
652,506

 
548,660

Commercial, Institutional and Government ("CIG")
322,540

 
292,156

 
604,129

 
548,562

Total by end market
$
2,103,994

 
$
1,909,624

 
$
4,097,909

 
$
3,682,215

 
Three Months Ended
 
Six Months Ended
 
June 30
 
June 30
(In thousands)
2018
 
2017
 
2018
 
2017
United States
$
1,563,392

 
$
1,451,401

 
$
3,046,140

 
$
2,794,601

Other (1)
540,602

 
458,223

 
1,051,769

 
887,614

Total by geography
$
2,103,994

 
$
1,909,624

 
$
4,097,909

 
$
3,682,215

(1) 
Other primarily includes net sales to customers in Canada.
WESCO distributes products and provides services to customers globally within the following end markets: (1) industrial, (2) construction, (3) utility, and (4) CIG. Revenue is measured as the amount of consideration WESCO expects to receive in exchange for transferring goods or providing services.
In accordance with certain contractual arrangements, WESCO receives payment from its customers in advance and recognizes such payment as deferred revenue. Revenue for advance payment is recognized when the performance obligation has been satisfied and control has transferred to the customer, which is generally upon shipment. Deferred revenue is usually recognized within a year or less from the date of the customer’s advance payment. At June 30, 2018 and December 31, 2017, $11.6 million and $15.5 million, respectively, of deferred revenue was recorded as a component of other current liabilities in the Condensed Consolidated Balance Sheets.
WESCO’s revenues are adjusted for variable consideration, which includes customer volume rebates, returns, and discounts. WESCO measures variable consideration by estimating expected outcomes using analysis and inputs based upon anticipated performance, historical data, as well as current and forecasted information. Measurement and recognition of variable consideration is reviewed by management on a monthly basis and revenue is adjusted accordingly. Variable consideration reduced revenue for the three months ended June 30, 2018 and 2017 by approximately $25.0 million and $21.7 million, respectively, and by approximately $49.4 million and $42.3 million for the six months ended June 30, 2018 and 2017, respectively.
Shipping and handling costs are recognized in net sales when they are billed to the customer. These costs are recognized as a component of selling, general and administrative expenses when WESCO does not bill the customer. WESCO has elected to recognize shipping and handling costs as a fulfillment cost. Shipping and handling costs recorded as a component of selling, general and administrative expenses totaled $18.6 million and $14.4 million for the three months ended June 30, 2018 and 2017, respectively, and $36.8 million and $27.8 million for the six months ended June 30, 2018 and 2017, respectively.
4. FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company’s financial instruments consist of cash and cash equivalents, accounts receivable, accounts payable, bank overdrafts, and outstanding indebtedness. The reported carrying amounts of WESCO's financial instruments approximated their fair values as of June 30, 2018 and December 31, 2017.
The Company uses a market approach to determine the fair value of its debt instruments, utilizing quoted prices in active markets, interest rates and other relevant information generated by market transactions involving similar instruments. Therefore, the Company's debt instruments are classified as Level 2 within the fair value hierarchy.

8
   
WESCO INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)
(unaudited)


5. GOODWILL
The following table sets forth the changes in the carrying value of goodwill:
 
Six Months Ended
 
June 30
(In thousands)
2018
 
2017
Beginning balance January 1
$
1,771,877

 
$
1,720,714

Foreign currency exchange rate changes
(27,183
)
 
20,826

Ending balance June 30
$
1,744,694

 
$
1,741,540

6. STOCK-BASED COMPENSATION
WESCO’s stock-based employee compensation plans are comprised of stock-settled stock appreciation rights, restricted stock units and performance-based awards. Compensation cost for all stock-based awards is measured at fair value on the date of grant and compensation cost is recognized, net of estimated forfeitures, over the service period for awards expected to vest. The fair value of stock-settled stock appreciation rights and performance-based awards with market conditions is determined using the Black-Scholes and Monte Carlo simulation models, respectively. The fair value of restricted stock units and performance-based awards with performance conditions is determined by the grant-date closing price of WESCO’s common stock. The forfeiture assumption is based on WESCO’s historical employee behavior that is reviewed on an annual basis. No dividends are assumed.
Effective January 1, 2018, performance-based awards are based on two equally-weighted performance measures, which include the three-year average growth rate of the Company’s fully diluted earnings per share and the three-year cumulative return on net assets. From 2015 to 2017, the two equally-weighted performance-based award metrics were the three-year average growth rate of WESCO's net income and WESCO's total stockholder return in relation to the total stockholder return of a select group of peer companies over a three-year period.
During the three and six months ended June 30, 2018 and 2017, WESCO granted the following stock-settled stock appreciation rights, restricted stock units and performance-based awards at the following weighted-average fair values:
 
Three Months Ended
 
Six Months Ended
 
June 30,
2018
 
June 30,
2017
 
June 30,
2018
 
June 30,
2017
Stock-settled stock appreciation rights granted
8,402

 
—

 
499,631

 
443,731

Weighted-average fair value
$
17.85

 
$
—

 
$
18.39

 
$
20.65

 
 
 
 
 
 
 
 
Restricted stock units granted
2,502

 
—

 
116,771

 
98,680

Weighted-average fair value
$
59.95

 
$
—

 
$
62.75

 
$
71.65

 
 
 
 
 
 
 
 
Performance-based awards granted
—

 
—

 
44,144

 
39,978

Weighted-average fair value
$
—

 
$
—

 
$
62.80

 
$
76.63


9
   
WESCO INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)
(unaudited)


The fair value of stock-settled stock appreciation rights was estimated using the following weighted-average assumptions:
 
Three Months Ended
 
Six Months Ended
 
June 30,
2018
 
June 30,
2017
 
June 30,
2018
 
June 30,
2017
Risk free interest rate
2.8
%
 
n/a
 
2.5
%
 
1.9
%
Expected life (in years)
5

 
n/a
 
5

 
5

Expected volatility
28
%
 
n/a
 
28
%
 
29
%
The risk-free interest rate is based on the U.S. Treasury Daily Yield Curve as of the grant date. The expected life is based on historical exercise experience and the expected volatility is based on the volatility of the Company's daily stock prices over a five-year period preceding the grant date.
The following table sets forth a summary of stock-settled stock appreciation rights and related information for the six months ended June 30, 2018:
 
Awards
 
Weighted-
Average
Exercise
Price
 
Weighted-
Average
Remaining
Contractual Term (In years)
 
Aggregate
Intrinsic
Value
(In thousands)
Outstanding at December 31, 2017
2,238,607

 
$
57.75

 
 
 
 
     Granted
499,631

 
62.76

 
 
 
 
     Exercised
(158,279
)
 
39.63

 
 
 
 
     Forfeited
(135,511
)
 
68.78

 
 
 
 
Outstanding at June 30, 2018
2,444,448

 
59.33

 
6.6
 
$
13,624

Exercisable at June 30, 2018
1,523,126

 
$
58.09

 
5.2
 
$
11,130

The following table sets forth a summary of time-based restricted stock units and related information for the six months ended June 30, 2018:
 
Awards
 
Weighted-
Average
Fair
Value
Unvested at December 31, 2017
290,054

 
$
58.11

     Granted
116,771

 
62.75

     Vested
(57,175
)
 
69.44

     Forfeited
(10,710
)
 
56.45

Unvested at June 30, 2018
338,940

 
$
57.85


10
   
WESCO INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)
(unaudited)


Performance shares are awards for which the vesting will occur based on market or performance conditions. The following table sets forth a summary of performance-based awards for the six months ended June 30, 2018:
 
Awards
 
Weighted-
Average
Fair
Value
Unvested at December 31, 2017
148,508

 
$
60.23

     Granted
44,144

 
62.80

     Vested
—

 
—

     Forfeited
(52,342
)
 
65.31

Unvested at June 30, 2018
140,310

 
$
59.33

The fair value of the performance shares granted during the six months ended June 30, 2018 and 2017 was estimated using the following weighted-average assumptions:
 
Six Months Ended
 
June 30,
2018
 
June 30,
2017
Grant date share price
$
62.80

 
$
71.65

WESCO expected volatility
n/a

 
29
%
Peer group median volatility
n/a

 
24
%
Risk-free interest rate
n/a

 
1.5
%
Correlation of peer company returns
n/a

 
114
%
The unvested performance-based awards in the table above include 48,805 shares in which vesting of the ultimate number of shares is dependent upon WESCO's total stockholder return in relation to the total stockholder return of a select group of peer companies over a three-year period. These awards are accounted for as awards with market conditions; compensation cost is recognized over the service period, regardless of whether the market conditions are achieved and the awards ultimately vest.
Vesting of the remaining 91,505 shares of performance-based awards in the table above is dependent upon the achievement of certain performance targets, including 48,805 that are dependent upon the three-year average growth rate of WESCO's net income, 21,350 that are dependent upon the three-year average growth rate of the Company's fully diluted earnings per share, and 21,350 that are based upon the three-year cumulative return on net assets. These awards are accounted for as awards with performance conditions; compensation cost is recognized over the performance period based upon WESCO's determination of whether it is probable that the performance targets will be achieved.
WESCO recognized $4.4 million and $4.1 million of non-cash stock-based compensation expense, which is included in selling, general and administrative expenses, for the three months ended June 30, 2018 and 2017, respectively. WESCO recognized $8.0 million and $7.8 million of non-cash stock-based compensation expense, which is included in selling, general and administrative expenses, for the six months ended June 30, 2018 and 2017, respectively. As of June 30, 2018, there was $27.0 million of total unrecognized compensation cost related to non-vested stock-based compensation arrangements for all awards previously made, of which approximately $8.3 million is expected to be recognized over the remainder of 2018, $11.7 million in 2019, $6.3 million in 2020 and $0.7 million in 2021.
7. EARNINGS PER SHARE
Basic earnings per share is computed by dividing net income attributable to WESCO International by the weighted-average number of common shares outstanding during the periods. Diluted earnings per share is computed by dividing net income attributable to WESCO International by the weighted-average common shares and common share equivalents outstanding during the periods. The dilutive effect of common share equivalents is considered in the diluted earnings per share computation using the treasury stock method, which includes consideration of equity awards.

11
   
WESCO INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)
(unaudited)


The following table sets forth the details of basic and diluted earnings per share:
 
Three Months Ended
 
Six Months Ended
 
June 30
 
June 30
(In thousands, except per share data)
2018
 
2017
 
2018
 
2017
Net income attributable to WESCO International
$
57,940

 
$
49,510

 
$
102,361

 
$
87,238

Weighted-average common shares outstanding used in computing basic earnings per share
47,085

 
48,294

 
47,062

 
48,499

Common shares issuable upon exercise of dilutive equity awards
465

 
482

 
516

 
582

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

47,550

 
48,776

 
47,578

 
49,081

Earnings per share attributable to WESCO International
 
 
 
 
 
 
 
Basic
$
1.23

 
$
1.03

 
$
2.18

 
$
1.80

Diluted
$
1.22

 
$
1.02

 
$
2.15

 
$
1.78

For the three and six months ended June 30, 2018 the computation of diluted earnings per share attributable to WESCO International excluded stock-based awards of approximately 1.5 million. For the three and six months ended June 30, 2017, the computation of diluted earnings per share attributable to WESCO International excluded stock-based awards of approximately 1.3 million and 1.2 million, respectively. These amounts were excluded because their effect would have been antidilutive.
In December 2014, the Company's Board of Directors authorized the repurchase of up to $300 million of the Company's common stock through December 31, 2017 (the "2014 Repurchase Authorization"). On May 2, 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 pursuant to its 2014 Repurchase Authorization. In exchange for an up-front cash payment of $50.0 million, the Company received 804,291 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 available cash and borrowings under the Company's accounts receivable securitization facility. For purposes of computing earnings per share for the three and six months ended June 30, 2017, shares received under the ASR Transaction were reflected as a reduction to common shares outstanding on the respective delivery dates.
8. EMPLOYEE BENEFIT PLANS
A majority of WESCO’s employees are covered by defined contribution retirement savings plans for their services rendered subsequent to WESCO’s formation. WESCO also offers a deferred compensation plan for select individuals. For U.S. participants, WESCO matches contributions made by employees at an amount equal to 50% of participants' total monthly contributions up to a maximum of 6% of eligible compensation. For Canadian participants, WESCO makes contributions in amounts ranging from 3% to 5% of participants' eligible compensation based on years of continuous service. WESCO may also make, subject to the Board of Directors' approval, a discretionary contribution to the defined contribution retirement savings plan covering U.S. participants if certain predetermined profit levels are attained. For the six months ended June 30, 2018 and 2017, WESCO incurred charges of $21.9 million and $10.6 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 June 30, 2018 and December 31, 2017, the Company's obligation under the deferred compensation plan was $24.0 million and $24.3 million, respectively. Employees have the option to transfer balances allocated to their accounts in the defined contribution retirement savings plan and the deferred compensation plan into any of the available investment options.
The Company sponsors a contributory defined benefit plan covering substantially all Canadian employees of EECOL and a Supplemental Executive Retirement Plan (the "SERP") for certain executives of EECOL. During the three and six months ended June 30, 2018, the Company contributed $0.1 million and $0.2 million, respectively, to the SERP.

12
   
WESCO INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)
(unaudited)


The following table sets forth the components of net periodic benefit costs for the defined benefit plans:
 
Three Months Ended
 
Six Months Ended
 
June 30
 
June 30
(In thousands)
2018
 
2017
 
2018
 
2017
Service cost
$
1,312

 
$
1,049

 
$
2,659

 
$
2,116

Interest cost
1,039

 
945

 
2,105

 
1,907

Expected return on plan assets
(1,500
)
 
(1,343
)
 
(3,040
)
 
(2,711
)
Recognized actuarial gain
(12
)
 
(48
)
 
(24
)
 
(97
)
Net periodic benefit cost
$
839

 
$
603

 
$
1,700

 
$
1,215

In accordance with ASU 2017-07, as described in Note 2, the service cost of $1.3 million and $2.7 million for the three and six months ended June 30, 2018, respectively, was reported as a component of selling, general and administrative expenses. The other components of net periodic benefit cost totaling a net benefit of $0.5 million and $1.0 million for the three and six months ended June 30, 2018, respectively, were presented as a component of net interest and other, as described in Note 9 below. For the three and six months ended June 30, 2017, the Company reclassified a net benefit of $0.5 million and $0.9 million, respectively, from selling, general and administrative expenses to net interest and other. The Company used the amounts disclosed in Note 7 of the Notes to Condensed Consolidated Financial Statements in the Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2017 as the estimation basis for applying the retrospective presentation requirements.
9. NET INTEREST AND OTHER
Net interest and other includes interest expense, interest income, amortization of debt discount and debt issuance costs, the non-service cost components of net periodic benefit cost, and foreign exchange gains and losses from the remeasurement of certain financial instruments. For the three and six months ended June 30, 2018, a foreign exchange gain of $0.4 million and a foreign exchange loss of $2.6 million, respectively, from the remeasurement of financial instruments were reported as a component of net interest and other. Foreign exchange gains and losses were not material for the three and six months ended June 30, 2017.
10. COMMITMENTS AND CONTINGENCIES
From time to time, a number of lawsuits and claims have been or may be asserted against us relating to the conduct of our business, including routine litigation relating to commercial and employment matters. The outcome of any litigation cannot be predicted with certainty, and some lawsuits may be determined adversely to us. However, management does not believe that the ultimate outcome of any such pending matters is likely to have a material adverse effect on our financial condition or liquidity, although the resolution in any fiscal period of one or more of these matters may have a material adverse effect on our results of operations for that period.
11. INCOME TAXES
The effective tax rate for the three and six months ended June 30, 2018 was 21.5% and 20.7%, respectively. The effective tax rate for the three and six months ended June 30, 2017 was 25.3% and 25.1%, respectively. WESCO’s effective tax rate is typically impacted by the tax effect of intercompany financing, foreign tax rate differences, other nondeductible expenses and state income taxes. The effective tax rates for the current year periods are lower than the prior year periods primarily due to the Tax Cuts and Jobs Act of 2017 (the "TCJA"), which permanently reduced the U.S. federal statutory income tax rate from 35% to 21%, effective January 1, 2018.
The unaudited condensed consolidated financial information presented herein reflects provisional amounts for certain income tax effects of the TCJA for which the accounting is incomplete, but a reasonable estimate can be determined, based on enacted tax laws and rates as of June 30, 2018. On August 1, 2018, the Internal Revenue Service issued proposed regulations regarding Section 965 of the Internal Revenue Code, as amended by the TCJA. We are currently reviewing the proposed regulations and future adjustments (if any) will be recognized as discrete income tax expense or benefit in the period the adjustments are determined.

13
   
WESCO INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)
(unaudited)


12. CONDENSED CONSOLIDATING FINANCIAL INFORMATION
WESCO Distribution has outstanding $500 million in aggregate principal amount of 5.375% Senior Notes due 2021 (the "2021 Notes") and $350 million in aggregate principal amount of 5.375% Senior Notes due 2024 (the "2024 Notes"). The 2021 Notes and 2024 Notes are unsecured senior obligations of WESCO Distribution and are fully and unconditionally guaranteed on a senior unsecured basis by WESCO International.
Condensed consolidating financial information for WESCO International, WESCO Distribution and the non-guarantor subsidiaries is presented in the following tables.
 
Condensed Consolidating Balance Sheet
 
June 30, 2018
 
 
 
 
 
 
 
 
 
 
(In thousands)
WESCO
International,
Inc.
 
WESCO
Distribution,
Inc.
 
Non-Guarantor
Subsidiaries
 
Consolidating
and
Eliminating
Entries
 
Consolidated
Cash and cash equivalents
$
—

 
$
51,489

 
$
59,451

 
$
—

 
$
110,940

Trade accounts receivable, net
—

 
—

 
1,257,330

 
—

 
1,257,330

Inventories
—

 
418,944

 
516,287

 
—

 
935,231

Prepaid expenses and other current assets
4,943

 
23,741

 
129,279

 
(14,524
)
 
143,439

Total current assets
4,943

 
494,174

 
1,962,347

 
(14,524
)
 
2,446,940

Intercompany receivables, net
—

 
—

 
2,252,907

 
(2,252,907
)
 
—

Property, buildings and equipment, net
—

 
55,181

 
102,311

 
—

 
157,492

Intangible assets, net
—

 
2,451

 
338,128

 
—

 
340,579

Goodwill
—

 
257,623

 
1,487,071

 
—

 
1,744,694

Investments in affiliates
3,101,741

 
5,062,631

 
—

 
(8,164,372
)
 
—

Other assets
—

 
2,780

 
22,501

 
—

 
25,281

Total assets
$
3,106,684

 
$
5,874,840

 
$
6,165,265

 
$
(10,431,803
)
 
$
4,714,986

 
 
 
 
 
 
 
 
 
 
Accounts payable
$
—

 
$
423,735

 
$
394,444

 
$
—

 
$
818,179

Short-term debt
—

 
—

 
35,527

 
—

 
35,527

Other current liabilities
—

 
43,599

 
143,128

 
(14,524
)
 
172,203

Total current liabilities
—

 
467,334

 
573,099

 
(14,524
)
 
1,025,909

Intercompany payables, net
931,797

 
1,321,110

 
—

 
(2,252,907
)
 
—

Long-term debt, net
—

 
867,229

 
394,476

 
—

 
1,261,705

Other noncurrent liabilities
3,820

 
117,426

 
140,371

 
—

 
261,617

Total WESCO International stockholders' equity
2,171,067

 
3,101,741

 
5,062,631

 
(8,164,372
)
 
2,171,067

Noncontrolling interests
—

 
—

 
(5,312
)
 
—

 
(5,312
)
Total liabilities and stockholders’ equity
$
3,106,684

 
$
5,874,840

 
$
6,165,265

 
$
(10,431,803
)
 
$
4,714,986


14
   
WESCO INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)
(unaudited)


 
Condensed Consolidating Balance Sheet
 
December 31, 2017
 
 
 
 
 
 
 
 
 
 
(In thousands)
WESCO
International,
Inc.
 
WESCO
Distribution,
Inc.
 
Non-Guarantor
Subsidiaries
 
Consolidating
and
Eliminating
Entries
 
Consolidated
Cash and cash equivalents
$
—

 
$
50,602

 
$
67,351

 
$
—

 
$
117,953

Trade accounts receivable, net
—

 
—

 
1,170,080

 
—

 
1,170,080

Inventories
—

 
430,092

 
526,056

 
—

 
956,148

Prepaid expenses and other current assets
4,730

 
42,547

 
152,531

 
(35,140
)
 
164,668

Total current assets
4,730

 
523,241

 
1,916,018

 
(35,140
)
 
2,408,849

Intercompany receivables, net
—

 
—

 
2,189,136

 
(2,189,136
)
 
—

Property, buildings and equipment, net
—

 
50,198

 
106,247

 
—

 
156,445

Intangible assets, net
—

 
2,770

 
364,334

 
—

 
367,104

Goodwill
—

 
257,623

 
1,514,254

 
—

 
1,771,877

Investments in affiliates
3,058,613

 
5,023,826

 
—

 
(8,082,439
)
 
—

Other assets
—

 
2,778

 
28,415

 
—

 
31,193

Total assets
$
3,063,343

 
$
5,860,436

 
$
6,118,404

 
$
(10,306,715
)
 
$
4,735,468

 
 
 
 
 
 
 
 
 
 
Accounts payable
$
—

 
$
417,690

 
$
381,830

 
$
—

 
$
799,520

Short-term debt
—

 
—

 
34,075

 
—

 
34,075

Other current liabilities
—

 
80,039

 
162,475

 
(35,140
)
 
207,374

Total current liabilities
—

 
497,729

 
578,380

 
(35,140
)
 
1,040,969

Intercompany payables, net
939,784

 
1,249,352

 
—

 
(2,189,136
)
 
—

Long-term debt, net
—

 
934,033

 
379,228

 
—

 
1,313,261

Other noncurrent liabilities
3,820

 
120,709

 
140,566

 
—

 
265,095

Total WESCO International stockholders' equity
2,119,739

 
3,058,613

 
5,023,826

 
(8,082,439
)
 
2,119,739

Noncontrolling interests
—

 
—

 
(3,596
)
 
—

 
(3,596
)
Total liabilities and stockholders’ equity
$
3,063,343

 
$
5,860,436

 
$
6,118,404

 
$
(10,306,715
)
 
$
4,735,468


15
   
WESCO INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)
(unaudited)


 
Condensed Consolidating Statement of Income and Comprehensive Income
 
Three Months Ended
 
June 30, 2018
 
 
 
 
 
 
 
 
 
 
(In thousands)
WESCO
International,
Inc.
 
WESCO
Distribution,
Inc.
 
Non-Guarantor
Subsidiaries
 
Consolidating
and
Eliminating
Entries
 
Consolidated
Net sales
$
—

 
$
921,075

 
$
1,222,369

 
$
(39,450
)
 
$
2,103,994

Cost of goods sold (excluding depreciation and
 
 
 
 
 
 
 
 
 
amortization)
—

 
746,373

 
997,177

 
(39,450
)
 
1,704,100

Selling, general and administrative expenses
—

 
147,566

 
145,322

 
—

 
292,888

Depreciation and amortization
—

 
4,656

 
11,167

 
—

 
15,823

Results of affiliates’ operations
57,673

 
51,122

 
—

 
(108,795
)
 
—

Net interest and other
—

 
14,259

 
3,482

 
—

 
17,741

Income tax expense
—

 
1,670

 
14,099

 
—

 
15,769

Net income
57,673

 
57,673

 
51,122

 
(108,795
)
 
57,673

Net loss attributable to noncontrolling interests
—

 
—

 
(267
)
 
—

 
(267
)
Net income attributable to WESCO International
$
57,673

 
$
57,673

 
$
51,389

 
$
(108,795
)
 
$
57,940

Other comprehensive income:

 


 


 


 


Foreign currency translation adjustments
(28,715
)
 
(28,715
)
 
(28,715
)
 
57,430

 
(28,715
)
Comprehensive income attributable to WESCO International
$
28,958

 
$
28,958

 
$
22,674

 
$
(51,365
)
 
$
29,225


16
   
WESCO INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)
(unaudited)


 
Condensed Consolidating Statement of Income and Comprehensive Income
 
Six Months Ended
 
June 30, 2018
 
 
 
 
 
 
 
 
 
 
(In thousands)
WESCO
International,
Inc.
 
WESCO
Distribution,
Inc.
 
Non-Guarantor
Subsidiaries
 
Consolidating
and
Eliminating
Entries
 
Consolidated
Net sales
$
—

 
$
1,803,474

 
$
2,372,479

 
$
(78,044
)
 
$
4,097,909

Cost of goods sold (excluding depreciation and
 
 
 
 
 
 
 
 
 
amortization)
—

 
1,462,631

 
1,933,479

 
(78,044
)
 
3,318,066

Selling, general and administrative expenses
—

 
298,047

 
285,670

 
—

 
583,717

Depreciation and amortization
—

 
9,275

 
22,428

 
—

 
31,703

Results of affiliates’ operations
100,644

 
96,325

 
—

 
(196,969
)
 
—

Net interest and other
—

 
28,076

 
9,448

 
—

 
37,524

Income tax expense
—

 
1,126

 
25,129

 
—

 
26,255

Net income
100,644

 
100,644

 
96,325

 
(196,969
)
 
100,644

Net loss attributable to noncontrolling interests
—

 
—

 
(1,717
)
 
—

 
(1,717
)
Net income attributable to WESCO International
$
100,644

 
$
100,644

 
$
98,042

 
$
(196,969
)
 
$
102,361

Other comprehensive loss:

 


 


 


 


Foreign currency translation adjustments
(57,515
)
 
(57,515
)
 
(57,515
)
 
115,030

 
(57,515
)
Comprehensive income attributable to WESCO International
$
43,129

 
$
43,129

 
$
40,527

 
$
(81,939
)
 
$
44,846


17
   
WESCO INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)
(unaudited)


 
Condensed Consolidating Statement of Income and Comprehensive Income
 
Three Months Ended
 
June 30, 2017
 
 
 
 
 
 
 
 
 
 
(In thousands)
WESCO
International,
Inc.
 
WESCO
Distribution,
Inc.
 
Non-Guarantor
Subsidiaries
 
Consolidating
and
Eliminating
Entries
 
Consolidated
Net sales
$
—

 
$
843,518

 
$
1,100,661

 
$
(34,555
)
 
$
1,909,624

Cost of goods sold (excluding depreciation and
 
 
 
 
 
 
 
 
 
amortization)
—

 
683,064

 
895,001

 
(34,555
)
 
1,543,510

Selling, general and administrative expenses
—

 
134,730

 
133,005

 
—

 
267,735

Depreciation and amortization
—

 
4,583

 
11,138

 
—

 
15,721

Results of affiliates’ operations
49,535

 
40,753

 
—

 
(90,288
)
 
—

Net interest and other
—

 
28,518

 
(12,149
)
 
—

 
16,369

Income tax (benefit) expense
—

 
(1,862
)
 
18,616

 
—

 
16,754

Net income
49,535

 
35,238

 
55,050

 
(90,288
)
 
49,535

Net income attributable to noncontrolling interests
—

 
—

 
25

 
—

 
25

Net income attributable to WESCO International
$
49,535

 
$
35,238

 
$
55,025

 
$
(90,288
)
 
$
49,510

Other comprehensive income:
 
 
 
 
 
 
 
 
 
Foreign currency translation adjustments
33,381

 
33,381

 
33,381

 
(66,762
)
 
33,381

Comprehensive income attributable to WESCO International
$
82,916

 
$
68,619

 
$
88,406

 
$
(157,050
)
 
$
82,891

Reclassification
As described in Note 8, the Company reclassified a net benefit of $0.5 million from selling, general and administrative expenses to net interest and other in the previously reported Condensed Consolidated Statement of Income and Comprehensive Income of the non-guarantor subsidiaries for the three months ended June 30, 2017.



18
   
WESCO INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)
(unaudited)


 
Condensed Consolidating Statement of Income and Comprehensive Income
 
Six Months Ended
 
June 30, 2017
 
 
 
 
 
 
 
 
 
 
(In thousands)
WESCO
International,
Inc.
 
WESCO
Distribution,
Inc.
 
Non-Guarantor
Subsidiaries
 
Consolidating
and
Eliminating
Entries
 
Consolidated
Net sales
$
—

 
$
1,622,129

 
$
2,120,315

 
$
(60,229
)
 
$
3,682,215

Cost of goods sold (excluding depreciation and
 
 
 
 
 
 
 
 
 
amortization)
—

 
1,304,812

 
1,721,500

 
(60,229
)
 
2,966,083

Selling, general and administrative expenses
—

 
269,986

 
265,167

 
—

 
535,153

Depreciation and amortization
—

 
9,336

 
22,350

 
—

 
31,686

Results of affiliates’ operations
87,334

 
75,181

 
—

 
(162,515
)
 
—

Net interest and other
—

 
49,525

 
(16,889
)
 
—

 
32,636

Income tax (benefit) expense
—

 
(2,898
)
 
32,221

 
—

 
29,323

Net income
87,334

 
66,549

 
95,966

 
(162,515
)
 
87,334

Net income attributable to noncontrolling interests
—

 
—

 
96

 
—

 
96

Net income attributable to WESCO International
$
87,334

 
$
66,549

 
$
95,870

 
$
(162,515
)
 
$
87,238

Other comprehensive income:

 


 


 


 


Foreign currency translation adjustments
44,949

 
44,949

 
44,949

 
(89,898
)
 
44,949

Post retirement benefit plan adjustments, net of tax
252

 
252

 
252

 
(504
)
 
252

Comprehensive income attributable to WESCO International
$
132,535

 
$
111,750

 
$
141,071

 
$
(252,917
)
 
$
132,439

Reclassification
As described in Note 8, the Company reclassified a net benefit of $0.9 million from selling, general and administrative expenses to net interest and other in the previously reported Condensed Consolidated Statement of Income and Comprehensive Income of the non-guarantor subsidiaries for the six months ended June 30, 2017.

19
   
WESCO INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)
(unaudited)


 
Condensed Consolidating Statement of Cash Flows
 
Six Months Ended
 
June 30, 2018
 
 
 
 
 
 
 
 
 
 
(In thousands)
WESCO
International,
Inc.
 
WESCO
Distribution,
Inc.
 
Non-Guarantor
Subsidiaries
 
Consolidating
and Eliminating
Entries
 
Consolidated
Net cash provided by operating activities
$
9,878

 
$
31,192

 
$
45,751

 
$
—

 
$
86,821

Investing activities:

 

 

 

 

Capital expenditures
—

 
(9,334
)
 
(7,050
)
 
—

 
(16,384
)
Dividends received from subsidiaries
—

 
95,511

 
—

 
(95,511
)
 
—

Other
—

 
(37,524
)
 
(8,684
)
 
37,524

 
(8,684
)
Net cash provided by (used in) investing activities
—

 
48,653

 
(15,734
)
 
(57,987
)
 
(25,068
)
Financing activities:
 
 
 
 
 
 
 
 
 
Borrowings
—

 
191,888

 
736,372

 
(45,511
)
 
882,749

Repayments
(7,987
)
 
(260,888
)
 
(673,761
)
 
7,987

 
(934,649
)
Repurchases of common stock
(1,891
)
 
—

 
—

 
—

 
(1,891
)
Decrease in bank overdrafts
—

 
—

 
—

 
—

 
—

Dividends paid by subsidiaries
—

 
—

 
(95,511
)
 
95,511

 
—

Other
—

 
(9,958
)
 
—

 
—

 
(9,958
)
Net cash used in financing activities
(9,878
)
 
(78,958
)
 
(32,900
)
 
57,987

 
(63,749
)
Effect of exchange rate changes on cash and cash equivalents
—

 
—

 
(5,017
)
 
—

 
(5,017
)
Net change in cash and cash equivalents
—

 
887

 
(7,900
)
 
—

 
(7,013
)
Cash and cash equivalents at the beginning of period
—

 
50,602

 
67,351

 
—

 
117,953

Cash and cash equivalents at the end of period
$
—

 
$
51,489

 
$
59,451

 
$
—

 
$
110,940


20
   
WESCO INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)
(unaudited)


 
Condensed Consolidating Statement of Cash Flows
 
Six Months Ended
 
June 30, 2017
 
 
 
 
 
 
 
 
 
 
(In thousands)
WESCO
International,
Inc.
 
WESCO
Distribution,
Inc.
 
Non-Guarantor
Subsidiaries
 
Consolidating
and Eliminating
Entries
 
Consolidated
Net cash provided by (used in) operating activities
$
9,117

 
$
73,130

 
$
(15,478
)
 
$
—

 
$
66,769

Investing activities:
 
 
 
 
 
 
 
 
 
Capital expenditures
—

 
(4,259
)
 
(5,536
)
 
—

 
(9,795
)
Dividends received from subsidiaries
—

 
33,818

 
—

 
(33,818
)
 
—

Other
—

 
(72,761
)
 
12,322

 
63,906

 
3,467

Net cash (used in) provided by investing activities
—

 
(43,202
)
 
6,786

 
30,088

 
(6,328
)
Financing activities:
 
 
 
 
 
 
 
 
 
Borrowings
47,548

 
313,749

 
442,674

 
(72,636
)
 
731,335

Repayments
—

 
(348,478
)
 
(420,847
)
 
8,730

 
(760,595
)
Repurchases of common stock
(56,665
)
 
—

 
—

 
—

 
(56,665
)
Increase in bank overdrafts
—

 
—

 
—

 
—

 
—

Dividends paid by subsidiaries
—

 
—

 
(33,818
)
 
33,818

 
—

Other
—

 
(613
)
 
—

 
—

 
(613
)
Net cash used in financing activities
(9,117
)
 
(35,342
)
 
(11,991