Wesco Aircraft Annual Report 2017

FY2017 Annual Report · Wesco Aircraft

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Annual ReportFISCAL YEAR 2017Wesco Aircraft Holdings, Inc. 24911 Avenue Stanford Valencia, CA 91355WESCO AIRCRAFT ANNUAL REPORT 2017wescoair.com © 2017 Wesco Aircraft Holdings, Inc. ANNUAL MEETINGThe 2018 Annual Meeting of Stockholders will be held on Thursday, January 25, 2018, at 1 p.m. Pacific Standard Time at the Hyatt Regency Valencia 24500 Town Center Drive Valencia, CA 91355INVESTOR RELATIONSWesco Aircraft Holdings, Inc. Attention: Jeff Misakian 24911 Avenue Stanford Valencia, CA 91355 Telephone: (661) 775-7200STOCK LISTINGWesco Aircraft common shares are listed on the New York Stock Exchange under the ticker symbol “WAIR.”TRANSFER AGENT AND REGISTRARAmerican Stock Transfer & Trust Company, LLC 6201 15th Avenue Brooklyn, NY 11219 Telephone: (800) 937-5449INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMPricewaterhouseCoopers LLP 601 South Figueroa Street Los Angeles, CA 90017 Telephone: (213) 356-6000DIRECTORSRandy J. Snyder Chairman of the Board Wesco Aircraft Holdings, Inc.Dayne A. Baird (2, 4) Principal The Carlyle GroupThomas M. Bancroft III (3, 4) Managing Member, Portfolio Manager and Chief Investment Officer Makaira Partners LLCPaul E. Fulchino (2) Operating Partner AE Industrial Partners Former Chairman, President and Chief Executive Officer Aviall, Inc.Jay L. Haberland (1, 4) Former Vice President of Business Controls United Technologies CorporationScott E. Kuechle (1, 4) Former Executive Vice President and Chief Financial Officer Goodrich CorporationAdam J. Palmer (3) Managing Director The Carlyle GroupRobert D. Paulson (1) Chief Executive Officer Aerostar Capital LLCJennifer M. Pollino (2) Executive Coach and Consultant JMPollino, LLCFormer Executive Vice President – Human Resources and Communications Goodrich CorporationTodd Renehan Chief Executive Officer Wesco Aircraft Holdings, Inc.Norton A. Schwartz (3) President and Chief Executive Officer Business Executives for National Security General, USAF (Ret)(1) Audit Committee Member(2) Compensation Committee Member(3) Nominating and Corporate Governance Committee Member(4) Finance Committee MemberEXECUTIVE OFFICERSTodd Renehan Chief Executive Officer Alex Murray President and Chief Operating OfficerKerry Shiba Executive Vice President and Chief Financial OfficerDeclan Grant Executive Vice President Global Strategic Sales Corporate InformationCommercialDefenseBusiness JetAftermarketIndustrialSpacePharmaceutical/HealthcareTransportationEnergy Markets ServedWHO WE AREBROAD PRODUCT OFFERING AND SERVICE CAPABILITIESWesco Aircraft’s full-service approach aligns to the evolving needs of our customers. We offer a comprehensive range of cost-saving innovations by combining our vast breadth of products with our value-add supply chain services, allowing our customers to focus on their core competencies.VALUE PROPOSITIONOur value proposition is robust. For customers, we can reduce overhead, improve working capital and aggregate demand to buy better than they can individually. For suppliers, the value we bring includes improved utilization, demand forecasts to improve their production system and access to a significantly larger number of customers.ChemicalsMachined Parts and ToolingChemical Management Services (CMS)KittingWesco Aircraft is one of the world’s leading distributors and providers of comprehensive supply chain management services to the global aerospace industry. The company’s services range from traditional distribution to the management of supplier relationships, quality assurance, kitting, just-in-time delivery, chemical management services, third-party logistics or fourth-party logistics and point-of-use inventory management.SuppliersCustomersSupplier BenefitsCustomer BenefitsReduced finished goods inventoryPrice disciplineImproved working capital and cash flowAccess to more than 7,000 customersLower administrative and selling costsImproved on-time performanceImproved machine utilizationLower SG&AReduced working capitalLower excess and obsolescence expenseImproved productivitySupply base consolidation Substantial improvement in part quality Better on-time deliveryFewer stock shortagesLower average lead-timeElectronic ComponentsHardwareBearingsQuality Assurance3PL/4PL ServicesJust-in-Time (JIT) Management November 28, 2017Dear Shareholders, I don’t think anyone would disagree that fiscal 2017 was a challenging year for Wesco. When I was asked to step into this role last May, our business was not performing to expectations. Wesco had become too inwardly focused, making short-term decisions that hurt our relationships with customers and our financial performance. As one shareholder observed, our goals were in the wrong order; we had placed financial results ahead of supporting the customer – and achieved neither in the process. To right the ship, we quickly engaged in activities that would help us better understand our execution issues and formulate a plan to address them. We renewed our “customer-first” culture to ensure that Wesco would return to the world-class service for which we were known. We also invested in inventory and people to improve service levels.I personally met with our top customers and suppliers, rebuilding partnerships and restoring relationships, as well as our employees to encourage engagement, alignment and accountability. We also reorganized to speed decision-making and bring us closer to the customer.We then developed a long-term improvement plan with initiatives to drive better performance. Our plan is grounded in four principal focus areas: profitable growth and improved margins; procurement and inventory management; customer service and on-time delivery; and greater efficiency and reduced costs.In the first area, our initiatives led to a significant increase in ad-hoc bookings in the second half of fiscal 2017 compared to the first half of the year. The same customers I met with earlier in the year are telling me now that it’s nice to see Wesco back – and giving us more business as a result. In addition, our focus on winning new business, streamlining implementations and improving service has helped us mitigate volume declines in existing agreements and deliver better performance in long-term contracts. At the same time, we’re actively managing inventory, aggregating demand, accelerating remaining long-term purchase agreements and instilling greater discipline in our buying processes to lower cost and improve margins. We invested in inventory during the year to capitalize on price breaks, while providing more parts where they are needed, and to support new business. In customer service and on-time delivery, we implemented new operational processes and metrics in our largest warehouse, while reducing overtime and total labor cost per transaction. As a result, we have seen on-time delivery rates return to levels customers previously enjoyed with Wesco. These new processes are being rolled out now to all major warehouse sites, and because of their success, we are expanding their scope to include procurement and sales operations.Through the execution of these initiatives, we believe we have stabilized our business from an operational perspective. We are seeing positive trends emerge and a recovery in key leading indicators. More importantly, we’re changing the way we think about the business, where our people, culture, customers and suppliers rank just as high as achieving financial performance. I’m a firm believer that a fully engaged workforce will deliver superior customer service, which will lead to better financial performance.It all starts with a Vision of generating value for our people, customers, suppliers and shareholders and delivering the best customer experience in everything we do, every day we come to work. We advance this Vision through Values that define who we are as an organization – Values that include people, teamwork, ethics, engagement, accountability, open communications, customer focus, quality, safety, a bias for action and achieving results. Our long-term Goals are to work as a highly engaged team; to advance a culture based on our Values; to be the customer’s first choice and the supplier’s preferred partner; to lead with innovation and execution; and to deliver profitable growth that’s above the market. We’ve rebuilt Wesco’s foundation on people and customers; we now need to turn our attention to driving greater efficiency and reducing our cost structure. I’m not satisfied with our progress in these areas.To accelerate the process and deliver more tangible financial improvement, we initiated a comprehensive business review. Although work has just begun, we expect the review to further clarify our potential to improve the business and result in even better service for our customers, a lower cost structure and greater shareholder value. While I acknowledge the lack of progress made in our share price, our focus is on improving the long-term fundamentals of our business. I also know that we’ve talked about turning around the business for years and patience might be wearing thin. While we still have a lot more work to do, I’m encouraged by our operational progress. We’re seeing improvements in certain metrics for the first time in several quarters, and this builds confidence in our future. We expect this trend to continue in fiscal 2018 as we work across multiple fronts to achieve better financial performance. I’d like to thank our dedicated employees, strong and diverse customers, valuable supplier partners and shareholders. I believe we have a great future ahead of us and a value proposition that is unmatched in the industry. Through a relentless focus on generating value in everything we do, I’m confident we will succeed in the years ahead. Sincerely,Todd Renehan Chief Executive Officer FINANCIAL SUMMARYFINANCIAL HIGHLIGHTSFiscal Years Ended September 30,($ in thousands, except per share data)201720162015Net sales $1,429,429 $1,477,366 $1,497,615 (Loss) income from operations (208,795) 158,750 (206,365)Interest expense, net 39,821 36,90137,092Net (loss) income (237,346) 91,378 (154,744)Diluted net (loss) income per share(2.40) 0.93 (1.60)Cash and cash equivalents$ 61,625 $ 77,061 $ 82,866 Accounts receivable 256,301 249,195 253,348 Net inventory 827,870 713,470 701,535 Total assets 1,754,107 1,948,578 2,020,973 Accounts payable 184,273 181,700 149,615 Long-term debt and capital lease obligations (1) (2) 790,851 835,989954,730Total stockholders’ equity 649,731 882,915 817,573 Notes:(1) Total long-term debt and capital lease obligations excludes current portion. (2) Total long-term debt was reduced by deferred debt issuance costs of $11.7 million and $7.6 million as of September 30, 2017 and 2016, respectively, as required by ASU 2015-03 which we adopted on October 1, 2016. Total long-term debt was not retroactively recast to include deferred debt issuance costs as of September 30, 2015. NORTH AMERICASOUTH AMERICAAFRICAEUROPEMIDDLE EASTASIAAUSTRALIA GLOBAL PRESENCEExpanding to support customers worldwide 58 Locations | 17 Countries | 2,900+ Employees | 565,000+ SKUsAMERICASSales/AdministrationValencia, CAOrlando, FLMelville, NYWest Chester, PAAustin, TXSanta Fe, Argentina Saltillo, MexicoCentral Stocking Locations Valencia, CARancho Cordova, CATempe, AZMcDonough, GAMiami, FLWichita, KSAmesbury, MABerkeley, MOGreenville, NCMississauga, ONMechanicsburg, PAAustin, TXNorthlake, TXChihuahua, MXForward Stocking Locations Decatur, ALFoley, ALSavannah, GAAustin, TXFort Worth, TXAuburn, WALachine, QCQueretaro, MXEMEA / APACSales/AdministrationHuddersfield, UKCleckheaton, UKBremen, GermanyYokneam Elite, IsraelMarcon, ItalyShanghai, ChinaSingaporeCentral Stocking LocationsHuddersfield, UK Crawley, UKGlasgow, UKLinlithgow, UKHamburg, GermanyShannon, IrelandMielec, PolandForward Stocking LocationsAberdeen, UKCheltenham, UKHuddersfield, UKToulouse, FranceAkko, IsraelRome, ItalyMelbourne, AustraliaChengdu, ChinaPudong, China Shanghai, ChinaBangalore, India Pune, IndiaBaguio City, PhilippinesSingaporeIstanbul, TurkeyUNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

(Mark One)
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES

EXCHANGE ACT OF 1934

FORM 10-K

For the fiscal year ended September 30, 2017

□ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES

EXCHANGE ACT OF 1934

For the transition period from

to
Commission File No. 001-35253

WESCO AIRCRAFT HOLDINGS, INC.

(Exact Name of Registrant as Specified in Its Charter)

Delaware
(State of Incorporation)

20-5441563
(I.R.S. Employer Identification Number)

24911 Avenue Stanford
Valencia, California 91355
(Address of Principal Executive Offices and Zip Code)
(661) 775-7200
(Registrant’s Telephone Number, Including Area Code)

Securities Registered pursuant to Section 12(b) of the Act:

Title of Each Class
Common Stock, par value $0.001 per share

Name of Each Exchange on Which Registered
New York Stock Exchange

Securities Registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☒ No □
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes □ No ☒

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 the past 90 days. Yes ☒ No □

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File

required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or shorter period that the registrant was
required to submit and post such files). Yes ☒ No □

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the

best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. □

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
Non-accelerated filer

☒
□

(Do not check if a smaller reporting company)

Accelerated filer
Smaller reporting company
Emerging growth company

□
□
□

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any

new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. □

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes □ No ☒

As of March 31, 2017, the aggregate market value of the voting and non-voting common equity held by non-affiliates based on the closing price as of that

day was approximately $768,292,000.

The number of shares of common stock (par value $0.001 per share) of the registrant outstanding as of November 21, 2017, was 99,433,767.

Documents Incorporated by Reference

Part III of this Annual Report on Form 10-K incorporates by reference certain information from the registrants’ definitive proxy statement for the 2018
annual meeting of stockholders, which the registrant intends to file pursuant to Regulation 14A with the Securities and Exchange Commission not later than
120 days after the registrant’s fiscal year end of September 30, 2017. With the exception of the sections of the definitive proxy statement specifically
incorporated herein by reference, the definitive proxy statement is not deemed to be filed as part of this Annual Report on Form 10-K.

TABLE OF CONTENTS

Part I

Item 1.
Business. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 1A. Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 1B. Unresolved Staff Comments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 2.
Item 3.
Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 4. Mine Safety Disclosures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Part II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases
of Equity Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selected Financial Data. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 6.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations . .
Item 7A. Quantitative and Qualitative Disclosures About Market Risk . . . . . . . . . . . . . . . . . . . . . . . . . .
Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 8.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. .
Item 9.
Item 9A. Controls and Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 9B. Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Part III
Item 10. Directors, Executive Officers and Corporate Governance . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 11. Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Item 12.
Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 13. Certain Relationships and Related Transactions, and Director Independence . . . . . . . . . . . .
Principal Accounting Fees and Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 14.

Part IV
Item 15. Exhibits, Financial Statement Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 16.
Form 10-K Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Signatures. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exhibit Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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CERTAIN DEFINITIONS

Unless otherwise noted in this Annual Report, the term ‘‘Wesco Aircraft’’ means Wesco Aircraft
Holdings, Inc., our top-level holding company, and the terms ‘‘Wesco,’’ ‘‘the Company,’’ ‘‘we,’’ ‘‘us,’’ ‘‘our’’
and ‘‘our Company’’ mean Wesco Aircraft and its subsidiaries, including (1) Wesco Aircraft Hardware Corp.
(Wesco Aircraft Hardware), which is our primary historical domestic operating company and the sole
member of Haas Group International, LLC, which we acquired, along with Haas Group, Inc. (now Haas
Group, LLC) and its direct and indirect subsidiaries (collectively, Haas), on February 28, 2014, and (2) Wesco
Aircraft EMEA, Ltd. (Wesco Aircraft EMEA), which succeeded Wesco Aircraft Europe, Ltd. (Wesco
Aircraft Europe) as our primary foreign operating company. References to ‘‘fiscal year’’ mean the year ending
or ended September 30. For example, ‘‘fiscal year 2017’’ or ‘‘fiscal 2017’’ means the period from October 1,
2016 to September 30, 2017.

PART I

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Annual Report on Form 10-K contains forward-looking statements (including within the meaning of
the Private Securities Litigation Reform Act of 1995) concerning Wesco and other matters. These statements
may discuss goals, intentions and expectations as to future plans, trends, events, results of operations or
financial condition, or otherwise, based on current beliefs of management, as well as assumptions made by,
and information currently available to, management. Forward-looking statements may be accompanied by
words such as ‘‘achieve,’’ ‘‘aim,’’ ‘‘anticipate,’’ ‘‘believe,’’ ‘‘could,’’ ‘‘drive,’’ ‘‘estimate,’’ ‘‘expect,’’ ‘‘forecast,’’
‘‘future,’’ ‘‘grow,’’ ‘‘improve,’’ ‘‘increase,’’ ‘‘intend,’’ ‘‘may,’’ ‘‘outlook,’’ ‘‘plan,’’ ‘‘possible,’’ ‘‘potential,’’
‘‘predict,’’ ‘‘project,’’ ‘‘should,’’ ‘‘target,’’ ‘‘will,’’ ‘‘would’’ or similar words, phrases or expressions. These
forward-looking statements are subject to various risks and uncertainties, many of which are outside our
control. Therefore, you should not place undue reliance on such statements. Factors that could cause actual
results to differ materially from those in the forward-looking statements include, but are not limited to, the
following:

•

general economic and industry conditions;

conditions in the credit markets;

changes in military spending;

risks unique to suppliers of equipment and services to the U.S. government;

risks associated with our long-term, fixed-price agreements that have no guarantee of future sales
volumes;

risks associated with the loss of significant customers, a material reduction in purchase orders by
significant customers or the delay, scaling back or elimination of significant programs on which we
rely;

our ability to effectively compete in our industry;

our ability to effectively manage our inventory;

our suppliers’ ability to provide us with the products we sell in a timely manner, in adequate
quantities and/or at a reasonable cost;

our ability to maintain effective information technology systems;

our ability to retain key personnel;

risks associated with our international operations, including exposure to foreign currency
movements;

risks associated with assumptions we make in connection with our critical accounting estimates
(including goodwill, excess and obsolete inventory and valuation allowance of our deferred tax
assets) and legal proceedings;

changes in U.S. tax law;

our dependence on third-party package delivery companies;

fuel price risks;

fluctuations in our financial results from period-to-period;

environmental risks;

risks related to the handling, transportation and storage of chemical products;

risks related to the aerospace industry and the regulation thereof;

risks related to our indebtedness; and

other risks and uncertainties.

The foregoing list of factors is not exhaustive. You should carefully consider the foregoing factors and
the other risks and uncertainties that affect our business, including those described under Part I, Item 1A.
‘‘Risk Factors’’ and the other documents we file from time to time with the Securities and Exchange
Commission (SEC). All forward-looking statements included in this Annual Report on Form 10-K (including
information included or incorporated by reference herein) are based upon information available to us as of
the date hereof, and we undertake no obligation to update or revise publicly any forward-looking statements,
whether as a result of new information, future events or otherwise.

ITEM 1. BUSINESS

Company Overview

We are one of the world’s leading distributors and providers of comprehensive supply chain management

services to the global aerospace industry, based on annual sales. Our services range from traditional
distribution to the management of supplier relationships, quality assurance, kitting, just-in-time (JIT) delivery,
chemical management services (CMS), third-party logistics (3PL) or fourth-party logistics (4PL) programs
and point-of-use inventory management. We supply over 565,000 active stock-keeping units (SKUs), including
C-class hardware, chemicals, electronic components, bearings, tools and machined parts. In fiscal 2017, sales
of hardware including bearings and other products represented 50.9% of our net sales, sales of chemicals
represented 42.1% of our net sales and sales of electronic components represented 7.0% of our net sales. We
serve our customers under both (1) long-term contractual arrangements (Contracts), which include JIT
contracts that govern the provision of comprehensive outsourced supply chain management services and
long-term agreements (LTAs) that typically set prices for specific products, and (2) ad hoc sales. In February
2014, we acquired 100% of the outstanding stock of Haas, a provider of chemical supply chain management
services to the commercial aerospace, airline, military, automotive, energy, pharmaceutical and electronics
sectors. In July 2012, we acquired substantially all of the assets of Interfast, Inc. (Interfast), a Toronto-based
value-added distributor of specialty fasteners, fastening systems and production installation tooling for the
aerospace and electronics markets.

Founded in 1953 by the father of our current Chairman of the Board of Directors, we have grown to
serve over 7,000 customers, which are primarily in the commercial, military and general aviation sectors,
including the leading original equipment manufacturers (OEMs) and their subcontractors, through which we
support nearly all major Western aircraft programs, and also sell products to airline-affiliated and
independent maintenance, repair and overhaul (MRO) providers. We also service customers in the
automotive, energy, health care, industrial, pharmaceutical and space sectors. We have 2,978 employees and
operate across 58 locations in 17 countries. The following charts illustrate the composition of our fiscal year
2017 net sales based on our sales data.

Sales Mix

Customer Type

End Use

Contract
76%

US
Government
16%

Airline/
MRO
6%

Distributors
5%

Commercial
56%

Ad hoc
24%

OEM and Contractors
73%

Military
44%

For additional information about our segment reporting, see Note 21 of the Notes to Consolidated

Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K.

Our Products and Services

During the three months ended September 30, 2017, we reorganized our businesses under three

geographic-based segments: the Americas; Europe, Middle East and Africa (EMEA); and Asia Pacific
(APAC). Following this reorganization, our CEO and our President began reviewing the Company’s results
on this basis for purposes of allocating resources and assessing performance. Each segment’s results reflect
the results of our subsidiaries within that geographic region. Revenues reported by a segment reflect the
customer contracts held by that segment, regardless of the geographic location of that customer. Some
segments incur expenses for the benefit of the group or other segments, however these expenses are not
allocated. We now present corporate expenses related to public company reporting costs and other costs that
would not be required by the segments if they were operating on a standalone basis as unallocated corporate
costs. We have retroactively recast our segment results under this new segment structure for the years ended
September 30, 2017, 2016 and 2015.

Following is our revenue by segment for the years ended September 30, 2017, 2016 and 2015 (dollars in

thousands).

2017

Years Ended September 30,
2016

2015

Revenue

% of Revenue

Revenue

% of Revenue

Revenue

% of Revenue

Americas . . . . . . . . . . . . . . . .
EMEA . . . . . . . . . . . . . . . . . .
APAC . . . . . . . . . . . . . . . . . .

$1,142,366
258,072
28,991

79.9% $1,177,496
274,952
18.1%
24,918
2.0%

79.7% $1,191,928
288,276
18.6%
17,411
1.7%

Total . . . . . . . . . . . . . . . . . . .

$1,429,429

100% $1,477,366

100% $1,497,615

79.6%
19.2%
1.2%

100%

Our Products

We offer more than 565,000 active SKUs, which fall into the following product categories during the year

ended September 30, 2017 (dollars in thousands):

Hardware

$665,224

Chemicals

$602,039

Electronic
Components

$100,160

Bearings

$34,566

Machined Parts
and Tooling

$27,440

Net product sales . . .

% of net product

sales . . . . . . . . . . .

46.5%

42.1%

7.0%

2.4%

1.9%

Types of products

offered . . . . . . . . . .

• Adhesives Sealants

• Blind fasteners
• Panel fasteners
• Bolts and screws
• Clamps
• Hi lok pins and
• collars
• Hydraulic fittings • Coolants and
• Inserts
• Lockbolts and

and tapes
• Lubricants
• Oil and grease
• Paints and coatings
• Industrial gases

• Cleaners and

metalworking fluids

cleaning solvents

collars

• Nuts
• Rivets
• Springs
• Valves
• Washers

• Airframe control • Brackets

• Connectors
• Relays
bearings
• Switches
• Rod ends
• Circuit breakers • Spherical
• Lighted products
Bearings
• Ball bearing
• Wire and cable
• Needle roller
• Interconnect
bearings
accessories
• Bushings
• Precision
bearings

• Milled parts
• Shims
• Stampings
• Turned parts
• Welded assemblies
• Installation/

removal tooling

Hardware

Sales of C-class aerospace hardware represented 47%, 48% and 49% of our fiscal 2017, 2016 and 2015

product sales, respectively. Fasteners, our largest category of hardware products, include a wide range of
highly engineered aerospace parts that are designed to hold together two or more components, such as rivets
(both blind and solid), bolts (including blind bolts), screws, nuts and washers. Many of these fasteners are

designed for use in specific aircraft platforms and others can be used across multiple platforms. Materials
used in the manufacture of these fasteners range from standard alloys, such as aluminum, steel or stainless
steel, to more advanced materials, such as titanium, Inconel and Waspalloy.

Chemicals

Chemical sales represented 42%, 41% and 40% of our fiscal 2017, 2016 and 2015 product sales,

respectively. Our chemical product offerings include adhesives; sealants and tapes; lubricants; oil and grease;
paints and coatings; industrial gases; coolants and metalworking fluids; and cleaners and cleaning solvents.

Electronic Components

We offer highly reliable interconnect and electro-mechanical products, including connectors, relays,

switches, circuit breakers, lighted products, wire and cable and interconnect accessories. We also offer
value-added assembled products including mil-circular and rack and panel connectors and illuminated push
button switches. We maintain large quantities of connector components in inventory, which allows us to
respond quickly to customer orders. In addition, our lighted switch assembly operation affords customers
same day service, including engraving capabilities in multiple languages.

Bearings

Our product offering includes a variety of standard anti-friction products designed to both commercial

and military aircraft specifications, such as airframe control bearings, rod ends, spherical bearings, ball
bearings, needle roller bearings, bushings and precision bearings.

Machined Parts and Tooling

Machined parts are designed for a specific customer and are assigned unique OEM-specific SKUs. The

machined parts we distribute include laser cut or stamped brackets, milled parts, shims, stampings, turned
parts and welded assemblies made of materials ranging from high-grade steel or titanium to nickel based
alloys.

We stock a full range of tools needed for the installation and removal of many of our products, including

air and hydraulic tools as well as drill motors, and we also offer factory authorized maintenance and repair
services for these tools. In addition to selling these tools, we also rent or lease these tools to our customers.

Our Services

In addition to our traditional distribution services, we have developed innovative value-added services,

such as quality assurance, kitting, JIT supply chain management, CMS and 3PL/4PL programs for our
customers.

Quality Assurance

Our quality assurance (QA) function is a key component of our service offering, with approximately 6%

of our employees dedicated to this area. We believe we offer an industry-leading QA function as a result of
our rigorous processes, sophisticated testing equipment and dedicated QA staff. Our superior QA
performance is demonstrated by a comparison of our customers’ aggregate rejection rate of the products we
deliver, which was 0.14% during fiscal 2017, to our rejection rate of the products we receive from our
suppliers, which was 3.46% during fiscal 2017.

Our QA department inspects the inventory we purchase to ensure the accuracy and completeness of
documentation. For many of our customers, these inspections are conducted at our in-house laboratory,
where we operate sophisticated testing equipment. We also maintain an electronic copy of the relevant
certifications for the inventory, which can include a manufacturer certificate of conformance, test reports,
process certifications, material distributor certifications and raw material mill certifications. Our
industry-leading QA capabilities also allow our JIT customers to reduce the number of personnel dedicated to
the QA function and reduce the delays caused by the rejection of improperly inspected products.

Kitting

Kitting involves the packaging of an entire bill of materials or a complete ‘‘ship-set’’ of products, which

reduces the amount of time workers spend retrieving products from storage locations. Kits can be customized
in varying configurations and sizes and can contain up to several hundred different products. All of our kits
and components contain fully certified and traceable products and are assembled by our full-service kitting
department at our Central Stocking Locations (CSLs), or at our customer sites.

JIT Supply Chain Management and CMS

JIT supply chain management, which includes CMS, involves the delivery of products on an as-needed

basis to the point-of-use at a customer’s manufacturing line. JIT programs are designed to prevent excess
inventory build-up and shortages and improve manufacturing efficiency. Each JIT contract requires us to
maintain an efficient inventory tracking, analysis and replenishment program and is designed to provide high
levels of stock availability and on-time delivery. We believe customers that utilize our comprehensive JIT
supply chain management services are frequently able to realize significant benefits including:

•

reduced inventory levels and lower inventory excess and obsolescence (E&O) expense, in part
because such customers only purchase what they need, and make more efficient use of their floor
space;

increased accuracy in forecasting and planning, resulting in substantially improved on-time delivery,
reduced expediting costs and fewer disruptions of production schedules;

improved quality assurance resulting in a substantial reduction in customer product rejection rates;
and

reduced administrative and overhead costs relating to procurement, QA, supplier management and
stocking functions.

Before signing a JIT contract, our customers typically experience outages of many SKUs and, in some

cases, have up to a year’s worth of inventory on hand for other SKU’s. As part of our JIT programs, we
generally assume custody of the customer’s existing inventory at the onset of the contract, immediately
reducing their inventory on-hand and the associated management costs. Customer inventory is generally
assumed on a consignment basis and is entered in our perpetual inventory system in a distinct
customer-specific ‘‘virtual warehouse.’’ Software protocol in our IT systems requires the system to first ‘‘look’’
to a customer’s consigned inventory when parts replenishment is required. In certain cases, we can sell this
consigned inventory to our base of over 7,000 other active customers around the world, gradually drawing
down the customer’s inventory. As the consigned inventory for each SKU is exhausted, our stock of
Wesco-sourced product is then used for replenishment.

Another key strength of our JIT programs is our ability to utilize highly scalable and customizable
point-of-use systems to develop an efficient supply chain management system and automated replenishment
solution for any number of SKUs. In order to minimize inventory on hand, certain indicators are used to
trigger the replenishment of product, with all replenishment activity done via hand-held scanners that
transmit orders to our stocking locations.

In certain circumstances, we also provide our JIT and CMS customers with additional value-added
services, including the implementation of process control and usage reduction programs; safety data-sheet
management, support for environmental, health and safety compliance (EHS) and reporting; and assistance
with the development of waste management strategies.

Customers are also increasingly seeking 3PL or 4PL arrangements to optimize supply chain management

by outsourcing either specific logistics and distribution functions or their entire logistics function to a service
provider like us.

Aftermarket Sales

We sell products to airline-affiliated, OEM-affiliated and independent MRO providers on both a
Contract and ad hoc basis. We have expanded our efforts to increase our presence in both the commercial
and military aerospace MRO markets, particularly as a result of our acquisition of Haas in 2014 and through

the introduction of our Wesco e-commerce sales platform, which we believe provides us with a cost-effective
way to further penetrate the aftermarket. In addition, we have targeted domestic and international airlines
and maintenance centers that we believe are assuming an expanded role within the MRO market.

Going forward, we expect commercial MRO providers to benefit from many of the same trends as those

impacting the commercial OEM market, including industry passenger volumes and capacity utilization, as well
as requirements to maintain aging aircraft and the cost of fuel, which can lead to greater utilization of existing
planes. The commercial MRO market may also benefit from directives or notifications announced by
international industry regulators and trade associations. Such directives or notifications can serve to bolster
required maintenance, and thus the demand for new and existing aerospace products. Furthermore, we expect
demand in the military MRO market to be driven by changes in overall fleet size and the level of U.S. military
operational activity domestically and overseas. We believe that our presence in this market helps us mitigate
the volatility of new military aircraft sales with sales to the aftermarket.

Customer Contracts

We sell products to our customers under two types of arrangements: (1) Contracts, which include JIT

supply chain management contracts and LTAs, and (2) ad hoc sales.

Contracts

JIT Contracts. JIT contracts, which include CMS contracts, are typically three to five years in length and
are structured to supply the product requirement for specific SKUs, production lines or facilities. Given our
direct involvement with JIT customers, volume requirements and purchasing frequency under these contracts
is highly predictable. Under JIT contracts, customers commit to purchase specified products from us at a fixed
price or a pass-through price, on an as needed basis, and we are often responsible for maintaining high levels
of stock availability of those products. JIT contracts typically contain termination for convenience provisions,
which generally allow our customers to terminate their contracts on short notice without meaningful penalties
and often provide for us to be reimbursed for the cost of any inventory specifically procured for the customer
or inventory that is not commonly sold to our other customers. JIT customers often purchase products from
us that are not covered under their contracts on an ad hoc basis. For additional information about our JIT
supply chain management services, see ‘‘—Our Products and Services—Our Services—JIT Supply Chain
Management.’’

LTAs. Like JIT contracts, LTAs also typically run for three to five years. LTAs are essentially negotiated
price lists for customers or individual customer sites that cover a range of pre-determined products, purchased
on an as-needed basis. LTAs allow the customer to buy contracted SKUs from us and may obligate us to
maintain stock availability for those products. Once an LTA is in place, the customer is then able to place
individual purchase orders with us for any of the contractually specified products. LTAs typically contain
termination for convenience provisions, which generally allow for our customers to terminate their contracts
on short notice without meaningful penalties and often provide that we are reimbursed for the cost of any
inventory specifically procured for the customer or inventory that is not commonly sold to other customers.
LTA customers also frequently purchase products from us on an ad hoc basis, which are not captured under
the contractual pricing arrangement.

Ad Hoc Sales

Ad hoc sales represent products purchased from us on an as-needed basis and are generally supplied out

of our existing inventory. Typically, ad hoc orders are for smaller quantities of products than those ordered
under Contracts, and are often urgent in nature. Given our breadth and volume of inventory, it is not
uncommon for even our competitors to purchase products from us on an ad hoc basis when their own stocks
prove to be inadequate. In an environment of increasing aircraft production and oftentimes relatively long
supplier lead-times, product shortages can become increasingly common for OEMs, subcontractors, MRO
providers and distributors with less sophisticated forecasting abilities and procurement organizations.

Under each of the sales arrangements described above we typically warrant that the products we sell
conform to the drawings and specifications that are in effect at the time of delivery in the applicable contract,
and that we will replace defective or non-conforming products for a period of time that varies from contract

to contract. We, in turn, look to the product manufacturer to indemnify us for liabilities resulting from
defective or non-conforming products. We do not accrue for warranty expenses as our claims related to
defective and non-conforming products have been nominal.

We believe that sales backlog is not a relevant measure of our business, given the long-term nature of our

Contracts with our customers.

Customers

We sell to over 7,000 active customers worldwide. During fiscal 2017, Lockheed Martin represented
nearly 11% of our total net sales, consisting of multiple contracts across multiple independent programs such
that no individual contract is material. Our top 10 customers collectively accounted for 48% of our total net
sales during fiscal 2017.

During fiscal 2017, 73% of our net sales were derived from major OEMs, such as Airbus, Boeing, BAE

Systems, Bell Helicopter, Bombardier, Cessna, Embraer, Gulfstream, Lockheed Martin, Northrop Grumman
and Raytheon, and many of their subcontractors. Government sales comprised 16% of our net sales during
fiscal 2017 and were derived from various military parts procurement agencies such as the U.S. Defense
Logistics Agency, or from defense contractors buying on their behalf. Aftermarket sales to airline-affiliated or
independent MRO providers made up 6% of our fiscal 2017 net sales. The remaining 5% of our net sales
were to other distributors.

During fiscal 2017, 56% of our net sales were derived from customers supporting commercial programs

and 44% of our net sales were derived from customers supporting military programs. We also service
international customers in markets that include Australia, Canada, China, France, Germany, India, Ireland,
Israel, Italy, Malaysia, Mexico, Philippines, Poland, Saudi Arabia, Singapore, South Korea, Turkey and the
United Kingdom. For additional information about our net sales and long-lived assets by geographic area, see
Note 21 of the Notes to Consolidated Financial Statements in Part II, Item 8 of this Annual Report on Form
10-K.

Procurement

We source our inventory from over 5,000 suppliers globally, including Amphenol, Arconic, Consolidated

Aerospace Manufacturing (CAM), Esterline, Henkel, Lisi Aerospace, PPG Industries, Precision Castparts
Corp., RBC Bearings, and TriMas. During fiscal 2017, Precision Castparts Corp. and Arconic supplied 13%
and 9%, respectively, of the products we purchased. Suppliers typically prefer to deal with a relatively small
number of large and sophisticated distributors in order to improve production efficiency; reduce finished
goods inventory and related obsolescence costs; maintain pricing discipline; improve performance in meeting
on-time-delivery targets to the end customers; and consolidate customer accounts, which can reduce
administrative and overhead costs relating to sales and marketing, customer service and other functions. As a
result of our size and our long-standing relationships with many of our suppliers, we are often able to take
advantage of significant volume-based discounts when purchasing inventory. Given our industry position and
close cooperation with suppliers, we believe we are in an excellent position to become a distributor for new
product lines as they become available.

Our management analyzes supply, demand, cost and pricing factors to make inventory investment
decisions, which are facilitated by our highly customized IT systems, and we maintain close relationships with
the leading suppliers in the industry. Our strong understanding of the global aerospace industry is derived
from our long-term relationships with major OEMs, subcontractors and suppliers. In addition, our direct
insight into our customers’ production rates often allows us to detect industry trends. Furthermore, our ability
to forecast demand, share inventory and usage information, and place purchase orders with our suppliers well
in advance of our customer requirements can provide us with a distinct advantage in an industry where
inventory availability is critical for customers that need specific products within a stipulated timeframe to
meet their own production and delivery commitments. However, despite our expertise in this area, effective
inventory management is an ongoing challenge, and we continue to take steps to enhance the sophistication of
our procurement practices and mitigate the negative impact of inventory builds on our cash flow. For
additional information about the impact of inventory on our business, including our cash flows, see Part I,
Item 1A. ‘‘Risk Factors—Risks Related to Our Business and Industry—We may be unable to effectively
manage our inventory, which could have a material adverse effect on our business, financial condition and

results of operations,’’ Part II, Item 7. ‘‘Management’s Discussion and Analysis of Financial Condition and
Results of Operations—Other Factors Affecting Our Financial Results—Fluctuations in Cash Flow,’’ and
Part II, Item 7. ‘‘Management’s Discussion and Analysis of Financial Condition and Results of
Operations—Critical Accounting Policies and Estimates—Inventories.’’

Information Technology Systems

We have invested to build integrated, highly customized IT systems that enable our purchasing and sales
organizations to make more informed decisions, our inventory management system to operate in an efficient
manner and certain of our customers to make online purchases directly from us. Our primary scalable IT
infrastructure is based on IBM and Oracle servers, the Oracle Enterprise database and the Oracle JD
Edwards EnterpriseOne (JDE), enterprise resource planning (ERP) system. Our chemical supply chain
management system, tcmIS, is a proprietary system, developed using the Oracle Enterprise database. These
customized IT systems provide us visibility into quantities, stocking locations and purchases across our
customer base by individual inventory item, enabling us to accurately fill an average of 16,000 orders per day
and provide an exceptional level of customer service. These systems are fully capable of interfacing with
external business systems, including Oracle, SAP, Microsoft and others, and we have developed additional
functionality for JIT delivery, in certain cases directly into our customers’ manufacturing process. This
functionality includes recognition of signals and actions to fill customer bins from hand-held scanners,
min/max data or proprietary signals from a customer’s ERP system. JDE and tcmIS also support our EDI
functionality, which allows our system to interface with customers and suppliers, regardless of technology,
data format or connectivity. TcmIS also supports additional chemical-specific functionality, such as product
labeling and Global Harmonized System compliance.

For our shipping logistics and export compliance support, we employ Precision Software’s TRA/X.
TRA/X enables us to ship globally while maintaining tracking numbers and rating information for each
customer shipment. In addition, at several of our distribution facilities, we use Minerva’s AIMS inventory
management system to provide the best possible warehouse flow and cycle times. AIMS is tailored to fit our
global warehouse operational needs and allows us to provide an expandable warehouse management system
that can also incorporate transaction processing, work-in-progress and other manufacturing operations. AIMS
interfaces with a broad range of material handling equipment, including horizontal and vertical carousels,
conveyors, sorting equipment, pick systems and cranes.

Seasonality

Our net sales may fluctuate quarterly based on the number of production days at our customers’
facilities, which is driven by holidays and planned production shutdowns, particularly the winter holidays
during our first fiscal quarter and the summer months during our fourth fiscal quarter.

Competition

The industry in which we operate is highly competitive and fragmented. We believe the principal

competitive factors in our industry include the ability to provide superior customer service and support,
on-time delivery, sufficient inventory availability, competitive pricing and an effective QA program. Our
competitors include both U.S. and foreign companies, including divisions of larger companies and certain of
our suppliers, some of which have significantly greater financial resources than we do, and therefore may be
able to adapt more quickly to changes in customer requirements than we can. In addition to facing
competition for Contract customers from our primary competitors, Contract customers or potential Contract
customers may also determine that it is more cost effective to establish or re-establish an in-house supply
chain management capability. Under these circumstances, we may be unable to sufficiently reduce our costs
to provide competitive pricing while also maintaining acceptable operating margins.

Employees

As of September 30, 2017, we employed 2,978 personnel worldwide, 1,027 of whom were located at

customer sites. We have 861 employees located outside of North America. We are not a party to any
collective bargaining agreements with our employees.

Regulatory Matters

Governmental agencies throughout the world, including the U.S. Federal Aviation Administration
(FAA), prescribe standards for aircraft components, including virtually all commercial airline and general
aviation products, as well as regulations regarding the repair and overhaul of airframes and engines. Specific
regulations vary from country to country, although compliance with FAA requirements generally satisfies
regulatory requirements in other countries. In addition, the products we distribute must also be certified by
aircraft and engine OEMs. If any of the material authorizations or approvals that allow us to supply products
is revoked or suspended, then the sale of the related products would be prohibited by law, which would have
an adverse effect on our business, financial condition and results of operations.

From time to time, the FAA or equivalent regulatory agencies in other countries propose new

regulations or changes to existing regulations, which are usually more stringent than existing regulations. If
these proposed regulations are adopted and enacted, we could incur significant additional costs to achieve
compliance, which could have a material adverse effect on our business, financial condition and results of
operations.

We are also subject to government rules and regulations that include the U.S. Foreign Corrupt Practices
Act (FCPA), the Bribery Act 2010 (Bribery Act), the International Traffic in Arms Regulations (ITAR), the
Export Administration Regulations (EAR), economic sanctions and the False Claims Act. See ‘‘Risk
Factors—Risks Related to Our Business and Industry—We are subject to unique business risks as a result of
supplying equipment and services to the U.S. government directly and as a subcontractor, which could lead to
a reduction in our net sales from, or the profitability of our supply arrangements with, the U.S. government’’
and ‘‘—Our international operations require us to comply with numerous applicable anti-corruption and
trade control laws and regulations, including those of the U.S. government and various other jurisdictions, and
our failure to comply with these laws and regulations could adversely affect our reputation, business, financial
condition and results of operations.’’

Environmental Matters

We are subject to extensive federal, state, local and foreign laws, regulations, rules and ordinances

relating to pollution, protection of the environment and human health and safety, and the handling,
transportation, storage, treatment, disposal and remediation of hazardous substances, including potentially
with respect to historical chemical blending and other activities that pre-dated our purchase of Haas. Actual
or alleged violations of EHS laws, or permit requirements could result in restrictions or prohibitions on
operations and substantial civil or criminal sanctions, as well as, under some EHS laws, the assessment of
strict liability and/or joint and several liability.

Furthermore, we may be liable for the costs of investigating and cleaning up environmental
contamination on or from our operations or at off-site locations, including potentially with respect to
historical chemical blending and other activities that pre-dated our purchase of our businesses. We may
therefore incur additional costs and expenditures beyond those currently anticipated to address all such
known and unknown situations under existing and future EHS laws.

In addition, governmental, regulatory and societal demands for increasing levels of product safety and

environmental protection are resulting in increased pressure for more stringent regulatory control with
respect to the chemical industry. The European Union’s Registration, Evaluation, Authorization and
Restriction of Chemicals (REACH) regulations enacted in 2009 have been a continuing source of compliance
obligations and restrictions on certain chemicals, and REACH-like regimes have now been adopted in several
other countries. In the United States, the core provisions of the Toxic Substances Control Act (TSCA) were
amended in June 2016 for the first time in nearly 40 years. Among the more significant changes are that these
amendments mandate safety reviews of existing chemicals with regulatory action to restrict any ‘‘high risk’’
chemicals identified as result of such reviews. The amendments to the TSCA also mandate that the EPA reset
the current TSCA Inventory to identify commercially ‘‘active’’ chemicals, a process expected to result in
potentially significant compliance obligations for the Company and our customers and suppliers who
manufacture, process and import chemicals. These types of changes in the Company’s regulatory
environment, particularly, but not limited to, in the United States, the European Union, Canada and China,
could lead to heightened regulatory scrutiny and could adversely impact our ability to supply certain products
and provide supply chain management services to our customers. Such changes also could result in

compliance obligations for us directly or as part of our supply chain management services to customers, fines,
ongoing monitoring and other future business activity restrictions, which could have a material adverse effect
on the Company’s liquidity, financial position and results of operations.

Available Information

We file annual, quarterly and current reports and other information with the SEC. You may read and

copy any documents that we file at the SEC’s public reference room at 100 F Street, N.E., Washington, D.C.
20549. You may call the SEC at 1-800-SEC-0330 to obtain further information about the public reference
room. In addition, the SEC maintains an Internet website (www.sec.gov) that contains reports, proxy and
information statements and other information regarding registrants that file electronically with the SEC,
including us. You may also access, free of charge, our reports filed with the SEC (for example, our Annual
Report on Form 10-K, our Quarterly Reports on Form 10-Q and our Current Reports on Form 8-K and any
amendments to those forms) through the ‘‘Investor Relations’’ portion of our website (www.wescoair.com).
We also make available on our website our (1) Corporate Governance Guidelines, (2) Code of Business
Conduct and Ethics, which applies to our directors, officers and employees, (3) Whistleblower Policy and
(4) the charters of the Audit, Compensation and Nominating and Corporate Governance Committees.
Reports filed with or furnished to the SEC will be available as soon as reasonably practicable after they are
filed with or furnished to the SEC. Our website is included in this Annual Report as an inactive textual
reference only. The information found on our website is not part of this or any other report filed with or
furnished to the SEC.

ITEM 1A. RISK FACTORS

You should consider and read carefully all of the risks and uncertainties described below, as well as other
information included in this Annual Report, including our consolidated financial statements and related notes.
The risks described below are not the only ones facing us. The occurrence of any of the following risks or additional
risks and uncertainties not presently known to us or that we currently believe to be immaterial could materially and
adversely affect our business, financial condition or results of operations. This Annual Report also contains
forward-looking statements and estimates that involve risks and uncertainties. Our actual results could differ
materially from those anticipated in the forward-looking statements as a result of specific factors, including the
risks and uncertainties described below.

Risks Related to Our Business and Industry

We are directly dependent upon the condition of the aerospace industry, which is closely tied to global economic
conditions, and if aerospace industry or the U.S. or global economy were to experience a recession, our business,
financial condition and results of operations could be negatively impacted.

Demand for the products and services we offer are directly tied to the delivery of new aircraft, aircraft

utilization, and repair of existing aircraft, which, in turn, are impacted by global economic conditions. For
example, 2009 revenue passenger miles (RPMs) on commercial aircraft declined due to the global recession.
During the same period, the industry experienced declines in large commercial, regional and business jet
deliveries. While demand for commercial and regional jets recovered, business jet orders and deliveries
remain well below their pre-recession peak, reflecting a deeper downturn in the last recession, changes in
corporate spending patterns and an uncertain economic outlook. A slowdown in the global economy, or a
return to a recession, would negatively impact the aerospace industry, and could negatively impact our
business, financial condition and results of operations.

Military spending, including spending on the products we sell, is dependent upon national defense budgets, and a
reduction in military spending could have a material adverse effect on our business, financial condition and results
of operations.

During the year ended September 30, 2017, 44% of our net sales were related to military aircraft. The

military market is significantly dependent upon government budget trends, particularly the U.S. Department
of Defense (DoD) budget. Future DoD budgets could be negatively impacted by several factors, including,
but not limited to, a change in defense spending policy by the current and future presidential administrations
and Congress, the U.S. government’s budget deficits, spending priorities, the cost of sustaining the U.S.
military presence in overseas operations and possible political pressure to reduce U.S. Government military
spending, each of which could cause the DoD budget to decline. A decline in U.S. military expenditures could
result in a reduction in military aircraft production, which could have a material adverse effect on our
business, financial condition and results of operations.

In particular, military spending may be negatively impacted by the Budget Control Act of 2011 (the

Budget Control Act), which was passed in August 2011. The Budget Control Act established limits on U.S.
government discretionary spending, including a reduction of defense spending by approximately $490 billion
between the 2012 and 2021 U.S. government fiscal years, and also provided that the defense budget would
face ‘‘sequestration’’ cuts of up to an additional $500 billion during that same period to the extent that
discretionary spending limits were exceeded. The impact of sequestration was reduced with respect to the
government’s 2014 and 2015 fiscal years, in exchange for extending sequestration into fiscal years 2022 and
2023, following the enactment of the Bipartisan Budget Act of 2013 in December 2013. The impact of
sequestration was further reduced with respect to the government’s 2016 and 2017 fiscal years, following the
enactment of the Bipartisan Budget Act of 2015 in November 2015. Sequestration is currently scheduled to
resume in the government’s 2018 fiscal year. We are unable to predict the impact that the cuts associated with
sequestration will ultimately have on funding for the military programs which we support. However, such cuts
could result in reductions, delays or cancellations of these programs, which could have a material adverse
effect on our business, financial condition and results of operations.

We are subject to unique business risks as a result of supplying equipment and services to the U.S. government
directly and as a subcontractor, which could lead to a reduction in our net sales from, or the profitability of our
supply arrangements with, the U.S. government.

Companies engaged in supplying defense-related equipment and services to U.S. government agencies
are subject to business risks specific to the defense industry. We contract directly with the U.S. government
and are also a subcontractor to customers contracting with the U.S. government. Accordingly, the U.S.
government may unilaterally suspend or prohibit us from receiving new contracts pending resolution of
alleged violations of procurement laws or regulations, revoke required security clearance, reduce the value of
existing contracts or audit our contract-related costs and fees. In addition, most of our U.S. government
contracts and subcontracts can be terminated by the U.S. government or the contracting party, as applicable,
at its convenience. Termination for convenience provisions provide only for our recovery of costs incurred or
committed, settlement expenses and profit on the work completed prior to termination.

In addition, we are subject to U.S. government inquiries and investigations, including periodic audits of
costs that we determine are reimbursable under government contracts. U.S. government agencies routinely
audit government contractors to review performance under contracts, cost structure and compliance with
applicable laws, regulations, and standards, as well as the adequacy of and compliance with internal control
systems and policies. Any costs found to be misclassified or inaccurately allocated to a specific contract are
not reimbursable, and to the extent already reimbursed, must be refunded. Also, any inadequacies in our
systems and policies could result in payments being withheld, penalties and reduced future business. If a
government inquiry or investigation uncovers improper or illegal activities, we could be subject to civil or
criminal penalties or administrative sanctions, including contract termination, fines, forfeiture of fees,
suspension of payment and suspension or debarment from doing business with U.S. government agencies, any
of which could materially adversely affect our reputation, business, financial condition and results of
operations.

We are also subject to the federal False Claims Act, which provides for substantial civil penalties and

treble damages where a contractor presents a false or fraudulent claim to the government for payment.
Actions under the False Claims Act may be brought by the government or by other persons on behalf of the
government (who may then share in any recovery).

We do not have guaranteed future sales of the products we sell and when we enter into Contracts with our customers
we generally take the risk of cost overruns, and our business, financial condition, results of operations and operating
margins may be negatively affected if we purchase more products than our customers require, product costs increase
unexpectedly, we experience high start-up costs on new Contracts or our Contracts are terminated.

A majority of our Contracts are long-term, fixed-price agreements with no guarantee of future sales

volumes, and they may be terminated for convenience on short notice by our customers, often without
meaningful penalties, and often provide that we are reimbursed for the cost of any inventory specifically
procured for the customer or inventory that is not commonly sold to our other customers. In addition, we
purchase inventory based on our forecasts of anticipated future customer demand. As a result, we may take
the risk of having excess inventory if our customers do not place orders consistent with our forecasts,
particularly with respect to inventory that has a more limited shelf-life. We also run the risk of not being able
to pass along or otherwise recover unexpected increases in our product costs, including as a result of
commodity price increases, which may increase above our established prices at the time we entered into the
Contract and established prices for products we provide. When we are awarded new Contracts, particularly
JIT contracts, we may incur high costs, including salary and overtime costs to hire and train on-site personnel,
in the start-up phase of our performance. In the event that we purchase more products than our customers
require, product costs increase unexpectedly, we experience high start-up costs on new Contracts or our
Contracts are terminated, our business, financial condition, results of operations and operating margins could
be negatively affected.

If we lose significant customers, significant customers materially reduce their purchase orders or significant
programs on which we rely are delayed, scaled back or eliminated, our business, financial condition and results of
operations may be adversely affected.

Our top ten customers for the year ended September 30, 2017 accounted for 48% of our net sales. A

reduction in purchasing by or loss of one of our larger customers for any reason, including changes in
manufacturing or procurement practices, loss of a customer as a result of the acquisition of such customer by
a purchaser who does not fully utilize a distribution model or uses a competitor, in-sourcing by customers, a
transfer of business to a competitor, an economic downturn, failure to adequately service our clients or to
manage the implementation of new customer sites, decreased production or a strike, could have a material
adverse effect on our business, financial condition and results of operations.

As an example of changes in manufacturing practices that could impact us, OEMs such as Boeing and

Airbus have incorporated a higher proportion of composite materials in some of the aircraft they
manufacture. Aircraft utilizing composite materials generally require the use of significantly fewer C-class
aerospace parts than new aircraft made of more traditional non-composite materials, although the parts used
are generally higher priced than C-class aerospace parts used in non-composite aircraft structures. To the
extent Boeing, Airbus and other customers increase their reliance on composite materials, they may
materially reduce their purchase orders from us.

As an example of the potential loss of business due to customer in-sourcing, a major OEM is undertaking

an initiative to cause its first and second tier suppliers to source certain OEM-specific materials, including
fasteners, directly from the OEM itself, rather than through distributors such as us. If such initiative is broadly
implemented by the OEM, or if other OEMs pursue similar initiatives, a portion of our sales to their
suppliers, and consequently our business, financial condition and results of operations, could be adversely
affected.

We expect to derive a significant portion of our net sales from certain aerospace programs in their early

production stages. Our future growth will be dependent, in part, upon our sales to various OEMs and
subcontractors as related to such programs. If production of any of the programs we support is terminated or
delayed, or if our sales to customers affiliated with these programs are reduced or eliminated, our business,
financial condition and results of operations could be adversely affected.

We operate in a highly competitive market and our failure to compete effectively may negatively impact our results of
operations.

We operate in a highly competitive global industry and compete against a number of companies,
including divisions of larger companies and certain of our suppliers, some of which may have significantly
greater financial resources than we do and therefore may be able to adapt more quickly to changes in
customer requirements than we can. Our competitors consist of both U.S. and foreign companies and range in
size from divisions of large public corporations to small privately held entities. We believe that our ability to
compete depends on superior customer service and support, on-time delivery, sufficient inventory availability,
competitive pricing and effective quality assurance programs. To remain competitive, we may have to adjust
the prices of some of the products and services we sell and continue investing in our procurement,
supply-chain management and sales and marketing functions, the costs of which could negatively impact our
results of operations.

In addition, we face competition for our Contract customers from both competitors in our industry and
the in-sourcing of supply-chain management by our customers themselves. If any of our Contract customers
decides to in-source the services we provide or switches to one of our competitors, we would be adversely
affected.

We may be unable to effectively manage our inventory, which could have a material adverse effect on our business,
financial condition and results of operations.

Due to the lead times required by many of our suppliers, we typically order products, particularly
hardware products, in advance of expected sales, and the volume of such orders may be significant. Lead
times generally range from several weeks up to two years, depending on industry conditions, which makes it
difficult to successfully manage our inventory as we plan for future demand. In addition, demand for our
products can fluctuate significantly, which can also negatively impact our cash flows and inventory level. For

example, in the three months ended September 30, 2015, we determined that inventory previously purchased
in connection with a specific program which was subsequently terminated had no alternative use, and we
recorded a provision to write-down such inventory by of $33.0 million.

If suppliers are unable to supply us with the products we sell in a timely manner, inadequate quantities and/or at a
reasonable cost, we may be unable to meet the demands of our customers, which could have a material adverse effect
on our business, financial condition and results of operations.

Our inventory is primarily sourced directly from producers and manufacturing firms, and we depend on

the availability of large supplies of the products we sell. Our largest suppliers for the year ended
September 30, 2017 were Precision Castparts Corp. and Arconic. During fiscal 2017, 13% of the products we
purchased were from Precision Castparts Corp. and 9% were purchased from Arconic. In addition, our ten
largest suppliers during fiscal 2017 accounted for 42% of our purchases. These manufacturers and producers
may experience capacity constraints that result in their being unable to supply us with products in a timely
manner, in adequate quantities and/or at a reasonable cost. Contributing factors to manufacturer capacity
constraints include, among other things, industry or customer demands in excess of manufacturing capacity,
labor shortages and changes in raw material flows. Any significant interruption in the supply of these products
or termination of our relationship with any of our suppliers could result in us being unable to meet the
demands of our customers, which would have a material adverse effect on our business, financial condition
and results of operations.

Our business is highly dependent on complex information technology.

The provision and application of IT is an increasingly critical aspect of our business. Among other things,

our IT systems must frequently interact with those of our customers, suppliers and logistics providers. Our
future success will depend on our continued ability to employ IT systems that meet our customers’ demands.
The failure or disruption of the hardware or software that supports our IT systems, including redundancy
systems, could significantly harm our ability to service our customers and cause economic losses for which we
could be held liable and which could damage our reputation. In addition, we are subject to cybersecurity risk,
which includes, but is not limited to, malicious software and unauthorized attempts to gain access to sensitive,
confidential or otherwise protected information related to us, our customers or suppliers. A cyber-related
attack could cause a loss of data and interruptions or delays in our business (particularly with respect to our
tcmIS operating system), cause us to incur remediation costs, subject us to claims and damage our reputation.
In addition, the failure or disruption of our IT systems, communications or utilities could cause us to interrupt
or suspend our operations or otherwise adversely affect our business. Our property and business interruption
insurance may be inadequate to compensate us for all losses that may occur as a result of any system or
operational failure or disruption which could have a material adverse effect on our business, results of
operations and financial condition. In addition, system improvements and other IT-related upgrades could
require us to accelerate the depreciation of certain assets, which could have a material adverse effect on our
operating results.

Our competitors may have or may develop IT systems that permit them to be more cost effective and
otherwise better able to meet customer demands than we are able to with IT systems we are able to acquire or
develop. Larger competitors may be able to develop or license IT systems more cost effectively than we can by
spreading the cost across a larger revenue base, and competitors with greater financial resources may be able
to acquire or develop IT systems that we cannot afford. If we fail to meet the demands of our customers or
protect against disruptions of our IT systems, we may lose customers, which could seriously harm our business
and adversely affect our operating results and operating cash flow.

We may be unable to retain personnel who are key to our operations.

Our success, among other things, is dependent on our ability to attract, develop and retain highly
qualified senior management and other key personnel. Competition for key personnel is intense, and our
ability to attract and retain key personnel is dependent on a number of factors, including prevailing market
conditions and compensation packages offered by companies competing for the same talent. The inability to
hire, develop and retain these key employees may adversely affect our operations.

There are risks inherent in international operations that could have a material adverse effect on our business,
financial condition and results of operations.

While the majority of our operations are based in the United States, we have significant international

operations, with facilities in Australia, Canada, China, France, Germany, India, Israel, Italy, Mexico,
Singapore and the United Kingdom, and customers throughout North America, Latin America, Europe, Asia
and the Middle East. For the years ended September 30, 2017 and 2016, 35% and 35%, respectively, of our
net sales were derived from customers located outside the United States.

Our international operations are subject to, without limitation, the following risks:

•

the burden of complying with multiple and possibly conflicting laws and any unexpected changes in
regulatory requirements;

political risks, including risks of loss due to civil disturbances, acts of terrorism, acts of war, guerilla
activities and insurrection;

unstable economic, financial and market conditions and increased expenses due to inflation, or
higher interest rates;

difficulties in enforcement of third-party contractual obligations and collecting receivables through
foreign legal systems;

difficulties in staffing and managing international operations and the application of foreign labor
regulations;

differing local product preferences and product requirements; and

potentially adverse tax consequences from changes in tax laws, requirements relating to withholding
taxes on remittances and other payments by subsidiaries and restrictions on our ability to repatriate
dividends from our subsidiaries.

In addition, fluctuations in the value of foreign currencies affect the dollar value of our net investment in

foreign subsidiaries, with these fluctuations being included in a separate component of stockholders’ equity.
At September 30, 2017, we reported a cumulative foreign currency translation adjustment of $82.5 million in
stockholders’ equity as a result of foreign currency translation adjustments, and we may incur additional
adjustments in future periods. In addition, operating results of foreign subsidiaries are translated into U.S.
dollars for purposes of our statements of comprehensive income at average monthly exchange rates.
Moreover, to the extent that our net sales are not denominated in the same currency as our expenses, our net
earnings could be materially adversely affected. For example, a portion of labor, material and overhead costs
for our facilities in the United Kingdom, Germany, France and Italy are incurred in British pounds or euros,
but in certain cases the related net sales are denominated in U.S. dollars. Changes in the value of the U.S.
dollar or other currencies could result in material fluctuations in foreign currency translation amounts or the
U.S. dollar value of transactions and, as a result, our net earnings could be materially adversely affected. At
times we engage in hedging transactions to manage or reduce our foreign currency exchange risk, but these
transactions may not be successful and, as a result, our business, financial condition and results of operations
could be materially adversely affected. During fiscal 2017 and 2016, fluctuations in foreign currency
translation had a negative impact on net sales of $22.9 million and $30.2 million, respectively.

Our international operations require us to comply with numerous applicable anti-corruption and trade control laws
and regulations, including those of the U.S. government and various other jurisdictions, and our failure to comply
with these laws and regulations could adversely affect our reputation, business, financial condition and results of
operations.

Doing business on a worldwide basis requires us and our subsidiaries to comply with the laws and

regulations of the U.S. government and various other jurisdictions, and our failure to successfully comply with
these rules and regulations may expose us to liabilities. These laws and regulations apply to companies,
individual directors, officers, employees and agents, and may restrict our operations, trade practices,
investment decisions and partnering activities.

In particular, our international operations are subject to U.S. and foreign anti-corruption laws and

regulations, such as the FCPA, the Bribery Act and other applicable anti-corruption regimes. These laws

generally prohibit us from corruptly providing anything of value, directly or indirectly, to government officials
for the purposes of improperly influencing official decisions, improperly obtaining or retaining business, or
otherwise obtaining favorable treatment. As part of our business, we may deal with governments and
state-owned business enterprises, the employees and representatives of which may be considered government
officials for purposes of the FCPA, the Bribery Act or other applicable anti-corruption laws. Some
anti-corruption laws, such as the Bribery Act, also prohibit commercial bribery and the acceptance of bribes,
and the FCPA further requires publicly traded companies to maintain adequate record-keeping and internal
accounting practices to accurately reflect the transactions of the company. In addition, some of the
international locations in which we operate lack a developed legal system and have elevated levels of
corruption, and our industry is highly regulated, which increases our risk of violating anti-corruption laws.

As an exporter, we must comply with various laws and regulations relating to the export of products,
services and technology from the United States and other countries having jurisdiction over our operations. In
the U.S., these laws include, among others, EAR administered by the U.S. Department of Commerce’s Bureau
of Industry and Security, ITAR administered by the U.S. Department of State’s Directorate of Defense Trade
Controls, and trade sanctions, regulations and embargoes administered by the U.S. Department of the
Treasury’s Office of Foreign Assets Control. These laws and regulations may require us to obtain individual
validated licenses from the relevant agency to export, re-export, or transfer commodities, software,
technology, or services to certain jurisdictions, individuals, or entities. We cannot be certain that our
applications for export licenses or other authorizations will be granted or approved. Furthermore, the export
license and export authorization process is often time-consuming.

Violations of these legal requirements are punishable by criminal fines and imprisonment, civil penalties,
disgorgement of profits, injunctions, debarment from government contracts, seizure and forfeiture of unlawful
attempted exports, and/or denial of export privileges, as well as other remedial measures. We have established
policies and procedures designed to assist us, our personnel and our agents to comply with applicable U.S. and
international laws and regulations. However, there can be no assurance that our policies and procedures will
effectively prevent us, our employees and our agents from violating these regulations in every transaction in
which we may engage, and violations, allegations or investigations of such violations could materially
adversely affect our reputation, business, financial condition and results of operations.

Our total assets include substantial intangible assets, and the write-off of a significant portion of our intangible assets
would negatively affect our financial results.

Our total assets reflect substantial intangible assets. At September 30, 2017, goodwill and intangible
assets, net represented 25.4% of our total assets. Goodwill represents the excess of the purchase price of
acquired businesses over the fair value of the assets acquired and liabilities assumed resulting from
acquisitions, including the acquisition of our Company by affiliates of The Carlyle Group (Carlyle) and the
acquisition of Haas. Intangible assets represent trademarks, backlogs, non-compete agreements, technology
and customer relationships. On at least an annual basis, we assess whether there has been impairment in the
value of goodwill and indefinite-lived intangible assets. If our testing identifies impairment under generally
accepted accounting principles in the United States (GAAP), the impairment charge we calculate would
result in a charge to income from operations. For example, during the three months ended June 30, 2017, we
recorded a non-cash goodwill impairment of $240.6 million for our North America Hardware reporting unit
and $70.5 million for our North America Chemical reporting unit, for a total impairment charge of
$311.1 million. Any future determination requiring the write-off of a significant portion of goodwill and
unamortized identified intangible assets would negatively affect our results of operations and total
capitalization, which could be material. For additional information, see ‘‘Part II, Item 7. ‘‘Management’s
Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and
Estimates—Goodwill and Indefinite-Lived Intangible Assets.’’

Changes in U.S. tax law may have a material adverse effect on our business, financial condition and results of
operation.

The current administration and members of the U.S. Congress are currently pursuing reform of the U.S.

tax system, which would include reduced U.S. corporate tax rates, changes to the taxation of international
earnings for U.S. multinational corporations and the elimination, in whole or in part, of the deduction for net
interest expense. While we are unable to predict which, if any, of these proposed tax reforms will be enacted

into law, and what effects any enacted legislation will have on our liability for U.S. corporate tax, we believe
these potential changes could have a material adverse effect on our business, financial condition and results of
operation. However, we do believe that a reduction in the U.S. corporate tax rate would result in a write down
of a portion of our net U.S. deferred tax assets, the impact of which could be material. In addition, given our
current level of interest expense payments, we believe that a limitation on the deductibility of net interest
expense could result in a material increase in our U.S. corporate tax liabilities and effective tax rate.

If any of our customers were to become insolvent or experience substantial financial difficulties, our business,
financial condition and results of operations may be adversely affected.

If any of the customers with whom we do business becomes insolvent or experiences substantial financial
difficulties we may be unable to timely collect amounts owed to us by such customers and may not be able to
sell the inventory we have purchased for such customers, which could have a material adverse effect on our
business, financial condition and results of operations.

We or our suppliers or customers may experience damage to or disruptions at our or their facilities caused by natural
disasters and other factors, which may result in our business, financial condition and results of operations being
adversely affected.

Several of our facilities or those of our suppliers and customers could be subject to a catastrophic loss
caused by earthquakes, tornadoes, floods, hurricanes, fire, power loss, telecommunication and information
systems failure or other similar events. Should insurance be insufficient to recover all such losses or should we
be unable to reestablish our operations, or if our customers or suppliers were to experience material
disruptions in their operations as a result of such events, our business, financial condition and results of
operations could be adversely affected.

We are dependent on access to and the performance of third-party package delivery companies.

Our ability to provide efficient distribution of the products we sell to our customers is an integral
component of our overall business strategy. We do not maintain our own delivery networks, and instead rely
on third-party package delivery companies. We cannot assure you that we will always be able to ensure access
to preferred delivery companies or that these companies will continue to meet our needs or provide
reasonable pricing terms. In addition, if the package delivery companies on which we rely experience delays
resulting from inclement weather or other disruptions, we may be unable to maintain products in inventory
and deliver products to our customers on a timely basis, which may adversely affect our business, financial
condition and results of operations.

A significant labor dispute involving us or one or more of our customers or suppliers, or a labor dispute that
otherwise affects our operations, could reduce our net sales and harm our profitability.

Labor disputes involving us or one or more of our customers or suppliers could affect our operations. If

our customers or suppliers are unable to negotiate new labor agreements and our customers’ or suppliers’
plants experience slowdowns or closures as a result, our net sales and profitability could be negatively
impacted.

While our employees are not currently unionized, they may attempt to form unions in the future, and the
employees of our customers, suppliers and other service providers may be, or may in the future be, unionized.
We cannot assure you that there will not be any strike, lock out or material labor dispute with respect to our
business or those of our customers or suppliers in the future that materially affects our business, financial
condition and results of operations.

We may be materially adversely affected by high fuel prices.

Fluctuations in the global supply of crude oil and the possibility of changes in government policies on the

production, transportation and marketing of jet fuel make it impossible to predict the future availability and
price of jet fuel. In the event there is an outbreak or escalation of hostilities or other conflicts or significant
disruptions in oil production or delivery in oil-producing areas or elsewhere, there could be reductions in the
production or importation of crude oil and significant increases in the cost of jet fuel. If there were major
reductions in the availability of jet fuel or significant increases in its cost, commercial airlines would face

increased operating costs. Due to the competitive nature of the airline industry, airlines are often unable to
pass on increases in fuel prices to customers by increasing fares. As a result, an increase in jet fuel could result
in a decrease in net income from either lower margins or, if airlines increase ticket fares, lower net sales from
reduced airline travel. Decreases in airline profitability could decrease the demand for new commercial
aircraft, resulting in delays of or reductions in deliveries of commercial aircraft that utilize the products we
sell, and, as a result, our business, financial condition and results of operations could be materially adversely
affected.

Our financial results may fluctuate from period-to-period, making quarter-to-quarter comparisons of our business,
financial condition and results of operations less reliable indicators of our future performance.

There are many factors, such as the cyclical nature of the aerospace industry, fluctuations in our ad hoc
sales, delays in major aircraft programs, planned production shutdowns, downward pressure on sales prices
and changes in the volume of our customers’ orders that could cause our financial results to fluctuate from
period-to-period. For example, during the year ended September 30, 2017, 24% of our net sales were derived
from ad hoc sales. The prices we charge for ad hoc sales are typically higher than the prices under our
Contract sales. However, customers may not continue to purchase the same amount of products from us on
an ad hoc basic as they have in the past, so it cannot be assured that in any given year we will be able to
generate similar levels of ad hoc net sales as we did in the past. We are also actively working to transition
customers from ad hoc purchases to Contracts, which may also result in a reduction in our ad hoc net sales. In
addition, our acquisition of Haas has contributed to lower our ad hoc sales as a percentage of total net sales.
A significant diminution in our ad hoc sales in any given period could result in fluctuations in our financial
results and operating margins. As a result of these factors, we believe that quarter-to-quarter comparisons of
our financial results are not necessarily meaningful and that these comparisons cannot be relied upon as
indicators of future performance.

We will continue to incur significant costs as a result of operating as a publicly traded company, and our
management is required to devote substantial time to public company compliance requirements and investor needs.

As a publicly traded company, we will continue to incur significant legal, accounting and other expenses.
In addition, the Sarbanes-Oxley Act of 2002 (the Sarbanes-Oxley Act) and the rules of the SEC and the New
York Stock Exchange have imposed various requirements on public companies. Our management and other
personnel will continue to devote a substantial amount of time to these compliance initiatives. Moreover,
these rules and regulations will continue to result in increased legal and financial compliance costs compared
to a private company and make some activities more time-consuming and costly. For example, we believe
these rules and regulations make it more difficult and more expensive for us to maintain appropriate levels of
director and officer liability insurance.

We are subject to health, safety and environmental laws and regulations, any violation of which could subject us to
significant liabilities and penalties.

We are subject to extensive federal, state, local and foreign laws, regulations, rules and ordinances

relating to pollution, protection of the environment and human health and safety, and the handling,
transportation, storage, treatment, disposal and remediation of hazardous substances, including potentially
with respect to historical chemical blending and other activities that pre-dated the purchase of the Haas
business by us. Actual or alleged violations of EHS laws, or permit requirements could result in restrictions or
prohibitions on operations and substantial civil or criminal sanctions, as well as, under some EHS laws, the
assessment of strict liability and/or joint and several liability.

Furthermore, we may be liable for the costs of investigating and cleaning up environmental
contamination on or from our operations or at off-site locations, including potentially with respect to
historical chemical blending and other activities that pre-dated the purchase of the Haas business by us. We
may therefore incur additional costs and expenditures beyond those currently anticipated to address all such
known and unknown situations under existing and future EHS laws.

Governmental, regulatory and societal demands for increasing levels of product safety and environmental

protection are resulting in increased pressure for more stringent regulatory control with respect to the
chemical industry. The European Union’s REACH regulations enacted in 2009 have been a continuing source

of compliance obligations and restrictions on certain chemicals, and REACH-like regimes have now been
adopted in several other countries. In the United States, the core provisions of the Toxic Substances Control
Act (TSCA) were amended in June 2016 for the first time in nearly 40 years. Among the more significant
changes are that these amendments mandate safety reviews of existing chemicals with regulatory action to
restrict any ‘‘high risk’’ chemicals identified as result of such reviews. The amendments to the TSCA also
mandate that the EPA reset the current TSCA Inventory to identify commercially ‘‘active’’ chemicals, a
process expected to result in potentially significant compliance obligations for the Company and our
customers and suppliers who manufacture, process and import chemicals. These types of changes in the
Company’s regulatory environment, particularly, but not limited to, in the United States, the European
Union, Canada and China, could lead to heightened regulatory scrutiny and could adversely impact our ability
to supply certain products and provide supply chain management services to our customers. Such changes also
could result in compliance obligations for us directly or as part of our supply chain management services to
customers, fines, ongoing monitoring and other future business activity restrictions, which could have a
material adverse effect on our business, financial condition and results of operations.

In addition, these concerns could influence public perceptions regarding our operations and our ability to
attract and retain customers and employees. Moreover, changes in EHS regulations could inhibit or interrupt
our operations, or require us to modify our facilities or operations. Accordingly, environmental or regulatory
matters may cause us to incur significant unanticipated losses, costs, capital expenditures or liabilities, which
could reduce our profitability. Such losses, costs, capital expenditures or liabilities will be subject to evolving
regulatory requirements and will depend on the timing of the promulgation and enforcement of specific
standards which impose requirements on our operations. As a result, these losses, costs, capital expenditures
or liabilities may be more than currently anticipated.

Our operations involve risks associated with the handling, transportation, storage and disposal of chemical products
that may increase our operating costs and reduce our profitability.

Our business is subject to hazards inherent in the handling, transportation, storage and disposal of
chemical products. These hazards include: chemical spills, storage tank leaks, discharges or releases of toxic
or hazardous substances or gases and other hazards incident to the handling, transportation, storage and
disposal of dangerous chemicals. We are also potentially subject to other hazards, including natural disasters
and severe weather; explosions and fires; transportation problems, including interruptions, spills and leaks;
mechanical failures; unscheduled downtimes; labor difficulties; and other risks. Many potential hazards can
cause bodily injury and loss of life, severe damage to or destruction of property and equipment and
environmental damage, and may result in suspension of our own or our customers’ operations and the
imposition of civil or criminal penalties and liabilities. Furthermore, we are subject to present and future
claims with respect to our employees when working within our own operations or when supplying chemicals to
and/or providing chemical management services at our customer’s operations, other persons, including
potentially our customers and their employees, workers’ compensation and other matters.

We maintain property, business interruption, products liability and casualty insurance policies which we
believe are in accordance with customary industry practices, as well as insurance policies covering other types
of risks, including pollution legal liability insurance, but we are not fully insured against all potential hazards
and risks incident to our business. Each of these insurance policies is subject to customary exclusions,
deductibles and coverage limits, in accordance with industry standards and practices. As a result of market
conditions, premiums and deductibles for certain insurance policies can increase substantially and, in some
instances, certain insurance may become unavailable or available only for reduced amounts of coverage. If we
were to incur a significant liability for which we were not fully insured, it could have a material adverse effect
on our business, results of operations, financial condition and liquidity.

If the temperature control systems on which we rely fail, certain of the chemical products we sell may become
‘‘non-conforming’’ while in storage or in transit, and as a result, we may be responsible for providing replacement
products to our customers, which could have a material adverse effect on our business, financial condition and
results of operations.

Many of the chemical products we sell are sensitive to temperature. Our storage facilities and the
vehicles maintained by the third-party delivery companies on whom we rely utilize sophisticated temperature
control systems to ensure safe storage and handling of these products. If these temperature control systems

fail, products that are sensitive to temperature may become non-conforming to the customer’s specifications,
and we may be responsible for providing replacement products, which could have a material adverse effect on
our business, financial condition and results of operations.

Our reputation and/or our business, financial condition and results of operations could be adversely affected if one of
the products we sell causes an aircraft to crash.

We may be exposed to liabilities for personal injury, death or property damage due to the failure of a
product we have sold. We typically agree to indemnify our customers against certain liabilities resulting from
the products we sell, and any third-party indemnification we seek from our suppliers and our liability
insurance may not fully cover our indemnification obligations to customers. We also may not be able to
maintain insurance coverage in the future at an acceptable cost. Any liability for which third-party
indemnification is not available that is not covered by insurance could have a material adverse effect on our
business, financial condition and results of operations.

In addition, a crash caused by one of the products we have sold could damage our reputation for selling

quality products. We believe our customers consider safety and reliability as key criteria in selecting a
provider of aircraft products and believe our reputation for quality assurance is a significant competitive
strength. If a crash were to be caused by one of the products we sold, or if we were to otherwise fail to
maintain a satisfactory record of safety and reliability, our ability to retain and attract customers may be
materially adversely affected.

We sell products to a highly regulated industry and our business may be adversely affected if our suppliers or
customers lose government approvals, if more stringent government regulations are enacted or if industry oversight is
increased.

The aerospace industry is highly regulated in the United States and in other countries. The FAA
prescribes standards and other requirements for aircraft components in the U.S. and comparable agencies,
such as the European Aviation Safety Agency, the Civil Aviation Administration of China and the Japanese
Civil Aviation Bureau, regulate these matters in other countries. Our suppliers and customers must generally
be certified by the FAA, the DoD and similar agencies in foreign countries. If any of our suppliers’
government certifications are revoked, we would be less likely to buy such supplier’s products, and, as a result,
would need to locate a suitable alternate supply of such products, which we may be unable to accomplish on
commercially reasonable terms or at all. If any of our customers’ government certifications are revoked, their
demand for the products we sell would decline. In each case, our business, financial condition and results of
operations may be adversely affected.

In addition, if new and more stringent government regulations are adopted or if industry oversight
increases, our suppliers and customers may incur significant expenses to comply with such new regulations or
heightened industry oversight. In the case of our suppliers, these expenses may be passed on to us in the form
of price increases, which we may be unable to pass along to our customers. In the case of our customers, these
expenses may limit their ability to purchase products from us. In each case, our business, financial condition
and results of operations may be adversely affected.

We may be unable to successfully consummate or integrate future acquisitions, which could negatively impact our
business, financial condition and results of operations.

We may consider future acquisitions, some of which could be material to us. Depending upon the
acquisition opportunities available, we may need to raise additional funds through the capital markets or
arrange for additional debt financing to consummate such acquisitions. We may be unable to raise the capital
required for future acquisitions on satisfactory terms or at all, which could adversely affect our business,
financial condition and results of operations. Economics related to acquisitions including valuation, purchase
price, synergies and competitive advantage may rely on our ability to efficiently integrate an acquired business
with our existing enterprise, which we may not be able to execute successfully.

The results of the United Kingdom’s referendum on withdrawal from the European Union may have a negative effect
on global economic conditions, financial markets and our business, which could reduce the price of our common
stock.

We have material business operations in both the United Kingdom and the broader European Union. In

June 2016, a majority of voters in the United Kingdom elected to withdraw from the European Union in a
national referendum. The terms of the withdrawal are subject to a negotiation period that could last until or
beyond March 2019, two years after the government of the United Kingdom formally initiated the withdrawal
process in March 2017. This has created significant uncertainty about the future relationship between the
United Kingdom and the European Union, and has given rise to calls for the governments of other European
Union member states to consider withdrawal.

These developments, or the perception that any of them could occur, have had and may continue to have

a material adverse effect on global economic conditions and the stability of global financial markets, and
could significantly reduce global market liquidity and restrict the ability of key market participants to operate
in certain financial markets. Asset valuations, currency exchange rates and credit ratings may be especially
subject to increased market volatility. Lack of clarity about future United Kingdom laws and regulations as
the United Kingdom determines which European Union laws to replace or replicate in the event of a
withdrawal, including financial laws and regulations, tax and free trade agreements, intellectual property
rights, supply chain logistics, environmental, health and safety laws and regulations, immigration laws and
employment laws, could decrease foreign direct investment in the United Kingdom, increase costs, depress
economic activity and restrict our access to capital. If the United Kingdom and the European Union are
unable to negotiate acceptable withdrawal terms or if other European Union member states pursue
withdrawal, barrier-free access between the United Kingdom and other European Union member states or
among the European economic area overall could be diminished or eliminated. Any of these factors could
have a direct or indirect impact on our business in the United Kingdom and the broader European Union, on
our suppliers and customers in the United Kingdom and the broader European Union and on our business
outside the United Kingdom and the broader European Union, which could have a material adverse effect on
our business, financial condition and results of operations and reduce the price of our common stock.

Our substantial indebtedness could adversely affect our financial health and could harm our ability to react to
changes to our business.

As of September 30, 2017, our total indebtedness outstanding under our Existing Credit Facilities (as
defined in Part II, Item 7, ‘‘Management’s Discussion and Analysis of Financial Condition and Results of
Operations—Liquidity and Capital Resources—Credit Facilities—Existing Senior Secured Credit Facilities’’)
was $875.6 million, which was 57.4% of our total capitalization.

In addition, we may incur substantial additional indebtedness in the future. Our Credit Facilities contain

certain significant qualifications and exceptions that allow us to incur additional indebtedness, and the
indebtedness incurred in compliance with these qualifications and exceptions could be substantial. If we incur
additional debt, the risks associated with our substantial leverage would increase.

Our substantial indebtedness could have important consequences to investors. For example, it could:

•

increase our vulnerability to general economic downturns and industry conditions;

require us to dedicate a substantial portion of our cash flow from operations to payments on our
indebtedness, thereby reducing the availability of our cash flow to fund working capital, capital
expenditures and other general corporate requirements;

limit our flexibility in planning for, or reacting to, changes in our business and the industry in which
we operate;

place us at a competitive disadvantage compared to competitors that have less debt; and

limit, along with the financial and other restrictive covenants contained in the documents governing
our indebtedness, among other things, our ability to borrow additional funds, make investments and
incur liens.

In addition, all of our debt under the Credit Facilities bears, and under the Existing Credit Facilities

bore, interest at floating rates, causing us to enter into interest rate swap derivative instruments to partially
offset our exposure to interest rate fluctuations, which result in additional risks. As of September 30, 2017, we
had a current interest rate hedge liability and a long-term interest rate hedge liability of $2.5 million and
$0.9 million, respectively. If our interest rate hedge was determined ineffective partially or entirely as defined
by GAAP, the ineffective portion or the entire amount of our interest rate hedge liabilities would adversely
affect our earnings. Our derivatives also expose us to credit risk to the extent that the counterparties may be
unable to meet the terms of the agreement, which could negate the intended protection from our hedge
instruments. See further discussion on our derivative financial instruments in Note 12 of the Notes to
Consolidated Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K.

Our level of indebtedness increases the possibility that we may be unable to generate cash sufficient to
pay, when due, the principal of, interest on or other amounts due in respect of our indebtedness. We cannot
assure you that our business will generate sufficient cash flow from operations or that future borrowings will
be available to us under the Credit Facilities or otherwise in amounts sufficient to enable us to service our
indebtedness. If we cannot service our debt, we will have to take actions such as reducing or delaying capital
investments, selling assets, restructuring or refinancing our debt or seeking additional equity capital and
cannot assure you that we will be successful in implementing any such actions or that any actions we take will
allow us to stay in compliance with the terms of our indebtedness.

The terms of the Credit Facilities and other debt instruments may restrict our current and future operations,
particularly our ability to respond to changes or to take certain actions.

The Credit Facilities contain a number of restrictive covenants that impose significant operating and

financial restrictions on us and may limit our ability to engage in acts that may be in our long-term best
interests. The Credit Facilities include covenants restricting, among other things, our ability to:

•

incur or guarantee additional indebtedness or issue preferred stock;

pay distributions on, redeem or repurchase our capital stock;

• make investments;
•

sell assets;

•

enter into agreements that restrict distributions or other payments from our restricted subsidiaries to
us;

incur or allow liens;

consolidate, merge or transfer all or substantially all of our assets;

engage in transactions with affiliates;

enter into sale leaseback transactions;

change fiscal periods;

enter into agreements that restrict the granting of liens or the making of subsidiary distributions;

create unrestricted subsidiaries; and

engage in certain business activities.

In addition, the Credit Facilities contain a maximum leverage ratio covenant. A breach of this financial

covenant could result in a default under the Credit Facilities. If any such default occurs, the lenders under the
Credit Facilities may elect to declare all outstanding borrowings, together with accrued interest and other
amounts payable thereunder, to be immediately due and payable. The lenders under the Credit Facilities also
have the right in these circumstances to terminate any commitments to provide further borrowings. In
addition, following an event of default under the Credit Facilities, the lenders under those facilities will have
the right to proceed against the collateral granted to them to secure the debt, which includes our available
cash. If the debt under the Credit Facilities was to be accelerated, we cannot assure you that our assets would
be sufficient to repay in full our debt. See Part II, Item 7. ‘‘Management’s Discussion and Analysis of

Financial Condition and Results of Operations—Liquidity and Capital Resources—Credit Facilities—Sixth
Amendment to Senior Secured Credit Facilities’’ for additional information about the Company’s compliance
with the Consolidated Total Leverage Ratio (as defined in the Credit Agreement) maintenance covenant
contained in the Credit Agreement.

Risks Related to our Common Stock

The price of our common stock may fluctuate significantly, and you could lose all or part of your investment.

Volatility in the market price of our common stock may prevent you from being able to sell your common

stock at or above the price you paid for your common stock. The market price of our common stock could
fluctuate significantly for various reasons, including:

•

our operating and financial performance and prospects;

our quarterly or annual earnings or those of other companies in our industry;

the public’s reaction to our press releases, our other public announcements and our filings with the
SEC;

changes in, or failure to meet, earnings estimates or recommendations by research analysts who
track our common stock or the stock of other companies in our industry;

the failure of securities analysts to cover our common stock or changes in analyst recommendations;

credit ratings downgrades or other negative actions by ratings agencies for us or our subsidiaries;

strategic actions by us or our competitors, such as acquisitions or restructurings;

new laws or regulations or new interpretations of existing laws or regulations applicable to our
business;

changes in accounting standards, policies, guidance, interpretations or principles;

the impact on our profitability temporarily caused by the time lag between when we experience cost
increases until these increases flow through cost of sales because of our method of accounting for
inventory, or the impact from our inability to pass on such price increases to our customers;

• material litigation or government investigations;
•

changes in general conditions in the United States and global economies or financial markets,
including those resulting from war, incidents of terrorism or responses to such events;

•

changes in key personnel;

sales of common stock by us or members of our management team;

the volume of trading in our common stock; and

the realization of any risks described under ‘‘Risk Factors.’’

In addition, in recent years, the U.S. stock market has experienced significant price and volume
fluctuations. This volatility has significantly impacted the market price of securities issued by many
companies, including companies in our industry. The changes have often been unrelated or disproportionate
to the operating performance of the affected companies. Hence, the price of our common stock could
fluctuate based upon factors that have little or nothing to do with our Company, and these fluctuations could
materially reduce our share price and cause you to lose all or part of your investment.

We have no plans to pay regular dividends on our common stock, so you may not receive funds without selling your
common stock.

We have no plans to pay regular dividends on our common stock. We generally intend to invest our
future earnings, if any, to fund our growth. Any payment of future dividends will be at the discretion of our
Board of Directors and will depend on, among other things, our earnings, financial condition, capital
requirements, level of indebtedness, statutory and contractual restrictions applying to the payment of
dividends and other considerations that our Board of Directors deems relevant. The Credit Facilities also

effectively limit our ability to pay dividends. Accordingly, you may have to sell some or all of your common
stock in order to generate cash flow from your investment. You may not record a gain on your investment
when you sell your common stock and you may lose the entire amount of the investment.

Provisions of our amended and restated certificate of incorporation and amended and restated bylaws and Delaware
law might discourage, delay or prevent a change of control of our Company or changes in our management and, as a
result, depress the trading price of our common stock.

Our amended and restated certificate of incorporation and amended and restated bylaws contain
provisions that could discourage, delay or prevent a change in control of our Company or changes in our
management that the stockholders of our Company may deem advantageous. These provisions:

•

establish a classified Board of Directors, with three classes of directors;

authorize the issuance of blank check preferred stock that our Board of Directors could issue to
increase the number of outstanding shares and to discourage a takeover attempt;

limit the ability of stockholders to remove directors;

prohibit our stockholders from calling a special meeting of stockholders;

prohibit stockholder action by written consent, which requires all stockholder actions to be taken at
a meeting of stockholders;

provide that our Board of Directors is expressly authorized to amend, or to alter or repeal our
bylaws; and

establish advance notice requirements for nominations for election to our Board of Directors or for
proposing matters that can be acted upon by stockholders at stockholder meetings.

These anti-takeover defenses could discourage, delay or prevent a transaction involving a change in
control of our Company. These provisions could also discourage proxy contests and make it more difficult for
you and other stockholders to elect directors of your choosing, which could result in us taking corporate
actions other than those you desire.

Future sales of our common stock in the public market could lower our share price, and any additional capital raised
by us through the sale of equity or convertible debt securities may dilute your ownership in our Company and may
adversely affect the market price of our common stock.

We and our existing stockholders may sell additional shares of common stock in subsequent public
offerings. We may also issue additional shares of common stock or convertible debt securities to finance
future acquisitions. As of September 30, 2017, we had 950,000,000 shares of common stock authorized and
99,450,902 shares of common stock outstanding. In addition, we have 2,001,044 shares of common stock
issuable upon the exercise of options outstanding as of September 30, 2017 and 3,457,947 available shares of
common stock reserved for issuance under the Wesco Aircraft Holdings, Inc. 2014 Incentive Award Plan (the
2014 Plan).

We cannot predict the size of future issuances of our common stock or the effect, if any, that future

issuances and sales of our common stock will have on the market price of our common stock. Sales of
substantial amounts of our common stock (including sales pursuant to Carlyle’s registration rights and shares
issued in connection with an acquisition), or the perception that such sales could occur, may adversely affect
prevailing market prices for our common stock.

ITEM 1B. UNRESOLVED STAFF COMMENTS

None.

ITEM 2.

PROPERTIES

Our global headquarters is located at 24911 Avenue Stanford, Valencia, California 91355. As of
September 30, 2017, we have a total of 58 administrative, sales and/or stocking facilities, all of which are
either leased or located at a customer site, except for our global headquarters, which is owned by us. These

facilities, including facilities in Northlake, Texas; McDonough, Georgia; Wichita, Kansas; Austin, Texas;
Mississauga, Ontario; Cleckheaton, United Kingdom and Clayton West, United Kingdom, are located in 17
countries, including the U.S., Australia, Canada, China, France, Germany, India, Israel, Italy, Mexico,
Singapore and the United Kingdom.

Our warehouse operations are divided between CSLs and Forward Stocking Locations (FSLs). Our CSLs

serve as the primary supply warehouses for most of our net sales and also house our procurement, customer
service, document control, IT, material support and quality assurance functions. Our CSLs are supported by
sales offices throughout the U.S., Australia, Canada, China, France, Germany, India, Israel, Italy, Mexico,
Singapore and the United Kingdom.

Complementing our CSLs and sales offices are FSLs. An FSL is a specialized stocking point for one or

more Contracts located within a geographic region. FSLs are typically located either near or within a
customer facility and are established to support large Contracts. In certain instances, FSLs initially established
to service a single customer are expanded to service other regional customers.

We believe that our existing facilities, including both owned and leased, are in good condition and
suitable for the conduct of our business. For additional information regarding obligations under operating
leases, see Note 17 of the Notes to Consolidated Financial Statements in Part II, Item 8 of this Annual Report
on Form 10-K.

ITEM 3.

LEGAL PROCEEDINGS

We are involved in various legal matters that arise in the ordinary course of our business. We believe that

the ultimate outcome of such matters will not have a material adverse effect on our business, financial
condition or results of operations. However, there can be no assurance that such actions will not be material
or adversely affect our business, financial condition or results of operations. For more information see Note
17 of the Notes to Consolidated Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS

AND ISSUER PURCHASES OF EQUITY SECURITIES

Market Information About Our Common Stock

Our common stock began trading on the New York Stock Exchange under the symbol ‘‘WAIR’’ on

July 28, 2011. The following table sets forth, for the periods indicated, the high and low sales prices of our
common stock as reported by the New York Stock Exchange:

Fiscal 2017
4th Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3rd Quarter. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2nd Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1st Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fiscal 2016
4th Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3rd Quarter. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2nd Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1st Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

High

Low

$11.25
$12.45
$15.30
$15.55

$14.43
$15.00
$14.41
$13.38

$ 7.05
$ 8.25
$11.15
$12.40

$12.68
$12.64
$10.19
$11.44

Stockholders

As of November 21, 2017, we had approximately 77 holders of record of our common stock and the

closing price reported on the New York Stock Exchange of our common stock was $8.00 per share.

Dividends

We have not paid dividends in the past and we do not intend to pay any cash dividends for the
foreseeable future. We intend to retain earnings, if any, for the future operation and expansion of our
business and the repayment of debt. Any determination to pay dividends in the future will be at the discretion
of our Board of Directors and will depend upon our results of operations, cash requirements, financial
condition, contractual restrictions, restrictions imposed by applicable laws and other factors that our Board of
Directors may deem relevant. Our existing indebtedness effectively limits our ability to pay dividends and
make distributions to our stockholders.

Recent Sales of Unregistered Securities

None.

Issuer Purchases of Equity Securities

During the quarter ended September 30, 2017, we repurchased 74,758 shares of common stock in
connection with shares surrendered to satisfy statutory minimum tax withholding obligations in connection
with the vesting of restricted stock awards under the 2014 Plan. We expended approximately $703,000 to
repurchase these shares.

Period
July 1, 2017 - July 31, 2017 . . . . . . . . . . . . . . . . . . . . .
August 1, 2017 - August 31, 2017 . . . . . . . . . . . . . . .
September 1, 2017 - September 30, 2017 . . . . . . . . .
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Total Number
of Shares
Purchased
as Part of
Publicly
Announced
Plans or
Programs
—
—
—
—

Approximate
Dollar Value
of Shares that
May Yet Be
Purchased Under
the Plans or
Programs
(in millions)
—
$
—
—
—

Total
Number of
Shares
Purchased
—
—
74,758
74,758

Average
Price
Paid per
Share
$ —
—
9.40
$9.40

Performance

The graph set forth below compares the cumulative total shareholder return on our common stock

between September 30, 2012 and September 30, 2017 to (1) the cumulative total return of U.S. companies
listed on the New York Stock Exchange and (2) the cumulative total return of a peer group selected by the
Company (Esterline Technologies Corporation (ESL), Fastenal Company (FAST), HEICO Corporation
(HEI), KLX Inc. (KLXI), MSC Industrial Direct Co., Inc. (MSM), Transdigm Group Incorporated (TDG)
and W.W. Grainger, Inc. (GWW)) over the same period. The peer group reflects a mix of companies that we
believe is reflective of our broader industry and line-of-business. This graph assumes an initial investment of
$100 on September 30, 2012, in our common stock, the market index and the peer group and assumes the
reinvestment of dividends, if any. The historical information set forth below is not necessarily indicative of
future price performance.

ASSUMES $100 INVESTED ON SEP. 30, 2012
ASSUMES DIVIDEND REINVESTED
FISCAL YEAR ENDING SEP. 30, 2017

200.00

180.00

160.00

140.00

120.00

100.00

80.00

60.00

40.00

20.00

0.00

2012

2013

2014

2015

2016

2017

Wesco Aircraft Holdings, Inc.

NYSE Stock Market (US Companies)

Peer Group

Company/Market/Peer Group

9/30/2012

9/30/2013

9/30/2014

9/30/2015

9/30/2016

9/30/2017

Wesco Aircraft Holdings, Inc. . . . . . . . . . . . . . . .
New York Stock Exchange (U.S. Companies) . .
Peer Group. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$100.00
100.00
100.00

$153.22
121.53
127.85

$127.38
141.26
135.22

$ 89.31
135.88
121.44

$ 98.32
155.46
145.54

$ 68.81
181.09
156.94

ITEM 6.

SELECTED FINANCIAL DATA

The selected income statement and other data for each of the years ended September 30, 2017, 2016 and

2015 and the selected balance sheet data as of September 30, 2017 and 2016 have been derived from our
audited consolidated financial statements that are included in this Annual Report. The selected income
statement and other data for the years ended September 30, 2014, and 2013 and the selected balance sheet
data as of September 30, 2015, 2014 and 2013 have been derived from audited consolidated financial
statements that are not included in this Annual Report on Form 10-K.

The financial data set forth below are not necessarily indicative of future results of operations. This data

should be read in conjunction with, and is qualified in its entirety by reference to, Part II, Item 7.
‘‘Management’s Discussion and Analysis of Financial Condition and Results of Operations’’ and our financial
statements and notes thereto included elsewhere in this Annual Report.

2017

Years Ended September 30,
2014
2015
2016
(in thousands except per share data)

2013

Consolidated statements of income data:
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$1,429,429

$1,477,366

$1,497,615

$1,355,877

$ 901,608

(Loss) income from operations. . . . . . . . . .
Interest expense, net . . . . . . . . . . . . . . . . . .
Other income (expense), net. . . . . . . . . . . .

$ (208,795) $ 158,750
(36,901)
3,741

(39,821)
369

$ (206,365) $ 183,934
(29,225)
2,199

(37,092)
1,841

$ 180,802
(25,178)
2,003

(Loss) income before income taxes . . . . . .
Income tax benefit (provision) . . . . . . . . . .

(248,247)
10,901

125,590
(34,212)

(241,616)
86,872

156,908
(54,806)

157,627
(52,815)

Net (loss) income . . . . . . . . . . . . . . . . . . . . .

$ (237,346) $

91,378

$ (154,744) $ 102,102

$ 104,812

Per share data:
Net (loss) income per share

Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . .

$
$

(2.40) $
(2.40) $

0.94
0.93

$
$

(1.60) $
(1.60) $

1.06
1.05

$
$

1.12
1.09

Weighted average shares outstanding

Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . .

98,701
98,701

97,634
98,166

96,955
96,955

95,951
97,606

93,285
95,844

Consolidated Balance Sheet Data:
Cash and cash equivalents . . . . . . . . . . . . . .
Total assets (1) (4) . . . . . . . . . . . . . . . . . . . .
Long-term debt and capital lease

obligations (2) (3). . . . . . . . . . . . . . . . . . .
Total stockholders’ equity . . . . . . . . . . . . . .

61,625
1,754,107

77,061
1,948,578

82,866
2,020,973

$ 104,775
2,412,274

$
78,716
1,631,153

790,851
649,731

835,989
882,915

954,730
817,573

1,081,825
992,290

569,414
865,436

(1) We acquired Haas in February 2014.
(2) Total long-term debt and capital lease obligations excludes current portion.

(3) Total long-term debt related to term loan A and term loan B as of September 30, 2017 and 2016 was reduced by deferred debt

issuance costs of $11.7 million and $7.6 million, respectively, as required by ASC 2015-03 which we adopted on October 1, 2016.
Total long-term debt was not retroactively recast to include deferred debt issuance costs as of September 30, 2015, 2014 and 2013.

(4) Total assets as of September 30, 2016 was retroactively recast to reflect the reclassification of $7.6 million of deferred debt issuance
costs related to term loan A and term loan B from long-term assets to long-term debt as required by ASC 2015-03. Total assets was
not retroactively recast to exclude deferred debt issuance costs as of September 30, 2015, 2014 and 2013.

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

The following discussion and analysis is intended to help the reader understand our business, financial

condition, results of operations, liquidity and capital resources. You should read this discussion in conjunction with
our consolidated financial statements and the related notes contained elsewhere in this Annual Report on
Form 10-K.

The statements in this discussion regarding industry trends, our expectations regarding our future performance,

liquidity and capital resources and other non-historical statements are forward-looking statements. These
forward-looking statements are subject to numerous risks and uncertainties, including, but not limited to, the risks
and uncertainties described in Part I, Item 1A. ‘‘Risk Factors’’ and ‘‘Cautionary Note Regarding Forward-Looking
Statements.’’ Our actual results may differ materially from those contained in or implied by any forward-looking
statements.

Industry Trends Affecting Our Business

We rely on demand for new commercial and military aircraft for a significant portion of our sales.
Commercial aircraft demand is driven by many factors, including the global economy, industry passenger
volumes and capacity utilization, airline profitability, introduction of new models and the lifecycle of current
fleets. Demand for business jets is closely correlated to regional economic conditions and corporate profits,
but also influenced by new models and changes in ownership dynamics. Military aircraft demand is primarily
driven by government spending, the timing of orders and evolving U.S. Department of Defense strategies and
policies.

Aftermarket demand is affected by many of the same trends as those in OEM channels, as well as
requirements to maintain aging aircraft and the cost of fuel, which can lead to greater utilization of existing
planes. Demand in the military aftermarket is further driven by changes in overall fleet size and the level of
U.S. military operational activity domestically and overseas.

Supply chain service providers and distributors have been aided by these trends along with an increase in

outsourcing activities, as OEMs and their suppliers focus on reducing their capital commitments and
operating costs.

Commercial Aerospace Market

Over the past three years, major airlines have ordered new aircraft at a robust pace, aided by strong
profits and increasing passenger volumes. At the same time, volatile fuel prices have led to greater demand
for fuel-efficient models and new engine options for existing aircraft designs. The rise of emerging markets
has added to the growth in overall demand at a stronger pace than seen historically. More recently, several
airlines have slowed the pace of orders with large commercial OEMs in response to rapidly changing
macroeconomic conditions. Nevertheless, large commercial OEMs have indicated that they continue to
expect a high level of deliveries, primarily due to their unprecedented level of backlogs. Business aviation has
lagged the larger commercial market, reflecting a deeper downturn in the last recession, changes in corporate
spending patterns and an uncertain economic outlook. Overall business aviation production levels remain well
below their pre-recession peak, though newer models have seen a greater acceptance in the marketplace than
older and previously owned aircraft.

Military Aerospace Market

Military build-rates have declined for the past few years (and they may continue to decline going
forward), which has negatively affected this portion of our business. We believe the diversity of the military
aircraft programs we support can help mitigate the impact of new program delays, changes or cancellations. In
particular, we believe the services we provide the Joint Strike Fighter program will benefit our future business
as production for that program increases. Increased sales for other established aircraft programs that directly
benefit from such changes also help moderate build-rate declines.

Other Factors Affecting Our Financial Results

Fluctuations in Revenue

There are many factors, such as changes in customer aircraft build rates, customer plant shut downs,

variation in customer working days, changes in selling prices, the amount of new customers’ consigned
inventory and increases or decreases in customer inventory levels, that can cause fluctuations in our financial
results from quarter to quarter. To normalize for short-term fluctuations, we tend to look at our performance
over several quarters or years of activity rather than discrete short-term periods. As such, it can be difficult to
determine longer-term trends in our business based on quarterly comparisons. Ad hoc business tends to vary
based on the amount of disruption in the market due to changes in aircraft build rates, new aircraft
introduction, customer or site consolidations, and other factors. Fluctuations in our ad hoc business tend to be
partially offset by our Contract business as most of our ad hoc revenue comes from our Contract customers.

We will continue our strategy of seeking to expand our relationships with existing ad hoc customers by
transitioning them to Contracts, as well as expanding relationships with our existing Contract customers to
include additional customer sites, additional SKUs and additional levels of service. New Contract customers
and expansion of existing Contract customers to additional sites and SKUs sometimes leads to a
corresponding decrease in ad hoc sales as a portion of the SKUs sold under Contracts were previously sold to
the same customer as ad hoc sales. We believe this strategy serves to mitigate some of the fluctuations in our
net sales. Our sales to Contract customers may fail to meet our expectations for a variety of reasons, in
particular if industry build rates are lower than expected or, for certain newer JIT customers, if their
consigned inventory, which must be exhausted before corresponding products are purchased directly from us,
is greater than we expected.

If any of our customers are acquired or controlled by a company that elects not to utilize our services, or

attempt to implement in-sourcing initiatives, it could have a negative effect on our strategy to mitigate
fluctuations in our net sales. Additionally, although we derive a significant portion of our net sales from the
building of new commercial and military aircraft, we have not typically experienced extreme fluctuations in
our net sales when sales for an individual aircraft program decrease, which we believe is attributable to our
diverse base of customers and programs.

Fluctuations in Margins

Our gross margins are impacted by changes in product mix. Generally, our hardware products have

higher gross profit margins than chemicals and electronic components.

We also believe that our strategy of growing our Contract sales and converting ad hoc customers into
Contract customers could negatively affect our gross profit margins, as gross profit margins tend to be higher
on ad hoc sales than they are on Contract-related sales. However, we believe any potential adverse impact on
our gross profit margins is outweighed by the benefits of a more stable long-term revenue stream attributable
to Contract customers.

Our Contracts generally provide for fixed prices, which can expose us to risks if prices we pay to our

suppliers rise due to increased raw material or other costs. However, we believe our expansive product
offerings and inventories, our ad hoc sales and, where possible, our longer-term agreements with suppliers
have enabled us to mitigate this risk. Some of our Contracts are denominated in foreign currencies and fixed
prices in these Contracts can expose us to fluctuations in foreign currency exchange rates with the U.S. dollar.

Fluctuations in Cash Flow

Our cash flows are affected by fluctuations in our inventory. When we are awarded new programs, we

generally increase our inventory to prepare for expected sales related to the new programs, which often take
time to materialize, and to achieve minimum stock requirements, if any. As a result, if certain programs for
which we have procured inventory are delayed or if certain newer JIT customers’ consigned inventory is larger
than we expected, we may experience a more sustained inventory increase.

Inventory fluctuations may also be attributable to general industry trends. Factors that may contribute to

fluctuations in inventory levels in the future could include (1) strategic purchases (a) to take advantage of
favorable pricing, (b) made in anticipation of the expected industry growth cycle, (c) to support new customer

Contracts or (d) to acquire high-volume products that are typically difficult to obtain in sufficient quantities;
(2) changes in supplier lead times and the timing of inventory deliveries; (3) purchases made in anticipation of
future growth (particularly growth in our MRO business); and (4) purchases made in connection with the
expansion of existing Contracts. While effective inventory management is an ongoing challenge, we continue
to take steps to enhance the sophistication of our procurement practices to mitigate the negative impact of
inventory buildups on our cash flow.

Our accounts receivable balance as a percentage of net sales may fluctuate from quarter to quarter.
These fluctuations are primarily driven by changes, from quarter to quarter, in the timing of sales within the
quarter and variation in the time required to collect the payments. The completion of customer Contracts
with accelerated payment terms can also contribute to these quarter-to-quarter fluctuations. Similarly, our
accounts payable may fluctuate from quarter to quarter, which is primarily driven by the timing of purchases
or payments made to our suppliers.

Segment Presentation

We evaluate segment performance based on segment income or loss from operations. Each segment

reports its results of operations and makes requests for capital expenditures and acquisition funding to our
chief operating decision-maker (CODM). Our chief executive officer serves as our CODM.

Prior to the three months ended September 30, 2017, we were organized on a global functional basis and

we had two reportable segments, which were the North America segment and the Rest of World segment.
Revenues were allocated based on the sales region responsible for the customer relationship. All corporate
and other expenses benefiting both segments were reported in the segment that incurred the expenses,
primarily North Americas.

During the three months ended September 30, 2017, we reorganized our businesses under three

geographic-based segments: the Americas, EMEA and APAC. Our CODM began reviewing segment results
on this basis for purposes of allocating resources and assessing performance. Each segment’s results reflect
the results of our subsidiaries within that geographic region. Revenues reported by a segment reflect the
customer contracts held by that segment, regardless of the geographic location of that customer. Some
segments incur expenses for the benefit of the group or other segments, however these expenses are not
allocated. We now present corporate expenses related to public company reporting costs and other costs that
would not be required by the segments if they were operating on a standalone basis as unallocated corporate
costs. We have retroactively recast our segment results and unallocated corporate expenses for the years
ended September 30, 2017, 2016 and 2015.

Restructuring Activities

In September 2015, we committed to a Global Restructuring Plan, which involved the immediate

elimination of redundant positions and the closure and consolidation of various facilities in an effort to better
align our workforce to the growth areas of our business and to streamline our operations to increase efficiency
and effectiveness. For the year ended September 30, 2016, total cost savings in our selling, general and
administrative expenses were $26.5 million, excluding impact from foreign exchange rate movements, most of
which is recurring and driven by actions under our Global Restructuring Plan. Out of the $26.5 million,
$22.0 million impacted the Americas segment and $4.5 million impacted the EMEA segment. For more
information on our Global Restructuring Plan, see Note 4 of the Notes to the Consolidated Financial
Statements in Part II, Item 8 of this Annual Report on Form 10-K.

Key Components of Our Results of Operations

The following is a discussion of the key line items included in our financial statements for the periods

presented below under the heading ‘‘Results of Operations.’’ These are the measures that management
utilizes to assess our results of operations, anticipate future trends and evaluate risks in our business.

Net Sales

Our net sales include sales of hardware, chemicals, electronic components, bearings, tools and machined

parts, and eliminate all intercompany sales. We also provide certain services to our customers, including
quality assurance, kitting, JIT delivery, CMS, 3PL or 4PL programs and point-of-use inventory management.
However, these services are provided by us contemporaneously with the delivery of the product, and as such,
once the product is delivered, we do not have a post-delivery obligation to provide services to the customer.
Accordingly, the price of such services is generally included in the price of the products delivered to the
customer, and revenue is recognized upon delivery of the product, at which point, we have satisfied our
obligations to the customer. We do not account for these services as a separate element, as the services
generally do not have stand-alone value and cannot be separated from the product element of the
arrangement.

We serve our customers under Contracts, which include JIT contracts and LTAs, and with ad hoc sales.

Under JIT contracts, customers typically commit to purchase specified products from us at a fixed price, on an
as needed basis, and we are responsible for maintaining stock availability of those products. LTAs are
typically negotiated price lists for customers or individual customer sites that cover a range of pre-determined
products, purchased on an as-needed basis. Ad hoc purchases are made by customers on an as-needed basis
and are generally supplied out of our existing inventory. Contract customers often purchase products that are
not captured under their Contract on an ad hoc basis.

(Loss) Income from Operations

(Loss) or income from operations is the result of subtracting the cost of sales and selling, general, and
administrative expenses from net sales, and is used primarily to evaluate our performance and profitability.

The principal component of our cost of sales is product cost, which was 94.4% of our total cost of sales
for the year ended September 30, 2017. The remaining components are freight and expediting fees, import
duties, tooling repair charges, packaging supplies and physical inventory adjustment charges, which
collectively were 5.6% of our total cost of sales for the year ended September 30, 2017.

Product cost is determined by the current weighted average cost of each inventory item, except for

chemical parts for which the first-in, first-out method is used, and the provision, if any, for excess and obsolete
inventory (‘‘E&O’’). The inventory provision is calculated to write-down the value of excess and obsolete
inventory to its net realizable value. We review inventory for excess quantities and obsolescence quarterly. For
a description of our E&O provision policy, see ‘‘—Critical Accounting Policies and Estimates—Inventories.’’
Charges to cost of sales for the E&O provision and related items of $12.9 million, $14.6 million and
$95.1 million were recorded during the years ended September 30, 2017, 2016 and 2015, respectively. We
believe that these amounts appropriately reflect the risk of E&O inventory inherent in our business and the
proper net valuation of inventories. The larger charges of $95.1 million recorded in the year ended
September 30, 2015 as compared to the year ended September 30, 2017 and 2016 are primarily due to
$76.8 million charges relating to inventory previously purchased in connection with a specific program which
was subsequently terminated and deemed to have no alternative use (totaling $33.0 million), and our change
in the estimation methodology by which we determine the E&O provision for our hardware inventory from an
aging based methodology to a consumption based methodology (totaling $43.8 million), see ‘‘—Change in
Estimate—Inventory E&O provision.’’ For a more detailed description of the E&O provision, see Note 5 of
the Notes to Consolidated Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K.

The principal components of our selling, general and administrative expenses are salaries, wages, benefits

and bonuses paid to our employees; stock-based compensation; commissions paid to outside sales
representatives; travel and other business expenses; training and recruitment costs; marketing, advertising and
promotional event costs; rent; bad debt expense; professional services fees (including legal, audit and tax);
and ordinary day-to-day business expenses. Depreciation and amortization expense is also included in selling,
general and administrative expenses, and consists primarily of scheduled depreciation for leasehold
improvements, machinery and equipment, vehicles, computers, software and furniture and fixtures.
Depreciation and amortization also includes intangible asset amortization expense.

Other Expenses

Interest Expense, Net. Interest expense, net consists of the interest we pay on our long-term debt, fees on
our revolving facility (as defined below under ‘‘—Liquidity and Capital Resources—Credit Facilities—Sixth
Amendment to Senior Secured Credit Facilities’’) and our line-of-credit and deferred debt issuance costs, net
of interest income.

Other Income (Expense), Net. Other income (expense), net is primarily comprised of foreign exchange

gain or loss associated with transactions denominated in currencies other than the respective functional
currency of the reporting subsidiary.

Critical Accounting Policies and Estimates

The methods, estimates and judgments we use in applying our most critical accounting policies have a
significant impact on the results we report in our financial statements. We base our estimates on historical
experience and on assumptions that we believe to be reasonable under the circumstances. Our experience and
assumptions form the basis for our judgments about the carrying value of assets and liabilities that are not
readily apparent from other sources. We evaluate our estimates and judgments on an on-going basis and may
revise our estimates and judgments as circumstances change. Actual results may materially differ from what
we anticipate, and different assumptions or estimates about the future could materially change our reported
results. We believe the following accounting policies are the most critical in that they significantly affect our
financial statements, and they require our most significant estimates and complex judgments.

Inventories

Our inventory is comprised solely of finished goods. Inventories are stated at the lower of cost or market

(LCM). The method by which amounts are removed from inventory are weighted average cost for all
inventory, except for chemical parts for which the first-in, first-out method is used.

We charge cost of sales for inventory provisions to write down our inventory to the lower of cost or
estimated market value or to write-down E&O inventory to its estimated net realizable value. Most of our
inventory provisions relate to the write-down of excess quantities of products, based on our inventory levels
compared to assumptions about future demand and market conditions. Once inventory has been
written-down, it creates a new cost basis for the inventory that is not subsequently written-up. The process for
evaluating E&O inventory often requires us to make subjective judgments and estimates concerning future
sales levels, quantities and prices at which such inventories will be able to be sold in the normal course of
business.

The components of our inventory are subject to different risks of excess quantities or obsolescence. Our

hardware inventory, which does not expire or have a pre-determined shelf life, bears a higher risk of our
having excess quantities than risk of becoming obsolete due to spoilage. However, our chemical inventory
becomes obsolete when it has aged past its shelf-life, cannot be recertified and is no longer usable or able to
be sold, or the inventory has been damaged on-site or in-transit. In such instances, a full write-down is taken
against such inventory.

Demand for our products can fluctuate significantly. Our estimates of future product demand and selling

prices may prove to be inaccurate, in which case we may have understated or overstated the write-down
required for E&O inventories. In the future, if our inventories are determined to be valued higher than LCM,
we will be required to reduce the value of such inventories to LCM and recognize the differences in our cost
of goods sold at the time of such determination. Conversely, if our inventories are determined to be valued
below LCM, we may have over-reported our costs of goods sold in previous periods and will be required to
defer the recognition of such additional operating income until those inventories are sold. Charges to cost of
sales for E&O provisions and related items were $12.9 million, $14.6 million and $95.1 million in the years
ended September 30, 2017, 2016 and 2015, respectively. We believe that these amounts appropriately reflect
the valuation risk of E&O inventory inherent in our business.

The following table provides a summary of the Company’s E&O inventory provision for the years ended

September 30, 2017, 2016 and 2015 (in thousands).

E&O provision from normal course of business . . . . . . . . . . . . . . . . . . . . . .
Strategy change (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventory for specific program (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net E&O expense recognized . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2017
12,900
—
—
12,900

2016
14,615
—
—
14,615

2015
18,208
43,844
33,000
95,052

(1) Historically, management’s strategy was to purchase inventory in large quantities to capture purchase discounts and rebates, hold
inventory for long periods of time and meet customer ad hoc and unplanned inventory needs. As a result, we maintained parts on
hand with low annual sales but large cumulative sales over many years and historically scrapped very little inventory. The inventory
would typically be sold well in excess of cost.
In May 2015, we hired a new Chief Executive Officer and Chief Financial Officer, who implemented a different strategy with
respect to the management of our inventory. This change in strategy was driven by a change in the emphasis of our business towards
a higher percentage of revenue coming from recurring customer contracts, which allows for more predictable buying patterns and
holding inventory for a shorter period of time and at levels closer to current demand. As a result of this change, during the quarter
ended September 30, 2015, we updated our E&O provision estimate, reflecting the new strategy shift to hold inventory at lower
quantity levels. This estimate is performed at the individual SKU level, and a shorter sales forecast period than was previously
applied before the strategy change resulted in an increase in provision of $43.8 million.

(2) During the quarter ended September 30, 2015, we wrote off $33.0 million of inventory related to the termination of a contract

specific to a large commercial customer’s new aircraft model. We had entered into two arrangements in 2009 and 2010 to support
this program, and had purchased inventory for the program over a period of years beginning in 2009.

During the fiscal year ended September 30, 2014, we were notified that this program would be modified. Due to this notification,
our management assessed the need for an E&O provision on the related inventory at each subsequent reporting period. For each
reporting period up to the quarter ended June 30, 2015, we determined that a charge was not necessary due to the following
alternatives that were available: (i) negotiations with the customer regarding the extent of the modification were continuing, (ii) the
platform being supported continued to have a strong order backlog and the parts held in our inventory were used in current
production, (iii) we were in negotiations with the customer and had experienced a history of favorable negotiations with the
customer after a contract termination to recover the cost of the inventory purchased and (iv) we were exploring opportunities to sell
the inventory to other suppliers of this customer.

During the quarter ended September 30, 2015, we were informed by the customer that they had a substantial supply of the
inventory in question. Based on the analysis performed by us and despite on-going negotiations with the customer, we determined
that other options were no longer probable, including the potential sale of the inventory to other suppliers of the customer. As a
result, the quantity on hand was deemed not saleable and therefore was written down by $33.0 million to its net realizable value.

Goodwill and Indefinite-Lived Intangible Assets

Goodwill represents the excess of the consideration paid over the fair value of the net assets acquired in a

business combination. Goodwill and indefinite-lived intangible assets acquired in a business combination are
not amortized, but instead tested for impairment at least annually or more frequently should an event occur
or circumstances indicate that the carrying amount may be impaired. Such events or circumstances may be a
significant change in business climate, economic and industry trends, legal factors, negative operating
performance indicators, significant competition, changes in strategy, or disposition of a reporting unit or a
portion thereof. Goodwill and indefinite lived intangibles impairment testing is performed at the reporting
unit level on July 1 of each year and when circumstances change that might indicate impairment.

We test goodwill for impairment by performing a qualitative assessment process, or using a two-step
quantitative assessment process. If we choose to perform a qualitative assessment process and determine it is
more likely than not (that is, a likelihood of more than 50 percent) that the carrying value of the net assets is
more than the fair value of the reporting unit, the two-step quantitative assessment process is then performed;
otherwise, no further testing is required. Factors utilized in the qualitative assessment include the following:
macroeconomic conditions; industry and market considerations; cost factors; overall financial performance;
Wesco entity specific operating results and other relevant Wesco entity specific events. We may elect not to
perform the qualitative assessment process and, instead, proceed directly to the two-step quantitative
assessment process. For reporting units where the two-step quantitative assessment process is performed, the
first step involves comparing the carrying value of net assets, including goodwill, to the fair value of the
reporting unit. If the fair value exceeds its carrying amount, goodwill is not considered impaired and the
second step of the process is unnecessary. If the carrying amount of a reporting unit’s goodwill exceeds its fair
value, the second step measures the impairment loss, if any.

The first step identifies potential impairment by comparing the fair value of a reporting unit with its
carrying amount, including goodwill. As a result of our operating segment realignment discussed in Note 21 of
the Notes to Consolidated Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K, the

composition of our reporting units for the evaluation of goodwill impairment has changed. Historically, our
reporting units used to be one level below our operating segments, which consisted of North America
Hardware, North America Chemical, Rest-Of-World Hardware and Rest-Of-World Chemical. Effective
July 1, 2017, we identified one reporting unit for each of our three new segments, which are Americas, EMEA
and APAC. Goodwill was reassigned to the new reporting units using a relative fair value allocation approach.
Due to the change in reporting units, we are required to test goodwill impairment for the reporting units
before this change, which is satisfied by our event-driven goodwill impairment test performed on June 30,
2017.

The estimates of fair value of a reporting unit are determined based on a discounted cash flow analysis

and market earnings multiples. A discounted cash flow analysis requires us to make various judgmental
assumptions, including assumptions about future cash flows, growth rates and discount rates. The assumptions
about future cash flows and growth rates are based on the forecast and long-term business plans of each
reporting unit. Discount rate assumptions are based on an assessment of the risk inherent in the future cash
flows of the respective reporting units. If the fair value exceeds the carrying value of a reporting unit, goodwill
is not considered impaired and the second step of the test is unnecessary. If the carrying amount of a
reporting unit’s goodwill exceeds the fair value of a reporting unit, the second step measures the impairment
loss, if any.

The second step compares the implied fair value of goodwill with the carrying amount of that goodwill.

The implied fair value of goodwill is determined in the same manner as the amount of goodwill recognized in
a business combination. The implied fair value of the reporting unit’s goodwill is calculated by creating a
hypothetical balance sheet as if the reporting unit had just been acquired. This balance sheet contains all
assets and liabilities recorded at fair value (including any intangible assets that may not have any
corresponding carrying value in our balance sheet). The implied value of the reporting unit’s goodwill is
calculated by subtracting the fair value of the net assets from the fair value of the reporting unit. If the
carrying amount of goodwill exceeds the implied fair value of that goodwill, an impairment loss is recognized
in an amount equal to that excess.

The preparation of our internal forecasts requires significant judgments, including the estimation of the
long-term rate of growth for our business, estimation of the useful life over which cash flows will occur, cost
containment activities, changes in working capital, growth rates, discount rates, and other factors. Changes in
these factors could significantly change our internal forecasts, which could significantly change the amount of
impairment recorded, if any.

We performed our Step 1 goodwill impairment tests on July 1, 2016. The results of these tests indicated

that the estimated fair values of our reporting units exceeded their carrying values. For the North America
Hardware and North America Chemical reporting units, the fair value was in excess of carrying value by 29%
and 15%, respectively. Since 2016, North America Hardware and North America Chemical reporting units
have underperformed relative to the forecasts included in the Step 1 analysis; however, our qualitative
impairment assessments performed on December 31, 2016 and March 31, 2017 did not indicate it was more
likely than not that the carrying value exceeded the fair value of the two reporting units. During the third
quarter of fiscal 2017, our stock price experienced a sustained decline in value. Additionally, during June
2017, we reassessed our five-year outlook following the appointment of our new CEO in May 2017. The cash
flows in this updated five-year forecast indicated that it was more likely than not that the goodwill in the
North America Hardware and North America Chemical reporting units was impaired. These events triggered
our decision to perform a quantitative goodwill impairment test as of June 30, 2017.

We performed our Step 1 goodwill impairment test on June 30, 2017 on all four reporting units. The
results of these tests indicated that the North America Hardware and North America Chemical reporting
units were impaired. Lower projected revenue growth and operating results reflected changes in assumptions
related to organic growth rates, market trends, business mix, cost structure and other expectations about the
anticipated short-term and long-term operating results of these two reporting units, resulting in lower
estimated fair values. As a result, we proceeded to Step 2 of the goodwill impairment analysis using the most
appropriate valuation methods and compared the implied value of goodwill with the carrying value of the
goodwill for each of the impaired reporting units.

In applying the Step 2 analysis to the North America Hardware and North America Chemical reporting

units, we determined that the fair value of certain identifiable intangibles including trademarks, customer
relationships, and technology exceeded their carrying values by a significant amount which further reduced
the implied fair value of goodwill. We recorded a non-cash impairment charge of $240.6 million for North
America Hardware and $70.5 million for North America Chemical, for a total impairment charge of
$311.1 million in the three months ended June 30, 2017 to reduce each reporting unit’s carrying value
goodwill to its implied fair value. The remaining goodwill for the North America Hardware and North
America Chemical reporting units was $51.4 million and $153.4 million, respectively, as of June 30, 2017, and
after recording the impairment charges, the fair values of these reporting units exceeded their carrying values
by 8% and 9%, respectively. The Rest of World Hardware and Rest of World Chemical reporting units were
not impaired with estimated fair values of these reporting units exceeding their carrying values by 105% and
22%, respectively.

On July 1, 2017, we performed our Step 1 goodwill impairment tests on our three new reporting units,

Americas, EMEA and APAC. The results of these tests indicated that the estimated fair values of our
reporting units exceeded their carrying values. For the Americas, EMEA and APAC reporting units, the fair
value was in excess of carrying value by 12%, 61% and 28%, respectively. The Americas reporting unit, which
had the least headroom at 12%, had goodwill of $204.2 million as of September 30, 2017. The fair value of the
Americas reporting unit was determined based on a discounted cash flow analysis and market earnings
multiples. The key assumptions used in determining fair value were revenue growth rates, projected operating
margins, and projected cash flows. We determined the key assumptions by considering our recent financial
performance and trends, industry growth projections, existing customer contracts, current sales pipeline and
the timing and amount of future contract renewals. The preparation of our fair value estimate requires
significant judgments. In the event that market earnings multiples deteriorate or our future financial
performance falls short of our projections due to internal operating factors, economic recession, changes in
government regulations, deterioration of industry trends, increased competition, or other factors causing our
revenue growth to be slower than anticipated or our margins or cash flow to deteriorate, we may be required
to perform an interim impairment analysis with respect to the carrying value of goodwill for this reporting unit
prior to our annual test. If the analysis indicates the fair value of the Americas reporting unit has fallen by
more than the 12% headroom, we may be required to take a non-cash impairment charge to reduce the
carrying value of goodwill or other assets.

Revenue Recognition

We recognize product and service revenue when (1) persuasive evidence of an arrangement exists,
(2) title transfers to the customer, (3) the sales price charged is fixed or determinable and (4) collection is
reasonably assured. In instances where title does not pass to the customer upon shipment, we recognize
revenue upon delivery or customer acceptance, depending on the terms of the sales contract.

We report revenue on a gross or net basis based on management’s assessment of whether we act as a
principal or agent in the transaction. We assess whether we act as a principal in the transaction or as an agent
acting on behalf of others by considering such factors as to whether or not we obtain control of the product,
the form of consideration we receive, our ability to influence pricing, and our performance obligations. Based
upon these criteria, if we are the principal in the transaction and have the risks and rewards of ownership, the
transactions are recorded as gross in the consolidated statements of comprehensive income. If we do not act
as a principal in the transaction, the transactions are recorded on a net basis in the consolidated statements of
comprehensive income. The majority of our revenue is recorded on a gross basis with the exception of certain
gas, energy and chemical manager service contracts that are recorded as net revenue.

We also enter into sales rebate and profit sharing arrangements with our customers. Such customer
incentives are accounted for as a reduction to gross sales and recorded based upon estimates at the time
products are sold. These estimates are based upon historical experience for similar programs and products.
We review such rebates and profit sharing arrangements on an ongoing basis and accruals are adjusted, if
necessary, as additional information becomes available.

Management provides allowances for credits and returns, based on historic experience, and adjusts such

allowances as considered necessary. To date, such provisions have been within the range of management’s
expectations and the allowance established.

Income Taxes

We recognize deferred tax liabilities and assets for the expected future tax consequences of temporary

differences between the carrying amounts and the tax bases of assets and liabilities. Deferred income tax
assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in
which these temporary differences are expected to be recovered or settled. The effect of a change in tax rates
on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date. A
valuation allowance is established, when necessary, to reduce net deferred tax assets to the amount expected
to be realized. The ultimate realization of deferred tax assets depends upon the generation of future taxable
income during the periods in which temporary differences become deductible or includible in taxable income.
We consider projected future taxable income and tax planning strategies in our assessment. Our foreign
subsidiaries are taxed in local jurisdictions at local statutory rates. The Company includes interest and
penalties related to income taxes, including unrecognized tax benefits, within income tax expense.

We determine whether it is more likely than not that some or all of the deferred tax assets will not be

realized. We have recorded valuation allowances of $18.6 million and $5.5 million as of September 30, 2017
and 2016, respectively, against certain deferred tax assets, which consist primarily of foreign tax credits and
Haas foreign net operating losses. The valuation allowances are based on our estimates of taxable income by
jurisdictions in which we operate and the period over which our deferred tax assets will be recoverable. If
actual results differ from these estimates or if we revise these estimates in future periods, we may need to
adjust the valuation allowances which could materially impact our financial position and results of operations.

Stock-Based Compensation

We account for all stock-based compensation awards to employees and members of our Board of
Directors based upon their fair values as of the date of grant using a fair value method and recognize the fair
value of each award as an expense over the requisite service period using the graded vesting method for
awards with performance conditions and the straight-line method for awards with service conditions only.

For purposes of calculating stock-based compensation, we estimate the fair value of stock options using a

Black-Scholes option pricing model, which requires the use of certain subjective assumptions including
expected term, volatility, expected dividend, risk-free interest rate, and the fair value of our common stock.
These assumptions generally require significant judgment.

We estimate the expected term of employee options using the average of the time-to-vesting and the
contractual term. We derive our expected volatility from the historical volatilities of several unrelated public
companies within our industry because we have little information on the volatility of the price of our common
stock since we have limited trading history. When making the selections of our industry peer companies to be
used in the volatility calculation, we also consider the size and financial leverage of potential comparable
companies. These historical volatilities are weighted based on certain qualitative factors and combined to
produce a single volatility factor. Our expected dividend rate is zero, as we have never paid any dividends on
our common stock and do not anticipate any dividends in the foreseeable future. We base the risk-free
interest rate on the U.S. Treasury yield in effect at the time of grant for zero coupon U.S. Treasury notes with
maturities approximately equal to each grant’s expected life. For awards with performance conditions, we
estimate the probability that the performance condition will be met.

Management estimates a forfeiture rate for each grant of awards based on its judgment and expectations
of employee turnover behavior and other factors. Quarterly actual forfeiture could have a significant effect on
reported stock-based compensation expense, as the cumulative effect of adjusting the amortization of
stock-based compensation expense is recognized in the period when the forfeiture occurs.

The following table summarizes the amount of stock-based compensation expense recognized in our

consolidated statements of comprehensive income (in thousands):

Stock-based compensation expense . . . . . . . . . . . . .

2017

$7,335

2016

$8,490

2015

$7,891

If any of the factors change and/or we employ different assumptions, stock-based compensation expense

may differ significantly from what we have recorded in the past. If there is a difference between the
assumptions used in determining stock-based compensation expense and the actual factors that become

known over time, we may change the input factors used in determining stock-based compensation costs for
future grants. Additionally, we may change the estimates that the performance obligations may be met. These
changes, if any, may materially impact our results of operations in the period such changes are made. We
expect to continue to grant stock options in the future, and to the extent that we do, our actual stock-based
compensation expense recognized in future periods will likely increase.

Results of Operations

Consolidated

Consolidated Result of Operations

2017

Years Ended September 30,
2016
(dollars in thousands)

2015

Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$1,429,429

$1,477,366

$1,497,615

Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selling, general & administrative expenses . . . . . . . . . . . . . . . . . . .
Goodwill impairment charge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(Loss) income from operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other income, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(Loss) income before income taxes. . . . . . . . . . . . . . . . . . . . . . . . . .
Income tax benefit (provision) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net (loss) income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 361,907
259,588
311,114
(208,795)
(39,821)
369
(248,247)
10,901
$ (237,346)

$ 393,692
234,942
—
158,750
(36,901)
3,741
125,590
(34,212)
91,378

$ 324,495
267,089
263,771
(206,365)
(37,092)
1,841
(241,616)
86,872
$ (154,744)

(as a percentage of net sales, numbers rounded)

Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

100%

25.3%
18.2%
21.7%
(14.6)%
(2.8)%
—%
(17.4)%
0.8%
(16.6)%

26.6%
15.9%
—
10.7%
(2.5)%
0.3%
8.5%
(2.3)%
6.2%

21.7%
17.8%
17.7%
(13.8)%
(2.4)%
0.1%
(16.1)%
5.8%
(10.3)%

Year ended September 30, 2017 compared with the year ended September 30, 2016

Net Sales

Consolidated net sales decreased $48.0 million, or 3.2%, to $1,429.4 million for the year ended

September 30, 2017 compared with $1,477.4 million for the year ended September 30, 2016. Foreign currency
translation impacts reduced sales by $22.9 million. Excluding foreign currency translation impacts, net sales
for the year ended September 30, 2017 decreased $25.1 million compared to the same period in the prior year.
The $25.1 million decrease was due to a decrease in ad hoc sales of $27.7 million, partially offset by an
increase in Contract sales of $2.6 million. The decline in ad hoc sales was primarily due to production
schedule changes and customer service issues. Contract sales for the year ended September 30, 2016 included
$9.8 million related to a large commercial hardware contract that ended on March 31, 2015. Excluding this
$9.8 million, which did not repeat in the corresponding 2017 period, Contract sales increased $12.4 million
due to significant new Contracts partially offset by lost Contracts and declines on existing and renewed
Contracts. The reduction in customer production days and customer service issues also affected Contract
sales; however, other increases in Contract sales more than offset this impact. Ad hoc and Contract sales as a
percentage of net sales represented 24% and 76%, respectively, for the year ended September 30, 2017 as
compared to 25% and 75%, respectively, for the same period in the prior year.

(Loss) Income from Operations

Consolidated loss from operations was $208.8 million for the year ended September 30, 2017 due to the

non-cash goodwill impairment charge of $311.1 million partially offset by $102.3 million in income from
operations. Income from operations excluding the goodwill impairment charge decreased $56.5 million, or
35.5%, compared with $158.8 million income from operations for the year ended September 30, 2016. Loss
from operations was 14.6% of net sales for the year ended September 30, 2017. Excluding the goodwill
impairment, income from operations as a percentage of net sales was 7.2% compared to an income from
operations of 10.7% of net sales for the year ended September 30, 2016, a decrease of 3.5 percentage points.
Average gross margins decreased 1.3 percentage points and SG&A as a percent of net sales increased by
2.3 percentage points.

The $56.5 million decrease in income from operations excluding the goodwill impairment charge was

comprised of a decrease in gross profit of $31.8 million and an increase in SG&A expenses of $24.7 million.
Foreign currency translation had a $7.2 million negative impact on gross profit. The remaining $24.6 million
decrease in gross profit was primarily driven by the decrease in sales on a constant currency basis and decline
in gross margins. The 1.3 percentage point decline in gross margins was due primarily to changes in product
mix, a decrease in ad hoc margins and an increase in provisions for customer claims compared to the same
period of the prior year.

The $29.0 million increase in SG&A expenses, excluding a benefit of $4.3 million related to the impact of

foreign currency translation, largely reflected increases in payroll and other personnel related costs of
$25.3 million, IT related costs of $2.5 million, travel expenses of $1.9 million, rent expense of $1.7 million,
depreciation expense of $1.3 million, repair and maintenance costs of $1.0 million and bad debt expenses of
$1.0 million. The increase in payroll and other personnel related costs was due in part to increased staffing
required to begin implementing new contracts, and, to a lesser extent, to other headcount increases, wage
increases, and higher incentive compensation than in fiscal 2016. These increases were partially offset by
decreases in professional fees of $2.9 million, commissions of $1.2 million, non-cash stock-based
compensation of $1.1 million and property and liability insurance of $1.0 million.

Changes in unallocated corporate costs are included above, which were $0.2 million lower than the prior

year, primarily driven by decreases in non-cash stock-based compensation of $1.8 million and professional
fees of $1.7 million, partially offset by an increase in payroll and other personnel related costs of $3.4 million
including $1.7 million of severance costs.

Interest Expense, Net

Interest expense, net was $39.8 million for the year ended September 30, 2017, which increased
$2.9 million, or 7.9%, compared to the year ended September 30, 2016. The increase was primarily due to
$2.3 million of deferred debt issuance costs written off in the year ended September 30, 2017 as debt
extinguishment loss related to the Credit Agreement (as defined and described in Note 11 of Notes to the
Consolidated Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K), as well as
additional interest expense from our borrowing against the revolving facility, partially offset by a lower
interest expense due to a reduction of the term loans compared to the same period of the prior year.

Other Income, Net

Other income, net was $0.4 million for the year ended September 30, 2017, which decreased by

$3.4 million compared to the year ended September 30, 2016. The decline was primarily related to a decrease
in foreign currency exchange gain associated with transactions denominated in currencies other than the
respective functional currency of the reporting subsidiary.

Benefit (Provision) for Income Taxes

The income tax benefit was $10.9 million for the year ended September 30, 2017, compared to the
income tax provision of $34.2 million for the year ended September 30, 2016. Our effective tax rate was 4.4%
and 27.2% for the years ended September 30, 2017 and 2016, respectively. The decrease in our effective tax
rate resulted primarily from (1) the $311.1 million goodwill impairment charge, a portion of which is
permanently not deductible for tax purposes, (2) the recording of $37.5 million of U.S. taxes on certain

previously undistributed foreign earnings, and (3) the establishment of a $15.1 million valuation allowance
with respect to a deferred tax asset for foreign tax credits. Refer to Note 15 of the Notes to Consolidated
Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K for additional information about
our benefit for income taxes for the year ended September 30, 2017. Management’s decision to record a
$37.5 million U.S. tax charge on certain undistributed foreign earnings will allow for the future repatriation of
up to $126.5 million of foreign earnings to the U.S. without an expected incremental U.S. tax provision impact.

Net (Loss) Income

We reported a net loss of $237.3 million for the year ended September 30, 2017, compared to a net
income of $91.4 million for the year ended September 30, 2016. Net loss was 16.6% of net sales for the year
ended September 30, 2017, as compared to net income of 6.2% of net sales for the year ended September 30,
2016. This decrease in net income was primarily driven by a non-cash goodwill impairment charge of
$311.1 million, a decrease in gross profit of $31.8 million and an increase in SG&A expenses of $24.7 million,
partially offset by a benefit for income taxes, as discussed above.

Year ended September 30, 2016 compared with the year ended September 30, 2015

Net Sales

Consolidated net sales decreased $20.2 million, or 1.4%, to $1,477.4 million for the year ended

September 30, 2016, compared with $1,497.6 million for the year ended September 30, 2015. Foreign currency
translation impacts reduced sales by $30.2 million. Excluding foreign currency translation impacts, net sales
for the year ended September 30, 2016 increased $10.0 million compared to the same period in the prior year.
The $10.0 million increase was primarily due to Contract sales growth of $45.8 million, which was attributable
to increased customer production rates and expanded content, as well as new business and scope expansion
on commercial and military Contracts. The Contract sales growth was partially offset by a $26.4 million
decline in sales due to the end of a large commercial contract on March 31, 2015 and a decrease of ad hoc
sales of $9.6 million during the year ended September 30, 2016. Ad hoc and Contract sales as a percentage of
net sales represented 25% and 75%, respectively, for the year ended September 30, 2016 as compared to 26%
and 74%, respectively, for the year ended September 30, 2015.

Income (Loss) from Operations

Consolidated income from operations was $158.8 million for the year ended September 30, 2016, as

compared to a loss from operations of $206.4 million for the year ended September 30, 2015. Income from
operations was 10.7% of net sales for the year ended September 30, 2016, compared to loss from operations
of 13.8% of net sales for the year ended September 30, 2015. The $365.2 million increase in income from
operations was primarily due to a decrease in goodwill impairment charge of $263.8 million and a decrease in
E&O inventory provision of $80.5 million. For the year ended September 30, 2016, we did not have goodwill
impairment as compared to a $263.8 million goodwill impairment charge recorded under our Americas
segment in the prior year (see further discussion above under ‘‘—Critical Accounting Policies and
Estimates—Goodwill and Indefinite-Lived Intangible Assets’’). The E&O inventory provision was
$14.6 million for the year ended September 30, 2016 as compared to $95.1 million for the prior year. The
$80.5 million decrease in E&O inventory provision was primarily driven by the strategy change in fiscal 2015
that increased expense by $43.8 million and by a specific program inventory provision in fiscal 2015 of
$33.0 million (see further discussion above under ‘‘—Critical Accounting Policies and
Estimates—Inventories’’).

Excluding goodwill impairment and E&O inventory provision, income from operations as a percentage

of net sales was 11.7% for the year ended September 30, 2016, compared to 10.2% for the year ended
September 30, 2015, an increase of 1.5 percentage points. Average gross margins decreased 0.4 percentage
points and SG&A as a percent of net sales decreased by 1.9 percentage points. Excluding goodwill
impairment and E&O inventory provision, income from operations increased by $20.9 million for the year
ended September 30, 2016 as compared to the prior year, which was primarily due to a decrease in SG&A
expenses of $32.1 million, partially offset by a decrease of $11.3 million in gross profit (excluding the impact
from E&O provision). The decrease in SG&A expenses of $26.5 million, after adjusting for the $5.6 million
impact of foreign currency translation, was largely driven by decreases in payroll and other personnel related

costs, professional fees and bad debt of $21.8 million, $4.0 million and $1.4 million, respectively. These
decreases were partially offset by an increase in software and hardware maintenance costs of $1.8 million.
After adjusting for the $9.9 million impact of foreign currency translation and the impact from the E&O
charges, the decrease in gross profit was $1.4 million which was largely driven by the conclusion of a large
commercial contract, lower chemical margins due to commodity-based cost and pricing changes on certain
pass through Contracts, offset by an increase in Contract net sales on a constant currency basis.

Changes in unallocated corporate costs are included above, which were $2.7 million lower than the prior
year, primarily driven by decreases in professional fees of $2.8 million and payroll and other personnel related
costs of $0.3 million, partially offset by an increase in non-cash stock-based compensation of $0.4 million.

Interest Expense, Net

Interest expense, net of $36.9 million for the year ended September 30, 2016 decreased $0.2 million, or
0.5%, compared to the year ended September 30, 2015. The decrease was primarily due to the repayment of
our long-term debt during the year ended September 30, 2016, partially offset by periodical interest swap
costs that commenced after June 30, 2015 and an acceleration in the amortization of deferred debt issuance
costs as a result of the repayment of our long-term debt during the year ended September 30, 2016.

Other Income (Expense), Net

Other income, net of $3.7 million for the year ended September 30, 2016 increased by $1.9 million
compared to the year ended September 30, 2015. The increase was primarily related to higher net foreign
currency exchange gains associated with transactions denominated in currencies other than the respective
functional currency of the reporting subsidiary.

(Provision) Benefit for Income Taxes

The income tax provision was $34.2 million for the year ended September 30, 2016 compared to an
income tax benefit of $86.9 million for the year ended September 30, 2015. Our effective tax rate was 27.2%
and 36.0% for the years ended September 30, 2016 and 2015, respectively. The decrease in our effective tax
rate resulted primarily from (1) a decrease in U.S. pretax income, which is subject to a higher tax rate and an
increase in foreign pretax income which is subject to a lower tax rate; and (2) the settlement of a tax audit;
and (3) the foreign currency loss related to a distribution of previously taxed foreign earnings. Refer to Note
15 of the Notes to Consolidated Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K
for additional information about our benefit for income taxes for the year ended September 30, 2016.

Net Income (Loss)

We reported a net income of $91.4 million for the year ended September 30, 2016, compared to net loss
of $154.7 million for the year ended September 30, 2015. This increase in net income was primarily driven by
a non-cash goodwill impairment charge of $263.8 million in the year ended September 30, 2015, an increase in
gross profit of $69.2 million and a decrease in SG&A expenses of $32.1 million, partially offset by an increase
in income taxes, as discussed above.

Americas Segment

Americas Results of Operations

2017

Years Ended September 30,
2016
(dollars in thousands)
$1,177,496

2015

Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$1,142,366

$1,191,928

$ 284,285
189,383
308,403
$ (213,501)

$ 301,706
167,547
—
$ 134,159

$ 251,197
187,650
260,798
$ (197,251)

Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

100%

24.9%
16.6%
27.0%
(18.7)%

100%

25.6%
14.2%
—
11.4%

100%

21.1%
15.7%
21.9%
(16.5)%

(as a percentage of net sales, numbers rounded)

Year ended September 30, 2017 compared with the year ended September 30, 2016

Net Sales

Net sales for our Americas segment decreased $35.1 million, or 3.0%, to $1,142.4 million for the year

ended September 30, 2017, compared with $1,177.5 million for the year ended September 30, 2016. Foreign
currency translation impacts reduced sales by $3.3 million. Excluding foreign currency translation impacts, net
sales for the year ended September 30, 2017 decreased $31.8 million compared to the same period in the prior
year. The $31.8 million decline was due to a decrease in ad hoc sales of $34.9 million, slightly offset by an
increase in Contract sales of $3.1 million. The $34.9 million decline in ad hoc sales was primarily due to
production schedule changes and customer service issues. Contract sales for the year ended September 30,
2016 included $9.8 million related to a large commercial hardware contract that ended on March 31, 2015.
Excluding this $9.8 million, which did not repeat in the corresponding 2017 period, Contract sales increased
$12.9 million due to increases in contract volume and new contracts, net of contracts losses.

(Loss) Income from Operations

Loss from operations for our Americas segment for the year ended September 30, 2017 was

$213.5 million due to the non-cash goodwill impairment charge of $308.4 million partially offset by
$94.9 million in income from operations. Income from operations excluding goodwill impairment decreased
$39.3 million, or 29.3%, compared with $134.2 million of income from operations for the same period in the
prior year. Excluding the goodwill impairment charge, income from operations as a percentage of net sales
was 8.3% for the year ended September 30, 2017, compared to 11.4% for the year ended September 30, 2016,
a decline of 3.1 percentage points. Average gross margins decreased 0.7 percentage points and SG&A as a
percent of net sales increased by 2.4 percentage points.

The $39.3 million decrease in income from operations excluding goodwill impairment charge was
comprised of a decrease in gross profit of $17.4 million and an increase in SG&A expenses of $21.9 million.
The foreign currency translation impact on gross profit was a negative $1.3 million. The remaining
$16.1 million decline in gross profit was primarily driven by lower net sales, and a decrease in gross margins
caused by changes in sales mix, partially offset by lower write downs of E&O inventory. The 0.7 percentage
point decline in gross margins was due primarily to changes in product mix, a decrease in ad hoc margins and
an increase in provisions for customer claims compared to the same period of the prior year. The increase in
SG&A expenses was $22.8 million after adjusting for the $0.9 million favorable foreign currency translation
impact, which was largely driven by increases in payroll and other personnel related costs of $17.5 million, IT
related costs of $2.5 million, rent expense of $1.5 million, bad debt expense of $1.3 million, travel expenses of
$1.1 million, depreciation expense of $1.1 million, non-cash stock-based compensation of $0.7 million and
repair and maintenance cost of $0.7 million. These increases were partially offset by decreases in professional
fees of $1.3 million, commission of $1.1 million and property liability insurance of $1.0 million.

Year ended September 30, 2016 compared with the year ended September 30, 2015

Net Sales

Net sales for our Americas segment declined $14.4 million, or 1.2%, to $1,177.5 million for the year
ended September 30, 2016, compared with $1,191.9 million for the year ended September 30, 2015. Foreign
currency translation impacts reduced 2016 sales by $8.7 million. Excluding foreign currency translation
impacts, net sales for the year ended September 30, 2016 decreased $5.7 million compared to the same period
in the prior year. The $5.7 million decrease was primarily due to an $18.4 million decline in sales due to the
end of a large commercial contract on March 31, 2015 and a $23.7 million decline in ad hoc sales. These
declines were partially offset by Contract sales growth of $36.4 million, primarily due to increased customer
production rates and expanded content, as well as new business and scope expansion on commercial and
military Contracts.

Income (Loss) from Operations

Income from operations for our Americas segment for the year ended September 30, 2016 was

$134.2 million compared to a loss from operations of $197.3 million for the year ended September 30, 2015.
Income from operations was 11.4% of net sales for the year ended September 30, 2016, compared to a loss
from operations of 16.5% of net sales for the year ended September 30, 2015. The $331.5 million increase in
income from operations primarily reflects a goodwill impairment charge of $260.8 million and a decrease in
E&O provision of $67.2 million, driven primarily by the strategy change in fiscal 2015 and by the specific
program inventory provision in fiscal 2015 as discussed above in our analysis of consolidated income from
operations. Excluding goodwill impairment charge and E&O inventory provision, income from operations as
a percentage of net sales was 12.8% for the year ended September 30, 2016, compared to 12.3% for the year
ended September 30, 2015, an increase of 0.5 percentage points. Excluding the impact of the goodwill
impairment charge and E&O inventory provision, income from operations increased by $3.4 million for the
year ended September 30, 2016 as compared to the prior year, which was due primarily to a decrease in
SG&A expenses of $20.1 million, partially offset by a decline of $16.7 million in gross profit (that excludes
E&O provision). Average gross margins decreased 1.1 percentage points and SG&A as a percent of net sales
decreased by 1.5 percentage points.

Excluding goodwill impairment charge and E&O inventory provision, income from operations increased
by $3.4 million for the year ended September 30, 2016 as compared to the prior year which was due primarily
to a decrease in SG&A expenses of $20.1 million, partially offset by a decrease of $16.7 million in gross profit
(that excludes E&O provision). The decrease in SG&A expenses was $18.0 million after adjusting for the
$2.1 million impact of foreign currency translation, which was largely driven by decreases in payroll and other
personnel related costs, bad debt and professional fees of $16.5 million, $2.2 million and $1.1 million,
respectively. These decreases were partially offset by an increase in software and hardware maintenance costs
of $1.7 million. The decrease in gross profit was $13.9 million, after adjusting for the $2.8 million impact of
foreign currency translation and the impact from the E&O charges, which was largely driven by the
conclusion of a large commercial contract and lower chemical margins due to commodity-based cost and
pricing changes on certain pass through Contracts.

EMEA Segment

EMEA Results of Operations

2017

Years Ended September 30,
2016
(dollars in thousands)

2015

Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$258,072

$274,952

$288,276

Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selling, general & administrative expenses . . . . . . . . . . . . . . . . . . .

Income from operations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 70,209
45,071

$ 25,138

$ 86,096
42,215

$ 43,881

$ 69,956
53,284

$ 16,672

Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

100%

(as a percentage of net sales, numbers rounded)

Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selling, general & administrative expenses . . . . . . . . . . . . . . . . . . .

Income from operations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

27.2%
17.5%

9.7%

31.3%
15.3%

16.0%

24.3%
18.5%

5.8%

Year ended September 30, 2017 compared with the year ended September 30, 2016

Net Sales

Net sales for our EMEA segment decreased $16.9 million, or 6.1%, to $258.1 million for the year ended

September 30, 2017, compared with $275.0 million to the year ended September 30, 2016. Foreign currency
translation impacts reduced sales by $19.5 million. Excluding foreign currency translation impacts, net sales
for the year ended September 30, 2017 increased $2.6 million compared to the same period in the prior year.
The $2.6 million increase was due to ad hoc sales growth of $7.2 million, partially offset by a decline in
Contract sales of $4.6 million. The increase in ad hoc sales was primarily due to increased customer
production rates and expanded content. The decrease in Contract sales was driven by a decline in existing
contract volumes partially offset by new contracts in excess of lost business.

Income from Operations

Income from operations for our EMEA segment decreased $18.7 million, or 42.7%, to $25.1 million for

the year ended September 30, 2017, compared to $43.9 million for the year ended September 30, 2016.
Income from operations as a percentage of net sales was 9.7% for the year ended September 30, 2017,
compared to 16.0% for the year ended September 30, 2016, a decrease of 6.3 percentage points. The decrease
in income from operations was comprised of a $15.9 million decrease in gross profit and a $2.8 million
increase in SG&A expenses. Average gross margins decreased 4.1 percentage points and SG&A as a percent
of net sales increased by 2.2 percentage points. The $15.9 million decrease in gross profit was partially due to
a $5.9 million decrease due to negative foreign currency translation impact. The remaining $10.0 million
decrease in gross profit was primarily driven by lower product margin, higher write downs of E&O inventory,
higher freight and expedite costs, partially offset by the increase in sales on a constant currency basis. The
4.1 percentage point decline in gross margins was due primarily to a decrease in chemical margins, a decrease
in ad hoc margins due to higher than usual margins in the prior year, an increase in write downs of E&O
inventory and changes in product mix compared to the same period of the prior year. Excluding a favorable
$3.4 million impact of foreign currency translation, SG&A expenses increased by $6.2 million, largely driven
by increases in payroll and other people costs of $3.9 million, travel expenses of $0.6 million, repair and
maintenance costs of $0.3 million, rent expense of $0.2 million, warehouse expense of $0.2 million,
depreciation expense of $0.2 million and professional fees of $0.2 million.

Year ended September 30, 2016 compared with the year ended September 30, 2015

Net Sales

Net sales for our EMEA segment decreased $13.3 million, or 4.6%, to $275.0 million for the year ended
September 30, 2016, compared with $288.3 million for the year ended September 30, 2015. Foreign currency
translation impacts reduced 2016 sales by $21.2 million. Excluding foreign currency translation impacts, net

sales for the year ended September 30, 2016 increased $7.9 million compared to the same period in the prior
year, due primarily to ad hoc sales growth of $12.7 million and Contract sales growth of $3.2 million that was
primarily due to increased customer production rates and expanded content, as well as new business and
scope expansion on commercial Contracts. These sales increases were partially offset by an $8.0 million
decline in sales due to the end of a large commercial contract on March 31, 2015.

Income from Operations

Income from operations for our EMEA segment increased $27.2 million, or 163.2%, to $43.9 million for

the year ended September 30, 2016, compared to $16.7 million for the year ended September 30, 2015.
Income from operations as a percentage of net sales was 16.0% for the year ended September 30, 2016,
compared to 5.8% for the year ended September 30, 2015, an increase of 10.2 percentage points. The
$27.2 million increase in income from operations was partially caused by a lower charge to the E&O inventory
provision of $13.8 million, driven primarily by the strategy change in fiscal 2015 as discussed above in our
analysis of consolidated income from operations.

Excluding E&O inventory provision, income from operations as a percentage of net sales was 15.0% for
the year ended September 30, 2016, compared to 9.7% for the year ended September 30, 2015, an increase of
5.3 percentage points. Excluding the favorable impact associated with the E&O inventory provision, income
from operations increased by $13.4 million for the year ended September 30, 2016 as compared to the prior
year, which was the result of an increase in gross profit of $2.3 million and a decrease in SG&A expenses of
$11.1 million. Average gross margins increased 2.2 percentage points and SG&A as a percent of net sales
decreased by 3.1 percentage points. The increase in gross profit, excluding the $7.0 million negative impact of
foreign currency translation adjustments and the E&O provision, was primarily driven by an increase in
Contract margins and changes in the mix of ad hoc and Contract business. The decrease in SG&A expenses
was $7.7 million after adjusting for the $3.4 million impact of foreign currency translation, which was largely
driven by decreases in payroll costs, utilities and warehouse expenses of $6.4 million, $0.4 million and
$0.4 million, respectively. These decreases were partially offset by a $0.6 million increase in bad debt expense.

APAC Segment

APAC Results of Operations

2017

Years Ended September 30,
2016
(dollars in thousands)

2015

Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$28,991

$24,918

$17,411

$ 7,413
4,874
2,711

(Loss) income from operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ (172)

$ 5,890
4,694
—

$ 1,196

$ 3,342
2,947
2,973

$ (2,578)

Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

100%

(as a percentage of net sales, numbers rounded)

(Loss) income from operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

25.6%
16.8%
9.4%

(0.6)%

23.6%
18.8%
—

4.8%

19.2%
16.9%
17.1%

(14.8)%

Year ended September 30, 2017 compared with the year ended September 30, 2016

Net Sales

Net sales for our APAC segment increased $4.1 million, or 16.3%, to $29.0 million for the year ended
September 30, 2017, compared with $24.9 million to the year ended September 30, 2016. Foreign currency
translation impacts reduced sales by $0.2 million. Excluding foreign currency translation impacts, net sales for

the year ended September 30, 2017 increased $4.3 million compared to the same period in the prior year. The
$4.3 million increase was due to Contract sales growth of $4.1 million and ad hoc sales growth of $0.2 million.
The increase in Contract sales was primarily due to increased customer production rates and new contracts.

(Loss) income from Operations

Loss from operations of our APAC segment for the year ended September 30, 2017 was $0.2 million due

to the non-cash goodwill impairment charge of $2.7 million partially offset by $2.5 million in income from
operations. Income from operations excluding the goodwill impairment increased $1.3 million, or 112.2%,
compared with $1.2 million of income from operations for the same period in the prior year. Excluding the
goodwill impairment, income from operations as a percentage of net sales was 8.8% for the year ended
September 30, 2017, compared to 4.8% for the year ended September 30, 2016, an increase of 4.0 percentage
points. The $1.3 million increase in income from operations was comprised of an increase in gross profit of
$1.5 million, partially offset by an increase in SG&A expenses of $0.2 million. Average gross margins
increased 2.0 percentage points and SG&A as a percent of net sales decreased by 2.0 percentage points. The
increase in gross profit was primarily driven by higher net sales and lower write downs of E&O inventory. The
2.0 percentage point increase in gross margins was primarily driven by lower write downs of E&O inventory.
The higher SG&A expenses was driven by an increase in payroll and other personnel related costs of
$0.5 million, partially offset by a decrease in bad debt expense of $0.2 million.

Year ended September 30, 2016 compared with the year ended September 30, 2015

Net Sales

Net sales for our APAC segment increased $7.5 million, or 43.1%, to $24.9 million for the year ended
September 30, 2016 compared with $17.4 million for the year ended September 30, 2015. Foreign currency
translation impacts reduced sales by $0.2 million. Excluding foreign currency translation impacts, net sales for
the year ended September 30, 2016 increased $7.7 million compared to the same period in the prior year. The
$7.7 million increase was due to an increase in ad hoc sales of $1.5 million and an increase in Contract sales of
$6.2 million. The increase in Contract sales was primarily driven by a new contract with a commercial
customer as well as increased customer production rates on existing commercial contracts.

Income (Loss) from Operations

Income from operations of our APAC segment for the year ended September 30, 2016 was $1.2 million

compared to a loss from operations of $2.6 million for the year ended September 30, 2015. Income from
operations was 4.8% of net sales for the year ended September 30, 2016, compared to a loss from operations
of 14.8% of net sales for the year ended September 30, 2015. The $3.8 million increase in income from
operations primarily reflects a goodwill impairment charge of $3.0 million in fiscal 2015, partially offset by an
increase in the E&O inventory provision of $0.6 million for the year ended September 30, 2016 as compared
to the year ended September 30, 2015. Excluding goodwill impairment and E&O inventory provision from the
comparison, income from operations as a percentage of net sales was 8.8% for the year ended September 30,
2016, compared to 4.6% for the year ended September 30, 2015, an increase of 4.2 percentage points. Also,
excluding goodwill impairment charge and E&O inventory provision from the comparison, income from
operations increased by $1.4 million for the year ended September 30, 2016 as compared to the prior year and
primarily due to an increase in gross profit $3.1 million, partially offset by an increase of $1.7 million in
SG&A expenses. Average gross margins increased 6.1 percentage points and SG&A as a percent of net sales
increased by 1.9 percentage points. The increase in gross profit was driven by increased sales. The increase in
SG&A expenses was $1.8 million after adjusting for a favorable $0.1 million impact of foreign currency
translation, and largely was driven by increases in payroll and other personnel related costs and bad debt of
$1.3 million and $0.2 million, respectively.

Liquidity and Capital Resources

Overview

Our primary sources of liquidity are cash flow from operations and available borrowings under our
revolving facility. We have historically funded our operations, debt payments, capital expenditures and
discretionary funding needs from our cash from operations. We had total available cash and cash equivalents

of $61.6 million and $77.1 million as of September 30, 2017 and 2016, respectively, of which $48.7 million, or
79.0%, and $53.3 million, or 69.2%, was held by our foreign subsidiaries as of September 30, 2017 and 2016,
respectively. None of our cash and cash equivalents consisted of restricted cash and cash equivalents as of
September 30, 2017 or 2016. All of our foreign cash and cash equivalents are readily convertible into U.S.
dollars or other foreign currencies.

During the quarter ended September 30, 2017, we reassessed the potential need to repatriate foreign
earnings based on our current long-range outlook, the current imbalance between cash generated and used in
the U.S., and the increase in the percentage of excess cash that must be used to repay debt under the Sixth
Amendment to the Credit Agreement. We determined it was likely that we would, in the future, repatriate
approximately $126.5 million of previously earned and undistributed earnings. Accordingly, we provided for a
$38.7 million deferred tax liability for U.S. taxes that will become due upon such repatriation net of foreign tax
credits estimated to be available in the years when we expect to repatriate the previously undistributed
earnings. The determination of the deferred tax liability requires our best estimate about the amount of
foreign tax credits that would be available in the years that we repatriate foreign earnings which will depend
on the amount of foreign earnings, including repatriated foreign earnings, and U.S. earnings for each year.
The deferred tax liability may increase or decrease materially in future years, impacting our tax provision or
benefit and our effective tax rate, if our estimate for the timing of future earnings repatriation and foreign tax
credit availability changes.

Our primary uses of cash currently are for:

•

operating expenses;

working capital requirements to fund the growth of our business;

capital expenditures that primarily relate to IT equipment and our warehouse operations; and

debt service requirements for borrowings under the Credit Facilities (as defined below under
‘‘—Credit Facilities—Sixth Amendment to Senior Secured Credit Facilities’’).

Generally, cash provided by operating activities has been adequate to fund our operations. Due to
fluctuations in our cash flows and the growth in our operations, it is necessary from time to time to borrow
under our revolving facility to meet cash demands. Provided we are in compliance with applicable covenants,
we can borrow up to $180.0 million on our revolving credit facility of which $55.0 million was outstanding as
of September 30, 2017. We anticipate that cash provided by operating activities, cash and cash equivalents and
borrowing capacity under our revolving facility will be sufficient to meet our cash requirements for the next
twelve months. As of September 30, 2017, we did not have any material capital expenditure commitments.

Cash Flows

Our cash and cash equivalents decreased by $15.5 million during the year ended September 30, 2017. The

decrease was primarily due to cash used in operating activities.

A summary of our operating, investing and financing activities are shown in the following table (in

thousands):

Consolidated statements of cash flows data:

Years Ended September 30,
2016

2015

2017

Net (loss) income adjusted for non-cash items . . . . . . . . . . . . . . . .
Changes in working capital assets and liabilities . . . . . . . . . . . . . . .

$ 109,087
(136,015)

$ 155,390
(37,935)

Net cash (used in) provided by operating activities. . . . . . . . . . . . .

$ (26,928)

$ 117,455

$ 119,821
21,351

$ 141,172

Net cash used in investing activities . . . . . . . . . . . . . . . . . . . . . . . . .

(8,923)

$ (11,992)

(9,864)

Net cash provided by (used in) financing activities . . . . . . . . . . . . .

20,645

(108,121)

(150,696)

Operating Activities

Our cash flows from operations fluctuates based on the level of profitability during the period as well as

the timing of investments in inventory, collections of cash from our customers, payments of cash to our
suppliers, and other changes in working capital accounts such as changes in our prepaid expenses and accrued
liabilities or the timing of our tax payments.

Our operating activities used $26.9 million of cash in the year ended September 30, 2017, a decrease of

$144.4 million as compared to the year ended September 30, 2016. The decrease in operating cash flow of
$144.4 million was primarily due to cash used for inventory purchases of $129.8 million during fiscal 2017 as
compared to cash used for inventory purchases of $41.8 million during fiscal 2016, and to a lesser extent, a
$46.3 million decrease in net (loss) income adjusted for non-cash items. The remaining decrease of
$10.1 million represents cash used for other working capital changes. The $88.0 million increase of cash used
for inventory purchases was to support new contracts, multi-year inventory purchases to support long-term
contracts, and increased stocking to support our MRO and ad hoc business objectives. During the year ended
September 30, 2017, net loss adjusted for non-cash items provided cash of $109.1 million, while net income
adjusted for non-cash items provided cash of $155.4 million in the prior year. The decrease of $46.3 million of
cash provided from results of operations was due to lower sales volumes, a decline in gross margins and higher
spending for SG&A expenses.

Our operating activities generated $117.5 million of cash in the year ended September 30, 2016, a

decrease of $23.7 million as compared to the year ended September 30, 2015. During the year ended
September 30, 2016, net loss adjusted for non-cash items provided cash of $155.4 million. During the year
ended September 30, 2015, net income adjusted for non-cash items provided cash of $119.8 million. This
increase of $35.6 million of cash generated from results of operations was primarily due to a lower spending
for SG&A expenses. The $35.6 million increase in cash generated from results of operations was more than
offset by higher cash used by tax payments of $46.3 million and accrued expenses and other liabilities of
$14.5 million, resulting in a net cash outflow of $25.2 million, which was partially offset by cash provided by
other working capital changes of $1.5 million.

Investing Activities

Our investing activities used $8.9 million, $12.0 million and $9.9 million of cash in the years ended

September 30, 2017, 2016 and 2015, respectively. Investing activities consist primarily of software
development and implementation projects and the purchase of property and equipment.

Financing Activities

Our financing activities generated $20.6 million of cash in the year ended September 30, 2017, which

consisted primarily of $55.0 million of short-term borrowings and $3.0 million of proceeds received in
connection with the exercise of stock options, partially offset by $21.3 million for repayments of our long-term
debt, $2.1 million for repayments of our capital lease obligations and a $12.8 million payment for debt
issuance costs.

Our financing activities used $108.1 million of cash in the year ended September 30, 2016, which
consisted primarily of $111.0 million for repayments of our long-term debt, $1.3 million for repayments of
capital lease obligations, and a $2.1 million payment for debt issuance costs, partially offset by $6.1 million of
proceeds received in connection with the exercise of stock options.

Our financing activities used $150.7 million of cash in the year ended September 30, 2015, which

consisted primarily of $149.8 million for repayments of our long-term debt and $1.5 million for repayments of
capital lease obligations.

Credit Facilities

Sixth Amendment to Senior Secured Credit Facilities

On November 2, 2017, we entered into the Sixth Amendment (the Sixth Amendment) to our credit
agreement, dated as of December 7, 2012, by and among the Company, Wesco Aircraft Hardware (the
Borrower) and the lenders and agents party thereto (as amended prior to the Amendment, the Existing
Credit Agreement; the Existing Credit Agreement, as amended by the Amendment, the Credit Agreement).

The Sixth Amendment modified the Existing Credit Agreement to increase the Excess Cash Flow
Percentage (as such term is defined in the Credit Agreement) to 75%, provided that the Excess Cash Flow
Percentage shall be reduced to (i) 50%, if the Consolidated Total Leverage Ratio (as such term is defined in
the Credit Agreement) is less than 4.00 but greater than or equal to 3.00, (ii) 25%, if the Consolidated Total
Leverage Ratio is less than 3.00 but greater than or equal to 2.50 and (iii) 0%, if the Consolidated Total
Leverage Ratio is less than 2.50.

The Sixth Amendment further modified the Credit Agreement to reduce the maximum amount

permitted to be incurred under the Capped Incremental Facility (as such term is defined in the Credit
Agreement) to zero, unless the Consolidated Total Leverage Ratio (as such term is defined in the Credit
Agreement), after giving effect to the incurrence of any incremental loans or commitments and the use of
proceeds thereof, on a pro forma basis, would be (i) less than 4.00 but greater than or equal to 3.50, in which
case the Capped Incremental Facility would be increased to $75.0 million, or (ii) less than 3.50, in which case
the Capped Incremental Facility would be increased to $150.0 million.

The Sixth Amendment also modified the Credit Agreement to increase the Consolidated Total Leverage
Ratio levels in the financial covenant set forth in the Credit Agreement to a maximum of 6.25 for the quarters
ending September 30, 2017, December 31, 2017 and March 31, 2018, with step-downs to 6.00 for the quarters
ending June 30, 2018 and September 30, 2018; 5.75 for the quarter ending December 31, 2018; 5.50 for the
quarter ending March 31, 2019; 5.25 for the quarter ending June 30, 2019; 4.75 for the quarters ending
September 30, 2019, December 31, 2019 and March 31, 2020; 4.00 for the quarters ending June 30, 2020,
September 30, 2020, December 31, 2020 and March 31, 2021; and 3.00 for the quarter ending June 30, 2021
and thereafter.

As a result of the Amendment, we incurred $1.9 million in fees that were capitalized and will be

amortized over the remaining life of the related debt.

Existing Senior Secured Credit Facilities

The Credit Agreement provides for (1) a $400.0 million senior secured term loan A facility (the term

loan A facility), (2) a $180.0 million revolving facility (the revolving facility), and (3) a $525.0 million senior
secured term loan B facility (the term loan B facility). We refer to the term loan A facility, the revolving
facility and the term loan B facility, together, as the ‘‘Credit Facilities.’’ See Note 11 of the Notes to
Consolidated Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K for a summary of
the Credit Facilities and the Credit Agreement.

On March 28, 2017, we entered into the Fifth Amendment to the Credit Agreement (the Fifth

Amendment). The Fifth Amendment modified the Existing Credit Agreement to increase the highest possible
interest rate margin applicable to loans under the term loan A facility and loans and commitments under the
revolving facility from 2.75% to 3.00% for Eurocurrency loans and from 1.75% to 2.00% for Alternate Base
Rate (ABR) loans. The Fifth Amendment also modified the Existing Credit Agreement to (a) to reduce the
maximum amount permitted to be incurred under the Capped Incremental Facility and (b) increase the
Consolidated Total Leverage Ratio levels in the financial covenant; however, these modifications were
subsequently superseded by the Sixth Amendment.

As of September 30, 2017, our outstanding indebtedness under our Credit Facilities was $875.6 million,

which consisted of (1) $380.0 million of indebtedness under the term loan A facility, (2) $55.0 million of
indebtedness under the revolving facility, and (3) $440.6 million of indebtedness under the term loan B
facility. As of September 30, 2017, $125.0 million was available for borrowing under the revolving facility to
fund our operating and investing activities without breaching any covenants contained in the Credit
Agreement.

As referred to above, our borrowings under the Credit Facilities are subject to a financial covenant based

upon our Consolidated Total Leverage Ratio with the maximum ratio prior to the Sixth Amendment set at
4.50 for the quarter ending September 30, 2017, and after the Sixth Amendment set at 6.25 for the quarter
ending September 30, 2017.

The Credit Agreement also contains customary negative covenants, including restrictions on our and our
restricted subsidiaries’ ability to merge and consolidate with other companies, incur indebtedness, grant liens
or security interests on assets, make acquisitions, loans, advances or investments, pay dividends, sell or
otherwise transfer assets, optionally prepay or modify terms of any junior indebtedness or enter into
transactions with affiliates. As of September 30, 2017, we were in compliance with all of the foregoing
covenants, and our Consolidated Total Leverage Ratio was 4.59.

A breach of the Consolidated Total Leverage Ratio covenant or any of other covenants contained in the

Credit Agreement could result in an event of default in which case the lenders may elect to declare all
outstanding amounts to be immediately due and payable. If the debt under the Credit Facilities were to be
accelerated, our available cash would not be sufficient to repay in full our debt.

Contractual Obligations

The following table is a summary of contractual cash obligations at September 30, 2017 (in thousands):

Long-term debt obligations (1) . . . . . . . . . . . .
Borrowings under the revolving facility (2) . .
Capital lease obligations. . . . . . . . . . . . . . . . . .
Operating lease obligations . . . . . . . . . . . . . . .

Total

$ 926,962
59,455
5,253
51,362

< 1 Year

$ 53,166
57,871
3,041
11,043

Payments Due by Period
1 - 3 Years

3 - 5 Years

$103,838
1,462
1,871
16,823

$769,958
122
185
10,938

Total by period . . . . . . . . . . . . . . . . . . . . . . . . .

1,043,032

$125,121

$123,994

$781,203

> 5 Years

$ —
—
156
12,558

$12,714

Other long-term liabilities (uncertainty in

the timing of future payments) (3) . . . . . . .

10,620

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$1,053,652

(1)

(2)

Includes both principal and estimated variable interest expense payments. The interest rate used to calculate the estimated future
variable interest expense is based on the actual interest rate applicable to the Company’s indebtedness as of September 30, 2017,
which was 4.24% for the existing term loan A facility and 3.84% for the term loan B facility. The actual variable interest expense
paid by the Company in the future may vary from what is presented above. Investors should refer to the ‘‘Management’s Discussion
and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Credit Facilities’’ and
‘‘Quantitative and Qualitative Disclosures About Market Risk—Interest Rate Risk’’ for additional information.

Includes both principal, estimated variable interest expense payments and estimated undrawn fees. The interest rate used to
calculate the estimated future variable interest expense is based on the weighted-average actual interest rate of 4.24% applicable to
the Company’s borrowings under the revolving facility as of September 30, 2017. The actual variable interest expense paid by the
Company in the future may vary from what is presented above. Investors should refer to the ‘‘Management’s Discussion and
Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Credit Facilities’’ and ‘‘Quantitative
and Qualitative Disclosures About Market Risk—Interest Rate Risk’’ for additional information.

(3) Other long-term liabilities primarily include long-term hedge liabilities, non-current income taxes payable and non-current deferred
tax liabilities. Due to the uncertainty in the timing of future payments, long-term hedge liabilities of approximately $0.9 million,
uncertain tax positions of approximately $6.5 million and non-current deferred tax liabilities of approximately $3.2 million were
presented as one aggregated amount in the total column on a separate line in this table.

Off-Balance Sheet Arrangements

We are not a party to any off-balance sheet arrangements.

Recently Issued and Adopted Accounting Pronouncements

See Note 3 of the Notes to Consolidated Financial Statements in Part II, Item 8 of this Annual Report on

Form 10-K for a summary of recently issued and adopted accounting pronouncements.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Our exposure to market risk consists of foreign currency exchange rate fluctuations, changes in interest

rates and fluctuations in fuel prices.

Foreign Currency Exposure

We operate on an international basis with a portion of our revenue and expenses transacted in currencies

other than the U.S. dollar. During the years ended September 30, 2017 and 2016, 29% and 27%, respectively,
of our net sales were made by our foreign subsidiaries, and our total net sales to customers outside the U.S.
represented 35% and 35%, respectively, of our total net sales. Some of our foreign sales are denominated in
U.S. dollars and some of our foreign subsidiaries have U.S. dollar functional currencies. We are exposed to
three types of foreign currency exposure: economic exposure (which could impact our operating margins
where the proportions of revenue and expenses denominated in a foreign currency are different),
transactional exposure (which could result in foreign currency transaction gains or losses) and translation
impacts (which could impact the amount of revenues, expenses, assets and liabilities reported in U.S. dollars).
We do not consider the risk associated with foreign currency exchange rate fluctuations to be material to our
financial condition or results of operations.

As previously disclosed we reorganized the operations of several different legal entities on April 1, 2017

to consolidate our U.K. operations under a new subsidiary, Wesco Aircraft EMEA with a U.S. dollar
functional currency. Our operations in the U.K. have revenue and costs primarily denominated in U.S. dollars
and, to a lesser extent, in British pounds and euros. The change to a U.S. dollar functional currency for our
operations in the U.K. affected the nature of the foreign currency related impacts on our financial results.
This reorganization is expected to eliminate the foreign currency translation risk associated with our U.K.
operations and to make the management of transactional gains and losses easier and less expensive.

Wesco Aircraft EMEA’s revenues and product costs are predominately denominated in U.S. dollars
while its operating expenses are predominately denominated in British pounds. When our subsidiaries have
revenues or expenses denominated in currencies other than their functional currencies, exchange rate
movements can impact the operating margins reported by the subsidiaries. We cannot predict the effect of
exchange rate fluctuations upon future operating results. However, because we have partially offsetting
revenue and expense exposure in each of these foreign currencies, the effect on our operating margins from
currency fluctuations is reduced. Our primary economic exposure arises from Wesco Aircraft EMEA, our
U.K. subsidiary which has a U.S. dollar functional currency and a portion of its revenues and expenses in euro
and British pounds. For the six months that Wesco Aircraft EMEA has been operating, it has had less than
5% of its net sales in euro, but 17% of its cost of sales and 20% of its selling, general and administrative
expenses in euro. From March 31, 2017 to September 30, 2017, the U.S. dollar weakened against the euro by
$0.11 (from $1.07 to $1.18) or 10%. Had the exchange rate remained the same as it was on March 31, 2017,
operating profit for Wesco Aircraft EMEA would have been approximately $1.0 million higher for the six
months ended September 30, 2017.

Certain assets, including certain bank accounts and accounts receivables of some of our business units,
and certain liabilities, including accounts payable, exist in currencies other than the functional currency of the
related business units. As a result, these assets and liabilities are affected by foreign currency exchange rate
fluctuations. These balances are principally denominated in U.S. dollars, British pounds, euros, Canadian
dollars, and Mexican pesos. When these transactions are settled in a currency other than the functional
currency, we may recognize a foreign currency transaction gain or loss. We attempt to limit this exposure by
seeking to maintain a low net asset or net liability exposure to each currency.

The results of operations of our foreign subsidiaries are translated into U.S. dollars at the average foreign
currency exchange rate for each relevant period. This translation has no impact on our cash flow, but changes
in exchange rates may cause the reported amounts of revenue or expenses to be higher or lower. This impact
is sometimes partially offset by the economic impact when the underlying sale or expense is denominated in
U.S. dollars making the net exposure difficult to quantify, predict, or mitigate. Any adjustments resulting from
the translation are recorded in accumulated other comprehensive loss on our statements of changes in
stockholders’ equity.

During the year ended September 30, 2017, our subsidiaries had the following sales and expenses in

currencies other than the functional currency:

•

Prior to the internal reorganization on April 1, 2017 mentioned above, our subsidiaries in the United
Kingdom with a British pound function currency had sales in U.S. dollars and Euros of $70.9 million
and €5.0 million (equivalent of $5.4 million), respectively, and had purchases in U.S. dollars and
Euros of $40.1 million and €12.9 million (equivalent of $13.9 million), respectively.

Following the internal reorganization, our new UK subsidiary with a U.S. dollar functional currency
had sales in British pound and Euros during the year ended September 30, 2017 of £24.1 million
(equivalent of $31.0 million) and €3.6 million (equivalent of $4.1 million), respectively, and had
purchases in British pound and Euros of £8.1 million (equivalent of $10.4 million) and €13.1 million
(equivalent of $14.4 million), respectively.

• Our subsidiary in Canada, which has a U.S. dollar functional currency, had sales in Canadian dollars
of $0.4 million (equivalent of $0.3 million) and had purchases in Canadian dollars of $0.5 million
(equivalent of $0.4 million).

• Our subsidiary in Mexico, which has a Mexican peso functional currency, had sales and purchases in

U.S. dollars of $17.4 million and $18.2 million, respectively.

• Our subsidiary in Israel, which has a U.S. dollar functional currency, had purchases in Israeli shekels

of 37.5 million (equivalent of $10.3 million).

•

To the extent possible, we structure arrangements where the purchase transactions are denominated
in U.S. dollars in order to minimize near-term exposure to foreign currency exchange rate
fluctuations.

We have historically entered into currency forward and option contracts to limit exposure to foreign
currency exchange rate changes and will continue to monitor our exposure to foreign currency exchange rate
changes. Gains and losses on these contracts are deferred until the transaction being hedged is finalized. As of
September 30, 2017, we had no outstanding currency forward and option contracts. We do not enter into
currency forward and option contracts for trading or speculative purposes.

Interest Rate Risk

Our principal interest rate exposure relates to our Credit Facilities, which bear interest at a variable rate.

See Part II, Item 7. ‘‘Management’s Discussion and Analysis of Financial Condition and Results of
Operations—Liquidity and Capital Resources—Credit Facilities.’’ If interest rates rise, our debt service
obligations on the borrowings under the Credit Facilities would increase even though the amount borrowed
remained the same, which would affect our results of operations, financial condition and liquidity. If variable
interest rates were to change by 1.0%, our interest expense would fluctuate $8.9 million per year, without
taking into account the effect of any hedging instruments.

On November 2, 2017, we entered into the Sixth Amendment, as described above. Neither the Sixth
Amendment nor the additional borrowings under the Credit Facilities are expected to materially impact our
interest rate risk as disclosed above.

We periodically enter into interest rate swap agreements to manage interest rate risk on our borrowing

activities. On September 30, 2017, we had an interest rate swap agreement which effectively fixed our interest
rate on variable rate debt of $375.0 million to 2.2625% plus the applicable margin. See further discussion on
our derivative financial instruments in Note 12 of the Notes to Consolidated Financial Statements in Part II,
Item 8 of this Annual Report on Form 10-K.

We do not hold or issue derivative financial instruments for trading or speculative purposes.

Fuel Price Risk

Our principal direct exposure to increases in fuel prices is as a result of potential increased freight costs

caused by fuel surcharges or other fuel cost-driven price increases implemented by the third-party package
delivery companies on which we rely. We estimate that our annual freight costs (which consists of in-bound
and out-bound freight-related costs, net of freight revenue) during the years ended September 30, 2017 and

2016 was $26.9 million and $24.2 million, respectively, and as a result, we do not believe the impact of these
potential fuel surcharges or fuel cost-driven price increases would have a material impact on our business,
financial condition and results of operations. In addition, increases in fuel prices may have an indirect
material adverse effect on our business, financial condition and results of operations, as such increases may
contribute to decreased airline profitability and, as a result, decreased demand for new commercial aircraft
that utilize the products we sell.

See Part I, Item 1A. ‘‘Risk Factors—We may be materially adversely affected by high fuel prices.’’ We do

not use derivatives to manage our exposure to fuel prices.

ITEM 8.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Audited Consolidated Financial Statements:
Report of Independent Registered Public Accounting Firm . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Balance Sheets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Comprehensive (Loss) Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Stockholders’ Equity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Cash Flows. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Page

57
58
59
60
61
62

To the Board of Directors and Stockholders of Wesco Aircraft Holdings, Inc.

Report of Independent Registered Public Accounting Firm

In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of

comprehensive (loss) income, stockholders’ equity and cash flows present fairly, in all material respects, the
financial position of Wesco Aircraft Holdings, Inc. and its subsidiaries as of September 30, 2017 and 2016, and
the results of their operations and their cash flows for each of the three years in the period ended
September 30, 2017 in conformity with accounting principles generally accepted in the United States of
America. Also in our opinion, the Company maintained, in all material respects, effective internal control
over financial reporting as of September 30, 2017, based on criteria established in Internal Control - Integrated
Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission
(COSO). The Company’s management is responsible for these financial statements, for maintaining effective
internal control over financial reporting and for its assessment of the effectiveness of internal control over
financial reporting, included in Management’s Report on Internal Control Over Financial Reporting
appearing under Item 9A. Our responsibility is to express opinions on these financial statements and on the
Company’s internal control over financial reporting based on our integrated audits. We conducted our audits
in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement and whether effective internal control over financial
reporting was maintained in all material respects. Our audits of the financial statements included examining,
on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and evaluating the overall
financial statement presentation. Our audit of internal control over financial reporting included obtaining an
understanding of internal control over financial reporting, assessing the risk that a material weakness exists,
and testing and evaluating the design and operating effectiveness of internal control based on the assessed
risk. Our audits also included performing such other procedures as we considered necessary in the
circumstances. We believe that our audits provide a reasonable basis for our opinions.

As discussed in Note 3 to the consolidated financial statements, the Company changed the manner in

which it accounts for debt issuance costs in 2017.

A company’s internal control over financial reporting is a process designed to provide reasonable

assurance regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles. A company’s internal control
over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records
that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the
company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation
of financial statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorizations of management and
directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the
financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk
that controls may become inadequate because of changes in conditions, or that the degree of compliance with
the policies or procedures may deteriorate.

/s/ PricewaterhouseCoopers LLP
Los Angeles, California
November 28, 2017

Wesco Aircraft Holdings, Inc. and Subsidiaries
Consolidated Balance Sheets
(dollars in thousands, except share and per share data)

As of September 30,

2017

2016

Assets
Current assets:

Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts receivable, net of allowance for doubtful accounts of $3,109 and

$3,846 at September 30, 2017 and 2016, respectively . . . . . . . . . . . . . . . . . . .
Inventories. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid expenses and other current assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income taxes receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property and equipment, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred debt issuance costs, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Intangible assets, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

61,625

77,061

256,301
827,870
13,733
3,617

1,163,146
50,355
3,676
266,644
178,292
76,038
15,956

249,195
713,470
10,203
1,460

1,051,389
50,525
1,120
579,865
194,114
58,171
13,394

Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$1,754,107

$1,948,578

Liabilities and Stockholders’ Equity
Current liabilities:

Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued expenses and other current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . .
Income taxes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Capital lease obligations, current portion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Short-term borrowings and current portion of long-term debt . . . . . . . . . . . . .

Total current liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Capital lease obligations, less current portion . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term debt, less current portion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

184,273
35,329
3,290
2,952
75,000

300,844
2,013
788,838
3,197
9,484

181,700
26,424
6,782
1,471
—

216,377
1,710
834,279
4,092
9,205

Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1,104,376

1,065,663

Commitments and contingencies

Stockholders’ equity:

Preferred stock, $0.001 par value per share: 50,000,000 shares authorized;

no shares issued and outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

—

Common stock, class A, $0.001 par value, 950,000,000 shares authorized,

99,450,902 and 98,614,908 shares issued and outstanding at September 30,
2017 and 2016, respectively . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated other comprehensive loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Retained earnings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Total stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

99
436,522
(84,626)
297,736

649,731

99
427,295
(79,561)
535,082

882,915

Total liabilities and stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$1,754,107

$1,948,578

See the accompanying notes to the consolidated financial statements.

Wesco Aircraft Holdings, Inc. and Subsidiaries
Consolidated Statements of Comprehensive (Loss) Income
(in thousands, except per share data)

Years Ended September 30,
2016

2015

2017

Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost of sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 1,429,429
1,067,522

$ 1,477,366
1,083,674

$ 1,497,615
1,173,120

Gross profit. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selling, general and administrative expenses . . . . . . . . . . . . . . .
Goodwill impairment charge . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(Loss) income from operations . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other income, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(Loss) income before income taxes . . . . . . . . . . . . . . . . . . . . .
Benefit (Provision) for income taxes . . . . . . . . . . . . . . . . . . . . . .

Net (loss) income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Other comprehensive loss, net of income taxes:
Change in net foreign currency translation adjustment . . . . . . .
Change in net unrealized holding losses on derivatives . . . . . . .

Other comprehensive loss, net of income taxes . . . . . . . . . . . . .

361,907
259,588
311,114

(208,795)
(39,821)
369

(248,247)
10,901

(237,346)

(7,138)
2,073

(5,065)

393,692
234,942
—

158,750
(36,901)
3,741

125,590
(34,212)

91,378

(39,211)
(1,629)

(40,840)

324,495
267,089
263,771

(206,365)
(37,092)
1,841

(241,616)
86,872

(154,744)

(25,322)
(2,577)

(27,899)

Comprehensive (loss) income. . . . . . . . . . . . . . . . . . . . . . . . . .

$ (242,411)

Net (loss) income per share:

Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$
$

(2.40)
(2.40)

Weighted average shares outstanding:

$
$

50,538

$ (182,643)

0.94
0.93

$
$

(1.60)
(1.60)

Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

98,700,879
98,700,879

97,634,155
98,165,856

96,955,043
96,955,043

See the accompanying notes to the consolidated financial statements.

Wesco Aircraft Holdings, Inc. and Subsidiaries
Consolidated Statements of Stockholders’ Equity
(dollars in thousands)

Common Stock
Shares

Amount

Balance at September 30, 2014 . . . . . . . 97,010,286
527,838

Issuance of common stock . . . . . . . . .
Settlement on restricted stock tax

$97
1

Additional
Paid-in
Capital

$404,567
822

Accumulated
Other
Comprehensive
Loss

Retained
Earnings

Total
Shareholders’
Equity

$(10,822)
—

$ 598,448
—

$ 992,290
823

withholding. . . . . . . . . . . . . . . . . . . .

— —

(701)

—

(701)

Excess tax benefit related to

restricted stock units and stock
options exercised . . . . . . . . . . . . . . .
Stock-based compensation expense. .
Net loss . . . . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive loss. . . . . . . . . .

— —
— —
— —
— —

(87)
7,891
—
—

Balance at September 30, 2015 . . . . . . . 97,538,124
1,076,784

Issuance of common stock . . . . . . . . .
Settlement on restricted stock tax

98
1

412,492
6,072

—
—
—
(27,899)

(38,721)
—

—
—
(154,744)
—

443,704
—

(87)
7,891
(154,744)
(27,899)

817,573
6,073

withholding. . . . . . . . . . . . . . . . . . . .

— —

(857)

—

(857)

Excess tax benefit related to

restricted stock units and stock
options exercised . . . . . . . . . . . . . . .
Stock-based compensation expense. .
Net income. . . . . . . . . . . . . . . . . . . . . .
Other comprehensive loss. . . . . . . . . .

— —
— —
— —
— —

Balance at September 30, 2016 . . . . . . . 98,614,908

Issuance of common stock . . . . . . . . .
Settlement on restricted stock tax

withholding. . . . . . . . . . . . . . . . . . . .
Stock-based compensation expense. .
Net loss . . . . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive loss. . . . . . . . . .

99
835,994 —

— —
— —
— —
— —

1,098
8,490
—
—

427,295
2,964

(1,072)
7,335
—
—

—
—
—
(40,840)

(79,561)
—

—
—
—
(5,065)

—
—
91,378
—

535,082
—

1,098
8,490
91,378
(40,840)

882,915
2,964

—
—
(237,346)
—

(1,072)
7,335
(237,346)
(5,065)

Balance at September 30, 2017 . . . . . . . 99,450,902

$99

$436,522

$(84,626)

$ 297,736

$ 649,731

See the accompanying notes to the consolidated financial statements.

Wesco Aircraft Holdings, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(dollars in thousands)

Operating activities
Net (loss) income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjustments to reconcile net (loss) income to net cash

provided by operating activities:
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of deferred debt issuance costs . . . . . . . . . . . . .
Bad debt and sales return reserve . . . . . . . . . . . . . . . . . . . . . .
Stock-based compensation expense . . . . . . . . . . . . . . . . . . . . .
Inventory provision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill impairment charge . . . . . . . . . . . . . . . . . . . . . . . . . .
Excess tax benefit related to stock-based incentive plans . . .
Income from equity investment . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other non-cash items . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Changes in assets and liabilities:

Accounts receivable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income tax receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid expenses and other assets . . . . . . . . . . . . . . . . . . . .
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued expenses and other liabilities. . . . . . . . . . . . . . . . .
Income tax payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash (used in) provided by operating activities . . . .

Investing activities
Purchase of property and equipment. . . . . . . . . . . . . . . . . . . . . .
Proceeds from sales of assets . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from sales of property, plant and equipment . . . . . . .
Acquisitions of business, net of cash acquired . . . . . . . . . . . . . .
Net cash used in investing activities . . . . . . . . . . . . . . . . .

Financing activities
Proceeds from short-term borrowings . . . . . . . . . . . . . . . . . . . . .
Repayments of short-term borrowings . . . . . . . . . . . . . . . . . . . .
Repayments of long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . .
Debt issuance costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Repayments of capital lease obligations . . . . . . . . . . . . . . . . . . .
Excess tax benefit related to stock-based incentive plans . . . . .
Net proceeds from exercise of stock options. . . . . . . . . . . . . . . .
Settlement on restricted stock tax withholding . . . . . . . . . . . . . .
Net cash provided by (used in) financing activities . . . .

Effect of foreign currency exchange rate on cash and cash

equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net decrease in cash and cash equivalents . . . . . . . . . . .
Cash and cash equivalents, beginning of period . . . . . . . . . . . . .
Cash and cash equivalents, end of period . . . . . . . . . . . . . . . . . .

Supplemental disclosure of cash flow information (see Note 19)

Years Ended September 30,
2016

2015

2017

$(237,346)

$ 91,378

$(154,744)

28,352
6,143
225
7,335
12,900
311,114
—
—
(21,070)
1,434

(8,531)
(2,159)
(129,772)
(5,989)
2,201
11,761
(3,526)
(26,928)

(8,923)
—
—
—
(8,923)

77,000
(22,000)
(21,344)
(12,796)
(2,107)
—
2,964
(1,072)
20,645

27,980
4,627
(810)
8,490
14,615
—
(1,098)
(582)
13,212
(2,422)

(4,077)
(1,269)
(41,798)
(1,204)
34,657
(11,008)
(13,236)
117,455

(13,992)
2,000
—
—
(11,992)

—
—
(111,000)
(2,126)
(1,309)
1,098
6,073
(857)
(108,121)

27,726
4,354
354
7,891
95,052
263,771
(443)
(596)
(127,035)
3,491

43,841
16,036
(48,977)
1,250
(9,992)
3,425
15,768
141,172

(9,631)
—
17
(250)
(9,864)

—
—
(149,750)
—
(1,511)
443
823
(701)
(150,696)

(230)
(15,436)
77,061
$ 61,625

(3,147)
(5,805)
82,866
$ 77,061

(2,521)
(21,909)
104,775
$ 82,866

See the accompanying notes to the consolidated financial statements.

Wesco Aircraft Holdings, Inc. & Subsidiaries
Notes to the Consolidated Financial Statements

Note 1. Organization and Business

Our company, Wesco Aircraft Holdings, Inc., is a distributor and provider of comprehensive supply chain
management services to the global aerospace industry. Our services range from traditional distribution to the
management of supplier relationships, quality assurance, kitting, just-in-time (JIT) delivery, chemical
management services, third-party logistics or fourth-party logistics programs and point-of-use inventory
management.

In addition to the central stocking facilities, we use a network of forward-stocking locations to service
customers in a JIT and or ad hoc manner. There are 58 administrative, sales and/or stocking facilities around
the world with concentrations in North America and Europe. In addition to product fulfillment, we also
provide comprehensive supply chain management services for selected customers. These services include
procurement and JIT inventory management and delivery services.

Note 2. Basis of Presentation and Summary of Significant Accounting Policies

Principles of Consolidation and Basis of Presentation

The accompanying consolidated financial statements include the accounts of Wesco Aircraft Hardware

Corp. (Wesco Aircraft Hardware), Wesco Aircraft EMEA, Ltd. (Wesco Aircraft EMEA), Wesco Aircraft
Europe, Ltd., Flintbrook Limited, Wesco Aircraft Germany GmbH, Wesco Aircraft France SAS, Wesco
Aircraft Israel Limited, Wesco Aircraft Italy SRL, Wesco Aircraft Hardware India Pvt., Limited, Wesco
Aircraft Trading Shanghai Co., Limited, Interfast Europe Limited, Interfast USA Inc., Interfast USA
Holdings Inc. and Haas. All intercompany accounts and transactions have been eliminated. When we do not
have a controlling interest in an entity, but exert significant influence over the entity, we apply the equity
method of accounting.

Our financial statements have been prepared under the assumption that our company will continue as a

going concern. On September 30, 2017, we adopted Financial Accounting Standards Board’s (FASB)
Accounting Standards Update (ASU) 2014-15, Presentation of Financial Statements - Going Concern. As a
result of adopting ASU 2014-15, we are required to evaluate if there are conditions or events that raise
substantial doubt about an entity’s ability to continue as a going concern. We accessed and concluded that our
company will not have substantial doubts about our company’s ability as a going concern during the period of
one year after November 28, 2017.

Use of Estimates in Preparation of Financial Statements

The preparation of financial statements, in conformity with accounting principles generally accepted in

the United States of America, requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses during the reporting period.
Estimates are used for, but not limited to, receivable valuations and allowance for sales returns, inventory
valuations of excess and obsolescence (E&O) inventories, the useful lives of long-lived assets including
property, equipment and intangible assets, annual goodwill impairment assessment, stock-based
compensation, income taxes and contingencies. Actual results could differ from such estimates.

Cash and Cash Equivalents

We consider all highly liquid investments with original maturities from date of purchase of three months

or less to be cash equivalents.

Wesco Aircraft Holdings, Inc. & Subsidiaries
Notes to the Consolidated Financial Statements (Continued)

Note 2. Basis of Presentation and Summary of Significant Accounting Policies (Continued)

Accounts Receivable

Accounts receivable consist of amounts owed to us by customers. We perform periodic credit evaluations

of the financial condition of our customers, monitor collections and payments from customers, and generally
do not require collateral. Accounts receivable are generally due within 30 to 60 days. We provide for the
possible inability to collect accounts receivable by recording an allowance for doubtful accounts. We reserve
for an account when it is considered to be uncollectible. We estimate our allowance for doubtful accounts
based on historical experience, aging of accounts receivable and information regarding the creditworthiness of
our customers. To date, losses have been within the range of management’s expectations. If the estimated
allowance for doubtful accounts subsequently proves to be insufficient, additional allowances may be
required.

Our allowance for doubtful accounts activity consists of the following (in thousands):

Allowance for Doubtful Accounts

Year ended as of September 30, 2017 . . . . . . . . . . . . . . . .
Year ended as of September 30, 2016 . . . . . . . . . . . . . . . .
Year ended as of September 30, 2015 . . . . . . . . . . . . . . . .

Balance at
Beginning of
Period

$3,846
5,892
5,332

Charges to
Cost and
Expenses

$ (133)
(846)
1,121

Write-offs

$ (604)
(1,200)
(561)

Balance at
End of Period

$3,109
3,846
5,892

Inventories

Inventories are stated at the lower of cost or market. The method by which amounts are removed from

inventory are weighted average cost for all inventory, except for chemical products for which the first-in,
first-out method is used. In-bound freight-related costs of $1.5 million, $1.9 million and $1.7 million as of
September 30, 2017, 2016, and 2015, respectively, are included as part of the cost of inventory held for resale.
We record provisions, as appropriate, to write-down E&O inventory to estimated net realizable value. The
process for evaluating E&O inventory utilizes factors such as historical demand and current inventory
quantities, and subjective judgments and estimates concerning future sales levels, including quantities and
prices at which such inventories will be able to be sold in the normal course of business. During the years
ended September 30, 2017 and 2016, we recorded a provision to write down E&O inventory to net realizable
value of $12.9 million and $14.6 million respectively. During the year ended September 30, 2015, we charged
$95.1 million for impairment of inventory to net realizable value as further described below.

In the fourth quarter of 2015, we determined that inventory previously purchased in connection with a

specific program which was subsequently terminated, to have no alternative use. During the year ended
September 30, 2015, we continued to negotiate a sale of such inventory with our customer for whom such
inventory was purchased, as well as market the inventory through other channels, and believed the full cost of
this inventory was recoverable. However, in the fourth quarter of 2015, we determined such inventory was not
marketable and recorded a reduction in net realizable value of $33.0 million. Also in the fourth quarter of
2015, management implemented a new strategy of providing integrated supply chain services more tailored to
customer demand through long-term contracts and focused forecasted consumption. The new strategy also
included changes to our inventory purchasing strategy, holding inventory for shorter periods and the planned
scrapping of long dated inventory. The new strategy and updates for fiscal 2015 sales activities led to changes
in the sell through rates, holding period of aged inventory and others estimates used in calculating the E&O
provision for our hardware inventory, which led to an additional E&O provision of $43.8 million.

Property and Equipment

Property and equipment are stated at cost, less accumulated amortization and depreciation, computed

using the straight-line method over the estimated useful life of each asset. Leasehold improvements are
amortized over the lesser of the remaining lease term or the estimated useful life of the assets. Expenditures
for repair and maintenance costs are expensed as incurred, and expenditures for major renewals and

Wesco Aircraft Holdings, Inc. & Subsidiaries
Notes to the Consolidated Financial Statements (Continued)

Note 2. Basis of Presentation and Summary of Significant Accounting Policies (Continued)

improvements are capitalized. When assets are retired or otherwise disposed of, the cost and accumulated
depreciation and amortization are removed from the accounts and any gain or loss is reflected in the
consolidated statements of comprehensive income. The useful lives for depreciable assets are as follows:

Buildings and improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Machinery and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Furniture and fixtures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vehicles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Computer hardware and software. . . . . . . . . . . . . . . . . . . . . . . . . . .

1-39.5 years
5-7 years
7 years
5 years
3 years

Impairment of Long-Lived Assets

We assess potential impairments of our long-lived assets whenever events or changes in circumstances

indicate that the carrying value of the assets may not be recoverable. Factors we consider include, but are not
limited to: significant underperformance relative to expected historical or projected future operating results;
significant changes in the manner of use of the acquired assets or the strategy for the overall business; and
significant negative industry or economic trends. We have determined that our asset group for impairment
testing comprises assets and liabilities of each of our reporting units, which consists of Americas, Europe,
Middle-East and Africa (EMEA) and Asia Pacific (APAC) reporting units (see change in our reporting units
discussed under ‘‘Goodwill and Indefinite-Lived Intangible Assets’’ below). We have identified customer
relationships as the primary asset because it is the principal asset from which the reporting units derive their
cash flow generating capacity and has the longest remaining useful life. Recoverability is assessed by
comparing the carrying value of the asset group to the undiscounted cash flows expected to be generated by
these assets. Impairment losses are measured as the amount by which the carrying values of the primary assets
exceed their fair values. To date, we have not recognized an impairment charge related to the write-down of
long-lived assets.

Deferred Debt Issuance Costs

Deferred debt issuance costs are amortized using the straight-line method, which approximates the
effective interest method, over the term of the related credit arrangement; such amortization is included in
interest expense in the consolidated statements of comprehensive income. Amortization of deferred debt
issuance costs was $6.1 million, $4.6 million and $4.4 million for the years ended September 30, 2017, 2016
and 2015, respectively. As of September 30, 2017 and 2016, the remaining unamortized deferred debt issuance
costs are $15.4 million and $8.7 million, respectively, of which $11.7 million and $7.6 million was offset against
the long-term debt, respectively.

Goodwill and Indefinite-Lived Intangible Assets

Goodwill, which represents the excess of the consideration paid over the fair value of the net assets

acquired in a business combination, and other acquired intangible assets with indefinite lives are not
amortized, but are tested for impairment at least annually or more frequently when an event occurs or
circumstances change such that it is more likely than not that the carrying amount may be impaired. Such
events or circumstances may be a significant change in business climate, economic and industry trends, legal
factors, negative operating performance indicators, significant competition, changes in strategy, or disposition
of a reporting unit or a portion thereof. Goodwill and indefinite-lived intangibles asset impairment testing is
performed at the reporting unit level on July 1 of each year.

Wesco Aircraft Holdings, Inc. & Subsidiaries
Notes to the Consolidated Financial Statements (Continued)

Note 2. Basis of Presentation and Summary of Significant Accounting Policies (Continued)

reassigned to the new reporting units using a relative fair value allocation approach. As a result of the change
in reporting units, we are required to test goodwill impairment for the reporting units before this change,
which is satisfied by our event-driven goodwill impairment test performed on June 30, 2017. We also
performed our annual goodwill impairment test as of July 1, 2017 for the new reporting units as required,
which indicated no impairment for any of the three new reporting units at July 1, 2017. For the Americas,
EMEA and APAC reporting units, the fair value was in excess of carrying value by 12%, 61% and 28%,
respectively.

We test goodwill for impairment by performing a qualitative process, or a two-step quantitative
assessment process. The first step of the quantitative process involves comparing the carrying value of net
assets, including goodwill, to the fair value of the reporting unit. If the fair value exceeds its carrying amount,
goodwill is not considered impaired and the second step of the process is unnecessary. If the carrying amount
of a reporting unit’s goodwill exceeds its fair value, the second step measures the impairment loss, if any.

The second step compares the implied fair value of goodwill with the carrying amount of that goodwill.

The implied fair value of goodwill is determined in the same manner as the amount of goodwill recognized in
a business combination. The implied fair value of the reporting unit’s goodwill is calculated by creating a
hypothetical balance sheet as if the reporting unit had just been acquired. This balance sheet contains all
assets and liabilities recorded at fair value (including any intangible assets that may not have any
corresponding carrying value in our balance sheet). The implied value of the reporting unit’s goodwill is
calculated by subtracting the fair value of the net assets from the fair value of the reporting unit. If the
carrying value of goodwill exceeds the implied fair value of that goodwill, an impairment loss is recognized in
an amount equal to that excess. We performed our goodwill impairment tests during the years ended
September 30, 2017 and 2016, which resulted in an interim goodwill impairment charge of $311.1 million
during the year of 2017 and no goodwill impairment for the year of 2016. Refer to Note 8 for additional
information.

Indefinite-lived intangibles consist of a trademark, for which we estimate fair value and compare such

fair value to the carrying amount. If the carrying amount of the trademark exceeds its fair value, an
impairment loss is recognized in an amount equal to that excess.

Fair Value of Financial Instruments

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly

transaction between market participants at the measurement date. To determine fair value, we primarily
utilize reported market transactions and discounted cash flow analysis. We use a three-tier fair value
hierarchy that maximizes the use of observable inputs and minimizes the use of unobservable inputs.
Observable inputs are inputs that reflect the assumptions market participants would use in pricing the asset or
liability developed based on market data obtained from sources independent of us. Unobservable inputs are
inputs that reflect our own assumptions about the assumptions market participants would use in pricing the
asset or liability developed based on the best information available in the circumstances. The fair value
hierarchy prioritizes the inputs to valuation techniques into three broad levels whereby the highest priority is
given to Level 1 inputs and the lowest to Level 3 inputs. The three broad categories are:

Level 1:

Quoted prices in active markets for identical assets or liabilities.

Level 2:

Inputs other than quoted prices that are observable for the asset or liability, either directly or
indirectly.

Level 3: Unobservable inputs for the asset or liability.

The definition of fair value includes the consideration of nonperformance risk. Nonperformance risk
refers to the risk that an obligation (either by a counterparty or us) will not be fulfilled. For financial assets
traded in an active market (Level 1), the nonperformance risk is included in the market price. For certain
other financial assets and liabilities (Level 2 and 3), our fair value calculations have been adjusted accordingly.

Wesco Aircraft Holdings, Inc. & Subsidiaries
Notes to the Consolidated Financial Statements (Continued)

Note 2. Basis of Presentation and Summary of Significant Accounting Policies (Continued)

Fair value measurements are classified according to the lowest level input or value-driver that is

significant to the valuation. A measurement may therefore be classified within Level 3 even though there may
be significant inputs that are readily observable.

We use observable market-based inputs to calculate fair value of our interest rate swap agreements and

outstanding debt instruments, in which case the measurements are classified within Level 2. If quoted or
observable market prices are not available, fair value is based upon internally developed models that use,
where possible, current market-based parameters such as interest rates, yield curves and currency rates. These
measurements are classified within Level 3.

Where available, we utilize quoted market prices or observable inputs rather than unobservable inputs to

determine fair value.

Derivative Financial Instruments

We periodically enter into cash flow derivative transactions, such as interest rate swap agreements, to
hedge exposure to various risks related to interest rates. We recognize all derivatives at their fair value as
either assets or liabilities. For cash flow designated hedges, the effective portion of the changes in fair value of
the derivative contract are recorded in accumulated other comprehensive loss, net of taxes, and are
recognized in net earnings at the time earnings are affected by the hedged transaction. Adjustments to record
changes in fair values of the derivative contracts that are attributable to the ineffective portion of the hedges,
if any, are recognized in earnings. We present derivative instruments in our consolidated statements of cash
flows’ operating, investing, or financing activities consistent with the cash flows of the hedged item.

Comprehensive Loss or Income

Comprehensive loss or income generally represents all changes in stockholders’ equity, except those
resulting from investments by or distributions to stockholders. Our comprehensive loss or income consists of
foreign currency translation adjustments and fair value adjustments for cash flow hedges.

Revenue Recognition

We recognize product and service revenue when (1) persuasive evidence of an arrangement exists,
(2) title transfers to the customer, (3) the sales price charged is fixed or determinable, and (4) collection is
reasonably assured. In instances where title does not pass to the customer upon shipment, we recognize
revenue upon delivery or customer acceptance, depending on the terms of the sales contract.

In connection with the sales of our products, we often provide certain supply chain management services
to our JIT customers. These services include the timely replenishment of products at the customer site, while
also minimizing the customer’s on-hand inventory. We provide these services contemporaneously with the
delivery of the product, and as such, once the product is delivered, we do not have a post-delivery obligation
to provide services to the customer. Accordingly, the price of such services is generally included in the price of
the products delivered to the customer, and revenue is recognized upon delivery of the product, at which
point we have satisfied our obligations to the customer. We do not account for these services as a separate
element, as the services do not have stand-alone value and cannot be separated from the product element of
the arrangement. Additionally, we do not present service revenues apart from product revenues, as the service
revenues represent less than 10% of our consolidated net sales.

We report revenue on a gross or net basis, based on management’s assessment of whether we act as a
principal or agent in the transaction, in our presentation of net sales and costs of sales. If we are the principal
in the transaction and have the risks and rewards of ownership, the transactions are recorded as gross in the
consolidated statements of comprehensive income. If we do not act as a principal in the transaction, the
transactions are recorded on a net basis in the consolidated statements of comprehensive income. The
majority of our revenue is recorded on a gross basis with the exception of certain gas, energy and chemical
manager service contracts that are recorded as net revenue.

Wesco Aircraft Holdings, Inc. & Subsidiaries
Notes to the Consolidated Financial Statements (Continued)

Note 2. Basis of Presentation and Summary of Significant Accounting Policies (Continued)

We also enter into sales rebates and profit sharing arrangements. Such customer incentives are

accounted for as a reduction to gross sales and recorded based upon estimates at the time products are sold.
These estimates are based upon historical experience for similar programs and products. We review such
rebates and profit sharing arrangements on an ongoing basis and accruals are adjusted, if necessary, as
additional information becomes available.

We provide allowances for credits and returns based on historic experience and adjust such allowances as

considered necessary. To date, such provisions have been within the range of our expectations and the
allowance established. Sales tax collected from customers is excluded from net sales in the consolidated
statements of comprehensive income.

In connection with our JIT supply chain management programs, at times, we assume customer inventory

on a consignment basis. This consigned inventory remains the property of the customer but is managed and
distributed by us. We earn a fixed fee per unit on each shipment of the consigned inventory; such amounts
represent less than 1% of consolidated net sales.

Shipping and Handling Costs

We record revenue for shipping and handling billed to our customers. Shipping and handling revenues

were $4.6 million, $5.1 million and $7.8 million for the years ended September 30, 2017, 2016 and 2015,
respectively.

Shipping and handling costs are primarily included in cost of sales. Total shipping and handling costs

were $31.4 million, $28.0 million and $33.2 million for the years ended September 30, 2017, 2016 and 2015,
respectively.

Income Taxes

We recognize deferred tax liabilities and assets for the expected future tax consequences of temporary

Concentration of Credit Risk and Significant Vendors and Customers

We maintain our cash and cash equivalents in bank deposit accounts which, at times, may exceed

federally insured limits. We have not experienced any losses in such accounts and do not believe we are
exposed to any significant credit risk from cash and cash equivalents.

We purchase our products on credit terms from vendors located throughout North America and Europe.

For the years ended September 30, 2017, 2016 and 2015, we made 13%, 12%, and 13%, respectively, of our
purchases from Precision Castparts Corp. and the amounts payable to this supplier were 6% and 3% of total
accounts payable at September 30, 2017 and 2016, respectively. Additionally, for the years ended September
30, 2017, 2016 and 2015, we made 9%, 8%, and 9%, respectively, of our purchases from Arconic and the
amounts payable to this supplier were 6% and 3% of total accounts payable at September 30, 2017 and 2016,
respectively. The majority of the products we sell are available through multiple channels and, therefore, this
reduces the risk related to any vendor relationship.

Wesco Aircraft Holdings, Inc. & Subsidiaries
Notes to the Consolidated Financial Statements (Continued)

Note 2. Basis of Presentation and Summary of Significant Accounting Policies (Continued)

For the year ended September 30, 2017, we derived nearly 11% of our total net sales from one individual
customer. For the years ended September 30, 2016 and 2015, we did not derive 10% or more of our total net
sales from any individual customer. Government sales, which were derived from various military parts
procurement agencies such as the U.S. Defense Logistics Agency, or from defense contractors buying on their
behalf, comprised 16%, 15% and 14% of our net sales during fiscal 2017, 2016 and 2015, respectively.

Foreign Currency Translation and Transactions

The financial statements of foreign subsidiaries and affiliates where the local currency is the functional

currency are translated into U.S. dollars using exchange rates in effect at each period-end for assets and
liabilities and average exchange rates during the period for results of operations. The adjustment resulting
from translating the financial statements of such foreign subsidiaries is reflected as a separate component of
stockholders’ equity. Foreign currency transaction gains and losses are reported as other income (expense),
net in the consolidated statements of comprehensive income. For the years ended September 30, 2017, 2016
and 2015, realized foreign currency transaction gains were $0.1 million, $3.2 million and $0.6 million,
respectively.

Stock-Based Compensation

We recognize all stock-based awards to employees and directors as stock-based compensation expense

based upon their fair values on the date of grant.

We estimate the fair value of stock-based payment awards on the date of grant. The value of the portion

of the award that is ultimately expected to vest is recognized as an expense during the requisite service
periods. We have estimated the fair value for each option award as of the date of grant using the
Black-Scholes option pricing model. The Black-Scholes option pricing model considers, among other factors,
the expected life of the award and the expected volatility of our stock price. We recognize the stock-based
compensation expense over the requisite service period (generally a vesting term of three years) using the
graded vesting method for performance condition awards and the straight-line method for service condition
only awards, which is generally a vesting term of three years. Stock options typically have a contractual term of
10 years. The stock options granted have an exercise price equal to the closing stock price of our common
stock on the grant date. Compensation expense for restricted stock units and awards are based on the market
price of the shares underlying the awards on the grant date. Compensation expense for performance based
awards reflects the estimated probability that the performance condition will be met. Compensation expense
for awards with total stockholder return metrics reflects the fair value calculated using the Monte Carlo
simulation model, which incorporates stock price correlation and other variables over the time horizons
matching the performance periods.

Net Loss or Net Income Per Share

Basic net income or net loss per share is computed by dividing net income or net loss available to
common stockholders by the weighted average number of common shares outstanding during the period.
Diluted net income or net loss per share includes the dilutive effect of both outstanding stock options and
restricted shares, calculated using the treasury stock method.

Note 3. Recent Accounting Pronouncements

Changes to generally accepted accounting principles in the United States (GAAP) are established by the

FASB, in the form of ASUs, to the FASB’s Accounting Standards Codification.

We consider the applicability and impact of all ASUs. ASUs not listed below were assessed and

determined to be either not applicable or are expected to have minimal impact on our consolidated financial
position and results of operations.

Wesco Aircraft Holdings, Inc. & Subsidiaries
Notes to the Consolidated Financial Statements (Continued)

Note 3. Recent Accounting Pronouncements (Continued)

New Accounting Standards Updates

In May 2017, the FASB issued ASU 2017-09, Compensation - Stock Compensation (Topic 718): Scope of

Modification Accounting, which specifies the modification accounting applicable to any entity that changes the
terms or conditions of a share-based payment award. ASU 2017-09 is effective for the Company in fiscal year
2019. Early adoption is permitted. We do not anticipate the adoption of ASU 2017-09 will have a significant
impact on our consolidated financial statements.

In January 2017, the FASB issued ASU 2017-04, Intangibles-Goodwill and Other:Simplifying the Test for

Goodwill Impairment, which simplifies the current requirements for testing goodwill for impairment by
eliminating the second step of the two-step impairment test to measure the amount of an impairment loss.
ASU 2017-04 is effective for the Company in fiscal year 2021, including interim reporting periods within that
reporting period, and all annual and interim reporting periods thereafter. Early adoption is permitted. We are
currently evaluating the impact of this guidance on our consolidated financial statements.

In March 2016, the FASB issued ASU 2016-07, Investments - Equity Method and Joint Ventures
(Topic 323), Simplifying the Transition to the Equity Method of Accounting. ASU 2016-07 eliminates the
requirement that when an investment subsequently qualifies for use of the equity method as a result of an
increase in level of ownership interest or degree of influence, an investor must adjust the investment, results
of operations, and retained earnings retroactively on a step-by-step basis as if the equity method had been in
effect during all previous periods that the investment had been held. ASU 2016-07 requires that the equity
method investor add the cost of acquiring the additional interest in the investee to the current basis of the
investor’s previously held interest and to adopt the equity method of accounting as of the date the investment
becomes qualified for equity method accounting. In addition, ASU 2016-07 requires that an entity that has an
available-for-sale equity security that becomes qualified for the equity method of accounting recognize
through earnings the unrealized gain or loss in accumulated other comprehensive income at the date the
investment becomes qualified for use of the equity method. ASU 2016-07 is effective for the Company in
fiscal year 2018, with early adoption permitted. We are currently evaluating the impact of this guidance on our
consolidated financial statements. We have an investment in two joint ventures accounted for under the
equity method, which had a carrying value of $10.9 million as of September 30, 2017.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which requires lessees to recognize

on the balance sheet a right-of-use asset, representing its right to use the underlying asset for the lease term,
and a lease liability for all leases with terms greater than 12 months. The recognition, measurement, and
presentation of expenses and cash flows arising from a lease by a lessee have not significantly changed from
current GAAP. ASU 2016-02 retains a distinction between finance leases (i.e. capital leases under current
GAAP) and operating leases. The classification criteria for distinguishing between finance leases and
operating leases will be substantially similar to the classification criteria for distinguishing between capital
leases and operating leases under current GAAP. ASU 2016-02 also requires qualitative and quantitative
disclosures designed to assess the amount, timing, and uncertainty of cash flows arising from leases. A
modified retrospective transition approach shall be used when adopting ASU 2016-02, which includes a
number of optional practical expedients that entities may elect to apply. ASU 2016-02 is effective for the
Company in fiscal year 2020 and interim periods therein, with early application permitted. We are currently
evaluating the impact of this guidance on our consolidated financial statements. As of September 30, 2017,
total future minimum payments under our operating leases amounted to $51.4 million.

In January 2016, the FASB issued ASU 2016-01, Financial Instruments-Overall (Subtopic 825-10):
Recognition and Measurement of Financial Assets and Financial Liabilities, which affects the accounting for
equity investments, financial liabilities under the fair value option and the presentation and disclosure
requirements of financial instruments. ASU 2016-01 is effective for the Company in fiscal year 2019, with
early adoption permitted for certain provisions. We are currently evaluating the impact of ASU 2016-01
related to equity investments and the presentation and disclosure requirements of financial instruments on
our consolidated financial statements.

Wesco Aircraft Holdings, Inc. & Subsidiaries
Notes to the Consolidated Financial Statements (Continued)

Note 3. Recent Accounting Pronouncements (Continued)

In July 2015, the FASB issued ASU 2015-11, Inventory (Topic 330): Simplifying the Measurement of
Inventory, which requires an entity to measure inventory at the lower of cost and net realizable value, and
eliminates current GAAP options for measuring market value. ASU 2015-11 defines realizable value as the
estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion,
disposal, and transportation. ASU 2015-11 is effective for the Company in fiscal year 2018, and interim
periods therein. Early adoption is permitted for financial statements that have not been previously issued.
ASU 2015-11 can only be applied prospectively. We do not anticipate the adoption of ASU 2015-11 will have a
significant impact on our consolidated financial statements.

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606). ASU
2014-09 is amended by ASU 2015-14, ASU 2016-08, ASU 2016-10, ASU 2016-11, ASU 2016-12, ASU 2016-20,
ASU 2017-10 and ASU 2017-13, which FASB issued in August 2015, March 2016, April 2016, May 2016, May
2016, December 2016, May 2017 and September 2017, respectively (collectively the ‘‘amended ASU
2014-09’’). The amended ASU 2014-09 provides a single comprehensive model for the recognition of revenue
arising from contracts with customers and supersedes most current revenue recognition guidance, including
industry-specific guidance. It requires an entity to recognize revenue when the entity transfers promised goods
or services to customers in an amount that reflects the consideration to which the entity expects to be entitled
in exchange for those goods or services. The amended ASU 2014-09 creates a five-step model that requires
entities to exercise judgment when considering the terms of contract(s), which includes (1) identifying the
contract(s) with the customer, (2) identifying the separate performance obligations in the contract,
(3) determining the transaction price, (4) allocating the transaction price to the separate performance
obligations, and (5) recognizing revenue as each performance obligation is satisfied. The amended ASU
2014-09 requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash
flows arising from customer contracts, including qualitative and quantitative information about contracts with
customers, significant judgments and changes in judgments and assets recognized from costs incurred to
obtain or fulfill a contract. The effective date for the amended ASU 2014-09 for the Company is fiscal year
2019, including interim reporting periods within that reporting period. Early adoption is permitted for fiscal
year 2018, including interim reporting periods within that reporting period.

The amended ASU 2014-09 may have an impact on the timing and amount of revenues and cost of sales

in our industry due primarily to changes in whether certain performance obligations are accounted for on a
gross or net basis, separating service revenue from the related product revenue, reporting costs currently
included in operating expense as costs of services, and capitalizing certain up-front costs related to contracts
and amortizing them over the service period. We have completed reviewing our major contracts and are in the
process of reviewing the remaining contracts on a sampling basis to determine the extent to which these and
other issues may impact on our results after adoption. We plan to adopt the amended ASU 2014-09 in fiscal
2019 using the modified retrospective method.

Adopted Accounting Standards Updates

Effective September 30, 2017, we adopted ASU 2014-15, Presentation of Financial Statements - Going

Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going
Concern, which amends ASC Subtopic 205-40 to provide guidance about management’s responsibility to
evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern and to
provide related disclosures. The adoption of ASU 2014-15 did not have any impact on our consolidated
financial statements.

Effective October 1, 2016, we elected to early adopt ASU 2016-09, Improvements to Employee

Share-Based Payment Accounting, which is intended to simplify several aspects of the 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 primary impacts of adoption are
(1) the recognition of excess tax benefits in our benefit (provision) for income taxes instead of paid-in capital
and (2) the presentation of excess tax benefits in the statement of cash flows as cash provided by operating

Wesco Aircraft Holdings, Inc. & Subsidiaries
Notes to the Consolidated Financial Statements (Continued)

Note 3. Recent Accounting Pronouncements (Continued)

activities instead of cash provided by financing activities. The first requirement is required to be applied
prospectively. For the year ended September 30, 2017, we recorded $0.9 million of excess tax benefits as a
reduction to our provision for income tax. For the second requirement, we elected to adopt this update
prospectively. For the year ended September 30, 2017, we included the $0.9 million excess tax benefits in cash
provided by operating activities on our consolidated statements of cash flows.

ASU 2016-09 also addresses cash flow statement presentation. Since we have historically presented cash

flows related to employee taxes paid for withheld shares as a financing activity, ASU 2016-09 had no impact
on our consolidated statements of cash flows. As permitted by ASU 2019-09, we have elected to continue to
estimate forfeitures to determine the amount of compensation cost to be recognized in each period.

Effective October 1, 2016, we adopted, on a prospective basis, ASU 2015-16, Business Combinations

(Topic 805): Simplifying the Accounting for Measurement-Period Adjustments, which requires that an
acquirer recognize adjustments to provisional amounts that are identified during the measurement period in
the reporting period in which the adjustment amounts are determined. As of June 30, 2017, we did not have
any provisional amounts outstanding from prior acquisitions. Therefore, the adoption of ASU 2015-16 did not
have any impact on our consolidated financial statements.

Effective October 1, 2016, we adopted ASU 2015-15, Interest - Imputation of Interest (Subtopic 835-30):

Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit
Arrangements. ASU 2015-15 requires entities should present debt issuance costs for line-of-credit as an asset,
and subsequently amortize the deferred debt issuance costs ratably over the term of the line-of-credit
arrangement, regardless of whether there are any outstanding borrowings on the line-of-credit arrangement.
As of September 30, 2017 and September 30, 2016, we had $3.7 million and $1.1 million, respectively, of
deferred debt issuance costs related to our revolving line-of-credit facility.

Effective October 1, 2016, we adopted ASU 2015-03, Interest - Imputation of Interest (Subtopic 835-30):
Simplifying the Presentation of Debt Issuance Cost. ASU 2015-03 requires that we change the presentation of
debt issuance costs on our consolidated balance sheets. Effective October 1, 2016, our unamortized debt
issuance costs are presented as a reduction of long-term debt instead of being presented as an asset on our
consolidated balance sheet. As required by ASU 2015-03, we reclassified $7.6 million of deferred debt
issuance costs from non-current assets to reduce our $841.9 million long-term debt as of September 30, 2016.
As of September 30, 2017, deferred debt issuance costs of $11.7 million are presented as a reduction of our
long-term debt. See Note 11 for further information.

Effective October 1, 2016, we adopted, on a prospective basis, ASU 2014-12, Compensation-Stock
Compensation (Topic 718): Accounting for Share-Based Payments when the Terms of an Award Provide that
a Performance Target Could Be Achieved After the Requisite Service Period. ASU 2014-12 requires that a
performance target that affects vesting and that could be achieved after the requisite service period be treated
as a performance condition. The adoption of ASU 2014-12 did not have any impact on our consolidated
financial statements.

Note 4. Restructuring Activities

We record costs associated with involuntary separation programs when management has approved the

plan for separation, the affected employees are identified, and it is unlikely that actions required to complete
the separation plan will change significantly.

In September 2015, we committed to a Global Restructuring Plan (GRP), which involved the immediate

elimination of redundant positions and the closure and consolidation of various facilities in order to better
align our workforce to the growth areas of our business and to streamline our operations in order to increase
efficiency and effectiveness. As of September 30, 2016, we materially completed the actions under the GRP.

During the year ended September 30, 2016, we recorded a net expense reduction of $185,000 related to

the restructuring activities, consisting of an expense reduction of $355,000 related to the termination of leases

Wesco Aircraft Holdings, Inc. & Subsidiaries
Notes to the Consolidated Financial Statements (Continued)

Note 4. Restructuring Activities (Continued)

and other expenses, partially offset by $170,000 of additional employee severance and related costs. Of these
amounts, $183,000 of additional expenses was recorded in North America and $368,000 of expense reduction
was recorded in Rest of World. Such net expense reduction was recorded in selling, general and
administrative expenses in our consolidated statements of comprehensive income.

Our restructuring liabilities were included in the accrued expenses and other current liabilities line of our

consolidated balance sheets. The following table summarizes the activities affecting our restructuring
liabilities described above during the year ended September 30, 2016 (in thousands):

September 30,
2015

Additions/
Adjustments

Cash
Payments

Foreign
Currency
Translation

September 30,
2016

Employee severance . . . . . . . . . . . . . . . .
Lease termination costs and other. . . . .

Total . . . . . . . . . . . . . . . . . . . . . . . . . . .

$2,106
2,384

$4,490

$ 170
(355)

$(185)

$(2,193)
(856)

$(3,049)

$(15)
(77)

$(92)

$
68
1,096

$1,164

As of September 30, 2017, our restructuring liabilities were $0.4 million, which was included in the

accrued expenses and other current liabilities line of our consolidated balance sheets.

Note 5. Inventory

Our inventory is comprised solely of finished goods.

Charges to cost of sales for E&O provisions and related items were $12.9 million, $14.6 million and
$95.1 million in the years ended September 30, 2017, 2016 and 2015, respectively. We believe that these
amounts appropriately write-down E&O inventory to its net realizable value.

In the fourth quarter of 2015, we determined that inventory previously purchased in connection with a

specific program which was subsequently terminated, had no alternative use. Prior to such determination
during the year ended September 30, 2015, we attempted to negotiate a sale of such inventory with our
customer for whom such inventory was purchased, as well as market the inventory through other channels,
and believed the full cost of this inventory was recoverable. However, in the fourth quarter of 2015, we
determined such inventory was not marketable and recorded a provision of $33.0 million to reduce its carrying
value to zero.

In the fourth quarter of 2015, management implemented a new strategy of providing integrated supply

chain services more tailored to customer demand through long-term contracts and focused forecasted
consumption. The new strategy also included changes to our inventory purchasing strategy, holding inventory
for shorter periods and the planned scrapping of long dated inventory. The new strategy and updates for fiscal
2015 sales activities led to changes in the sell through rates, holding period of aged inventory and others
estimates used to determine the E&O provision for our hardware inventory, which led to an additional E&O
inventory provision of $43.8 million.

Note 6. Related Party Transactions

We entered into a management agreement with The Carlyle Group to provide certain financial, strategic

advisory and consultancy services. Under this management agreement, we are obligated to pay The Carlyle
Group, or a designee thereof, an annual management fee of $1.0 million (paid quarterly) plus fees and
expenses associated with company-related meetings. The management fee was waived by an entity affiliated
with The Carlyle Group for the third and fourth quarters of fiscal 2017. We incurred expense of $0.6 million,
$1.3 million and $1.1 million for the years ended September 30, 2017, 2016 and 2015, respectively, related to
this management agreement. These amounts were paid to The Carlyle Group during the years ended
September 30, 2017, 2016 and 2015.

Wesco Aircraft Holdings, Inc. & Subsidiaries
Notes to the Consolidated Financial Statements (Continued)

Note 6. Related Party Transactions (Continued)

We lease several office and warehouse facilities under operating lease agreements from entities
controlled by our former chief executive officer, who is also our Chairman of the Board. Rent expense on
these facilities was $1.6 million, $1.8 million and $1.7 million for the years ended September 30, 2017, 2016
and 2015, respectively (see Note 17).

Note 7. Property and Equipment, net

Property and equipment, net, consists of the following at September 30 (in thousands):

2017

2016

Land, buildings and improvements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Machinery and equipment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Furniture and fixtures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vehicles. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Computer hardware and software . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Construction in progress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 31,202
21,265
8,011
942
50,395
4,300

$ 29,392
18,288
6,319
1,288
36,274
11,333

Less: accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

116,115
(65,760)

102,894
(52,369)

Property and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 50,355

$ 50,525

At September 30, 2017 and 2016, property and equipment included assets of $15.6 million, and
$8.9 million respectively, acquired under capital lease arrangements. Accumulated amortization of assets
acquired under capital leases was $7.9 million and $5.8 million as of September 30, 2017 and 2016,
respectively.

Depreciation and amortization expense for property and equipment was $13.4 million, $12.1 million and
$11.8 million during the years ended September 30, 2017, 2016 and 2015, respectively (including amortization
expense of $2.5 million, $1.5 million and $1.5 million on assets acquired under capital leases for the years
ended September 30, 2017, 2016 and 2015, respectively).

Note 8. Goodwill and Intangible Assets, net

Goodwill

A reconciliation of our goodwill balance is as follows (in thousands):

Americas
September 30,

2017

2016

EMEA
September 30,
2016

2017

APAC
September 30,

Consolidated
September 30,

2017

2016

2017

2016

Beginning balance,

gross . . . . . . . . . . . . . . $ 773,384 $ 773,384 $53,297 $ 64,019 $16,955 $16,955 $ 843,636 $ 854,358

Accumulated

impairment . . . . . . . .

(260,798)

—

— (2,973)

(2,973)

(263,771)

Beginning balance, net . $ 512,586 $ 512,586 $53,297 $ 64,019 $13,982 $13,982 $ 579,865 $ 590,587
Foreign currency

translation . . . . . . . . .
Goodwill impairment . .

—
(308,403)

— (2,107)
—
—

(10,722)

—
— (2,711)

(2,107)
—
— (311,114)

(10,722)
—

Ending balance, gross . . $ 773,384 $ 773,384 $51,190 $ 53,297 $16,955 $16,955 $ 841,529 $ 843,636
Accumulated

impairment . . . . . . . .

(569,201)

(260,798)

—

— (5,684)

(2,973)

(574,885)

(263,771)

Ending balance, net . . . $ 204,183 $ 512,586 $51,190 $ 53,297 $11,271 $13,982 $ 266,644 $ 579,865

Wesco Aircraft Holdings, Inc. & Subsidiaries
Notes to the Consolidated Financial Statements (Continued)

Note 8. Goodwill and Intangible Assets, net (Continued)

We performed our Step 1 goodwill impairment tests on July 1, 2016. The results of these tests indicated

We performed our Step 1 goodwill impairment test on June 30, 2017 on all four reporting units. The

results of these tests indicated that the goodwill of North America Hardware and North America Chemical
reporting units was impaired. Lower projected revenue growth and operating results reflected changes in
assumptions related to organic growth rates, market trends, business mix, cost structure and other
expectations about the anticipated short-term and long-term operating results of these two reporting units,
resulting in lower estimated fair values. As a result, we proceeded to Step 2 of the goodwill impairment
analysis using the most appropriate valuation methods and compared the implied value of goodwill with the
carrying value of the goodwill for each of the impaired reporting units.

In applying the Step 2 analysis to the North America Hardware and North America Chemical reporting

As a result of our operating segment realignment discussed in Note 21, the composition of our reporting
units for the evaluation of goodwill impairment has changed. Historically, our reporting units used to be one
level below our operating segments, which consisted of North America Hardware, North America Chemical,
Rest-Of-World Hardware and Rest-Of-World Chemical. Effective July 1, 2017, we identified one reporting
unit for each of our three new segments, which are Americas, EMEA and APAC. Goodwill was reassigned to
the new reporting units using a relative fair value allocation approach. As a result of the change in reporting
units, we are required to test goodwill impairment for the reporting units before this change, which is satisfied
by our event-driven goodwill impairment test performed on June 30, 2017. We also performed our annual
goodwill impairment test as of July 1, 2017 for the new reporting units as required, which indicated no
impairment for any of the three new reporting units at July 1, 2017. For the Americas, EMEA and APAC
reporting units, the fair value was in excess of carrying value by 12%, 61% and 28%, respectively.

Wesco Aircraft Holdings, Inc. & Subsidiaries
Notes to the Consolidated Financial Statements (Continued)

Note 8. Goodwill and Intangible Assets, net (Continued)

Intangible Assets

As of September 30, 2017 and 2016, the gross amounts and accumulated amortization of intangible assets

is as follows (in thousands):

2017

2016

Gross
Amount

Accumulated
Amortization

Gross
Amount

Accumulated
Amortization

Customer relationships (12 to 20 year life) . . . . . . . . . . . .
Trademarks (5 years to indefinite life). . . . . . . . . . . . . . . .
Backlog (2 year life) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-compete agreements (3 to 4 year life) . . . . . . . . . . . .
Technology (10 year life). . . . . . . . . . . . . . . . . . . . . . . . . . .

$172,603
52,930
4,327
1,457
32,260

$(64,319)
(3,610)
(4,327)
(1,457)
(11,572)

$173,437
53,034
4,327
1,457
32,481

$(53,829)
(2,618)
(4,327)
(1,457)
(8,391)

Total intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$263,577

$(85,285)

$264,736

$(70,622)

Estimated future intangible amortization expense as of September 30, 2017 is as follows (in thousands):

2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 14,933
14,933
14,799
14,396
14,396
67,003

$140,460

Amortization expense included in the statements of comprehensive income for the years ended

September 30, 2017, 2016 and 2015 was $14.9 million, $15.8 million and $15.9 million, respectively. In
addition to amortizing intangibles, we assigned an indefinite life to the Wesco Aircraft trademark. As of
September 30, 2017 and 2016, the trademark had a carrying value of $37.8 million.

Note 9. Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities consist of the following (in thousands):

Accrued compensation and related expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued customer rebates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued taxes (property, sales and use). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest rate swap . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other accruals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Accrued expenses and other current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

September 30,

2017

2016

$16,271
4,240
2,083
2,462
10,273

$35,329

$10,067
3,931
150
1,059
11,217

$26,424

Note 10. Fair Value of Financial Instruments

Our financial instruments include cash and cash equivalents, accounts receivable and payable, accrued
and other current liabilities and a revolving facility. The carrying amounts of these instruments approximate
fair value because of their short-term maturities. The fair value of interest rate swap agreements is
determined using pricing models that use observable market inputs as of the balance sheet date, a Level 2
measurement. The fair value of the long-term debt instruments is determined using current applicable rates
for similar instruments as of the balance sheet date, a Level 2 measurement.

Wesco Aircraft Holdings, Inc. & Subsidiaries
Notes to the Consolidated Financial Statements (Continued)

Note 10. Fair Value of Financial Instruments (Continued)

The carrying amounts and fair values of the debt instruments and interest rate swap hedge instrument

were as follows (in thousands):

September 30, 2017
Fair
Value

Carrying
Amount

September 30, 2016
Fair
Value

Carrying
Amount

Term loan A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Term loan B . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Revolving facility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest rate swap hedge liabilities . . . . . . . . . . . . . . . . . . .

$380,000
440,562
55,000
3,365

$376,960
428,667
55,000
3,365

$401,344
440,562
—
6,672

$401,344
435,716
—
6,672

Note 11. Long-Term Debt

Long-term debt consists of the following (in thousands):

Term loan A facility . . . . . . .
Term loan B facility . . . . . . .
Revolving facility . . . . . . . . .

Less: current portion . . . .

Principal
Amount

$380,000
440,562
55,000

875,562
75,000

September 30, 2017
Deferred Debt
Issuance Costs

$ (7,562)
(4,162)
—

(11,724)
—

Carrying
Amount

$372,438
436,400
55,000

863,838
75,000

Principal
Amount

$401,344
440,562
—

841,906
—

September 30, 2016
Deferred Debt
Issuance Costs

$(2,247)
(5,380)
—

(7,627)
—

Carrying
Amount

$399,097
435,182
—

834,279
—

Non-current portion. . . . . . .

$800,562

$(11,724)

$788,838

$841,906

$(7,627)

$834,279

Aggregate maturities of long-term debt as of September 30, 2017 are as follows (in thousands):

Years Ended September 30,

$ 75,000
20,000
20,000
760,562

$875,562

Sixth Amendment to Senior Secured Credit Facilities

On November 2, 2017, we entered into the Sixth Amendment to Credit Agreement (the Sixth

Amendment) to our credit agreement, dated as of December 7, 2012, by and among the Company, Wesco
Aircraft Hardware (the Borrower) and the lenders and agents party thereto (as amended prior to the Sixth
Amendment, the Existing Credit Agreement; the Existing Credit Agreement, as amended by the Sixth
Amendment, the Credit Agreement).

The Sixth Amendment further modified the Credit Agreement to reduce the maximum amount

Wesco Aircraft Holdings, Inc. & Subsidiaries
Notes to the Consolidated Financial Statements (Continued)

Note 11. Long-Term Debt (Continued)

Agreement), after giving effect to the incurrence of any incremental loans or commitments and the use of
proceeds thereof, on a pro forma basis, would be (i) less than 4.00 but greater than or equal to 3.50, in which
case the Capped Incremental Facility would be increased to $75.0 million or (ii) less than 3.50, in which case
the Capped Incremental Facility would be increased to $150.0 million.

As a result of the Amendment, we incurred $1.9 million in fees that were capitalized and will be

amortized over the remaining life of the related debt.

Existing Senior Secured Credit Facilities

The Credit Agreement provides for (1) a $400.0 million senior secured term loan A facility (the term

On March 28, 2017, we entered into the Fifth Amendment to the Credit Agreement (the ‘‘Fifth
Amendment’’). The Fifth Amendment modified the Existing Credit Agreement to increase the highest
possible interest rate margin applicable to loans under the term loan A facility and loans and commitments
under the revolving facility from 2.75% to 3.00% for Eurocurrency loans and from 1.75% to 2.00% for
Alternate Base Rate (ABR) loans. The Fifth Amendment also modified the Existing Credit Agreement to
(a) to reduce the maximum amount permitted to be incurred under the Capped Incremental Facility and
(b) increase the Consolidated Total Leverage Ratio levels in the financial covenant; however, these
modifications were subsequently superseded by the Sixth Amendment.

During the year ended September 30, 2017, we made four required quarterly payments totaling
$20.0 million and a voluntary prepayment of $1.3 million on our term loan A facility and three voluntary
prepayments totaling $22.0 million on our borrowings under the revolving facility. As of September 30, 2017,
$55.0 million of indebtedness was outstanding and $125.0 million was available for borrowing under the
revolving facility to fund our operating and investing activities without breaching any covenants contained in
the Credit Agreement.

The interest rate for the term loan A facility is based on our Consolidated Total Leverage Ratio as

determined in the most recently delivered financial statements, with the respective margins ranging from
2.00% to 3.00% for Eurocurrency loans and 1.00% to 2.00% for ABR loans. The term loan A facility
amortizes in equal quarterly installments of 1.25%of the original principal amount of $400.0 million with the
balance due on the earlier of (i) 90 days before the maturity of the term loan B facility, and (ii) October 4,
2021. As of September 30, 2017, the interest rate for borrowings under the term loan A facility was 4.24%,
which approximated the effective interest rate.

The interest rate for the term loan B facility has a margin of 2.50% per annum for Eurocurrency loans

(subject to a minimum Eurocurrency rate floor of 0.75% per annum) or 1.50% per annum for ABR loans
(subject to a minimum ABR floor of 1.75% per annum). The term loan B facility amortizes in equal quarterly
installments of 0.25% of the original principal amount of $525.0 million, with the balance due at maturity on

Wesco Aircraft Holdings, Inc. & Subsidiaries
Notes to the Consolidated Financial Statements (Continued)

Note 11. Long-Term Debt (Continued)

February 28, 2021. As of September 30, 2017, the interest rate for borrowings under the term loan B facility
was 3.84%, which approximated the effective interest rate. In July 2015, we entered into interest rate swap
agreements relating to this indebtedness, which are described in greater detail in Note 12 below.

The interest rate for the revolving facility is based on our Consolidated Total Leverage Ratio as
determined in the most recently delivered financial statements, with the respective margins ranging from
2.00% to 3.00% for Eurocurrency loans and 1.00% to 2.00% for ABR loans. The revolving facility expires on
the earlier of (i) 90 days before the maturity of the term loan B facility, and (ii) October 4, 2021. As of
September 30, 2017, the weighted-average interest rate for borrowings under the revolving facility was 4.24%.

As a result of the Fourth Amendment to our Credit Agreement on October 4, 2016, we incurred
$10.5 million in fees that were capitalized, $7.2 million of which was related to the term loan A facility and
$3.3 million of which was related to the revolving facility. Of the $3.4 million of the unamortized deferred
debt issuance costs related to the Credit Agreement prior to the Fourth Amendment, $2.3 million was written
off as debt extinguishment loss in the year ended September 30, 2017, which was included in interest expense
for the period. As a result of the Fifth Amendment to our Credit Agreement on March 28, 2017, we incurred
$2.3 million in fees that were capitalized, $1.6 million of which was related to the term loan A facility and
$0.7 million of which was related to the revolving facility. The deferred debt issuance costs of term loan B
were not impacted by the Fourth Amendment or Fifth Amendment. The following table summarizes the total
deferred debt issuance costs for the term loan A facility, the term loan B facility and the revolving facility,
which will be amortized over their remaining terms.

Term Loan A
Facility

Term Loan B
Facility

Revolving
Facility

Deferred debt issuance costs as of September 30, 2016 . . . .
Write off for the Fourth Amendment. . . . . . . . . . . . . . . . . . .
Deferred debt issuance costs for the Fourth Amendment . .
Deferred debt issuance costs for the Fifth Amendment . . . .
Amortization of deferred debt issuance costs . . . . . . . . . . . .

$ 2,247
(1,769)
7,215
1,617
(1,748)

Deferred debt issuance costs as of September 30, 2017 . . . .

$ 7,562

$ 5,378
—
—
—
(1,216)

$ 4,162

$1,120
(553)
3,247
719
(857)

Total

$ 8,745
(2,322)
10,462
2,336
(3,821)

$3,676

$15,400

Our borrowings under the Credit Facilities are guaranteed by us and all of our direct and indirect,
wholly-owned, domestic restricted subsidiaries (subject to certain exceptions) and secured by a first lien on
substantially all of our assets and the assets of our guarantor subsidiaries, including capital stock of the
subsidiaries (in each case, subject to certain exceptions).

The Credit Agreement contains customary negative covenants, including restrictions on our and our
restricted subsidiaries’ ability to merge and consolidate with other companies, incur indebtedness, grant liens
or security interests on assets, make acquisitions, loans, advances or investments, pay dividends, sell or
otherwise transfer assets, optionally prepay or modify terms of any junior indebtedness or enter into
transactions with affiliates. As referred to above, our borrowings under the Credit Facilities are subject to a
financial covenant based upon our Consolidated Total Leverage Ratio with the maximum ratio prior to the
Sixth Amendment set at 4.50 for the quarter ending September 30, 2017, and after the Sixth Amendment set
at 6.25 for the quarter ending September 30, 2017. Had the Consolidated Total Leverage Ratio not been
increased by the Sixth Amendment, we would not have been in compliance as of September 30, 2017 or
subsequent measurement dates based on our current operating forecasts and debt levels. After the Sixth
Amendment, as of September 30, 2017 we were in compliance with all of the foregoing covenants, and our
Consolidated Total Leverage Ratio was 4.59. After the Sixth Amendment, based on our current covenants
and current forecasts, we expect to be compliance for the one year period following the issuance of our 2017
financial statements.

Wesco Aircraft Holdings, Inc. & Subsidiaries
Notes to the Consolidated Financial Statements (Continued)

Note 11. Long-Term Debt (Continued)

UK Line of Credit

Our subsidiary, Wesco Aircraft EMEA, has a £7.0 million ($9.4 million based on the September 30, 2017
exchange rate) line of credit that automatically renews annually on October 1. The line of credit bears interest
based on the base rate plus an applicable margin of 1.65%. As of September 30, 2017, the full £7.0 million was
available for borrowing under the UK line of credit without breaching any covenants contained in the
agreements governing our indebtedness.

Note 12. Derivative Financial Instruments

We use derivative instruments primarily to manage exposures to foreign currency exchange rates and
interest rates. Our primary objective in holding derivatives is to reduce the volatility of earnings and cash
flows associated with fluctuations in foreign exchange rates and changes in interest rates. Our derivatives
expose us to credit risk to the extent that the counter-parties may be unable to meet the terms of the
agreement. We, however, seek to mitigate such risks by limiting our counter-parties to major financial
institutions. In addition, the potential risk of loss with any one counter-party resulting from this type of credit
risk is monitored. Management does not expect material losses as a result of defaults by counter-parties.

Cash Flow Hedges of Interest Rate Risk

Our objectives in using interest rate derivatives are to add stability to interest expense and to manage our
exposure to interest rate movements. To accomplish this objective, we primarily use interest rate swaps as part
of its interest rate risk management strategy. Interest rate swaps designated as cash flow hedges involve the
receipt of variable amounts from a counterparty in exchange for our making fixed-rate payments over the life
of the agreements without exchange of the underlying notional amount. In July 2015, we entered into two
interest rate swap agreements, which we designated as cash flow hedges, in order to reduce our exposure to
variability in cash flows related to interest payments on a portion of our outstanding debt. The first interest
rate swap agreement has an amortizing notional amount, which was $387.5 million through September 29,
2017, and matured on September 29, 2017, giving us the contractual right to pay a fixed interest rate of 1.21%
plus the applicable margin under the term loan B facility (as defined in Note 11 above; see Note 11 for the
applicable margin). The second interest rate swap agreement, which is effective on September 29, 2017 and
matures on September 30, 2019, has an amortizing notional amount, $375.0 million as of September 30, 2017,
giving us the contractual right to pay a fixed interest rate of 2.2625% plus the applicable margin under the
term loan B facility.

The effective portion of changes in the fair value of derivatives designated and that qualify as cash flow
hedges is recorded in accumulated other comprehensive loss and is subsequently reclassified into earnings in
the period that the hedged forecasted transaction affects earnings. During the year ended September 30,
2017, such derivatives were used to hedge the variable cash flows associated with existing variable-rate debt.
The ineffective portion of the change in fair value of the derivatives is recognized immediately in earnings.
During the year ended September 30, 2017, we did not record any hedge ineffectiveness in earnings. No
portion of our interest rate swap agreements is excluded from the assessment of hedge effectiveness.

Amounts reported in accumulated other comprehensive loss related to derivatives are reclassified to

interest expense as interest payments are made on our variable-rate debt. As of September 30, 2017, we
expected to reclassify approximately $1.6 million from accumulated other comprehensive loss to earnings as
an increase to interest expense over the next 12 months when the underlying hedged item impacts earnings.

Non-Designated Derivatives

On December 16, 2015, we entered into one foreign currency forward contract to partially reduce our

exposure to foreign currency fluctuations for a subsidiary’s net monetary assets, which are denominated in a
foreign currency. The derivative is not designated as a hedging instrument. The change in its fair value is
recognized as periodic gain or loss in the other income (loss), net line of our consolidated statement of
earnings and comprehensive income. This foreign currency forward contract expired on September 28, 2016.

Wesco Aircraft Holdings, Inc. & Subsidiaries
Notes to the Consolidated Financial Statements (Continued)

Note 12. Derivative Financial Instruments (Continued)

On October 3 and October 5, 2016, we entered into two foreign currency forward contracts to partially

reduce our exposure to foreign currency fluctuations for a subsidiary’s net monetary assets, which are
denominated in a foreign currency. Both foreign currency forward contracts expired on December 28, 2016.
On January 6, 2017, we entered into one foreign currency forward contract to partially reduce our exposure to
foreign currency fluctuations for a subsidiary’s net monetary assets, which are denominated in a foreign
currency. The foreign currency forward contract expired on March 30, 2017. The derivatives were not
designated as a hedging instrument. The change in their fair value is recognized as periodic gain or loss in the
other income (loss), net line of our consolidated statement of earnings and comprehensive income. We did
not have foreign currency forward contracts as of September 30, 2017 and 2016.

The following table summarizes the notional principal amounts at September 30, 2017 and 2016 of our

interest rate swap agreements discussed above (in thousands). We did not have foreign exchange forward
contracts as of September 30, 2017 and 2016.

Derivative Notional

September 30,
2017

September 30,
2016

Instruments designated as accounting hedges:

Interest rate contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$375,000

$425,000

The following table provides the location and fair value amounts of our hedge instruments, which are
reported in our consolidated balance sheets as of September 30, 2017 and 2016 (in thousands). We did not
have foreign exchange forward contracts as of September 30, 2017 and 2016.

Liability Derivatives

Instruments designated as
accounting hedges:

Interest rate swap contracts . . .

Balance Sheet Locations

Fair Value as of
September 30,

2017

2016

Accrued expenses and other current liabilities
Other liabilities

$2,462
903

$1,057
5,615

The following table provides the losses of our cash flow hedging instruments (net of income tax benefit),

which were transferred from accumulated other comprehensive loss to our consolidated statement of
comprehensive (loss) income for the years ended September 30, 2017, 2016 and 2015 (in thousands).

Cash Flow Derivatives

Location in Consolidated Statement
Of Comprehensive (Loss) Income

Years Ended September 30,
2016

2015

2017

Interest rate swap contracts . .

Interest expense, net

$(385)

$(1,344)

$(4)

The following table provides the effective portion of the losses of our cash flow hedge instruments which

are recognized (net of income taxes) in other comprehensive gain (loss) for the years ended September 30,
2017, 2016 and 2015 (in thousands).

Cash Flow Derivatives

Years Ended September 30,
2016

2015

2017

Interest rate swap contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$1,688

$(2,973)

$(2,581)

Wesco Aircraft Holdings, Inc. & Subsidiaries
Notes to the Consolidated Financial Statements (Continued)

Note 12. Derivative Financial Instruments (Continued)

The following table provides a summary of changes to our accumulated other comprehensive loss related

to our cash flow hedging instruments (net of income taxes) during the years ended September 30, 2017 and
2016.

AOCI - Unrealized Gain (Loss) on Hedging Instruments

Years Ended September 30,

2017

2016

Balance at beginning of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Change in fair value of hedging instruments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amounts reclassified to earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$(4,206)
1,688
385

Net current period other comprehensive income . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2,073

Balance at end of period. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$(2,133)

$(2,577)
(2,973)
1,344

(1,629)

$(4,206)

The following table provides the pretax effect of our derivative instruments not designated as hedging
instruments on our consolidated earnings and comprehensive income for the years ended September 30, 2017,
2016 and 2015 (in thousands). We did not have such derivative instruments in the year ended September 30,
2015.

Instruments Not Designated As
Hedging Instruments

Location in Consolidated Statement
of Comprehensive Income

Foreign exchange contract . . . . . . . . . . . . . . . . Other income, net

Years Ended September 30,

2017

2016

2015

$(1,843) $(5,606) —

Note 13. Other Comprehensive Loss

The components of other comprehensive loss and related tax effects for each period were as follows

(dollars in thousands):

Change in unrealized
holding losses on
derivatives . . . . . . . .

Less: adjustment for

losses on
derivatives included
in net income. . . . . .
Change in net foreign
currency translation
adjustment . . . . . . . .

Other comprehensive
loss . . . . . . . . . . . . . .

Year Ended September 30, 2017
Tax
Before Tax

After Tax Before Tax

Year Ended September 30, 2016
Tax

After Tax Before Tax

Year Ended September 30, 2015
After Tax
Tax

2,692

(1,004)

1,688

(4,716) 1,743

(2,973)

(4,094) 1,513

(2,581)

615

(230)

385

2,132

(788)

1,344

(2)

(5,959)

(1,179)

(7,138)

(39,211)

— (39,211)

(25,322)

— (25,322)

$(2,652) $(2,413) $(5,065) $(41,795) $ 955 $(40,840) $(29,410) $1,511 $(27,899)

See Note 12 for the amounts of losses on derivatives reclassified out of accumulated other

comprehensive loss into the consolidated statements of income, with presentation location, for each period.

Wesco Aircraft Holdings, Inc. & Subsidiaries
Notes to the Consolidated Financial Statements (Continued)

Note 13. Other Comprehensive Loss (Continued)

The changes in accumulated other comprehensive loss by component and related tax effects for each

period were as follows (in thousands):

Foreign
Currency
Translation
Adjustments

Unrealized
Losses on
Derivative
Instruments

Balance at September 30, 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive loss before reclassifications. . . . . . . . . . . . . . . .
Amounts reclassified out of accumulated other loss . . . . . . . . . . . . . .
Tax effects . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Other comprehensive loss. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Balance at September 30, 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive loss before reclassifications. . . . . . . . . . . . . . . .
Amounts reclassified out of accumulated other loss . . . . . . . . . . . . . .
Tax effects . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Other comprehensive loss. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Balance at September 30, 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other Comprehensive loss before reclassifications . . . . . . . . . . . . . . .
Amounts reclassified out of accumulated other loss . . . . . . . . . . . . . .
Tax effects . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Other comprehensive loss. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$(10,822)
(25,322)
—
—

(25,322)

$(36,144)
(39,211)
—
—

(39,211)

(75,355)
(5,959)
—
(1,179)

(7,138)

$ —
(4,094)
6
1,511

(2,577)

$(2,577)
(4,716)
2,132
955

(1,629)

(4,206)
2,692
615
(1,234)

2,073

Total

$(10,822)
(29,416)
6
1,511

(27,899)

$(38,721)
(43,927)
2,132
955

(40,840)

(79,561)
(3,267)
615
(2,413)

(5,065)

Balance at September 30, 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$(82,493)

$(2,133)

$(84,626)

Note 14. Net (Loss) Income Per Share

The following table presents net (loss) income per share and related information (dollars in thousands):

Years Ended September 30,
2016

2015

2017

Net (loss) income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Basic weighted average shares outstanding. . . . . . . . . . . . . . . . .
Dilutive effect of stock options and restricted shares. . . . . . . . .

$ (237,346)
98,700,879
—

91,378
$
97,634,155
531,701

$ (154,744)
96,955,043
—

Dilutive weighted average shares outstanding . . . . . . . . . . . . . .

98,700,879

98,165,856

96,955,043

Basic net (loss) income per share. . . . . . . . . . . . . . . . . . . . . . . . .
Diluted net (loss) income per share. . . . . . . . . . . . . . . . . . . . . . .

$
$

(2.40)
(2.40)

$
$

0.94
0.93

$
$

(1.60)
(1.60)

Shares of common stock equivalents of 3.7 million, 2.0 million, and 2.3 million for the years ended

September 30, 2017, 2016 and 2015, respectively, were excluded from the diluted calculation due to their
anti-dilutive effect.

Note 15. Income Taxes

Income (loss) before benefit or provision for income taxes for the years ended September 30, 2017, 2016

and 2015 was as follows (in thousands):

2017

2016

2015

U.S. (loss) income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $(261,594) $ 63,614 $(242,864)
1,248
Foreign income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

61,976

13,347

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $(248,247) $125,590 $(241,616)

Wesco Aircraft Holdings, Inc. & Subsidiaries
Notes to the Consolidated Financial Statements (Continued)

Note 15. Income Taxes (Continued)

The components of our income tax provision (benefit) for the years ended September 30, 2017, 2016 and

2015 were as follows (in thousands):

2017

2016

2015

Current provision
Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State and local . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ (2,536) $ 7,315
1,134
12,482

(591)
12,999

$ 24,797
1,726
13,247

Subtotal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

9,872

20,931

39,770

Deferred (benefit) provision
Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State and local . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(14,730)
(2,738)
(3,305)

10,979
1,108
1,194

(105,748)
(12,543)
(8,351)

Subtotal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(20,773)

13,281

(126,642)

(Benefit) provision for income taxes . . . . . . . . . . . . . . .

$(10,901) $34,212

$ (86,872)

The tax impact associated with the exercise of employee stock options and vesting of restricted stock
units for the year ended September 30, 2017 will be recognized in the current tax return. For the year ended
September 30, 2017, $0.9 million of tax benefit was recorded as a decrease to our provision for income tax due
to the adoption of ASU 2016-09, Improvements to Employee Share-Based Payment Accounting, as discussed in
Note 3. For the years ended September 30, 2016 and 2015, a reduction to paid in capital of $1.1 million of tax
benefit was recorded as an increase to additional paid in capital, and $0.1 million of tax benefit was recorded
as a decrease to additional paid in capital, respectively.

A reconciliation of our (benefit) provision for income taxes to the U.S. federal statutory rate is as follows

for the years ended September 30, 2017, 2016 and 2015 (in thousands):

2017

2016

2015

Provision (benefit) for income taxes at

statutory rate . . . . . . . . . . . . . . . . . . . . . . . . . $(84,404)
(4,559)
6,099
283
(3,526)
(6,197)
15,057
23,644
37,537
4,123
1,042

State taxes, net of tax benefit . . . . . . . . . . . . . .
Deemed foreign dividends . . . . . . . . . . . . . . . .
Nondeductible items. . . . . . . . . . . . . . . . . . . . .
Impact of foreign operations . . . . . . . . . . . . . .
Foreign tax credit . . . . . . . . . . . . . . . . . . . . . . .
Valuation allowance . . . . . . . . . . . . . . . . . . . . .
Non-deductible goodwill impairment . . . . . . .
Unremitted earnings of foreign subsidiaries .
Tax contingencies . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

34.00% $43,956
1.84% 1,458
(2.46)% 3,963
(0.11)% (1,912)
1.42% (8,015)
2.50% (4,313)
—
(6.07)%
—
(9.52)%
(15.12)%
—
(1.66)% (674)
(0.43)% (251)

35.00% $(84,566)
1.16% (7,002)
4,289
3.16%
(1.52)%
(642)
(6.38)% 2,125
(3.43)% (4,205)
—%
—
—%
—
—%
—
772
(0.54)%
(0.21)% 2,357

35.00%
2.90%
(1.78)%
0.27%
(0.88)%
1.74%
—%
—%
—%
(0.32)%
(0.98)%

Actual (benefit) provision for income taxes . . $(10,901)

4.39% $34,212

27.24% $(86,872)

35.95%

Wesco Aircraft Holdings, Inc. & Subsidiaries
Notes to the Consolidated Financial Statements (Continued)

Note 15. Income Taxes (Continued)

As of September 30, 2017 and 2016, the components of deferred income tax assets (liabilities) were as

follows (in thousands):

Deferred tax assets - Non-current

Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Reserves and other accruals. . . . . . . . . . . . . . . . . . . . . . . . .
Compensation accruals. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill and intangible assets . . . . . . . . . . . . . . . . . . . . . .
Stock options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net operating losses and tax credits . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Total deferred tax assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred tax (liabilities) - Non-current

Property and equipment. . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred debt issuance costs . . . . . . . . . . . . . . . . . . . . . . . .
Unremitted earnings of foreign subsidiaries . . . . . . . . . . .
Goodwill and intangible assets . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Total deferred tax liabilities - non-current . . . . . . . . . . . . . . .
Valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2017

2016

$ 92,711
1,692
2,308
20,101
3,197
19,345
2,611

141,965

(3,505)
—
(40,009)
—
(7,008)

(50,522)
(18,602)

$ 88,000
412
1,060
—
3,674
16,827
2,119

112,092

(355)
(38)
—
(52,072)
—

(52,465)
(5,548)

Net deferred tax assets (liabilities) . . . . . . . . . . . . . . . . . . . . .

$ 72,841

$ 54,079

We had deferred tax assets of $20.1 million and deferred tax liabilities of $52.1 million with respect to

goodwill and other intangible assets as of September 30, 2017 and September 30, 2016, respectively. The
change is primarily due to the $311.1 million goodwill impairment charge during the year ended
September 30, 2017, as discussed in Note 2, a portion of which will be deductible for tax purposes.

As of September 30, 2017, we had state net operating loss carryforwards of $3.0 million, which will begin

to expire in 2026, and foreign net operating loss carryforwards of $9.7 million which will begin to expire in
2021. As of September 30, 2017, we had U.S. foreign tax credit carryforwards of $17.4 million which will begin
to expire in 2021.

We are subject to U.S. federal income tax as well as income taxes in various state and foreign

jurisdictions. The earliest tax year still subject to examination by a significant taxing jurisdiction is September
30, 2013.

During the year ended September 30, 2017, we reassessed the potential need to repatriate foreign

earnings based on our current long-range outlook, the current imbalance between cash generated and used in
the U.S., and the increase in the percentage of excess cash that must be used to repay debt. We determined it
was likely that we would, in the future, repatriate certain previously undistributed foreign earnings.
Accordingly, we recorded a deferred tax liability for U.S. federal and state taxes of $40.0 million, which equals
a $38.7 million deferred tax liability after taking into account the federal tax benefit of state taxes. Of this
amount, $37.5 million was provided for through the deferred tax provision and the remaining $1.2 million is a
cumulative translation adjustment to reflect currency fluctuation related to the previously undistributed
earnings. The remaining undistributed earnings of foreign subsidiaries, which amount to $26.1 million are
considered to be indefinitely reinvested and no provision for federal or state and local taxes or foreign
withholding taxes has been provided on such earnings. The taxes associated with these undistributed earnings
would be between $7.0 million and $8.0 million.

Wesco Aircraft Holdings, Inc. & Subsidiaries
Notes to the Consolidated Financial Statements (Continued)

Note 15. Income Taxes (Continued)

We determine whether it is more likely than not that a tax position will be sustained upon examination. If

a tax position meets the more-likely-than-not recognition threshold, it is then measured to determine the
amount of benefit to recognize in the financial statements. The tax position is measured as the largest amount
of benefit that is greater than 50% likely of being realized upon ultimate settlement. We classify gross interest
and penalties and unrecognized tax benefits as non-current liabilities in the consolidated balance sheets. As of
September 30, 2017, the total amount of gross unrecognized tax benefits was $6.5 million, including
$1.0 million of interest and $0.3 million of penalties, all of which would impact the effective tax rate if
recognized. It is reasonably possible that within the next twelve months, $0.1 million of benefit may be
recognized as a result of the lapsing of the statute of limitations.

The unrecognized tax benefits, which exclude interest and penalties, for the years ended September 30,

2017, 2016 and September 30, 2015 are as follows (in thousands):

Beginning balance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Increases related to tax positions taken during a prior year. . . . . .
Decreases related to tax positions taken during a prior year . . . . .
Increases related to tax positions taken during the current year . .
Decreases related to settlements with taxing authorities . . . . . . . .
Decreases related to expiration of statute of limitations . . . . . . . .
Changes due to translation of foreign currencies . . . . . . . . . . . . . .

Ending balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2017

2016

2015

$2,166
3,250
—
—
—
(51)
(133)

$5,232

$2,725
—
—
—
(579)
(113)
133

$2,166

$1,901
1,716
—
—
—
(892)
—

$2,725

We determine whether it is more likely than not that some or all of our deferred tax assets will not be
realized. The ultimate realization of deferred tax assets depends upon the generation of future taxable income
during the periods in which temporary differences become deductible or includible in taxable income. We
consider projected future taxable income and tax planning strategies in our assessment. Based upon the level
of historical income and projections for future taxable income, we believe it is more likely than not that we
will not realize the benefits of the temporary differences related to certain Haas foreign tax credits and Haas
foreign net operating losses. Therefore, a valuation allowance has been recorded against these deferred tax
assets (in thousands).

Valuation
Allowance
Recorded
During
The Period

Ending
Balance

Beginning
Balance

Valuation allowance for deferred tax assets:
Year ended September 30, 2017 . . . . . . . . . . . . . . . . . .
Year ended September 30, 2016 . . . . . . . . . . . . . . . . . .
Year ended September 30, 2015 . . . . . . . . . . . . . . . . . .

$5,548
5,961
4,930

$13,054
(413)
1,031

$18,602
5,548
5,961

Note 16. Stock-Based and Other Compensation Arrangements

On January 27, 2015, our stockholders approved the 2014 Plan, which amended and restated our 2011

Equity Incentive Award Plan and authorized the issuance of a total of 5,717,584 shares. As of September 30,
2017, there were 3,457,947 shares remaining available for issuance under the 2014 Plan.

Wesco Aircraft Holdings, Inc. & Subsidiaries
Notes to the Consolidated Financial Statements (Continued)

Note 16. Stock-Based and Other Compensation Arrangements (Continued)

Stock Options

Our stock options are eligible to vest over three years in three equal annual installments, subject to
continued employment on each vesting date. Vested options are exercisable at any time until 10 years from
the date of the option grant, subject to earlier expirations under certain terminations of service and other
conditions. The stock options granted have an exercise price equal to the closing stock price of our common
stock on the grant date.

Continuous Employment Conditions

At September 30, 2017, we have outstanding 461,766 unvested time-based stock options under the 2014

Plan or our prior equity incentive plans (collectively, the Plans), which will vest on the basis of continuous
employment. All of the time-based options vest ratably during the period of service.

The following table sets forth the summary of options activity under the Plans (dollars in thousands

except per share data):

Weighted
Average
Exercise
Price

Number
of Shares

Options outstanding at September 30, 2016 . . . . . . . . . . . 2,700,157
683,230
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(614,588)
Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(305,989)
Forfeited options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$12.59
13.52
4.39
12.40

Options outstanding at September 30, 2017 . . . . . . . . . . . 2,462,810

$14.92

Options exercisable at September 30, 2017. . . . . . . . . . . . 2,001,044

$15.34

Weighted
Average
Remaining
Contractual
Life
(in years)

Aggregate
Intrinsic
Value (1)

6.07

$6,833

6.99

6.59

(1) Aggregate intrinsic value is calculated based on the difference between our closing stock price at year end and the exercise

price, multiplied by the number of in-the-money options and represents the pre-tax amount that would have been received by
the option holders, had they all exercised all their options on the fiscal year end date.

The total intrinsic value of options exercised during the years ended September 30, 2017, 2016 and 2015

was $6.0 million, $4.5 million and $1.5 million, respectively. For the years ended September 30, 2017, 2016
and 2015, we recorded $2.6 million, $3.2 million and $3.6 million, respectively, of stock-based compensation
expense related to these options that is included within selling, general and administrative expenses. At
September 30, 2017, the unrecognized stock-based compensation related to these options was $1.6 million
and is expected to be recognized over a weighted-average period of 1.7 years. Cash received from the exercise
of stock options by us during the years ended September 30, 2017, 2016 and 2015 was $2.7 million,
$6.3 million and $0.8 million, respectively.

Restricted Stock Units and Restricted Stock

In the year ended September 30, 2017, we granted 813,803 shares of restricted common stock to
employees. These shares are eligible to vest over three years in three equal annual installments, subject to
continued employment on each vesting date. During the years ended September 30, 2017, 2016 and 2015, we
granted 68,493, 57,759 and 73,662, respectively, of restricted common shares to our directors. During fiscal
year 2017, we also granted performance-related restricted stock units (PSUs) to certain executives. The PSUs
vest after three years based on the achievement of certain predetermined goals, and are payable in shares of
our common stock. One of the goals is based on our achieving a certain level of return on invested capital
(ROIC) and the other goal is based on our total shareholder return (TSR) relative to certain peer companies
over the three-year performance period. The actual number of shares to be issued for these PSUs is subject to

Wesco Aircraft Holdings, Inc. & Subsidiaries
Notes to the Consolidated Financial Statements (Continued)

Note 16. Stock-Based and Other Compensation Arrangements (Continued)

final achievement of these goals and can range from 0% to 200% of the target shares set at the time of grant.
Stock-based compensation expense for the PSUs is recognized on a straight-line basis over the performance
period based upon the value determined using the intrinsic value method for the ROIC portion of the PSUs
and using the Monte Carlo valuation method for the TSR portion of the PSUs. Stock-based compensation
expense for the ROIC portion of the PSUs is cumulatively adjusted based upon the expected achievement of
ROIC, which is assessed by management quarterly until vesting. Stock-based compensation expense for the
TSR portion of the PSUs is recognized over the performance period regardless of the TSR performance.

For the years ended September 30, 2017, 2016 and 2015, we recorded $3.8 million, $5.3 million and

$4.3 million, respectively, of stock-based compensation expense related to restricted stock that is included
within selling, general and administrative expenses. The restricted stock awards do not contain any
redemption provisions that are not within our control. Accordingly, these restricted stock awards have been
accounted for as our stockholders’ equity. At September 30, 2017, the unrecognized stock-based
compensation related to restricted stock awards was $6.6 million and is expected to be recognized over a
weighted-average period of 2.0 years.

Restricted share activity during the year ended September 30, 2017 was as follows:

Outstanding at September 30, 2016 . . . . . . . . . . . . . . . . . . . .
Granted (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

606,444
882,296
(401,433)
(289,745)

Outstanding at September 30, 2017 . . . . . . . . . . . . . . . . . . . .

797,562

Weighted
Average
Fair Value

$13.63
12.63
13.99
13.80

$12.21

(1) Under the terms of their respective restricted stock award agreements, holders of restricted stock have the same

voting rights as common stock shareholders; such rights exist even if the shares of restricted stock have not vested.

Fair value of our restricted shares is based on our closing stock price on the date of grant. The fair value

of shares that were vested during the years ended September 30, 2017, 2016 and 2015 was $5.3 million,
$3.5 million and $3.1 million, respectively. The fair value of shares that were granted during the years ended
September 30, 2017, 2016 and 2015 was $11.1 million, $6.9 million and $8.8 million, respectively. The
weighted average fair value at the grant date for restricted shares issued during the years ended
September 30, 2017, 2016 and 2015 was $12.63, $12.29 and $16.05, respectively.

Due to tax deductions associated with option exercises and restricted share activities, we realized tax
benefits of $0.9 million, tax benefits of $1.1 million and a tax shortfall of $0.1 million for the years ended
September 30, 2017, 2016 and 2015, respectively. The realized 2017 tax benefits were recorded as a reduction
to our provision for income tax allowed by ASU 2016-09 which we early adopted on October 1, 2016 (see
Note 3 for more discussion on ASU 2016-09), and the realized 2016 tax benefits and 2015 tax shortfall were
recorded to the additional paid in capital account in our stockholders’ equity.

Stock-Based Compensation

We use the Black-Scholes option pricing model to determine the fair value of stock options. The
determination of the fair value of stock-based payment awards on the date of grant using an option-pricing
model is affected by our stock price as well as assumptions regarding complex and subjective variables. These
variables include the expected stock price volatility over the term of the awards, risk-free interest rate and
expected dividends.

We estimated expected volatility based on historical data of comparable public companies. The expected

term, which represents the period of time that options granted are expected to be outstanding, is estimated

Wesco Aircraft Holdings, Inc. & Subsidiaries
Notes to the Consolidated Financial Statements (Continued)

Note 16. Stock-Based and Other Compensation Arrangements (Continued)

based on guidelines provided in U.S. Securities and Exchange Commission Staff Accounting Bulletin No. 110
and represents the average of the vesting tranches and contractual terms. The risk-free rate assumed in
valuing the options is based on the U.S. Treasury rate in effect at the time of grant for the expected term of
the option. We do not anticipate paying any cash dividends in the foreseeable future and, therefore, used an
expected dividend yield of zero in the option pricing model. Compensation expense is recognized only for
those options expected to vest with forfeitures estimated based on our historical experience and future
expectations. Stock-based compensation awards are amortized on a straight-line basis over a three year
period.

The weighted average assumptions used to value the option grants are as follows:

2017

2016

2015

Expected life (in years) . . . . . . . . . . . . . . . . . . . . . . . . . .
Volatility. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Risk free interest rate . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividend yield . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

5.93

6.00

6.00
30.94% 35.00% 38.51%
1.87%
1.55%
—
—

1.33%
—

The weighted average fair value per option at the grant date for options issued during the years ended

September 30, 2017, 2016, and 2015 was $4.37, $4.38 and $6.52, respectively.

Note 17. Commitments and Contingencies

Operating Leases

We lease office and warehouse facilities (certain of which are from related parties) and warehouse
equipment under various non-concealable operating leases that expire at various dates through October 31,
2026. Certain leases contain escalation clauses based on the Consumer Price Index. We are also committed
under the terms of certain of these operating lease agreements to pay property taxes, insurance, utilities and
maintenance costs.

Future minimum rental payments under operating leases as of September 30, 2017 are as follows (dollars

in thousands):

Years Ended September 30,
2018. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2019. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2020. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2021. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2022. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Third
Party

Related
Party

Total

$ 9,341
8,180
6,849
5,804
5,096
12,558

$47,828

$1,701
1,642
153
38
—
—

$3,534

$11,042
9,822
7,002
5,842
5,096
12,558

$51,362

Total rent expense for the years ended September 30, 2017, 2016 and 2015 was $12.6 million,

$11.9 million and $11.4 million, respectively.

Wesco Aircraft Holdings, Inc. & Subsidiaries
Notes to the Consolidated Financial Statements (Continued)

Note 17. Commitments and Contingencies (Continued)

Capital Lease Commitments

We lease certain equipment under capital lease agreements that require minimum monthly payments
that expire at various dates through June 30, 2024. The gross amount of these leases at September 30, 2017
and September 30, 2016 are $5.3 million and $3.5 million, respectively.

Future minimum lease payments under capital lease agreements as of September 30, 2017 are as follows

(in thousands):

2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Less: Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$3,041
1,420
451
94
91
156

5,253
(288)

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$4,965

Indemnifications

In the normal course of business, we provide indemnifications to our customers with regard to certain

products and enter into contracts and agreements that may contain representations and warranties and
provide for general indemnifications. Our maximum exposure under many of these agreements is not
quantifiable as we have a limited history of prior indemnification claims and payments. Payments we have
made under such agreements have not had a material adverse effect on our results of operations, cash flows,
or financial position. However, we could incur costs in the future as a result of indemnification obligations.

Litigation

We are involved in various legal matters that arise in the ordinary course of business. Management, after

consulting with outside legal counsel, believes that the ultimate outcome of such matters will not have a
material adverse effect on our financial position, results of operations or cash flows. There can be no
assurance, however, that such actions will not be material or adversely affect our business, financial position
and results of operations or cash flows.

Note 18. Employee Benefit Plan

We maintain a 401(k) defined contribution plan and a retirement saving plan for the benefit of our
eligible employees. All U.S. full-time employees who have completed at least one full month of service and are
at least 20 years of age are eligible to participate in the plans. Eligible employees may elect to contribute up to
60% of their eligible compensation. We made contributions of $2.4 million, $2.4 million and $2.1 million to
this plan during the years ended September 30, 2017, 2016 and 2015, respectively. Certain non-US employees
of the Company participate in other defined contribution retirement plans with varying vesting and
contribution provisions.

Wesco Aircraft Holdings, Inc. & Subsidiaries
Notes to the Consolidated Financial Statements (Continued)

Note 19. Supplemental Cash Flow Information

2017

Years Ended September 30,
2016
(in thousands)

2015

Cash payments for:
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$33,386
10,287

$33,349
37,193

$32,551
16,996

Schedule of non-cash investing and financing activities:
Property and equipment acquired pursuant to capital leases . . . . . . . . . . . .

$ 3,891

$ 1,780

333

Note 20. Quarterly Financial Data (unaudited)

Summarized unaudited quarterly financial data for quarters ended December 31, 2015 through

September 30, 2017 is as follows (in thousands except per share data):

September 30,
2017

June 30,
2017

March 31,
2017

December 31,
2016

Quarters Ended:
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net (loss) income (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Basic net (loss) income per share (2) . . . . . . . . . . . . . . . . .
Diluted net (loss) income per share (2) . . . . . . . . . . . . . . .

$361,552
87,487
(38,287)
(0.39)
(0.39)

$
$

$ 363,907
90,208
(229,608)

$
$

(2.32) $
(2.32) $

$364,599
94,755
17,442
0.18
0.18

$339,371
89,457
13,107
0.13
0.13

$
$

September 30,
2016

June 30,
2016

March 31,
2016

December 31,
2015

Quarters Ended:
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Basic net income per share (2) . . . . . . . . . . . . . . . . . . . . . .
Diluted net income per share (2) . . . . . . . . . . . . . . . . . . . .

$365,595
95,485
23,261
0.24
0.24

$
$

$375,186
99,241
24,016
0.25
0.24

$
$

$376,742
102,337
23,492
0.24
0.24

$
$

$359,843
96,629
20,609
0.21
0.21

$
$

(1) During the three months ended June 30, 2017, we recorded a non-cash goodwill impairment charge of $311.1 million. See Note 2,

Note 5 and Note 8 for additional information.

(2) Net income (loss) per share calculations for each quarter are based on the weighted average basic and diluted shares outstanding

for that quarter and may not total to the full year amount.

Note 21. Segment Reporting

We evaluate segment performance based on segment income or loss from operations. Each segment

reports its results of operations and makes requests for capital expenditures and acquisition funding to our
chief operating decision-maker (CODM). Our chief executive officer serves as our CODM.

Prior to the three months ended September 30, 2017, we were organized on a global functional basis and

During the three months ended September 30, 2017, we reorganized our businesses under three

Wesco Aircraft Holdings, Inc. & Subsidiaries
Notes to the Consolidated Financial Statements (Continued)

Note 21. Segment Reporting (Continued)

the results of our subsidiaries within that geographic region. Revenues reported by a segment reflect the
customer contracts held by that segment, regardless of the geographic location of that customer. Some
segments incur expenses for the benefit of the group or other segments, however these expenses are not
allocated. We now present corporate expenses related to public company reporting costs and other costs that
would not be required by the segments if they were operating on a standalone basis as unallocated corporate
costs. We have retroactively recast our segment results and unallocated corporate expenses for the years
ended September 30, 2017, 2016 and 2015.

The following table presents net sales and other financial information by business segment (in

thousands):

Year Ended September 30, 2017

Americas

EMEA

APAC

Unallocated
Corporate
Costs

Consolidated

Net sales (1) . . . . . . . . . . . . . . . . . . . . . . .
(Loss) income from operations (2) (3) . .
Interest expense, net. . . . . . . . . . . . . . . . .
Capital expenditures. . . . . . . . . . . . . . . . .
Depreciation and amortization . . . . . . . .
Total assets . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill (3) . . . . . . . . . . . . . . . . . . . . . . .

$1,142,366
(213,501)
35,936
5,659
24,765
1,436,840
204,183

$258,072
25,138
3,786
3,165
3,321
275,445
51,190

$28,991
(172)
99
99
266
41,822
11,271

— $1,429,429
(208,795)
(20,260)
39,821
—
8,923
—
—
28,352
— 1,754,107
266,644
—

(1) For fiscal 2017, nearly 11% of our total net sales were derived from one individual customer, which was reported under the

Americas, EMEA and APAC segments.

(2) Unallocated corporate costs for fiscal 2017 consisted of payroll and personnel costs of $10.1 million, stock-based
compensation expenses of $3.4 million and professional fees and other corporate expenses of $6.8 million.

(3) Changes in the goodwill balance for fiscal 2017 included a non-cash impairment charge of $311.1 million, of which

$308.4 million was related to the Americas segment and $2.7 million was related to the APAC segment. See Note 8 for
further information.

Year Ended September 30, 2016

Americas

EMEA

APAC

Unallocated
Corporate
Costs

Consolidated

Net sales . . . . . . . . . . . . . . . . . . . . . . . . . .
Income from operations (1). . . . . . . . . . .
Interest expense, net. . . . . . . . . . . . . . . . .
Capital expenditures. . . . . . . . . . . . . . . . .
Depreciation and amortization . . . . . . . .
Total assets . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill (2) . . . . . . . . . . . . . . . . . . . . . . .

$1,177,496
134,159
32,595
12,728
24,412
1,639,583
512,586

$274,952
43,881
4,309
1,143
3,289
265,724
53,297

$24,918
1,196
(3)
121
279
43,271
13,982

— $1,477,366
158,750
(20,486)
36,901
—
13,992
—
—
27,980
— 1,948,578
579,865

(1) Unallocated corporate costs for fiscal 2016 consisted of payroll and personnel costs of $6.7 million, stock-based compensation

expenses of $5.3 million and professional fees and other corporate expenses of $8.5 million.

(2) For fiscal 2016, the change in the goodwill balance was due to foreign currency exchange rate changes related to the EMEA

segment. See Note 8 for further information.

Wesco Aircraft Holdings, Inc. & Subsidiaries
Notes to the Consolidated Financial Statements (Continued)

Note 21. Segment Reporting (Continued)

Year Ended September 30, 2015

Americas

EMEA

APAC

Unallocated
Corporate
Costs

Consolidated

Net sales . . . . . . . . . . . . . . . . . . . . . . . . . .
(Loss) income from operations (1) (2) . .
Interest expense, net. . . . . . . . . . . . . . . . .
Capital expenditures. . . . . . . . . . . . . . . . .
Depreciation and amortization . . . . . . . .

$1,191,928
(197,251)
32,921
(8,237)
23,490

$288,276
16,672
4,179
(1,373)
3,935

$17,411
(2,578)
(8)
(21)
301

(23,208)
—

— $1,497,615
(206,365)
37,092
(9,631)
27,726

—

(1) Unallocated corporate costs for fiscal 2015 consisted of payroll and personnel costs of $6.9 million, stock-based compensation

expenses of $4.9 million and professional fees and other corporate expenses of $11.4 million.

(2) For fiscal 2015, we recognized a non-cash goodwill impairment charge of $263.8 million, of which $260.8 million was related

to the Americas segment and $3.0 million was related to the APAC segment.

Geographic Information

We operated principally in the United States, United Kingdom and other foreign geographic areas in

Americas, Europe and emerging markets, such as Asia, Pacific Rim and the Middle East.

Net sales by geographic area, for the years ended September 30, 2017, 2016, and 2015, were as follows

(dollars in thousands):

2017

Years Ended September 30,
2016

2015

Sales

% of
Total Sales

Sales

% of
Total Sales

Sales

% of
Total Sales

United States of America . . . . . . .
United Kingdom . . . . . . . . . . . . . .
Other foreign countries . . . . . . . . .

$1,062,523
179,160
187,746

74.3% $1,087,691
195,473
12.5%
194,202
13.2%

73.6% $1,101,385
190,661
13.2%
205,569
13.2%

All foreign countries . . . . . . . . . . .

366,906

25.7%

389,675

26.4%

396,230

73.5%
12.7%
13.8%

26.5%

Total . . . . . . . . . . . . . . . . . . . . . . . .

$1,429,429

100.0% $1,477,366

100.0% $1,497,615

100.0%

We determine the geographic area based on the origin of the sale.

Our long-lived assets consist of property and equipment, net, intangible assets, net and investment in
joint ventures. Long-lived assets by geographic area, for the years ended September 30, 2017 and 2016, were
as follows (in thousands):

United States of America. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
All foreign countries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Years Ended September 30

2017

2016

$185,438
54,109

$239,547

$198,370
56,947

$255,317

Wesco Aircraft Holdings, Inc. & Subsidiaries
Notes to the Consolidated Financial Statements (Continued)

Note 21. Segment Reporting (Continued)

Product and Services Information

Net sales by product categories, for the years ended September 30, 2017, 2016 and 2015 were as follows

(dollars in thousands):

2017

Years Ended September 30
2016

2015

Sales

% of
Total Sales

Sales

% of
Total Sales

Sales

% of
Total Sales

Hardware . . . . . . . . . . . . . . . . . . . . . . . . . $ 665,224
602,039
Chemicals . . . . . . . . . . . . . . . . . . . . . . . . .
100,160
Electronic components . . . . . . . . . . . . . .
34,566
Bearings . . . . . . . . . . . . . . . . . . . . . . . . . .
27,440
Machined parts and other. . . . . . . . . . . .

46.6% $ 711,177
600,124
42.1%
105,207
7.0%
34,662
2.4%
26,196
1.9%

48.2% $ 738,496
591,840
40.6%
107,918
7.1%
33,602
2.3%
25,759
1.8%

49.3%
39.5%
7.2%
2.3%
1.7%

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,429,429

100.0% $1,477,366

100.0% $1,497,615

100.0%

Note 22. Subsequent Event

On November 2, 2017, we entered into the Sixth Amendment to our Credit Agreement. The Sixth
Amendment modified the Existing Credit Agreement to increase the Excess Cash Flow Percentage (as such
term is defined in the Credit Agreement) to 75%, provided that the Excess Cash Flow Percentage shall be
reduced to (i) 50%, if the Consolidated Total Leverage Ratio (as such term is defined in the Credit
Agreement) is less than 4.00 but greater than or equal to 3.00, (ii) 25%, if the Consolidated Total Leverage
Ratio is less than 3.00 but greater than or equal to 2.50 and (iii) 0%, if the Consolidated Total Leverage Ratio
is less than 2.50.

The Sixth Amendment further modified the Credit Agreement to reduce the maximum amount

permitted to be incurred under the Capped Incremental Facility (as such term is defined in the Credit
Agreement) to zero, unless the Consolidated Total Leverage Ratio (as such term is defined in the Credit
Agreement), after giving effect to the incurrence of any incremental loans or commitments and the use of
proceeds thereof, on a pro forma basis, would be (i) less than 4.00 but greater than or equal to 3.50, in which
case the Capped Incremental Facility would be increased to $75.0 million or (ii) less than 3.50, in which case
the Capped Incremental Facility would be increased to $150.0 million.

As a result of the Amendment, we incurred $1.9 million in fees that were capitalized and will be

amortized over the remaining life of the related debt.

See Note 11 for further information about the Credit Facilities.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND

FINANCIAL DISCLOSURE

None.

ITEM 9A. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

Our management, with the participation of our chief executive officer and chief financial officer,

evaluated the effectiveness of the design and operation of our disclosure controls and procedures as such term
is defined in Rule 13a-15(e) under the Exchange Act as of the end of the period covered by this Annual
Report on Form 10-K. Based upon their evaluation, our chief executive officer and chief financial officer
concluded that our disclosure controls and procedures were effective as of September 30, 2017.

Management’s Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial

reporting as such term is defined in Rule 13a-15(f) under the Exchange Act. Internal control over financial
reporting is a process to provide reasonable assurance regarding the reliability of our financial reporting for
external purposes in accordance with accounting principles generally accepted in the United States of
America. Internal control over financial reporting includes maintaining records that in reasonable detail
accurately and fairly reflect our transactions; providing reasonable assurance that transactions are recorded as
necessary for preparation of our financial statements; and providing reasonable assurance regarding the
prevention or timely detection of the unauthorized acquisition, use or disposition of our assets that could have
a material effect on our financial statements. Because of its inherent limitations, internal control over
financial reporting is not intended to provide absolute assurance that a misstatement of our financial
statements would be prevented or detected.

Under the supervision and with the participation of our chief executive officer and chief financial officer,

management conducted an evaluation of the effectiveness of our internal control over financial reporting
based on the framework in Internal Control - Integrated Framework (2013) issued by the Committee of
Sponsoring Organizations of the Treadway Commission. Based on this evaluation, management concluded
that our internal control over financial reporting was effective as of September 30, 2017.

The effectiveness of our internal control over financial reporting has been audited by

PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their attestation
report which expresses an unqualified opinion on the effectiveness of our internal control over financial
reporting as of September 30, 2017.

Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting that occurred during the quarter

ended September 30, 2017 that have materially affected, or are reasonably likely to materially affect, our
internal control over financial reporting.

ITEM 9B. OTHER INFORMATION

None.

PART III

In accordance with General Instruction G.(3) of Form 10-K certain information required by this Part III

will either be incorporated into this Annual Report on Form 10-K by reference to our definitive proxy
statement for our 2018 annual meeting of stockholders (2018 Proxy Statement) filed within 120 days after
September 30, 2017 or will be included in an amendment to this Annual Report on Form 10-K filed within
120 days after September 30, 2017. To the extent such information is included in our 2018 Proxy Statement
within 120 days after September 30, 2017, it is expected to be incorporated by reference to the sections of our
2018 Proxy Statement specified below.

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

The information appearing in our 2018 Proxy Statement under the following headings is incorporated

herein by reference:

•

‘‘Proposal 1—Election of Directors,’’

‘‘Executive Officers,’’

‘‘Section 16(a) Beneficial Ownership Reporting Compliance’’ and

‘‘General Information Concerning the Board of Directors, Its Committees and the Company’s
Corporate Governance.’’

ITEM 11. EXECUTIVE COMPENSATION

The information appearing in our 2018 Proxy Statement under the following headings is incorporated

herein by reference:

•

‘‘Compensation Discussion and Analysis,’’

‘‘General Information Concerning the Board of Directors, Its Committees and the Company’s
Corporate Governance’’ and

‘‘Compensation Committee Report.’’

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND

RELATED STOCKHOLDER MATTERS

The information appearing in our 2018 Proxy Statement under the following heading is incorporated

herein by reference:

•

‘‘Security Ownership of Certain Beneficial Owners and Management’’ and

‘‘Compensation Discussion and Analysis.’’

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR

INDEPENDENCE

The information appearing in our 2018 Proxy Statement under the following headings is incorporated

herein by reference:

•

‘‘Certain Relationships and Related Party Transactions’’ and

‘‘General Information Concerning the Board of Directors, Its Committees and the Company’s
Corporate Governance.’’

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES

The information appearing in our 2018 Proxy Statement under the following heading is incorporated

herein by reference:

•

‘‘Proposal 4—Ratification of Appointment of Independent Auditors.’’

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES

(a) The following documents are filed as part of this Annual Report on Form 10-K:

PART IV

(1) Financial Statements. The financial statements listed in the ‘‘Index to Consolidated Financial

Statements’’ under Part II, Item 8. ‘‘Financial Statements and Supplementary Data,’’ which index is
incorporated herein by reference.

(2) Financial Statement Schedules. Financial statement schedules have been omitted because either they
are not applicable, not required or the information is included in the financial statements or the
notes thereto.

(3) Exhibits. The attached list of exhibits in the ‘‘Exhibit Index’’ immediately preceding the exhibits to

this Annual Report on Form 10-K, which index is incorporated herein by reference.

ITEM 16. FORM 10-K SUMMARY

None.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.

WESCO AIRCRAFT HOLDINGS, INC.

Dated: November 28, 2017

By:

/s/ Todd S. Renehan
Todd S. Renehan
Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below

by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

SIGNATURE

TITLE

DATE

/s/ TODD S. RENEHAN
Todd S. Renehan

Chief Executive Officer and Director
(principal executive officer)

November 28, 2017

/s/ KERRY A. SHIBA
Kerry A. Shiba

Executive Vice President and Chief Financial
Officer (principal financial officer)

November 28, 2017

/s/ CHRIS KING
Chris King

Vice President, Finance and Global Controller
(principal accounting officer)

November 28, 2017

/s/ RANDY J. SNYDER
Randy J. Snyder

Chairman of the Board of Directors

November 28, 2017

/s/ DAYNE A. BAIRD
Dayne A. Baird

Director

/s/ THOMAS M. BANCROFT
Thomas M. Bancroft

Director

/s/ PAUL E. FULCHINO
Paul E. Fulchino

/s/ JAY L. HABERLAND
Jay L. Haberland

/s/ SCOTT E. KUECHLE
Scott E. Kuechle

/s/ ADAM J. PALMER
Adam J. Palmer

/s/ ROBERT D. PAULSON
Robert D. Paulson

/s/ JENNIFER M. POLLINO
Jennifer M. Pollino

/s/ NORTON A. SCHWARTZ
Norton A. Schwartz

Director

November 28, 2017

Exhibit
Number
2.1

3.1

3.2

4.1

10.1

10.2

10.3

10.4

10.5

10.6

Exhibit Index

Description
Agreement and Plan of Merger, by and among Wesco Aircraft Holdings, Inc., Flyer Acquisition
Corp. and Haas Group Inc., dated as of January 30, 2014 (Incorporated by reference to
Exhibit 2.1 to the Registrant’s Current Report on Form 8-K dated January 31, 2014
(File No. 001-35253))

Amended and Restated Certificate of Incorporation of Wesco Aircraft Holdings, Inc.
(Incorporated by reference to Exhibit 3.1 to the Registrant’s Quarterly Report on Form 10-Q,
dated August 17, 2011 (File No. 001-35253))

Amended and Restated Bylaws of Wesco Aircraft Holdings, Inc. (Incorporated by reference to
Exhibit 3.2 to the Registrant’s Quarterly Report on Form 10-Q, dated August 17, 2011
(File No. 001-35253))

Form of Stock Certificate (Incorporated by reference to Exhibit 4.1 to the Registrant’s
Registration Statement on Form S-1/A dated June 6, 2011 (Registration No. 333-173381))

Credit Agreement, by and among Wesco Aircraft Holdings, Inc., Wesco Aircraft Hardware
Corp., Barclays Bank PLC, Merrill Lynch, Pierce, Fenner & Smith Incorporated, J.P. Morgan
Securities LLC, Morgan Stanley Senior Funding, Inc., RBC Capital Markets, KeyBank
National Association, Sumitomo Mitsui Banking Corporation, Union Bank, N.A., BBVA
Compass Bank, PNC Bank, National Association, Raymond James Bank, N.A. and the lenders
party thereto, dated as of December 7, 2012 (Incorporated by reference to Exhibit 10.1 to the
Registrant’s Quarterly Report on Form 10-Q dated February 8, 2013 (Registration No.
001-35253))

First Amendment to Credit Agreement, by and among Wesco Aircraft Holdings, Inc., Wesco
Aircraft Hardware Corp., Barclays Bank PLC and the lenders party thereto, dated February 28,
2014 (Incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on
Form 8-K dated February 28, 2014 (File No. 001-35253))

Third Amendment to Credit Agreement, by and among Wesco Aircraft Holdings, Inc., Wesco
Aircraft Hardware Corp., Barclays Bank PLC, as administrative agent and collateral agent, and
the lenders party thereto, dated as of March 24, 2016 (Incorporated by reference to Exhibit 10.1
to the Registrant’s Current Report on Form 8-K dated March 24, 2016 (File No. 001-35253))

Fourth Amendment to Credit Agreement by and among Wesco Aircraft Holdings, Inc., Wesco
Aircraft Hardware Corp., the other subsidiaries party thereto, Barclays Bank PLC, as
administrative agent and collateral agent, and the lenders party thereto, dated as of October 4,
2016 (Incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on
Form 8-K dated October 4, 2016 (File No. 001-35253))

Fifth Amendment to Credit Agreement by and among Wesco Aircraft Holdings, Inc., Wesco
Aircraft Hardware Corp., the other subsidiaries party thereto, Barclays Bank PLC, as
administrative agent and collateral agent, and the lenders party thereto (Incorporated by
reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K dated March 28, 2017
(File No. 001-35253))

Sixth Amendment to Credit Agreement, by and among Wesco Aircraft Holdings, Inc., Wesco
Aircraft Hardware Corp., the other subsidiaries party thereto, Barclays Bank PLC, as
administrative agent and collateral agent, and the lenders party thereto, dated November 2,
2017 (Incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on
Form 8-K dated November 2, 2017 (File No. 001-35253))

Exhibit
Number
10.7

10.8

10.9

10.10

10.11

10.12

10.13

10.14

10.15

10.16

10.17

10.18

Description

Guarantee and Collateral Agreement, by and among Wesco Aircraft Holdings, Inc., Wesco
Aircraft Hardware Corp., Barclays Bank PLC and the subsidiary guarantors party thereto,
dated as of December 7, 2012 (Incorporated by reference to Exhibit 10.1 to the Registrant’s
Quarterly Report on Form 10-Q dated February 8, 2013 (Registration No. 001-35253))

Executive Severance Agreement between David J. Castagnola and Wesco Aircraft Hardware
Corp., dated April 6, 2015 (Incorporated by reference to Exhibit 10.1 to the Registrant’s
Current Report on Form 8-K dated April 6, 2015 (File No. 001-35253))

Executive Severance Agreement between Richard J. Weller and Wesco Aircraft Hardware
Corp., dated April 23, 2015 (Incorporated by reference to Exhibit 10.1 to the Registrant’s
Current Report on Form 8-K dated April 23, 2015 (File No. 001-35253))

Executive Severance Agreement between Todd Renehan and Wesco Aircraft Hardware Corp.,
dated February 6, 2017 (Incorporated by reference to Exhibit 10.2 to the Registrant’s Quarterly
Report on Form 10-Q for the quarterly period ended December 31, 2016 (File No. 001-35253))

Executive Severance Agreement between Kerry A. Shiba and Wesco Aircraft Hardware Corp.,
dated September 15, 2017 (Incorporated by reference to Exhibit 10.1 to the Registrant’s
Current Report on Form 8-K dated September 18, 2017 (File No. 001-35253))

Form of Executive Severance Agreement (Incorporated by reference to Exhibit 10.16 to the
Registrant’s Annual Report on Form 10-K for the fiscal year ended September 30, 2014
(File No. 001-35253))

Separation and Release Agreement, by and among Wesco Aircraft Holdings, Inc., Wesco
Aircraft Hardware Corp. and David J. Castagnola, dated as of April 27, 2017 (Incorporated by
reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K dated April 28, 2017
(File No. 001-35253))

Separation Agreement, by and among Wesco Aircraft Holdings, Inc., Wesco Aircraft Hardware
Corp. and Richard Weller, dated as of September 15, 2017 (Incorporated by reference to
Exhibit 10.2 to the Registrant’s Current Report on Form 8-K dated September 18, 2017
(File No. 001-35253))

Separation Agreement, by and among Wesco Aircraft Holdings, Inc., Wesco Aircraft Hardware
Corp. and Dan Snow, dated as of September 15, 2017 (Incorporated by reference to
Exhibit 10.3 to the Registrant’s Current Report on Form 8-K dated September 18, 2017
(File No. 001-35253))

Amended and Restated Equity Incentive Plan of Wesco Aircraft Holdings, Inc. (formerly
Wesco Holdings, Inc.) (Incorporated by reference to Exhibit 10.3 to the Registrant’s
Registration Statement on Form S-1 dated April 8, 2011 (Registration No. 333-173381))

Form of Incentive Stock Option Agreement under Amended and Restated Equity Incentive
Plan of Wesco Aircraft Holdings, Inc. (formerly Wesco Holdings, Inc.) (Incorporated by
reference to Exhibit 10.10 to the Registrant’s Registration Statement on Form S-1/A dated
May 12, 2011 (Registration No. 333-173381))

Form of Non-qualified Stock Option Agreement for Independent Directors under Amended
and Restated Equity Incentive Plan of Wesco Aircraft Holdings, Inc. (formerly Wesco
Holdings, Inc.) (Incorporated by reference to Exhibit 10.11 to the Registrant’s Registration
Statement on Form S-1/A dated May 12, 2011 (Registration No. 333-173381))

Exhibit
Number
10.19

10.20

10.21

10.22

10.23

10.24

10.25

10.26

Description

Form of Amended and Restated Restricted Stock Unit Agreement under Amended and
Restated Equity Incentive Plan of Wesco Aircraft Holdings, Inc. (formerly Wesco Holdings,
Inc.) (Incorporated by reference to Exhibit 10.12 to the Registrant’s Registration Statement on
Form S-1/A dated May 12, 2011 (Registration No. 333-173381))

Form of Restricted Stock Agreement for Independent Directors under Amended and Restated
Equity Incentive Plan of Wesco Aircraft Holdings, Inc. (formerly Wesco Holdings, Inc.)
(Incorporated by reference to Exhibit 10.13 to the Registrant’s Registration Statement on
Form S-1/A dated May 12, 2011 (Registration No. 333-173381))

Wesco Aircraft Holdings, Inc. 2011 Equity Incentive Award Plan (Incorporated by reference to
Exhibit 10.23 to the Registrant’s Registration Statement on Form S-1/A dated June 27, 2011
(Registration No. 333- 173381))

Wesco Aircraft Holdings, Inc. 2014 Incentive Award Plan (Incorporated by reference to
Appendix A to the Registrant’s Definitive Proxy Statement dated December 18, 2014
(File No. 001-35253))

Form of Restricted Stock Agreement (Incorporated by reference to Exhibit 10.24 to the
Registrant’s Registration Statement on Form S-1/A dated June 27, 2011 (Registration
No. 333-173381))

Form of Restricted Stock Unit Agreement (Incorporated by reference to Exhibit 10.25 to the
Registrant’s Registration Statement on Form S-1/A dated June 27, 2011 (Registration
No. 333-173381))

Form of Stock Option Agreement (Incorporated by reference to Exhibit 10.26 to the
Registrant’s Registration Statement on Form S-1/A dated June 27, 2011 (Registration
No. 333-173381))

Form of Performance Stock Unit Agreement (Incorporated by reference to Exhibit 10.27 to the
Registrant’s Annual Report on Form 10-K for the fiscal year ended September 30, 2015
(File No. 001-35253))

10.27

Form of Performance Stock Unit Agreement (fiscal 2017 grant) (Filed herewith)

10.28

10.29

10.30

10.31

10.32

Wesco Aircraft Holdings, Inc. Management Incentive Plan (Incorporated by reference to
Exhibit 10.1 to the Registrant’s Current Report on Form 8-K dated January 9, 2015
(File No. 001-35253))

Amended and Restated Management Agreement between Wesco Aircraft Holdings, Inc. and
Carlyle Investment Management, L.L.C. (Incorporated by reference to Exhibit 10.14 to the
Registrant’s Quarterly Report on Form 10-Q, dated August 17, 2011 (File No. 001-35253))

Amended and Restated Stockholders Agreement of Wesco Aircraft Holdings, Inc.
(Incorporated by reference to Exhibit 10.20 to the Registrant’s Quarterly Report on
Form 10-Q, dated August 17, 2011 (File No. 001-35253))

Form of Wesco Aircraft Holdings, Inc. Indemnification Agreement (Incorporated by reference
to Exhibit 10.27 to the Registrant’s Registration Statement on Form S-1/A dated June 6, 2011
(Registration No. 333- 173381))

Lease Agreement between Wesco Aircraft Hardware Corp. and Avenue Scott, LLC, dated as of
October 1, 2004 (Incorporated by reference to Exhibit 10.16 to the Registrant’s Registration
Statement on Form S-1/A dated May 12, 2011 (Registration No. 333-173381))

100

Exhibit
Number
10.33

10.34

21.1

23.1

31.1

31.2

32.1

Description
Lease Agreement between Wesco Aircraft Hardware Corp. and WATX Properties, LLC, dated
as of January 1, 2004 (Incorporated by reference to Exhibit 10.17 to the Registrant’s
Registration Statement on Form S-1/A dated May 12, 2011 (Registration No. 333-173381))

Lease Agreement between Wesco Aircraft Europe Ltd. and Snyder Family Living Trust, dated
as of January 1, 2006 (Incorporated by reference to Exhibit 10.18 to the Registrant’s
Registration Statement on Form S-1/A dated May 12, 2011 (Registration No. 333-173381))

List of Subsidiaries (Filed herewith)

Consent of Independent Registered Public Accounting Firm (Filed herewith)

Certification of Chief Executive Officer pursuant to Rule 13a- 14(a)/15d-14a and pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002 (Filed herewith)

Certification of Chief Financial Officer pursuant to Rule 13a- 14(a)/15d-14a and pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002 (Filed herewith)

Certification of Periodic Report by Chief Executive Officer and Chief Financial Officer
pursuant to U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002 (Filed herewith)

101.INS

XBRL Instance Document

101.SCH

XBRL Taxonomy Extension Schema Document

101.CAL

XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF

XBRL Taxonomy Extension Definition Linkbase Document

101.LAB

XBRL Taxonomy Extension Label Linkbase Document

101.PRE

XBRL Taxonomy Extension Presentation Linkbase Document

101

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ANNUAL MEETINGThe 2018 Annual Meeting of Stockholders will be held on Thursday, January 25, 2018, at 1 p.m. Pacific Standard Time at the Hyatt Regency Valencia 24500 Town Center Drive Valencia, CA 91355INVESTOR RELATIONSWesco Aircraft Holdings, Inc. Attention: Jeff Misakian 24911 Avenue Stanford Valencia, CA 91355 Telephone: (661) 775-7200STOCK LISTINGWesco Aircraft common shares are listed on the New York Stock Exchange under the ticker symbol “WAIR.”TRANSFER AGENT AND REGISTRARAmerican Stock Transfer & Trust Company, LLC 6201 15th Avenue Brooklyn, NY 11219 Telephone: (800) 937-5449INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMPricewaterhouseCoopers LLP 601 South Figueroa Street Los Angeles, CA 90017 Telephone: (213) 356-6000DIRECTORSRandy J. Snyder Chairman of the Board Wesco Aircraft Holdings, Inc.Dayne A. Baird (2, 4) Principal The Carlyle GroupThomas M. Bancroft III (3, 4) Managing Member, Portfolio Manager and Chief Investment Officer Makaira Partners LLCPaul E. Fulchino (2) Operating Partner AE Industrial Partners Former Chairman, President and Chief Executive Officer Aviall, Inc.Jay L. Haberland (1, 4) Former Vice President of Business Controls United Technologies CorporationScott E. Kuechle (1, 4) Former Executive Vice President and Chief Financial Officer Goodrich CorporationAdam J. Palmer (3) Managing Director The Carlyle GroupRobert D. Paulson (1) Chief Executive Officer Aerostar Capital LLCJennifer M. Pollino (2) Executive Coach and Consultant JMPollino, LLCFormer Executive Vice President – Human Resources and Communications Goodrich CorporationTodd Renehan Chief Executive Officer Wesco Aircraft Holdings, Inc.Norton A. Schwartz (3) President and Chief Executive Officer Business Executives for National Security General, USAF (Ret)(1) Audit Committee Member(2) Compensation Committee Member(3) Nominating and Corporate Governance Committee Member(4) Finance Committee MemberEXECUTIVE OFFICERSTodd Renehan Chief Executive Officer Alex Murray President and Chief Operating OfficerKerry Shiba Executive Vice President and Chief Financial OfficerDeclan Grant Executive Vice President Global Strategic Sales Corporate InformationCommercialDefenseBusiness JetAftermarketIndustrialSpacePharmaceutical/HealthcareTransportationEnergy Markets ServedWHO WE AREBROAD PRODUCT OFFERING AND SERVICE CAPABILITIESWesco Aircraft’s full-service approach aligns to the evolving needs of our customers. We offer a comprehensive range of cost-saving innovations by combining our vast breadth of products with our value-add supply chain services, allowing our customers to focus on their core competencies.VALUE PROPOSITIONOur value proposition is robust. For customers, we can reduce overhead, improve working capital and aggregate demand to buy better than they can individually. For suppliers, the value we bring includes improved utilization, demand forecasts to improve their production system and access to a significantly larger number of customers.ChemicalsMachined Parts and ToolingChemical Management Services (CMS)KittingWesco Aircraft is one of the world’s leading distributors and providers of comprehensive supply chain management services to the global aerospace industry. The company’s services range from traditional distribution to the management of supplier relationships, quality assurance, kitting, just-in-time delivery, chemical management services, third-party logistics or fourth-party logistics and point-of-use inventory management.SuppliersCustomersSupplier BenefitsCustomer BenefitsReduced finished goods inventoryPrice disciplineImproved working capital and cash flowAccess to more than 7,000 customersLower administrative and selling costsImproved on-time performanceImproved machine utilizationLower SG&AReduced working capitalLower excess and obsolescence expenseImproved productivitySupply base consolidation Substantial improvement in part quality Better on-time deliveryFewer stock shortagesLower average lead-timeElectronic ComponentsHardwareBearingsQuality Assurance3PL/4PL ServicesJust-in-Time (JIT) Management Annual ReportFISCAL YEAR 2017Wesco Aircraft Holdings, Inc. 24911 Avenue Stanford Valencia, CA 91355WESCO AIRCRAFT ANNUAL REPORT 2017wescoair.com © 2017 Wesco Aircraft Holdings, Inc.